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CDD fees, policies reveal developer's clout

COURTESY : Ocala Star Banner
BY FRANK STANFIELD
Posted on July 11, 2004

THE VILLAGES - The Villages' high-powered growth machine works because retirees keep on coming and construction crews keep on rolling out the red carpet of freshly poured concrete.

But financing is the glue that holds it all together.

Since 1996, the Village Center Community Development District has borrowed more than $400 million to buy utility systems and recreational facilities from the developer of the community, The Villages of Lake Sumter Inc.

In the proposed budget for 2004-05, about $17 million will go toward paying off debt on bonds issued to purchase recreational facilities from the developer. That's more than 60 percent of the $26.9 million the district expects to take in on amenity fees, which are collected to pay off the debt.

HOW IT WORKS
It is the residents who, with the fees they pay, shoulder the cost of the community's debt.

Using an ingenious system, the developer sells both a facility of some kind - plus the right to collect amenity fees - to a community development district. The district then uses the fees to pay off a bond issue.

The developer gets its money up front and doesn't have to bother with running whatever it is that it sold to a district.

The actual assessed value of a facility is only a small part of the deal. That's because the majority of the price is based on the projected income the facility would have if the developer operated it himself for 20 years.

The price is determined using an income-based approach recommended by two frequently used consultants, Fishkind & Associates and Public Resources Management Group.

The most recent example is a move by the VCCDD last month to approve a $50 million bond issue so it can purchase the Saddlebrook and Chatham recreation centers, two executive golf courses and other facilities. The facilities, combined, are valued at about $8 million, according to VCCDD records, but will be purchased for $47 million, plus $3 million for bond insurance.

Despite the apparent wide gap between price and value, the district's financial consultant says it's a good deal, because the VCCDD will also acquire from the developer the rights to collect residents' amenity fees on about 3,120 homes sold between March 2003 and March 2004. Over the next 20 years, analysts say, the fees will generate about $65 million in revenue.

Sometimes the price of items purchased by the district is controversial. Last year, Joe Gorman with the Property Owners Association, questioned a consultant's appraisal of a garbage collection company based on a 30-year projection of future revenues minus predicted expenses. Gorman suggested the VCCDD instead compare the asking price against other trash pick-up companies.

The consultant countered that there are no comparable prices. Trash Busters would have a monopoly for 30 years, so a fair comparison is impossible, the district said.

"Baloney," Gorman said of the argument.
The VCCD has not yet closed on the Trash Busters deal.

POPULAR, DISLIKED
Neighboring local governments love CDDs. They don't have to tax their citizens to pay for projects in the gated community.

Besides CDDs, other special districts allowed under state law include downtown development districts and neighborhood improvement districts.

CDDs are "the most popular type of district," said Jack Gaskins, an official with the Department of Community Affairs, which administers the programs for the state.

"I've registered five of them this week," he said in late June. There are about 260 CDDs statewide.

Fishkind & Associates, an economic consulting firm in Orlando, has helped its clients, including The Villages, raise more than $2 billion through CDD bonds.

But some residents dislike the system because the developer appoints virtually all of the board members from among its employees and business associates.

Gorman calls it "taxation without representation."

Pete Wahl, district manager for the Village Community Development Districts, said he has no choice about that.

"I've got to follow the law," he said. The law says board members have to be appointed by landowners within the districts for six years.

The Villages doesn't own every scrap of land, but it is clearly the majority owner.

And in the case of commercial districts, like the Spanish Springs Town Square and the new Sumter Landing, there will never be any residents.

Besides, Wahl says, amenities fees are not a tax that residents pay, but a contractual fee they agree to at the time they purchase their homes.

PUSH FOR CHANGE
Russ Day, an outspoken critic who has won election as a member of the District 1 CDD, calls the potential for abuse under the system "a license to steal."

Gorman is more diplomatic.
"Ninety percent of the Villages is great," he said. "There's still 10 percent that needs attention."

Day and Gorman would also like to see more disclosure requirements for the benefit of would-be homeowners. In The Villages, for example, the cost of living in a CDD includes $115 per month in amenity fees, about $128 annually in golf trail fees, and $200 to $800 in an annual maintenance assessment, which also pays the bond debt incurred by the CDD.

"I know we do far more than any other developer in the state," Wahl said of explaining the fees. Buyers are presented with full disclosure, right down to how much bond debt has been incurred in their district and their own costs, he said.

No one can say they haven't heard about the terms, Wahl said. The development sponsors CDD 'shows.' Wahl writes a column in the developer-owned newspaper and is a common presence on the developer's radio station.

"I don't know what else to do but teach people to read or force them to read," he said.

As for Gorman and Day wanting more residents on the boards, Wahl has a suggestion: "Change the law."

So far, after about three years and joining forces with the Silver Haired Legislature lobbyist, residents have found no support in Tallahassee for change.

"If we could change one thing in The Villages," Gorman said, "we would have the supervisors of the VCCDD voted in by everyone in The Villages. . . . I think they would be more responsive to the residents and have in mind what's best for the residents. I don't think that is always the case right now. I think they are focused on doing what's best for the developer."