Spotlight on Public Finance: Fall 2019

The issuer holds PID Bond proceeds and cash from the developer and will oversee the construction of those public improvements and their payment. If, however, the developer cannot complete the lots and sell them to builders, then he could be left paying the bulk of the assessments, and depending on cash flow and assets, the developer could default in its payment. In that scenario either (i) the developer’s lender with a mortgage on the property would step in and pay the assessments in order to preserve their lien (a PID lien trumps a mortgage lien), (ii) the issuer would foreclose on the property and use the proceeds to pay off PID Bonds, or (iii) if the foreclosure proceeds are insufficient or not timely, the PID Bonds default. Most financial advisors advise issuers that a default of assessment PID Bonds is not a default that affects an issuer’s general obligation debt capacity or rating. In these scenarios, while the issuer’s credit rating wouldn’t be affected, the issuer would not get the development it bargained for but it should at least have infrastructure in the ground that would hopefully work for a new property owner and developer. An Effective Tool PIDs are a useful financing tool in an issuer’s economic development toolkit. Like all tools, they are not without risks, but with careful thought and consideration and the involvement of experienced professionals, a city or county can effectively utilize a PID to obtain a development that it would otherwise not be able to achieve with zoning. Issuers may want to create thorough policies and procedures for using public improvement districts as an economic development tool. Once a PID is utilized, the issuer may be inundated with developer requests for this financing vehicle. Identifying what types of development the issuer wants to incentivize and in what instances the issuer will consider a PID will help focus the issuer’s economic development program and hone in on those developments that bring something “extra” or “special” to the issuer or its residents. Should you have questions concerning PIDs or other public financing tools, please contact Julie Partain, Rob Collins, Andy Prihoda or any one of our Bracewell public finance lawyers.

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