The CDD (Community Development District ) law was enacted by the state of Florida to assist orderly establishment of large developments and redevelopments that serve the public interest. The CDD permits its holder to use public funds to subsidize construction through issuing of tax exempt bonds. It would appear that a majority of CDDs are being awarded to financially strong developers of large private developments. Thus the well intentioned CDD law has been distorted into yet another device for subsidizing growth in Florida. 

            A major justification for the CDD recently awarded by the city of Venice was that the county has already awarded two CDDs, and Northport has awarded one. Yet no evidence was presented that any of the three existing CDDs benefited current residents, or that a subsidy was needed or justified. Now would be a good time for finance officers from all county governments to meet and establish criteria for awarding future CDDs in Sarasota County. The urgency arises because CDD financing of the villages to be built under the 2050 plan has been proposed.

            Developers argue that the CDD allows amenities for future residents to be completed in a timely manner. But such concerns don’t arise when governments determine that developers have sufficient financial resources and sales skills before a new development is approved. Developers also argue that a special CCD board in addition to a usual homeowners association helps the homeowners manage. Perhaps, but local developments of all sizes operate efficiently without creating the added bureaucracy of a CDD type board. 

            The true attraction of the CDD for the builder of conventional large private developments is the authority CDD status confers to issue tax exempt bonds. Issuers of tax exempt bonds gain because such bonds have much lower interest rates. But the public loses because the buyers of the bonds pay no taxes to the U.S. Treasury. The tax exempts can be justified when governments issue them to build public facilities. Issued for private purposes, the bonds can provide a private subsidy.

            Perhaps county and municipal governments are awarding CDDs so casually because funds lost to the U.S.Treasury don’t show up as a loss on their own budgets. Yet, these governments all expect the deficit ridden U.S.Treasury to find the money for their beach renourishment projects. Venice alone expects to receive $6 million from the U.S.Treasury in 2004 for renourishment. Governments that depend on the U.S. Treasury to fund their public projects should realize that funding may have to be reduced if taxpayers like big developers are allowed to avoid taxes.

            The CDD recently granted by the city of Venice to WCI Communities, developer of the Henry Ranch, authorizes the issuance of $ 37 million in tax exempt bonds for construction of private facilities. Had conventional financing been used instead, I estimated that the developer would have paid $18.3 million in additional interest, and that the U.S.Treasury would have collected about $18.3 million more in taxes. My estimate was not challenged. 

             Now, the $18.3 million lost to the treasury must reappear in one of four categories:1. profit to the developer; 2. subsidy to the luxury homeowners; 3. waste and operating cost of the CDD; or 4. benefit to current city residents. Once the Treasury money enters the CDD, only a detailed analysis can estimate how much exits into each of the four categories. Yet governments should feel obligated to do the estimate before awarding any CDD. Much of the funds are wasted directly: for example it costs over $800,000 just to issue the bonds. Since only benefits to current residents can justify the $18.3 million, possibly all the money is lost. The sum of $18.3 million amounts to about $1000 per current Venice resident, and it is unlikely these residents can recover any significant benefit from existence of the gated community at the Henry Ranch. To recover our $2000 share, my wife and I would have to be excused from paying any city property tax for six years.

            Claims of indirect public benefits from a CDD development have no merit. A privately financed development would offer the same benefits. 

            Money was barely mentioned by council during the CDD proceedings. The city Finance Director remained silent.

            Hopefully, our Sarasota County governments can develop effective and responsible guidelines for awarding future CDDs. With luck, these guidelines could become standard throughout Florida. And save the public billions.

            Unless all the facilities in the 2050 villages are public, the wording in the guidelines should forbid awarding them CDD status.