Infrastructure, Finance, & Strategic Treasury: A Conversation with Matt Hastedt, City of Charlotte

Kick off your day with discussion of how government treasury teams use debt and cash as important strategic tools to help them move both their communities and organizations forward. Topics of discussion will include reactive treasury management vs. strategic treasury management, the impact of modernizing your organization, and more.

Transcription:

Tyler Traudt (00:08):

My name's Tyler Traudt. I'm excited to be with you. I started my career at Citigroup Municipal Finance Analyst, worked as a municipal advisor for about eight years before starting debt book. We're really excited to have Matt with us today. Really quickly. Our company, we're a software company. We make software for treasurers. We help them with their debt management, with their cash management, cash forecasting, really treasury operations in my work in 10 years in investment banking, financial consulting, I worked on their financings, did a lot of long-term financial forecasting, those types of things, but all financing related. And over time talking with my customers, wanted to try and find a better way to give them more leverage on their time, an operating system for them to go do their jobs. So that's the whole commercial you'll get from me today. Matt, thanks for being with us. Matt, will you introduce yourself really quickly, talk to us about your background, how long you've been with the City of Charlotte and what your roles have been and get us going.

Matthew Hastedt (01:02):

Sure. Thank you Tyler. So I'm Matt Hastedt. I'm the City Treasurer and a Deputy Finance Director for the City of Charlotte, North Carolina. I've been with the city for a little bit over 10 and a half years now as treasurer for about two years, two and a half years. A couple of positions I've had, I've been within the finance and treasury group the entire time. Came in as an economic analyst, forecasting a lot of the major revenues for the city, sales tax, property tax, some of our hospitality taxes. Moved into an assistant debt manager, sort of economic analyst hybrid role for a couple of years and then served as debt manager for about two years. Background educationally is undergrad in economics and a master's in public administration.

Tyler Traudt (01:43):

And how long have you been in the treasurer seat now? So you came up through the debt team inside the City of Charlotte, large team, large team at the City of Charlotte. A lot of projects being financed, being managed today. How long have you had more than just debt rolling up underneath your responsibility?

Matthew Hastedt (02:00):

Probably about two and a half years. So as the treasurer, the treasury division is over the debt management. So the city is full service city. So we have everything from solid waste, public safety, affordable housing, but we also Charlotte Douglas International Airports, the department of the city, Charlotte Area Transits or Transit agency that's under the city. We have a pretty large water sewer utility system that's part of the city. So that sort of all goes through Central City Finance for debt. We also have a pretty large consolidated cash pool for cash and investment management that we manage. And then about a year, year and a half ago, the revenue division also now rolls up to me as treasurer. So that's sort of our central cashiering, sort of e-business solutions for online payment portals, things like that, lockbox services, all those now roll up through me as well,

Tyler Traudt (02:51):

A lot to do. Let's talk a little bit about some of those projects and let's start and focus our time here today on the Redline project and infrastructure project that you're working on right now. Can you just share a backstory, maybe talk about the 2030 plan, talk about transit infrastructure in the City of Charlotte, major growing municipality. Talk a little bit about that project and its importance.

Matthew Hastedt (03:11):

Sure. So I think Charlotte has been a growing metro area for a pretty long time now. I've seen stats everything from a hundred to 120 people move to Charlotte or the Charlotte region every day. So infrastructure becomes a really big issue when you're having that many people come every day to the region. So one of the real things that we're trying to figure out is how do you get people to and from jobs and affordable housing and safe communities. So one of the bigger strategic visions we've had is what we've referred to as our 2030 transit plan. So this is sort of how we build out the region from a infrastructure rail bus, all those types of things. So about the late 1990s, the Mecklenburg County where Charlotte is passed a half percent transit sales tax to help fund the first round of transportation projects.

(04:08):

Back then we did one sort of light rail within the city that we called the blue line and then ultimately did do an extension of that. But there was always a plan to do a commuter rail up through the northern part of Mecklenburg County to the county line that goes through sort of three of the northern towns. And that was always going to be the red line. So Norfolk Southern has a heavy rail freight line there that sort the idea was that we'd be able to share it or something along those lines. But along the line, over time, Norfolk Southern decided they didn't want to share the rail line. So that was a project that really stalled and never went anywhere and really caused a lot of conflict with the county because that was a project that the northern part of the county expected in the early two thousands to come online for them when they passed the sales tax.

