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Community Facilities District Financing Available In Arizona Counties

July 12th, 2006

On April 17, 2006 the Governor signed into law House Bill 2236 which allows the use of Community Facilities District (“CFD”) financing within the unincorporated areas of Arizona.  Prior to this time, the use of CFD was restricted to incorporated cities and towns.  The ability to utilize CFDs within the counties is expected to: (i) allow counties to master plan larger areas of land than that was otherwise possible; (ii) provide regional infrastructure which was previously not financially feasible; (iii) allow Arizona to be more competitive with other states allowing this type of financing and, (iv) allow home builders to provide homes at affordable pricing levels.

 

CFD Background

CFDs are a mechanism whereby developers are allowed to establish separate political subdivisions distinct from the jurisdiction in which they are located for the purpose of issuing tax exempt bonds to finance public improvements.  Among other public improvements, CFDs are allowed to finance public roadways, sewer improvements; water improvements, drainage projects, parks and recreational facilities, traffic and street lights; civic buildings; fire stations and police stations. The obligation for the repayment of the CFD bonds is passed on to the end users of the property who retire the bond obligations over a twenty-five year period.  No residents outside of the CFD are responsible for the repayment of the bonds.  In essence, CFDs are truly a mechanism whereby “growth pays for growth”.

 

Benefits to the Counties

 

Ability To Master Plan Larger Land Areas

With the use of CFD financing, the county will be better able to master plan large areas of land and provide for the services required to serve these areas.  With the exception of some retirement communities, development within the counties has been smaller single family subdivisions and/or large lot (i.e. five acre) subdivisions.  Typically, these types of residential developments are not of a sufficient size to absorb the costs of providing public infrastructure which can be expanded to meet the growth needs of the county.  With the ability of the development community to utilize CFD financing to provide public improvements, they will be much more inclined to purchase larger tracts of property which can be master planned not only from a planning standpoint, but also  from a infrastructure perspective.   With larger tracts being developed, the county will have the ability to develop a cohesive infrastructure plan for developing areas of the county and have a mechanism whereby they may assist the development community in financing these public improvements.  This fact could be a vital step in the ability of the county to provide adequate roadways to the fast growing areas of Maricopa, Pinal, Pima and Mohave Counties. 

 

Regional Improvements

The use of CFD financing will also allow multiple developers and/or landowners to come together to fund the construction of regional improvements which benefit a much larger area than that of a single developer’s and/or landowners property.  As mentioned in the previous paragraph, this is especially true with the construction of traffic interchanges and fully developed roadway systems to effectively move the growing populations of the counties.  At present, the Development Planning & Financing Group is involved in eight transactions totaling $325+ million whereby multiple owners are coming together to establish CFDs for the construction of regional public improvements including wastewater treatment plants, sewer and water lines, roadways and traffic interchanges.  Without the use of CFD financing for these improvements funding for these improvements would not be available. 

 

Arizona Competitive With Other States

With the passage of HB 2236, Arizona joins the ranks of other growth states in the sunbelt such as California, Nevada, New Mexico, Texas and Florida which have similar tax exempt bond financing mechanisms available for use in their respective counties to pay for the ever increasing costs of public infrastructure.  As such, it is expected that the state of Arizona will be even more attractive to the large national development firms and homebuilders as they determine where to allocate their capital.  As the real estate industry is one of the state’s largest industries employing hundreds of thousand individuals, a healthy robust real estate industry equates to jobs for Arizonians as well as tax dollars for the state’s jurisdictions.

 

Affordable Home Pricing

With the ability to utilize CFDs within the counties of Arizona, it is possible that home prices will be able to be kept to a level which will make Arizona continue to look attractive to employers looking to relocate from states such as California and Nevada in which high housing prices are inhibiting companies from attracting employees. Given the fact that most counties do not collect development impact fees which in municipal jurisdictions can run as high as $17,000+ per single family home, the lack of development impact fees in the counties, coupled with the fact that costs related to the public infrastructure that may be financed through the use of CFD bonds and not included in the price of the home will allow homebuilders to provide lower priced homes than that which might otherwise be possible. 

 

In conclusion, the recent passage of HB 2236 will not only benefit Arizona’s counties by allowing the planning and construction of meaningful regional public improvements, but it will also benefit the state of Arizona through the provision of affordable housing which will continue to assist in the state of  Arizona’s overall growth which will benefit all Arizonans.

 

Carter Froelich is the managing principal of the Development Planning & Financing Group which has offices in Arizona, California, Florida and Nevada.  To date the firm has been involved in the formation of over 1,000 CFDs and the issuance of over $5 billion in bonds for the construction of public improvements.  Mr. Froelich may be reached at 602-381-3226 ext 10. The company’s website is www.dpfg.com.

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