CDD 2.0 – Possibilities, Opportunities & Challenges
By Leigh Kellett Fletcher |
During the recession, many community development districts (“CDDs”), special purpose units of local government established to fund public infrastructure, restructured bond debt to offset the impact of nonpayment of special assessments by developers unable to sell homes and meet their financial obligations.
Post recession, as home sales increase and developers are recovering financially, existing CDDs are issuing new debt and new CDDs are being formed to fund community infrastructure in master planned communities. New CDD debt is coming with more strings attached, including collateral assignments of development rights, delegation of district governing board rights post default to bondholders, and more expansive bondholder financial remedies, including the right to control the disposition of unspent construction funds in the event of a default by the District.
Despite these new limitations on District rights and additional required commitments by developers, CDDs remain a good tool for developers and residents of existing CDDs to provide themselves with needed public facilities at lower cost using tax-exempt bond financing. In fact the role of CDDs may be expanding in light of the financial limitations on local government imposed by the state legislature on general purpose local governments, and the increasing need to utilize alternative strategies to meet the needs of communities for water, wastewater and energy facilities.
Consider the following:
- At Encore CDD, an urban district in downtown Tampa, Florida, the CDD owns and operates a football field size underground stormwater structure, This structure utilizes a sand filter and houses a solar array and dog park on the roof of the facility, adjacent to a master chiller plant operated by the CDD that chills buildings on twelve city blocks. At the time of development, the City of Tampa was not prepared to accept this type of public infrastructure due to maintenance concerns, but the local government was comfortable with the CDD, as a special purpose local government, owning and operating the facilities. The use of the technology allowed the developer to redevelop twelve city blocks in a constrained stormwater basin with green technology available throughout.
- In several areas, CDDs are financing, constructing and operating reclaimed water systems in locations where the general purpose local government cannot yet serve customers. At a time when water supply issues are becoming critical throughout Florida, and state water management districts and state government are exploring alternative water supply technologies to serve the ever increasing population without harming natural resources, developments that are able to independently provide potable and irrigation water through investment in community scaled innovative technologies will probably enjoy competitive advantages in obtaining permitting and marketing reliability to future residents.
- Under the current law, it is possible for CDDs to play a broader role in financing, constructing and operating community scaled water and wastewater systems if granted the power to do so at establishment. There is no reason that the same powers could not be extended to include financing, constructing and operating solar and wind power infrastructure independently or in partnership with utilities and also the power to finance other green technologies to reduce the burdens of new development on energy infrastructure and to lower costs to residents.
In other words, the future of CDDs in Florida is getting brighter again, and developers should think creatively about how to use them to make the communities they develop leaders in sustainable technology.
Leigh Kellett Fletcher has been practicing land use, environmental and real estate law since 1997 and regularly represents clients acquiring, developing and selling real estate in Florida and the U. S. Virgin Islands. She has been involved in the purchase, sale and redevelopment of multi-family residential projects, office, commercial and mixed use properties and has worked with clients to obtain land use entitlements and environmental permits to develop and expand commercial development. She frequently works with clients acquiring environmentally contaminated properties and assists them with obtaining brownfield designations and completing remediation and development of those properties. Read Leigh’s Full Biography