(04:57):

So it was something that we had envisioned for the county to connect. The northern part I 77, it gets very congest with people trying to commute down to Charlotte for work. So this was intended to be a way to bring people into the city, but it was a rail project that sort of stalled out in the mid 2010 to Norfolk Southern formally adopted a policy that they wouldn't share any commuter rail with freight service. What brought them back? They had a change in leadership. So about two years ago, Norfolk Southern sort of indicated to the city that they were open to discussing some type of arrangement, maybe a lease, maybe a sale or something of that corridor. And then about a year ago, they sent a letter formally to the city saying that they were open to discussing some type of an agreement. So that was something that because it had been something that had been desired for 20, 30 years, the city really tried to jump on as quickly as we could. We didn't know when leadership could change again, our sentiment could change again. So it was a really critical project to moving sort of the region forward in transit.

Tyler Traudt (06:09):

I want to take us back just a moment and talk about the blue line and if you've been to Charlotte, you've probably been to South End, and if you've been to South end, you've probably seen the blue line. When I think about the blue line, I think about all of the apartment units, all of the restaurants, the retail, all of the development, the real estate, the office space that has really just started to work its way down that blue line. So when you and city leadership think about these kinds of infrastructure projects, of course it's not just about moving people, it's about economic development broadly because the South End area is an extremely vibrant part of the country now, it's as somebody who's just moving their office there, extremely expensive to find office space and very challenging. So talk to us how much of this is truly, we want to move people, we want to create greater access and mobility and how much of this is broad, we want more economic development?

Matthew Hastedt (07:10):

It is absolutely all of those things. I mean, I think that the South End area has really become an extension of the center city in Charlotte. That's where lots of the apartments are growing up. Like you said, businesses are locating there, breweries, restaurants, all that type of nightlife activities really sort of expanded there. And I think that this used to be basically blighted industrial land along the corridor. When the light rail was put in there, it was kind of a why are you putting it here question. And now you can't imagine Charlotte without the South End area and sort of how it's been, but there was nothing there. It was kind of connecting the southern part of Charlotte for part of it and to Center City, but there was really nothing there. So it really I think gave our city leadership both private and public sector, this idea of this really can be a way to activate areas. And I think one of the things going forward that I think the city really wants to focus on is that transit oriented development. So it's not just putting apartments there, but it's connecting affordable housing, workforce housing, getting people to and from jobs. Well because a really big focus for our city council, sort of that economic upward mobility as well.

Tyler Traudt (08:19):

Again, if you've been to Charlotte, you may know this. My first job was in New York, then I was in Philadelphia. I moved from Philadelphia to Charlotte. And when I got to Charlotte, I realized there was no urban living area in Charlotte. Charlotte is a financial district that's their uptown, they're downtown, they call it uptown, a financial district commercial, and then it's suburbs immediately. I grew up in Richmond, Virginia. There's a lot of urban living area. It seems like South End has become that urban living area. That's where all of those youngest people moving to Charlotte, they go to South End, they live in South End, they get on the light rail, they drive in. And so it seems like it's become such a critical part of the city and the light rail is a massive part of that.

Matthew Hastedt (09:04):

Absolutely. No, that region or that sort of sub-sector of the city has definitely been a critical way of activating the entire city. I do think that our center city with some of the strategic investments that we've made over the last 10 years has really changed. There are a lot more people,

Tyler Traudt (09:18):

He's disagreeing with me now.

Matthew Hastedt (09:20):

I keep going. But one of the things that really changed probably 10 years ago was we had a minor league baseball team create their stadium in uptown and that went from basically surface parking lots to apartments popping up overnight as well. But the south end area is definitely the more vibrant area. But I think that it's been exciting to see over the last 10 years the connectivity with the blue line.

