Spotlight on Public Finance: Fall 2019

newspaper of general circulation in the area of the proposed PID and mailed to property owners in the PID no later than 16 days prior to the public hearing date. PID creation is fairly straightforward but there are a few of areas in which an issuer should exercise caution: (i) Boundaries: Once the PID is created and assessments levied, it is difficult to correct a boundary issue. If PID bonds have been issued, the difficulty of changing the PID boundary increases significantly. The responsibility for the correctness of the boundary is the responsibility of the developer, but the issuer’s staff should review the survey and if there is a question, commission their own survey to ensure the boundaries are correct. (ii) Early Creation: Developers tend to push cities or counties to create a PID before the development agreement is completed. They view creation as evidencing the issuer’s commitment to the deal. While it can certainly be done, creating the PID before an issuer has its development deal worked out with the developer could leave the issuer in the position of having a busted business deal, but an already created PID. The Act does not provide a mechanism for the issuer, on its own initiative, to dissolve the PID. This would mean that if a later developer came along, the city or county would have to dissolve the existing PID (by petition of the property owner) and then create another over the same property. (iii) Land Ownership: Sometimes, when the PID petition is submitted, the developer does not own the land but plans to purchase it at a later date. At a minimum, an issuer should not levy assessments until the property in the PID is owned by the developer who can consent in writing to the levy of assessments; ideally the issuer would not create the PID until all land is owned by the developer. If a city or county creates a PID before the developer owns the property, then it is advisable to obtain a consent from the The development agreement between the issuer and the developer is the memorialization of the business deal. The development agreement is the document whereby the issuer receives the benefit of its bargain in return for creating the PID, levying assessments and providing bond financing or a cash flow reimbursement stream to the developer. It is the document that dictates what each party will do to facilitate the proposed development. In negotiating the development agreement, an issuer should carefully consider what it wants in return for accommodating the developer with PID financing. This is the issuer’s opportunity to achieve a desired outcome. Often cities require additional development standards or amenities above and beyond basic zoning to help ensure the development is more attractive or of higher quality than the developer would otherwise be required to achieve with zoning alone. This could include additional parks and/or green space, different setbacks or building facades, or more enhanced landscaping. Even though many of these developments are zoned as a planned development or “PD”, the city can include items in the development agreement that it cannot include in the PD pursuant to State law. For example, with the passage of HB 2439 in 2019, the city can no longer regulate the use of certain building materials. The city, however, could include the desired material restrictions as a covenant in the development agreement and bypass the limitation imposed by the new law. The development agreement also will lay out the timing of development and the construction of the public improvements to be funded from assessments or from bond proceeds as well as any additional requirements of the issuer. If an issuer is concerned about the pace of development, the development agreement can require the developer to reach certain milestones before the issuer will issue bonds secured with a pledge of the PID assessments (“PID Bonds”) or the issuer and developer may agree that the issuer will withhold building permits until certain milestones are completed. Finally, the development agreement contains all of the issuer’s conditions to issuing any PID Bonds or levying assessments. These could include items such as (i) annexation of the PID if it is within the extraterritorial jurisdiction of a city, (ii) a lien to value ratio minimum such that the value of the land on which the assessments are levied is high enough that in a foreclosure proceeding the proceeds of the land sale would pay the delinquent assessment (e.g., 3:1 lien-to-value ratio); and (iii) a “tax stack” maximum that caps the ad valorem tax and assessment total the residents of the PID would be required to pay. Levy of Assessments A service and assessment plan (the “SAP”) is the document that identifies the assessment amounts, the projects for which the assessments are being levied and their estimated costs, apportions the assessments among the properties within the PID and sets forth the benefit analysis for how the assessment amounts are determined for each parcel or lot in the PID. This document current property owner of the property at the time of creation. The Business Deal: The Development Agreement

Spotlight on Public Finance | 4