[EdV]

The following is my rsponse to Lauren Ritchie's 08/29/10 article in the Orlando Sentinel regarding the outsatnding IRS Bond dispute with TV special CDDs.

Link to article: http://www.orlandosentinel.com/news/local/lake/os-lk-lauren-ritchie-bond-dispute-irs20100829,0,5465947.column
Ritchie: A year has passed since the Internal Revenue Service suggested that The Villages retirement community redeem more than $344 million in bonds the IRS says were improperly issued as tax-free.

The IRS finding does not involve The Villages retirement community, only the two special Morse owned districts.

Ritchie: The agency wanted $16 million in back taxes and a promise by community development districts never again to masquerade as a legitimate government.

The IRS did not say that. What it said was that although Florida can and did establish those two CDDs as a quasi-government, that fact alone does not determine its eligibility for issuing federal tax free bonds and that it’s the IRS position that it failed to pass the other tests for eligibility and should not issue such bonds in the future.

Ritchie: The Villages thumbed its proverbial nose at such a notion, and then it was on.

This is true, and those two districts and their lawyers appear to be ready to take this all the way to the US Tax Court if necessary.

Ritchie: It's got to be unsettling and frightening to wonder what's in store. Not to mention expensive. The district already has spent more than $209,000 of residents' money so far, nearly all on high-powered lawyers on both coasts.

Only because you and a few other reporter/columnists have misguided them with inaccurate and biased reporting on this matter.

Ritchie: As The Villages was built, its developer Gary Morse created a form of government called community development districts, the same type scrutinized in this column last week.

There are 10 of these ‘numbered’ CDDs that make up the residential homes in The Villages, the first of which was established way back in 1992. And these 10 numbered districts do not have nor do any of the residents have any ownership of any recreational or amenity facilities. There may be a beautiful club house with an olympic sized pool smack dab in the middle of one of these numbered districts, but it is not a part of it.

Ritchie: In the Villages, two main community development districts have sold bonds to buy the infrastructure and recreational facilities — things like lights, roads, sewer and water plants, clubhouses, golf courses, gatehouses and more — from the developer.

The fact is that the developer built all of the executive golf courses, club houses, pools and the myriad recreational facilities with his own money for commercial purposes. And perhaps because it also included facilities for security, emergency, and fire protection, Florida allowed him to place those facilities under the two special CDDs that are the subject here. But you are misguiding your readers by implying that the monies received from these particular bonds were used to pay for the infrastructure of hundreds of miles of roads and sewers that are in the 10 numbered residential CDDs when in fact each of those numbered districts received their own bonds to pay for their infrastructures.

Ritchie: That's the way it worked, too, in the other Florida districts that have issued bonds. However, The Villages bond deals differ in two key ways......

First, the seats on the district governing boards in other developments typically are turned over to the residents as buyers purchase lots and move in. Not so in The Villages, where the districts selling the bonds in question are controlled by the developer and deliberately are set up so he can keep them out of the hands of residents for as long as he wants.

Florida Chapter 190 specifies that voting in a CDD is [B]based on land ownership, not residency[/B. And the residents of The Villages do not own any of the land, property or amenities that make up the two special CDDs. So quite simpy, they didn't, don't, and never will own or control those amenities. And furthermore, every one of the seventy five thousand or so residents of TV signed a contract acknowledging this when they purchased their home. Here is the specific paragraph:

4.1(g) Purchasers of Homesites further agree, by the acceptance of their deeds and the payment of the purchase price therefore, acknowledge that the purchase price was solely for the purchase of their Homesite or Homesites, and that the owners, their heirs, successors and assigns, do not have any right, title or claim or interest in and to the recreational areas, security facilities, dedicated or reserved areas or facilities contained therein or appurtenant thereto, by reason of the purchase of their respective Homesites, it being specifically agreed that, (1) the Developer, its successors and assigns, is the sole and exclusive owner of the areas and facilities, and (2) the Contractual Amenities Fee is a fee for services and is in no way adjusted according to the cost of providing those services.

Ritchie: Second, these districts — remember that they're controlled by the developer — are using part of the bond money to buy "blue sky" from the developer. In this case, it is simply the right to collect assessment fees from residents. The developer gets all the fees in his bank account now instead of having to wait for them to dribble in over 30 years. Lucky residents get to repay the bond through fees — with interest — for 30 years to come.

Here’s where you and your cohorts really try to pull the wool over everyone’s eyes because you always neglect to acknowledge that because of the unusual structure and contract on their amenities, the residents of The Villages have what amounts to virtual rent control of all of their wonderful amenities. And here’s the paragraph from the contract that enforces this:

4.1 (b) The monthly Contractual Amenities Fee set forth herein is based on the cost of living for the month of sale as reflected in the Consumer Price Index, U.S. Average of Items and Food, published by the Bureau of Labor Statistics of the U.S. Department of Labor ("Index"). The month of sale shall be the date of the Contract for Purchase of the Homesite. There shall be an annual adjustment in the monthly Contractual Amenities Fee. The adjustment shall be proportional to the percentage increase or decrease in the Index.

Ritchie: What a beautifully magnificent source of unfettered, risk-free cash for the developer. The other districts in Florida buy things they can touch, such as water plants. "Blue-sky" transactions haven't been included in their bond deals.

But as you yourself pointed out, 41% of those ‘other’ communities are in financial trouble. The Villages is not, in spite of what you would like everyone believe.

Ritchie: Community development districts that buy infrastructure from developers are a rip-off to the consumer, never mind The Villages' "blue sky" purchases, which are just a secondary piece of legal thievery.

In subdivisions without districts that issue bonds, buyers pay for the infrastructure in the price of the house. In those with districts, they do, too. But in addition, they pay a second time for that infrastructure — with interest — as they pay off the bonds, which often add an extra $20,000 to the price of a house.

Where is this coming from? I’m afraid you’re losing it dear girl. Sometimes I think ideas drop from your head to your tongue like candy from a gum ball machine.

Ritchie: Oh, my. What a mess.

Now that you are up to speed on the background, we'll take a look Wednesday at the latest moves on both sides and what they might mean for the average homeowner.

I live for the moment.