Tyler Traudt (09:43):

I'll retire only vibrant area and start to incorporate more vibrant. So this sounds great. We've got a 2030 plan, major infrastructure projects, all familiar, but the Red Line Project challenge for us, Norfolk Southern change in leadership, CEO comes in and says, we're open to this in North Carolina. We have the local government commission. I'm sure many here are really familiar. The local government commission does some nice things for local governments and they've got rules in place. It creates conservatism in the way that they're financing projects. It is part of the reason why I think a lot of local governments in North Carolina are proud of their credit quality, but it means that your ability to go and finance in advance of some of these kinds of events where you might need capitals limited. So talk a little bit about the challenges. If you're going to acquire this, talk about how somebody like the City of Charlotte would actually go and do that in an environment where we can't just go and put some debt on our balance sheet right away for this.

Matthew Hastedt (10:38):

So for people who aren't familiar with the local commission is sort of part of the state treasurer's office in North Carolina. So any local government or authority or anything like that that wants to issue debt has to get explicit approval from the commission. And that process typically takes at least 90 to 120 days from former kickoff to sort of closing any type of transaction. So it's something you really have to plan pretty far out. City of Charlotte had I think four public negotiated offerings this year. We picked all of our sale dates in February and hoped that the market was good on those days. We don't have the ability to change dates. North Carolina controls the calendar one issuer issues a day and really negotiated deals are only Wednesdays and Thursdays. So you pick your day and you hope that the market is good. So it really creates a struggle to figure out when you're looking at something strategically long-term, how you do this.

(11:35):

As we're going through the acquisition with Norfolk Southern, we're under an NDA, so we couldn't really have open conversations with the local government commission or others. So it really kind of restricted our ability to figure out how we do this. So pretty early on, Theresa Smith, who's our CFO, who's here with us today as well, we figured out pretty early on that this was going to have to be a cash transaction upfront and then go back and reimburse with debt. But again, with that process, with the local government commission, they have a blackout period from October through about January when they considered audited financial stale. So we know that we're going to have a pretty long road between the closing on this transaction and being able to go back and reimburse ourselves with a debt issuance.

Tyler Traudt (12:20):

Talk to us about the process of working through all of the city's cash operations. You're looking cash forecast, daily cash positioning work that you're doing, you're trying to make space for, and how much is this acquisition going to be? And just talk a little bit about your team, cash debt investment management working together to come up with a plan that would enable you to successfully pay for this acquisition upfront.

Matthew Hastedt (12:44):

Sure. So one thing maybe to back up. When Norfolk Southern opened the negotiations, they had a very strict closing of September. We always knew that and ultimately came September 9th. Our city council didn't vote to acquire this until September 3rd. So we had about six days from city council approval to getting the wire out and recording the deed. So again, that timing became kind of a critical structure. So we actually closed on two transactions. One was a 22 mile rail corridor from Center City Charlotte up through the county line. And then the other part was about a 1.6 acre sort of strip of land in uptown Charlotte. That's basically going to be where it would connect in for a center city sort of terminal station that will be in what we will call our gateway station will be kind a multimodal commuter rail streetcar, Amtrak sort of all sort of being in this future development.

(13:43):

So as we're sort of looking through this, our cash operations from an investment point of view, we really do asset liability matching. So our cash and investment managers go out and look at, okay, when are our debt service, when are our liabilities? And of matching our maturities with investments to come in. So we had to go out and say, okay, in total this is going to be a 91 million acquisition between the two properties and we had to plan on at least we knew it could be around a hundred million, but we didn't know the final price until probably two weeks before because we're still in active negotiations right up until the end. So we knew we had to probably be in the a hundred to 115 million potentially. So we really had to sort of work with our investment manager about two months out to sort of say as things are maturing, as we're getting sales tax revenue, instead of going out and getting new investments, we started really sort of cash heavy in our, we have a local government investment pool through the N-C-C-M-T Capital Management Trust that's paying pretty good right now.

