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Arizona Community Facilities District Act Overview
September 6th, 2004
BACKGROUND
In 1988 the Arizona legislature enacted the Arizona Community Facilities District Act (“Act”). The purpose of the Act was to generate new opportunities for the financing of infrastructure improvements for municipalities and developers alike. The Act styled after similar legislation in California and Florida, addressed a critical issue for developers: the financing of increasingly costly infrastructure requirements without unduly burdening the developer. The law authorized bonds to be issued and repaid with a mechanism that taxes (or assesses) only the lands directly benefiting by the new infrastructure. This allows much needed community development which would otherwise be unfeasible due to the prohibitive costs imposed by extensive infrastructure burdens. It should be noted that at the present time, all community facilities districts (“CFD”) are required by statute to be included within an incorporated city or town.
ELIGIBLE INFRASTRUCTURE PROJECTS for CFD FINANCING
Under the Act, the following types of public infrastructure improvements may acquired and/or constructed with CFD bond proceeds:
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Water and sewer projects
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Police and fire facilities (and sites)
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Public buildings (and sites)
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Flood control and drainage projects
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Roadways
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Public parking structures
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Landscaping and lakes
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Lighting and traffic control
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Parks and recreational facilities
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Schools and school sites
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Pedestrian malls
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enhanced public services
SECURITY for CFD BONDS
The Act allows for the issuance of general obligation bonds, special assessment bonds and revenue bonds or any combination thereof. With any CFD, only the projected assessment, tax or revenue stream is pledged toward the repayment of the bonds. No other security need be pledged to secure the bonds.
EXAMPLE
In this example a developer is to finance infrastructure improvements through either third party bank debt or by entering into a development agreement and obtaining tax-exempt bond financing through a CFD. The following two scenarios assume $10 million of infrastructure development costs on a 400 acre parcel:
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With conventional financing, the developer would likely have to pay the $10 million for the improvements through a conventional financing and hope to recoup the outlay by increasing future land prices on real estate sales in the newly improvement area. Thus, the developer would need to recover $25,000 per acre plus carrying costs to cover the infrastructure costs.
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With a CFD financing, bonds would be issued by the CFD yielding $10 million in up-front construction proceeds for the necessary improvement costs. Thus, for our 400 acre development, the resultant taxes paid by the developer would be $2,450 per acre per year (assuming that the bonds are issued at 8% for 25 years with a cost of issuance of $400,000).
CONCLUSION
Because we at the DP&FG believe that the advantages derived from CFD financing are numerous, we have taken an active role in the Arizona market place explaining the benefits for this type of financing vehicle to the real estate community.
It is our goal in the CFD process to represent landowner’s interests by applying our broad range of CFD financing experience to the specific interests of your development. Having experience in CFD financing in both Arizona and California, we have seen the potential pitfalls landowners could have fallen into if it were not for our involvement and or creative approach to avoiding such problems. As a participant in the CFD process we attempt to inform the landowner of all of the available options that exist with the goal of maximizing the opportunities and minimizing any associated risks.
