The background of the CID – As real estate development continues to expand in Idaho, the impact caused by such expansion requires the necessary construction of public infrastructure to accommodate such growth. In 2008, the Idaho legislature enacted the Idaho Community Infrastructure District Act (“Act”). The purpose of the law was to create a new mechanism for financing public improvements for both public agencies and developers. The Act, in the style of similar legislation in New Mexico and Florida, addressed a critical issue of how to pay the charges for new public improvements in a cost-effective manner. The Law authorizes the issuance and amortization of bonds with a mechanism that taxes or evaluates the lands benefited by the new public improvements. This provides much needed community development that would not otherwise be feasible due to the significant costs imposed by the large burden of public improvement. Currently, a Community Infrastructure District (“CID”) is allowed in an incorporated city or county if it is within the City’s comprehensive planning area and the city consents to the formation of the CID. The Act allows the issuance of general obligation bonds, special appraisal bonds or income bonds or any combination thereof. Projected annual appraisal, taxes, or revenue stream guarantee bond repayment.
Eligible Public Improvements Available for CID Funding
- Improvements to water
- Sewer improvements
- Flood control projects
- Roads
- Public parking structures
- Landscaping and lakes
- Traffic control and lighting
- Parks
- Recreational facilities
- Public safety facilities
- Financing costs
- Real estate interests
- Development impact fees
A strong CID should be established with the following overarching goals in mind:
The financial goals of the real estate developer should be met whenever reasonably possible, since its project and its clients will pay the borrowing costs of the CID financing provided it does not present any undue credit risk;
The real estate developer should use an experienced consultant to help him understand all the options available when going through the CID process;
In larger development projects, CID financing should be structured to allow multiple bond issues at different times and areas of improvement should be used to minimize the financial obligation on unimproved or underdeveloped properties; The particular characteristics or constraints of the development project should be understood in such a way as to make clear the relevant risk associated with the development of the project and its ability to repay the debt on the bonds. Examples of this are environmental constraints, infrastructure constraints, and private financing caps;
The engineering and legal side of the construction and / or acquisition of the improvements must be understood if tax-exempt bond financing is being used. More specifically, specific construction-related guidelines and procedures must be spelled out when a real estate developer is constructing the public improvements and seeking reimbursement of the proceeds from the CID bonds;
The estimated annual cost and the maximum annual cost of CID financing for all owners involved in the development process must be fully understood and properly disclosed; Y
The appraisal value of the project must be properly realized in accordance with sound bond underwriting and appraisal practices because CID bonds are ultimately guaranteed for the value of the project. Appraisal instructions should be clearly defined from a CID bond credit perspective. For example, if bonds are issued on an appraised value that assumes the project has unimproved lots with no performance guarantees on the appraisal date, then the appraiser has overstated the value of the lien.
For more information on how to properly set a CID, please contact http://DPFG.com
