The background of the CID – As real estate development continues to expand in Idaho, the impact caused by such expansion requires the necessary construction of public infrastructure to accommodate such growth. In 2008, the Idaho legislature enacted the Idaho Community Infrastructure District Act (“Act”). The purpose of the Act was to create a new mechanism for the financing of public improvements for public agencies and developers alike. The Act, modeled on similar legislation in New Mexico and Florida, addressed a critical issue of how to pay for new public improvement charges cost-effectively. The Law authorizes the issuance and repayment of bonds with a mechanism that encumbers or encumbers the land benefited by the new public improvements. This provides much-needed community development that would otherwise be unfeasible due to the significant costs imposed by extensive public improvement charges. Currently, a Community Infrastructure District (“CID”) is permitted in an incorporated city or county if it is located within the City’s comprehensive planning area and the city consents to the formation of the CID. The Act allows the issuance of general obligation bonds, special assessment bonds, or revenue bonds, or any combination thereof. The projected annual assessment, tax or income stream ensures repayment of the bonds.
Eligible Public Improvements Available for CID Financing
- water improvements
- sewer improvements
- Flood Control Projects
- Roads
- public parking structures
- Landscaping and Lakes
- Lighting and Traffic Control
- parks
- recreational facilities
- public safety facilities
- financing costs
- Real Estate Interests
- Development Impact Fees
A strong CID should be established with the following general objectives in mind:
The real estate developer’s financial objectives must be met whenever reasonably possible, as his project and clients will pay the borrowing costs of CID financing as long as it does not present any undue credit risk;
The real estate developer should use an experienced consultant to help them understand all the options available when going through the CID process;
On larger development projects, CID financing should be structured to allow for multiple bond issuances at different times and areas of improvement should be employed to minimize financial liability on unimproved or underdeveloped properties; The particular characteristics or restrictions of the development project must be understood so that it is clear the relevant risk associated with the development of the project and its ability to repay the debt of the bonds. Examples of this are environmental restrictions, infrastructure restrictions, and private financing caps;
The legal and engineering aspect of the construction and/or acquisition of improvements must be understood if tax-exempt bond financing is used. More specifically, specific construction-related guidelines and procedures must be detailed when a real estate developer is constructing public improvements and requests repayment of CID bond proceeds;
The estimated annual cost and maximum annual cost of CID financing for the terminal by all owners involved in the development process must be fully understood and properly disclosed; Y
The appraisal value of the project must be properly realized in accordance with sound bond underwriting and appraisal practices because CID’s bonds are ultimately guaranteed by the value of the project. The pricing instructions must be clearly defined from a CID bond credit perspective. For example, if bonds are issued on an appraisal value that assumes the project has lots with no improvements and no performance guarantees on the appraisal date, then the appraiser has overestimated the value of the value-lien ratio.
For more information on how to properly set a CID, contact http://DPFG.com