(14:48):

So it worked out for us, but we had to keep it as liquid as we could. Again, we knew that it would be a quick close, but we were still negotiating final closing date, final pricing, all of those things. So we really had to make sure that we could get it. And then another wrinkle that came on at the end was insurance. So Norfolk Southern wanted a specific endorsement on an insurance policy because it was going to be a shared corridor and we worked with our risk management team and our sort of insurance broker and we had trouble getting ultimately the endorsement that we needed. So we also had to fund a $10 million self-insured escrow account with US Bank as sort of a temporary stop gap to either we can get a third party administrator online or the endorsement through an insurance company. So kind of last minute we also had to come up with an additional $10 million. So all in, we had to have $101 million ready to go on September 9th.

Tyler Traudt (15:42):

So a hundred million dollars cash outlay, cash management, debt management, investment management, treasury, CFO working together to come up with this plan, the total cost of the project, how much and what's the immediate next step? How are you going to pay for this project? Talk us now about the next few years, what are we looking at?

Matthew Hastedt (16:01):

Sure, so this is, I mentioned sort of the 2030 plane and sort of how it created a little bit of conflict within the county. This acquisition is really a bit of a chicken in the egg situation where because the northern part of the county was so focused on this transit corridor sort of coming online, they were not. The city has been working for about a year to year and a half on trying to get support for a new 1% sales tax to move future transit projects forward. The only way that could get steam with the North Carolina legislature and really the county as a whole is if the red line was a option. So there's no current funding for actual operations construction or anything like that for this new transit corridor. For the red line, it is all about, we bought the red line corridor to get support to go ask for more money.

Tyler Traudt (16:55):

So why is the red line corridor important to gaining more support for this legislation? For this project,

Matthew Hastedt (17:01):

It was pretty clear from both the elected officials that are on our state body as well as in the county that would have to, this would be a countywide referendum to add a new transit sales tax. The only way that they were open to even start in the conversation is if we had the red line as an option. So the City of Charlotte decided to get that support that the city itself would go ahead and buy the corridor and we're essentially holding it not being able to start any type of construction, any type of renovations, any type of sort of actual movement on the train itself. But we're buying and holding it in a good faith gesture to try to get the legislation going forward

Tyler Traudt (17:45):

Because it's going to benefit all of those towns. All the growth that's going north of Charlotte specifically benefits them. If this project is included, we're going to be able to gain more support for a countywide 1% sales tax that's going to fund many projects beyond just this project.

Matthew Hastedt (18:01):

Absolutely. It'll be the funding from the 1% would be split between traditional roads, sidewalks, greenways, those types of things, improving our bus system and then ultimately funding for rail projects throughout the city and county.

Tyler Traudt (18:15):

Let's talk about the specific legislation we were preparing for this and you were explaining some of the uniqueness of that legislation. Talk about the legislation, talk about why it's really interesting and why it's unique in North Carolina.

Matthew Hastedt (18:29):

Sure. So there's three big parts of the proposed legislation that's in draft form right now that we're hoping that the legislature consider this fall. One is actually creating the sales tax and defining the buckets against the road projects bust and rail. It would actually create a new independent transit authority that would actually move our transit department out of the city into an independent authority with the 27 member commission. But the third part of this, and it probably is as critical for Theresa and myself, is it actually enable sales tax revenue bonds in North Carolina for transit projects. Because right now in North Carolina sales tax is not considered revenue for a revenue bond structure. So our current blue line and blue line extension financings that we did were appropriation backed. So we pledge parking decks and those types of things on a limited obligation or certificates of participation structure, but it's ultimately backstop by the City of Charlotte's full faith and credit essentially from a rating agency perspective, from an investor perspective. And that's just really not feasible to do huge projects off the general city credit. So to really move something forward, and this is why a lot of transit agencies within North Carolina have really struggled to figure out how to do these big type of projects because somebody ultimately has to be the backstop. So by being able to actually create a revenue bond structure, it really can help advance that, those types of projects without having someone to step in behind it.

Tyler Traudt (20:03):

So three key components of legislation. Number 1% sales, tax, revenue source created, number two, authority created, and they're going to acquire all the transit assets. So Blue Line now is no longer city.

