Home buyers and builders share load

By David Bauerlein
Published December 4, 2007


At Tison's Landing on Jacksonville's Northside, no one has poured slab for the first home. But an eye-catching clubhouse and recreation center, visible from Yellow Bluff Road, already stand at the subdivision's entrance.


The financing comes from the Tison's Landing Community Development District, a form of local government that has exploded in use across Northeast Florida.

Initially controlled by developers, community development districts borrow money to pay for a host of multimillion-dollar projects, from basic necessities like streets to amenities such as swimming pools.

The developer bears the burden of repaying the debt in the beginning. But over time, home buyers moving into the district pick up that tab by paying annual assessments for their share of the cost.

For home buyers, it's one more expense they should pencil in when they do their number-crunching, said Teresa Mercurio, president of the St. Augustine and St. Johns County Board of Realtors. She said in her experience, she has seen districts charge assessments that range from $900 to $1,700 per homeowner.

"These are so new that most people don't realize at all that there is a CDD, or what a CDD is," she said.

Florida has 545 community development districts, according to the state Department of Community Affairs. In Northeast Florida, St. Johns County is home to 27 districts, Duval County has 15, Clay County has 11, and Nassau County has six.

The districts have gone hand in hand with such mega-developments as Nocatee in St. Johns County, OakLeaf Plantation in Clay County, and Timucuan DRI in North Jacksonville. But smaller developments less than 1,000 acres in size also are turning to the districts for their financing clout.

"There has been a tremendous increase in the cost of doing real estate projects in Florida," said Jonathan Johnson, an attorney with Hopping Green & Sams, which represents community development districts across the state.

One reason is growth-management regulations that require "new growth" pay for improvements in the regional road network. Depending on the size of the development and its projected traffic, those off-site road improvements will cost millions or even tens of millions of dollars. Instead of passing those costs to home buyers in the price of their homes, the community development district can finance that mandated work by issuing tax-exempt bonds.

In addition, a developer can use a district to finance projects inside the community for subdivision streets, sidewalks, drainage, recreation facilities and various amenities. That arrangement shifts some of the developer's cost onto a government entity.

"A case can be made that not only is it a good way to provide infrastructure, it's a good way for the developer to puff up profit margins," said Brian Teeple, executive director of the Northeast Florida Regional Council.

To repay debt, the district charges assessments on its property owners. The assessments technically are not taxes, but a property owner who fails to pay the assessment will face tax liens on his property.

Florida law does not limit how high the assessment can be, but developers are aware that "at some point, if you put enough debt on the property, you're going to drive yourself right out of the market," Johnson said.

Mercurio said she advises her clients to add the cost of the assessments to their mortgage payments, just as they would calculate the impact of homeowner association dues. Because the districts are government entities, all their financial information is public record. Home buyers then can compare the cost of buying in various community development districts, as well as contrast the cost with homes that aren't in a district.

Al Abbatiello, a board member for the Julington Creek Community Development District, visits the future site of an Olympic-size swimming pool in the St. Johns County housing development. Julington Creek was one of the first such districts on the First Coast.

The stages of a community redevelopment district

Community development districts are a form of local government that have rapidly gained popularity among developers in recent years. Developers control the districts at first, but as homeowners move in, residents gain power. Florida law regulates the districts as they pass through those stages.

The start-up
Landowners petition the government by showing 100 percent of the property-owners are in favor. If the proposed area is bigger than 1,000 acres, the Florida Land and Water Adjudicatory Commission, which includes the governor, creates the district. County commissions approve ordinances to establish smaller districts. Landowners then elect a five-member board of supervisors. The election allots one vote per acre of land ownership, so a developer can effectively pick who sits on the board.

The early years
The board borrows money by issuing tax-exempt bonds, which carry a below-market interest rate, and approves an annual budget for operating expenses. The bonds can be for a duration of up to 30 years. The district can finance roadwork, water service, drainage, parks, recreation areas, school buildings, fire prevention and control, security, mosquito control, and waste collection. To cover the cost of debt and operating expenses, the board determines an annual assessment that district property owners are required by state law to pay.

The middle years
The power to elect board supervisors stops being based on land ownership. Instead, the district's residents vote for candidates in elections run by the county's Supervisor of Elections, just like a race for city council. That voting switch occurs six years after the district's creation if it's less than 5,000 acres in size and home to at least 250 registered voters. For larger districts, the changeover takes place at the 10-year mark, provided at least 500 registered voters are residents. The board could maintain the status quo or issue more debt to undertake projects beyond what the original board favored.

The later years
In large districts, residents could vote to create their own cities if they are in unincorporated areas. The population threshold generally is 5,000 residents for such a vote. Becoming a city would add powers not available to a community development district, such as creating a police department and enacting laws. But if residents don't want to make that leap, the district would continue on its original mission.

The end
If the district has no debt or day-to-day responsibilities, the state or county can simply dissolve the district. The district also could come to an end if local government agrees to take over all of its financial obligations and services.

For instance, a development in a community development district might have lower home prices to offset the assessments, or the home prices could be the same as elsewhere but buyers are willing to pay the assessment because it pays for attractive amenities, said Doris Goldstein, a Jacksonville attorney who specializes in advising New Urbanist communities.

"It's not necessarily a bad thing for the home buyer, as long as they recognize the total cost of the package," she said.

The annual assessment is broken down into two parts - debt payment and operating expenses.

The portion for operating expenses can fluctuate from year to year. But the assessment to repay debt will remain a fixed amount for the homeowner in the early years of the community development district, said Bill Rizzetta, president of Rizzetta & Co., which provides consulting and management services for districts.

The situation becomes more fluid when control of the district passes from the developer to residents, who elect board members.

In northwest St. Johns County, the Julington Creek Community Development District is in the midst of building a new recreation center. Like the work being done at Tison's Landing in Jacksonville, the Julington Creek district is using tax-exempt bonds to finance its construction.

The difference is that Tison's Landing is a developer-driven project, whereas the Julington Creek district, which has been around since 1994, is resident-controlled. To pay for the added debt and operating costs of the recreation center, the district's annual assessment for a single-family home will rise to $679, up from $488 last year.