The Villages and the IRS. From Lauren Ritchie
 

Hello Villagers,

I'm Lauren Ritchie, the Sentinel columnist who wrote the 3/1 column about the Villages and the IRS. I've been reading your notes about how my columns are "slanted."

Yes, they are. They are supposed to be slanted. That's what the Sentinel pays me to do. I am not a news reporter. Those folks are paid to get all sides of the story and lay it before you without comment.

I'm a columnist, which means that I write opinion. I'm paid to research, form an opinion and write it in a way that convinces readers. I DO have an opinion about this IRS investigation and about the way that the developer has used the community development districts to his benefit -- at terrible expense and liability to Villages residents. Do you realize, for example, that the outstanding bond debt on each of your homes is roughly $18,000? I wonder whether you would have bought your place if that had been tacked onto the purchase price up front? And, in addition, that $18K is the face value. Over the life of the bonds, homeowners will pay another $18K-$20K in interest. (Consider that the amortization schedule of the $64 million in bonds the IRS is investigating is about $134.5 million over the life of the bond.)

I have a second column about the IRS investigation that is to be published on Wednesday. If you don't get the paper, you can access the column online at www.orlandosentinel.com/lake and look for my picture with a list of columns by it.

In any event, I hope this helps you understand what I do. Regardless, the real question here is about the validity of the bonds, not what anyone might write about them.

Lauren

Thank you for making us aware of this issue.

I appreciate your taking the time to tell us this.

Lauren. I do believe that most of us are aware of the bond debt before we buy. I certainly hope so. We discuss it here a lot I know.

What do others think?

Aren't there two bond debts? One that is added on to the cost of each new home, and the over all bond debt of the owners of homes in TV that pays for the purchase of the golf courses, entry gates and various other things that are sold by the developer to the homeowners?

I know when I looked at a home in the Village of Winefred in 2004, the bond to be TACKED on was $10,000.

When I looked at a home in the Village on the Shores of Lake Miona in 2008, the bond to be TACKED on was $50,000.

I don't know if that's the same bond Lauren is talking about and if there's more I'd like to know.

Thank you for all your research and info on all that affects us here re; bonds. I'm very grateful, keep up the GOOD work...

Good grief! Another Slantinel Slap at one of the few things that actually work without "government" help.

Ms. Richie. We are not a bunch of doddling old fools who need protection from the big bad developer. We're well seasoned on how people make money from other people, and don't really mind as long as we get something of value for our funds.

Yes, there is a "bond" that is tacked on, and while the marketing and presentation of it sounds strange to some, it's no different than when "shipping and handling," "tax," and a host of other add-ons appear.

Yes, if one decides to finance a $10-50K bond for 20-30 years, it will indeed result in interest equivalent to the size of the loan - just like any other 20-30 year loan. Duh!

And yes, there is an annual common-area fee similar to what a homeowner's association (Orlando is full of them!) levies on all within a development for maintenance and upkeep of the common areas. Why is that such a surprise?

The CDD concept is not all that bad, in that when it works, it works very well.

I wonder if The Villages advertised in The Sentinel if there would be a slanted piece trying to make this place sound like a rip-off? There was a time when Disney didn't advertise in The Sentinel, and negative articles about Reedy Creek Development Corp. appeared with some regularity. Or is it because The Villages has its own newspaper and The Sentinel sees such articles as a possible way to break into the market here?

With all of Orlando's problems - examples: South Orange Blossom Trail is still an "interesting" place, Avalon Park's developers are still being chased, Metro West has its share of "history," and the Winter Park / Orlando Naval Base property acquisition saga is still a gem - one would think there was plenty of things within a ten-mile radius of Lake Eola for commentary before venturing into the far reaches of Sumter, Lake and Marion counties.

But then again, us old fools need protecting.....

There seems to be a bond issue that is in addition to or separate from the bond that is tacked on to the purchase of a home in TV.
Explanations sound like the discussions about derivitives or default swaps and are not very clear.
Can someone please explain.

Lauren, Steve, V7, anyone help please:

Is this the bond that we know about when we purchase the home or is this something that is yet to come down the pike?