Matthew Hastedt (20:15):

They will. So it will be a sort stepped process. So again, because we do have some city assets that are pledged because it is City of Charlotte debt, those are going to have to be suctioned over time to make sure we don't hurt any of our current bond holders. So there'll be kind of a negotiation and sort of lease operations, but in the proposed legislation, it actually requires the authority to basically buy the red line acquisitions from the city and repay us for any indebtedness or any type of any interest or debt service that we pay while we're holding it until the authority gets stood up, they're going to have to repay us.

Tyler Traudt (20:50):

So if legislation passes, new authority acquires asset city's reimbursed, if legislation fails, what happens?

Matthew Hastedt (20:59):

Sure. So the city has done a couple rail corridor acquisitions in the past without funding for it. I think this project is very important to the city and the region. So I think there is the possibility that the city and the transit agency will consider this a big project that we want to buy and hold and maybe a split financing or split responsibility as far as debt payments between the city county, the Metropolitan Transit Commission, who's our policy board and just maybe buy and hold it for another bite at the apple with the legislature or with the county. The kind of fail safe that we told our city council is we could sell the corridor back to Norfolk Southern or another railroad essentially, and Norfolk Southern has indicated that they want a right to a right to counter any offer that the city were to get if we ever to entertain it.

(21:53):

So obviously that's not a great option, but it does sort of provide sort of an out because it is, I'm sure with this being an infrastructure conference, people understand creating a rail corridor through an urban city is extremely hard. So no one's going to want to see that not maintained. So Charlotte's a very fast growing area. So it's a very critical, Norfolk Southern doesn't use this part of the line very much right now, but again, if we tie into Amtrak, maybe high speed rail for North Carolina Railroad or other types of groups, I think we feel that they would be interested in it.

Tyler Traudt (22:28):

If you need a really strong counter offer, just let me know. Okay, I'll put something together with some buddies. We'll shoot you a note. So it sounds like this project with or without establishment of legislation is an important project for the City of Charlotte. You don't spend a hundred million dollars to acquire these rights if it's not an important project. The City of Charlotte's rapidly growing. We have a lot of new projects coming. Is it right that should we not be able to create this new agency should the sales tax not get generated? City council is in a position where they could say, okay, we put a hundred million dollars into this, let's go and try to recover that asset. Or this is an important project for us. We are going to go use general obligation debt, we're going to go use some other financing vehicle, other mechanism to go move forward. And maybe it just means that other projects on your capital improvement plan, they take a step back, they take a pause, we wait a few years and this is continuous financial planning analysis work that you're doing. Is that right?

Matthew Hastedt (23:22):

Absolutely. We knew that this acquisition was potentially coming. So as we were developing our city budget, our CIP that sort of has a couple of bond cycles in the future years, we kind of put a placeholder in some of those out boners for transportation projects knowing that that might help support the Red Line acquisition. So that's kind of part of it, knowing that there's an opportunity to pivot there, pivot projects, but I think that there is a real desire to really try to take this as an opportunity to move forward because again, going back to the 1% sales tax, the amount of money that gets unlocked for the city, all the towns in Mecklenburg County for just a road transportation infrastructure point of view is probably about 10 to 12% of everyone's general fund budget coming in every year in cash. So again, talking about debt affordability for bonded projects versus cash projects and how those projects can move between. So it really unlocks a lot of opportunity to do some really transformational projects within sort of the county that really can sort of help catch up or keep up at least with some of that infrastructure that's needed as fast as we're growing.

Tyler Traudt (24:40):

It's exciting. Let's talk really quickly about the financing plan. Now. We have outlaid a hundred million dollars, five year time horizon here. Let's talk about, let's say that the legislation passes. What immediately happens and what does the next 12 months look like?

Matthew Hastedt (24:57):

Sure so I think sort of that the best case scenario is our legislature approves the passes this fall, which means that our county board would be able to consider it next spring to put it on the ballot in November 25. If that's the case, we would expect probably the sales taxes start being collected in July 26, sort of that next fiscal year. So we know that this is kind of again, sort of a buy and hold strategy. So when we talked to our city council, what we essentially committed was that we can buy and hold this for at least five years without affecting their other sort debt affordability throughout the city on what we call our steady state program, which is our streets and neighborhoods and affordable housing traditional projects that basically because we had some of those out year bond cycles, we essentially are flipping principle and interest to sort of a carry interest only financing is what we're kind of looking at.

