Construction at Telfair

Performance bonds paint a picture in Nolensville of significant growth in progress, though some contractors have outstanding debt to the city government on their projects.

The Town Planning Commission fielded several bond actions this month. The vast majority of those actions involved extending various types of bonds for 10 ongoing projects. Of those 10, there were eight performance bonds extended. 

Since Performance bonds directly correlate with development projects in progress, they constitute an excellent metric for city growth. The town has recently seen constant development, especially since transitioning to a commission charter like that of Brentwood or Mt. Juliet as opposed to the mayoral board charter like that of Franklin or Spring Hill from which it came. Mayor Derek Adams reportedly attributes the most recent uptick in local growth to that shift, adding that since the shift, “developers started coming to us with these really big projects.”

However, as the city makes these extensions, there are other extensions already made whose statuses inspire less confidence.

“I will tell you on extensions I’m noticing in the files all the chronologies: some we’re collecting, and others we’re not having — it looks like — success collecting,” said Brent Schultz, planning director in Nolensville, “but Janice [Lupo], our new administrative assistant, is out there getting after people, getting them to pay their extension fees. We’ve got some letters we’re writing, and her emails are getting their attention. I think also the Planning Commission’s focus on this is getting people’s attention, and I appreciate that as well because they’re contacting us.”

Lupo assumed her new position almost exactly a month ago.

The town extended three bonds related to Telfair construction until Aug. 9, which marks an additional two months for each and collectively totals over $700,000. The largest of the three bonds extended Telfair investment increases added $355,760.

The longest extensions added a year to two projects — one for Kingsbarns and the Burkitt Village Addition. The former added $303,246. Other developments that also saw performance bond extensions were the Providence Baptist Church landscape project, the Nolensville Day Care landscape project and the Burkitt Commons landscape project. Each of those extensions added four months to their respective investments.

Telfair is a high-end neighborhood that entered its third phase of development right before the pandemic struck. DeFatta Custom Homes, the Telfair builder, is one of several developers to spread out near Nolensville High School recently. Homes there range approximately from $675,000 to $800,000.

Telfair represents the kinds of projects that are progressing the way the town would hope where contractors are complying with the city’s requests in a timely manner. In Telfair’s case, residual funds beyond the scope of the bond repayment are being pooled for the homeowners’ association to address any issues that remain after construction is complete, which goes above and beyond what is called for.

Performance bonds are essentially the means by which governments protect taxpayer dollars when the city, county or state in question invests those dollars in development projects — typically roadway construction or real estate development. The government will usually get the bank or a private firm to issue the bond as a way of guaranteeing the project gets completed on the city’s loan. Should the contractor not meet all obligations, the city would post a claim — not dissimilar from an insurance claim — and the issuer would pay it and subsequently seek reimbursement from the contractor after the fact.

Jerome Powell, chairman of the Federal Reserve, admitted in the Senate Banking Committee hearing Wednesday, June 22 that continually raising interest rates in response to inflation could establish an economic recession.

He argued that a worse alternative would be to let inflation ride unchecked, and even though the prices of gas and groceries — major metrics of economic performance on which Sen. Elizabeth Warren (D-Mass.) grilled Powell — remain uncomfortably high, inflation bodes well for municipal bonds.

Bond prices fall as interest rates rise, so the more the Fed raises interest rates, the better municipal bond investors have it. In other words, 2022 is prime time for some investors to look at municipal bond opportunities. This also makes it easier for cities to procure bond issuance for those they contract on city projects.