BusinessReport.com

The history of using special taxing districts to pay for government services dates back to the colonial period, when Benjamin Franklin set up a volunteer fire company to serve some Philadelphia neighborhoods who paid for the amenity.

The modern form was established in Florida in 1974, when the Sunshine State’s Legislature passed a law allowing for the first independent special districts for community development.

Now, after the Community Development Districts led to the construction of more than 450 subdivisions, with thousands of homes and billions of dollars in privately funded roads, sewer systems and other public services in Florida, supporters are hoping the program takes off in Louisiana.

Community Development Districts, or CDDs, are special taxing districts set up to finance and maintain public infrastructure in planned developments.

The districts issue tax-exempt bonds to pay for the infrastructure construction, and property owners are assessed a portion of the costs.

“They’re a net giver instead of a taker because the city or parish puts up zero investment,” says Pfilip Hunt Jr., president of Gardnyr Michael Capital, a Florida-based investment banking firm that specializes in CDDs.

“The local government collects all the ad valorem taxes and they get more rooftops, which means more sales taxes.”

Gardnyr Michael, which was established in 1991, has offices across the South, including Baton Rouge. Two years ago, GMC opened sister company Wrathell, Hart, Hunt & Associates to manage CDDs.

One of the selling points of CDDs is that they’re a way of making growth pay for itself without forcing local governments to spend money on new roads or sewer service. The CDDs also pay for growth in an affected area without making residents in other parts of a city or parish pay impact fees.

Jim Ward, who has helped major developers build about $2 billion worth of CDD projects in Florida, says the districts didn’t become popular until the 1990s because of high interest rates and uncertainty among developers. Ward thinks a similar maturation process is going on in Louisiana.

The Louisiana Legislature passed a bill based on the Florida law in 2001. So far, only a handful of CDD projects have been built, including Greystone Golf Course and Country Club, Juban Parc and Carter Plantation in Livingston Parish and Orange Grove in Ascension.

Charles Landry, an attorney with Jones Walker, says he’s working on several projects right now. Both Landry and Hunt say they expect CDD projects to take off in Louisiana as developers become familiar with the process.

Landry says several factors have kept CDDs from catching on around the state. First, low interest rates haven’t made the tax-exempt bond financing worthwhile, especially when the costs of the transactions are figured in.

Second, local developers are still trying to figure out how to set up a system for maintaining the infrastructure that the bonds are paying for.

“You have to have a process in place to maintain the streets, sewer and water,” Landry says. “A lot of developers are analyzing this to determine if their development is of sufficient scale to justify proceeding to take that next step.”

The financing allows developers to offer amenities they would ordinarily have to pay for, while handing residents the bill. And it allows governments to get infrastructure projects that come in ahead of the houses, which is good for planning purposes. Plus, the work is free, and if the project goes bust, it won’t affect the government’s finances or bond rating.

Hunt says the bond underwriters have provided a layer of protection for CDD development. “They’re looking pretty hard at the developer’s ability to pay off the assessments,” he says.

For their part, residents get a high-quality development with good infrastructure. But there’s a price tag: The annual CDD assessments are more than those of neighborhood association fees found in local subdivisions.

In one St. Augustine, Fla., community, residents paid $1,100 a year, not including association dues. The community, however, featured a lodge-style amenity center with two swimming pools, water slide, tennis courts, beach volleyball, fitness center and outdoor movie screen.

Hunt says the higher fees reflect the fact that residents actually own part of the community and its amenities, such as a clubhouse. “This is a pro-rata share of the infrastructure debt,” he says. “That’s different than an association fee, which pays for ongoing maintenance and upkeep.” The amenities offered in such neighborhoods add value to the homes, he says.