A greater rate of return with CDDs

How community development districts are building better neighborhoods

Kathy Leo, P.E.
Division Manager
PBS&J
Orlando, Florida

Real estate development in the U.S. is booming. In a report entitled Beyond Megalopolis: Exploring America's New "Megapolitan" Geography (2005) by Robert E. Lang and Dawn Dhavale of the Metropolitan Institute at Virginia Tech, the authors estimate that 10 "Megapolitan Areas" in the U.S. may add roughly 83 million people by 2040, with an estimated $33 trillion spent on building construction (www.mi.vt.edu/index.asp?page=4&id=44).

The amount of infrastructure—roads, drainage, water, and sewer systems—needed to support this phenomenal building boom will be staggering. Inadequate tax bases and competing demands for existing taxes will make it hard for cities and counties to provide all the community services their citizens desire. City and county officials will need to reconsider "business as usual" to deal with the building and maintenance demands that will ensue from this enormous increase in infrastructure.

To keep up with the pace, many agencies are looking at other options to maintain community infrastructure, such as special purpose districts, sometimes called improvement districts or community development districts (CDDs) depending on state statutes. A special purpose district is, simply, a form of local government created by a local community to meet a specific need. In fact, there are more than 28,500 special purpose districts nationwide.

The Solivita retirement community, located south of Orlando in Poinciana, Florida, is home to over 4,500 residents who enjoy the master-planned neighborhood with 100,000 square feet of recreation and service facilities. The Poinciana Community Development District (PCDD) was established to issue tax-exempt bonds to fund and manage portions of Solivita's infrastructure, including stormwater management facilities, drainage works, irrigation facilities, water and wastewater utilities, and offsite roadways. (Photo Credit: Avatar Holdings, Inc.)

CDDs are also becoming increasingly more popular as win-win solutions for public works agencies, developers, and community residents. Like special purpose districts, CDDs offer an attractive and cost-effective way of providing for the financing and management of major public infrastructure systems and urban services to new communities or areas that may not have access to such services through a general purpose government, or for which government may not have funds to provide needed infrastructure.

A CDD is an independent special-purpose unit of local government established by a developer or landowner with government approval. To effect positive change in the community, it may leverage governmental powers to levy taxes and assessments, and issue bonds. When used effectively, CDDs can help spread out development costs, utilize tax-free financing methods, and meet the concerns of permitting agencies with respect to long-term maintenance of infrastructure.

Service delivery infrastructure provided through CDDs may include stormwater management and control (drainage), fire control, road and bridge construction and maintenance, park and recreational facilities, mosquito control, port and inlet districts, water (including reuse) and sewer systems, sidewalks, streetlights, landscaping, and similar infrastructure.

Solivita - Poinciana CDD
Florida has been especially receptive to CDDs as developers have transformed urban and rural areas into desirable neighborhoods and communities.

Solivita, one of Florida's newer retirement communities, is located south of Orlando in Poinciana, and is home to over 4,500 residents who enjoy the master-planned community with approximately 100,000 square feet of recreation and service facilities.

Through the PCDD, residents enjoy extra services beyond those normally offered in cities and towns. For example, the PCDD is responsible for continual aquatic management of the stormwater system and retention ponds with special focus on algae and mosquito control. It provides a level of attentive service that county or city budgets and personnel would be hard-pressed to match. (Photo Credit: Avatar Holdings, Inc.)

The Poinciana Community Development District (PCDD) was established to issue tax-exempt bonds to fund and manage portions of Solivita community's infrastructure: stormwater management facilities, drainage works, irrigation facilities, water and wastewater utilities, and an offsite roadway (outside road leading to the gated entrance of the community). Through the PCDD, residents have been able to enjoy extra services that keep surroundings well-maintained and comfortable. For example, the PCDD is responsible for aquatic management of the stormwater system and retention ponds, with special focus on algae and mosquito control. It provides a continuous level of attentive service that county or city personnel would be hard-pressed to match due to budget constraints.

All CDDs, including the Poinciana Community Development District, are established through provisions set by state and local jurisdictions. During the permitting, planning, and design phases of the project, the components to be covered by the CDD are defined. Information from master plans for systems such as those for stormwater, utilities, and roadways, as well as construction cost and phasing, are included, in addition to assessment studies to determine the amount of tax to be levied on residents or lot owners and the developer.

Anticipated costs for the project are used to support bond offering documents. For the PCDD and Solivita, PBS&J generated an engineering report that included detailed descriptions and anticipated construction costs for the overall project which was then used in support of the bond request. Once the PCDD's bond requests were approved pursuant to required procedures, bonds were sold to generate capital to pay for the infrastructure identified in the engineering report.

