Our neighbor John Musolf has a letter in the Dec. 10 Explorer concerning a potential of a new property tax based on the recently approved Arroyo Grande General Plan Amendment.
We post his letter without comment as to the facts noted by John.
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Facility district a hidden gem to tax in Arroyo Grande
The Town of Oro Valley has an obsession with property taxes.
In the Arroyo Grande amendment approved Nov. 19 was a hidden gem in Exhibit A, Arroyo Grande Special Area Plan Policies, Financial Sustainability Policies. It describes the use of a Community Facility District.
CFDs are a mechanism whereby developers (single or multiple) are allowed to establish separate political subdivisions distinct from the jurisdiction in which they are located for the purpose of issuing tax-exempt bonds to finance public improvements. The obligation for the repayment of the CFD bonds is passed on to the end users of the property who retire the bond obligations over a 25-year period. With the use of CFD financing, the TOV will be better able to master plan large areas of land (Arroyo Grande) and provide for the services required to serve these areas.
In order to establish a CFD, it must be approved by a two-thirds margin of qualified voters in the district. If there are fewer than 12 registered voters within the district, the vote may be passed by current landowners (developers). Many developers opt for establishing a CFD. Prior to the sale of the homes, they are the only “voters” in the CFD and thus have the power to create the district for future property owners. The CFD has the power to issue tax-exempt bonds to pay for the infrastructure.
The cost is then passed on to the homeowner in the form of annual special taxes. Special taxes are levied on properties within the CFD usually based on the square footage of the lot or the home or a type of category (i.e. single family or multi-family). The Rate and Method of Apportionment (RMA), which is approved during the CFD establishment proceedings, provides this information for each individual CFD.
The TOV has found a way to circumvent the need for voter approval of taxes by establishing one or more CFDs in the Arroyo Grande.
Taxation without representation. Neat trick.
John Musolf
Oro Valley
3 comments:
John and all:
The application(s) and methods of this measure seem to me to be a bit murky at best. The Arizona Facilities District Act of 1988 states that the bonds, if secured,
shall "be paid with a mechanism that taxes (OR ASSESSES) only the lands DIRECTLY benefiting by the new infrastructure". Does this affect all of us other residents of Oro Valley? It appears to me that it probably does not. Any developer who must put in an infrastructure in order to develop a parcel of land, it appears, must pass on the incurred cost to the individual future landowner. This becomes part and parcel of the cost of the lot, or lot and home, or business facility. One way or another the new owner pays! These bonds for improvement are issued to the developer NOT the Town and, as such, must be paid back by such developer/development.
I think that the term 'Political Subdivision' should have been reserved for the purpose that was originally intended - a town, a county, a state, incorporated or not; unfortunately it's meaning has been watered down to include many other entities in this state.
I would also suppose that this 'method' most probably has been used as a means for development for other projects right here in Oro Valley (as well as in many other instances); we just don't hear about it.
So, before we go nuts over this, let's get, if possible, some answers that will explain LEGALLY what this all really means. And, also, I don't know whether I can agree that this would enable TOV to facilitate more 'master plans' than it would otherwise.
Incidentally, the recent approval of the general plan amendment is simply ONE of the many steps required to go forth with the annexation of AG. Is it a final, in stone, reality, even if the basic terms are okayed by the State? I doubt it.
Zev Cywan and all
Zev Cywan made some comments on the Letter to the Editor that I (John Musolf) wrote to the Explorer News that was subsequently posted on the “LOVE” blog.
“The Arizona Facilities District Act of 1988 states that the bonds, if secured,
shall "be paid with a mechanism that taxes (OR ASSESSES) only the lands DIRECTLY benefiting by the new infrastructure".
Zev was quoting from an article, Arizona community facilities district act overview written by Carter Froelich of the Phoenix law firm DPFG written in September 2004. (http://www.dpfg.com).
Another statement from Zev: “Does this affect all of us other residents of Oro Valley? It appears to me that it probably does not”.
Zev is correct that initially it does not affect the existing residents of the town of Oro Valley.
Again, another statement from Zev: “These bonds for improvement are issued to the developer NOT the Town and, as such, must be paid back by such developer/development”.
This is only partially correct. The bonds are actually issued by the CFD (a legal entity) not the Town to interested investors. At the beginning, the developer (as landowner) would pay special assessments/taxes for the infrastructure improvements supported by the proceeds from the bonds issued from the CFD. However, the developer would eventually pass the obligation to the homeowners whom the developer subsequently sells the property to.
