The Background of CID – As the development of real estate continues to expand in Idaho, the impact caused by such expansion requires the necessary construction of public infrastructure to accommodate such growth. In 2008, Idaho legislature enacted the Idaho Community Infrastructure District Act (“Act”). The purpose of the Act was to create new mechanism for the financing of public improvements for the public agencies and developers alike. The Act, styled after similar legislation in New Mexico and Florida, addressed a critical issue of how to pay for new public improvement burdens in a cost effective manner. The Act authorizes bonds to be issued and repaid with a mechanism that taxes or assesses the land benefiting by the new public improvements. This provides for much needed community development which may otherwise be infeasible due to the significant costs imposed by the extensive public improvement burdens. At the present time, a Community Infrastructure District (“CID”) is allowed in an incorporated city or in the county if within the City’s comprehensive planning area and the city consents to the CID formation. The Act allows for the issuance of general obligation bonds, special assessment bonds or revenue bonds or any combination thereof. The projected annual assessment, tax or revenue stream secures the repayment of the bonds.
Eligible Public Improvements Available For CID Financing
- Water Improvements
- Sewer Improvements
- Flood Control Projects
- Roadways
- Public Parking Structures
- Landscaping and Lakes
- Lighting and Traffic Control
- Parks
- Recreational Facilities
- Public Safety Facilities
- Financing Costs
- Real Property Interests
- Development Impact Fees
A sound CID should be established with the following overall objectives in mind:
The real estate developer’s financial goals should be met whenever reasonably possible since their project and its customers will be repaying the borrowing costs of the CID financing so long as it does not present any undue credit risk;
The real estate developer should use an experienced consultant to assist them in understanding all available options when going through the CID process;
On larger development projects, the CID financing should be structured to allow for multiple bond issues at different points in time and improvement areas should be employed to minimize the financial obligation on unimproved or underdeveloped property; The particular development project characteristics or constraints should be understood so that relevant risk associated with the project’s development and its ability to repay bond debt is clear. Examples of this are environmental constraints, infrastructure constraints, and private financing caps;
The legal and engineering side of the construction and/or acquisition of the improvements should be understood if tax exempt bond financing is being used. More specifically, the specific construction related guidelines and procedures should be spelled out when a real estate developer is constructing the public improvements and seeking reimbursement from CID bond proceeds;
The estimated annual cost and the maximum annual cost of the CID financing to the borne by all property owners involved in the development process needs to be fully understood and properly disclosed; and
The project’s appraised value needs to be properly performed consistent with sound bond underwriting and appraisal practices because the CID bonds are ultimately secured by the projects value. The appraisal instructions should be clearly defined from a CID bond credit perspective. For example, if bonds are being issued on an appraised value that assumes the project has unimproved lots with no performance guarantees at the appraisal date, then the appraiser has overstated the value for the value-to-lien ratio.
For more information in properly establishing a CID please contact http://DPFG.com
Source by John Foreman
