Please forgive my not "quoting" here - but there seems to be a lot of confusion on what a bond is and isn't and who gets taxed in relation to them - leading to some confusion and even a touch of panic.
Issuance of bonds is one way a business can raise capital. Investors buy bonds (each is usually priced at $1000) with a given interest rate. The issuer pays the interest rate to the bond holder over a time period (usually 10 - 30 years). To the bondholder, this interest is income that can be spent or invested.
Some bond interest is taxable; some interest is not. What makes a bond tax exempt is usually that it is being issued by a municipality or by an organization that is acting in a way that directly benefits the American people. For example, a water utility can issue tax exempt bonds to expand water service - even if that utility is a for-profit organization. This allows sellers of bonds that meet that criteria to raise money at a lower cost than a public company.
Why would someone buy a bond with a lower rate? That's where the tax-exempt portion comes in. If as a taxpayer you are paying 20% in income taxes, you might be better off with a 4% tax-exempt bond than a taxable bond at 4.9% (where after taxes you would only earn 3.92%). Also, tax exempt bonds are frequently viewed as having lower risk since so many are issued by government entities.
It is not the developer or Villagers who would pay tax if these amenity bonds are found to not be tax-exempt. It is the holders of those bonds. Where our risk as Villagers is if the sale of these bonds was deemed to be fraudulent and the bonds recalled.
I have participated in the issuance of bonds and can tell you that developers can't simply "decide" that they will be tax exempt. The IRS usually must issue a determination of their opinion.
In this case, the developer financed the building of amenities within the Villages with these bonds. He also made a profit selling those amenities to the CDD. I do ROI analysis for a living. This is NOT Bernie Madoff. Developers would never develop if there was no profit in it.
Steve from NY - you are right on.
I'll see ya' at the Square
in April. I will monitor this situation as an investor in my Villages home - but like Russ_Boston and Muncie also state - one article is not getting the full picture.
With apologies for my soapbox (and finance class)
Kate