Developers Tax Themselves to Build Infrastructure

A new Arizona law allows developers to build infrastructure but tax themselves to pay for it, a novel approach to economic development that the state thinks will catch on in towns throughout Arizona. Scottsdale is hoping to use the law to gussy up a one-mile stretch of abandoned car dealerships.

Here’s the idea, according to the Arizona Republic: Instead of the city paying for redevelopment projects in hopes of stimulating the economy and private investment, the new law would create redevelopment districts governed by a board. This would let developers build infrastructure and pay for it with property taxes they impose on themselves. The city wouldn’t have to levy any special taxes or give generous tax breaks to private companies. Developers, meantime, could borrow money via the bond market — which is much cheaper than banks — to build infrastructure that, in theory, would increase the value of their property.

It remains to be seen how this law will work in practice. And it’s possible that by giving taxing power governments are losing a piece of the public planning process. But the law is a unique approach to redevelopment a time when governments are strapped for cash and states and cities are becoming reluctant to give out economic development grants and tax credits.

In Florida this is called a Community Development District. It is a very bad idea.

The developer borrows the money from the government to pay for infrastructure. This includes roads, drainage, club house, pool, expensive landscaping, and other amenities meant to attract buyers. The developer’s idea of imposing property taxes on himself is really imposing the taxes, in the form of CDD dues, upon whomever buys into the development. These CDD dues must be paid by the property owner until the initial loan is paid off (30 years). The CDD is managed by a board that sets the payments.

For starters, there is a huge conflict of interest. The developer will borrow as much money he needs in order to add enough amenities in order to sell his lots and make his profit. Once the lots are sold, he walks away and the buyers are stuck with the bill. Conversely, the government will loan as much money as the developer wants. If the government doesn’t have the cash on hand, it could borrow it from a bank or bond holders at a lower rate than what it charges the development. This results in a steady income stream for 30 years or more.

The CDD board established by the developer is controlled by him until he decides to turn it over to the homeowners (usually when 90% of the lots are sold). The board, staffed by developer employees, can raise dues at will without input from homeowners. The board can borrow more money against the CDD and use it for more amenities (or in some cases, financing another phase of developmen). When all is said and done, the developer hands the board to the homeowner and wlaks away, leaving a financial mess.

When homes go into foreclosure, the rest of the homeowners must pay extra to make up for it. That’s because the debt service is assessed against the entire CDD, not individual owners. If some are in bankruptcy/foreclosure, they cannot pay. The rest must pay more.

We Read: ..."A new Arizona law allows developers to build infrastructure but tax themselves to pay for it"

You wrote: "Can’t they just voluntarily fix their places up on their own without this crap?"

This is just another way of getting the new owners to pay all of the costs.

Consider for a moment:

The price of the property reflects the true cost of construction Including a profit for the developer.
The price contains the same amount of profit but; does not state the actual costs of construction which will be billed later as "TAXES".

If you were on a budget as most are, would you prefer the higher or the lower monthly payment and ignore the fact that your tax bill will be much higher!

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