Typically, bonds for city and county infrastructure projects are paid out of general tax revenue funds collected through property and other taxes. In the case of CDDs, however, a special assessment, tax, or fee is levied on property within the CDD. This assessment covers the principal and interest payments on the bonds issued to pay for the CDD's infrastructure, maintenance, and ongoing services.

Baldwin Park is a stunning example of infill development. The once blighted military post has been transformed into a vibrant community with hundreds of acres of parks and lakes open to public access. Through the Urban Orlando CDD, stormwater facilities and landscaping are planned, maintained and financed through taxes, assessments, or fees charged to residents. (Photo Credit: Skip Milos Productions)

Urban Orlando CDD
The Urban Orlando Community Development District encompasses Baldwin Park, a large, mixed-use, master-planned community on the site of the former Orlando Naval Training Center (main base) just two miles from downtown Orlando, Florida. Baldwin Park is among the nation's largest in-city redevelopment projects, and has been recognized as both "Best Neighborhood" and "Best Smart Growth" community by the National Association of Home Builders and Professional Builder magazine.

Baldwin Park is also a stunning example of infill development. The once blighted military post has been transformed into a vibrant community with more than 200 acres of parks and 250 acres of lakes open to public access. In partnership with Audubon of Florida, Baldwin Park developers have created new ecosystems that support plant, bird, and wildlife.

To keep the community public infrastructure in good shape, the Urban Orlando CDD is responsible for such tasks as operation and maintenance of stormwater systems, maintenance of hardscaping (paved areas such as streets and sidewalk) and landscaping, and ongoing traffic management.

Baldwin Park is a large, mixed-use, master-planned community on the site of the former Orlando Naval Training Center. It is among the nation's largest in-city redevelopment projects, and has won numerous awards. The Urban Orlando CDD is responsible for operation and maintenance of stormwater systems, maintenance of hardscaping (paved areas such as streets and sidewalk) and landscaping, and ongoing traffic management. (Photo Credit: Skip Milos Productions)

When hurricanes hit Florida in 2004, the CDD quickly mobilized to clear roadways and repair damage to newly-planted street trees that had added aesthetically to the award-winning community. The CDD passed a special assessment levy on to residents to pay for the work and also applied for and received partial funding for the cleanup through the Federal Emergency Management Agency (FEMA).

CDD Checks and Balances
CDDs generally begin with a board appointed by the developer, landowners or other stakeholders. The usual term of office is two to six years. Like a public agency board of supervisors, most CDDs grow into boards elected by voting community residents. These boards handle operational issues and further development plans. The Urban Orlando CDD board now has two elected community members out of a total of five supervisors. CDD boards are also advised by a district manager, a district engineer, and an attorney.

A CDD must establish an annual operating budget, which should be submitted to the local government for review and comment. A CDD is also subject to most public requirements relating to procurement of engineers, maintenance contractors, and others. Since CDDs pay operating expenses through taxes, special assessments or fees charged to residents for services provided, they must satisfy bond requirements to confirm that assets of the district are properly maintained in good working order. To do so, the CDD should provide a report annually to both bondholders and the local government.

It is important to ensure that CDDs are run fairly; therefore, the governmental agencies that allowed their formation should supervise their development and enforce statutes. For instance, Polk County Government provides oversight for the Poinciana CDD, and the Urban Orlando CDD is subject to a Planned Development Ordinance adopted by the Orlando City Council.

In the interests of full transparency, CDD board meetings must be announced in a local newspaper of general circulation and conducted in a public forum. Additionally, CDD documents should be open to the public through the CDD manager's office.

Future CDD Trends
The popularity of CDDs is growing, not only in Florida, but in California, Texas and other states as well. They have proven an effective means by which developers can provide infrastructure and services in startup or rejuvenated communities without burdening the city or county with construction and maintenance costs. Community and resident demands for services and amenities not considered "standard" or "normal" by cities and counties, such as enhancements to parks or open space amenities, are also fueling the growth of CDD market conditions. As public sector cities and counties are increasingly pressured to provide additional services on limited budgets, CDDs are likely to become a more commonly found solution to help construct, maintain and manage public assets.

Kathy Leo, P.E, can be reached at (800) 284-5182 or KSLeo@pbsj.com. PBS&J serves as the District Engineer for the Poinciana CDD, the Urban Orlando CDD, and numerous other CDDs.