As Mr. Carter Froelich states in an example from the same September 2004 article that Zev is quoting from:
“The following two scenarios assume $10 million of infrastructure development costs on a 400 acre parcel:
· With conventional financing, the developer would likely have to pay the $10 million for the improvements through a conventional financing and hope to recoup the outlay by increasing future land prices on real estate sales in the newly improvement area. Thus, the developer would need to recover $25,000 per acre plus carrying costs to cover the infrastructure costs.
· With a CFD financing, bonds would be issued by the CFD yielding $10 million in up-front construction proceeds for the necessary improvement costs. Thus, for our 400 acre development, the resultant taxes paid by the developer would be $2,450 per acre per year (assuming that the bonds are issued at 8% for 25 years with a cost of issuance of $400,000)”.
Another article, Representing the developer in the formation and financing through a community facilities district written by Marc Blonstein of the law firm, Titus, Brueckner, Berry (www.tbb-law/news/CFD.html) clarifies that the CFD (a legal entity) issues the bonds.
“The following identifies a typical CFD structure (though each transaction and CFD is somewhat unique): Developer files an application with the municipality to form a CFD. Once formed, the CFD issues bonds. The bond holders are then repaid by the landowner (whether it be developer or a purchaser of developer) either by an additional property tax or by a special assessment against the property. The CFD concept is attractive for many developers because the interest rate paid to bond holders often is lower than what is available from conventional financing and developers can pass the obligation to repay the bond holders to future property owners, thus resulting in a lower sales price for the improved property”.
The point that I was trying to make in my letter to the editor is that once the Annexed Arroyo Grande becomes part of the Town of Oro Valley we will have some new property owners in one or more CFDs (assuming that CFD financing is used) that will be paying property taxes while the rest of the Town homeowners will not. How long do you think that the new CFD homeowners (even though they agreed to it) will be content paying property taxes while others in the Town do not?
Incidentally, it is interesting to note that when I questioned a couple of Town Council Members as to the source of the General Plan Amendments - Special Area Plan Policies they were not certain where the concept of Community Facility Districts (CFDs) came from or how they might be used. The verbiage came from the Arizona State Land Trust people, not the town staff. Hmmm!
John,
Your detailed analysis is very much appreciated. However, I can accept only that a great deal of mere speculation can exist under these circumstances as I would have to see an example of 'case' history or, in lieu of that, some type of similar circumstance or similar program that has ever resulted, because of some type of default or shortfall, in a 'general' tax upon an 'umbrella' community outside of the immediate designated political subdivision even though said subdivision is within the 'umbrella' PS.
When I lived in Raleigh, NC in the early 1990's, there were several subdivisions, developers, PUDs (as they were called in that state) that failed and were either short-saled or bankrupted. In no instance that I knew of (and I had close contacts to the 'ins' of the
municipalities then) was there ever an attempt to get the taxpayers to 'chip in' and pay for any resultant shortfall whatsoever.
Going through the turmoil that we
all are experiencing now in virtually all levels of enterprise, once our economy is righted, I don't think the American taxpayer, coming down the road, will stand for any type of
bailouts in the future. In fact, I think that 'risky business' can and will be more readily challenged in the courts at some point hence. It is also my personal belief that by the time AG MIGHT become some sort of a physical reality in the future, the legislative branches of our governments, in the meantime, are going to have to enact reforms that will curtail the willy nilly obscenities that now permeate our residential and commercial development systems.
And, too, the estimates of the number of new foreclosures in the next couple of years, just in residential properties, has been predicted to be around 10 to 12 million units. So, not only will there be a plethora of established available housing, but many persons whose credit will have been ruined by current economic factors will, for many years, be unable to purchase other housing.
In addition, it should be obvious that more restrictive policies, in virtually every niche of commerce,will, in fact, be put into practice and the recovery of our entire economic system may take more years than any of us care to think about.
So, John, for now, for me, I can only state that, if this is a current provision in this state, and this is the way ALL PADS have the ability to get infrastructure financing, then I can only say SO BE IT. Imposing a new tax on a pre-existing, 'outside the box',
population will be an incredibly difficult task for a myriad of reasons and thus appears as an abstract.
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