(25:57):

So what there, and I have sort been looking at is, and we will finalize structure as we get into next year, but looking at about a five year financing. So that way we maintain maximum flexibility because again, we want to be able to flip this two an authority hopefully in the next four to five years. We don't want to tie it up with a 2030 year financing if we want to be able to sell it to someone else pretty easily. So we're probably looking at either a three to five year private or public note, maybe variable rate debt, so that way we have sort of a 30 day call on it at any point. So those are some of the things we're working right now with our municipal advisor and trying to make sure we figure out what the right structure is to maintain that maximum flexibility, knowing we're going to need to trigger some of those things over time

Tyler Traudt (26:48):

Outside of the Red Line project if the 1% sales tax is approved. Can you just talk a little bit about some of those other projects that would benefit the county, the Charlotte region, because it's not just this project, talk about some of those other project.

Matthew Hastedt (27:01):

Sure. No, I mean one of the big parts of this is bus improvements. So I mean I think BUS is really sort of what I've come to learn as sort the backbone of any transit organization. The rail and those types of things are great and helps spur development, but really to get people tuned from jobs to and from healthcare type services, all those types of things, you need to have a bus network and this really would help improve that. We're sort looking at Microt transit projects throughout the city and the region. So we're really trying to see ways we can improve that, improving headways, improving sort of neighborhoods and communities that are being served. So that's really exciting. And then on the road and traditional road infrastructure was, and that was a big part of what the state legislature wanted. They really wanted a road first plan.

(27:52):

So the city and the region or the city really wanted probably a little bit more rail project, but to get it through the legislature, we had to have a little bit more road infrastructure included. But this is an opportunity to really go into neighborhoods that haven't had sidewalks and street lights or other types of things. This basic infrastructure to improve sort of the quality of life. And then it also gives the opportunity to sort of transition funds that maybe had been going into road and streetlights and paving into maybe affordable housing projects because it can sort be moved a little bit on the backend. So it's really an opportunity. That's one of the things that our city council and some of the other jurisdictions really focused on was this is a way to do huge projects. It's not just the road project. Well, we're spending this $10 million that was going to repaving every year. Maybe this can help with public safety. Maybe this can help with upward mobility on social programs, that sort of soft infrastructure that really allows that actual economic mobility for everyone.

Tyler Traudt (28:55):

Let's finish up with just a comment from you about leadership. These projects are massive, they're transformational. Talk a little bit about leadership, talk a little bit about the elected bodies, city leadership leadership inside the office of the CFO broadly, and talk a little bit about the challenges there of being able to execute on a project like this to really even get it to this stage.

Matthew Hastedt (29:21):

I think one of the things that was challenging is the fact that it was going so quickly and there were so many side conversations. There'd be a conversation here over the legislation. There'd be a conversation here at negotiating there. So one of the things that we had done is try to create lots of standing meetings where we'd meet 30 minutes every Thursday and go through and try to really talk through where projects were and have frank conversations of can this work? That was something really challenging as far as keeping up with that. But this was an exciting project, Charlotte, because we're growing so fast, we have airport financings coming up, huge water sewer projects, stadiums that are going on. So we're kind of getting hit from all sides. So that's another part of it is really making sure that we're sort of managing the overall debt burden for the city and credit ratings and all those types of things. So it's trying to make sure that we don't get so siloed on any single project that we're also not considering how does this affect our general credit or all those types of things because it has to all sort of layer on together to be successful.

Tyler Traudt (30:32):

It's those kinds of moments where you really see your leader step up, take control, bring the team down, calm the team, work through methodically. Your boss is in this room, so scale one to 10, how great was your boss when we were working through those things? 20. Unbelievable. 20 was the official comment. This has been really great. We're excited to be with you today, Matt. Thank you so much for sharing this story with us. Thank you all for waking up and coming to the breakfast briefing, but I really appreciate that very much. Thank you for your time, Matt. Thank you so much.

Matthew Hastedt (31:01):

Thank you. Bye.