If it is the former then what the heck is Lauren talking about. Every new homeowner knows about the bond that can be paid off over the 30 years or just paid up front like any other home debt.

What am I missing?

Thanks for the help.

Ms Richie is talking about the Recreation Bonds that are used to purchase amenity facilities (Rec Centers, golf courses, etc) from the Developer. We pay our amenity fees to the Central commercial Districts (Sumter or Villages Central districts). These central districts are run by a board essentially appointed by the developer. These districts establish budgets for the amenity fees. Approx 60% of our amenity fees go to payoff the recreation bonds. The other 40% goes to ongoing maintenance and operations of the amenities. I believe it is these recreation bonds that are in question by the IRS as to whether they are floated for a municipal govt and hence should be tax free. Whether they are tax free or not affects how marketable they are up front and what interest rate they will be floated for. Not tax free then higher interest rate and more expense for us to pay back.

There is a whole separate issue on whether the cost that the central CDDs agree to pay for amenity purchases is fair value or not. I have some concerns about these terms as well since those agreeing to the purchase price with the developer are appointed by the developer. But, this issue is different than the IRS investigation.

The bond each of us pays on our homes is a differnent bond...it paid for the upfront infrastructure in our neighborhoods. These are considered tax free municipal bonds and I don't believe they are in question.

Thanks V7 - so if the IRS rules against us will we be socked with some new fee? Or will the amenities fee need to be raised beyond its usual cost of living increase?

Ms. Ritchie's column brings to light my biggest concern about the structure of The Villages financial foundation. And that concern is that I don't understand it completely, and need more information before I would ever consider a purchase. I appreciate her bringing up these issues, even if some in this forum think her columns are "snarky" or "slanted". If she's incorrect about something, call her on it! All I've seen in rebuttal so far are "snarky" comments from the other side of the argument. Wow, if she replied to our comments with "Good grief" or "Duh", we would all be writing letters to her editor calling for her scalp. I guess we have the right to our opionions, but the paid opinion writer doesn't have the right to hers . . . . I, for one, appreciate the fact that she is concerned enough to address our issues in this forum and in a subsequent column. I look forward to reading it.

Collie - I appreciate the 'let's give her a chance theory' but when we do that we get back and forth comment about what a columnist should or shouldn't be etc.

Let's try and keep this thread to a real fact based thread. Q & A about the issue at hand.

So where do we stand if the IRS rules against the deal?

She has had a chance to see all of our comments now, if she's done a thorough investigation at this point hopefully she will be able to explain it to us..............GN

I feel I have a good understanding of the Bond Issue and I agree with V07 the real issue is how the Non-Taxable status may change and the effect that may have on our Amenity Fees.

Steve

Your response was way out of line. It is obvious that, in this case, you do not know what you are talking about. Read what Villages07 wrote, these bonds are the ones incurred by the Central District and are being repaid by our amenity fees. They are not the infrastructure bonds we pay with our tax bill on an annual basis.

Ms. Ritchey was pointing out how an adverse IRS ruling will have financial implications on the residents of the villages. This means more money out of our pockets, like raising the on-line golf scheduling, that benefits the developer to our detriment.

Lauren:

I fully appreciate your obligation as a column writer to put an educated slant on your writings. I thought your article was excellent and informative. However, like some of the others who have replied herein, please do not think of the Village resident as some fool who simply buys into the Village lifestyle without their eyes wide open to the obligations, including the bond. I am a retired attorney for one of the largest corporations in the world. We bought new in the Villages last year with full knowledge and understanding of the bond, its cost and its interest rate obligation. We were not fooled or shocked by the bond.
Your article about the IRS ruling is enlightening for the fact that the IRS did not buy into the nature of the bonds as meeting tax exempt standards. I will be very interested in your follow-up article tomorrow. But again, please do not view a Village resident as a feeble minded person who does not understand their circumstances. You would be pleasently surprised otherwise.
Take care and keep up the good work.

Thanks Russ - I'm sure I needed to be scolded from you. I remain thankful to her for surfacing this issue that might, at some point, impact my decision to purchase real estate in The Villages.

I'm sorry that you felt scolded. I really didn't mean it that way.

In rereading Ms. Ritchie's article in the Sentinel, in that piece she was talking about the recreation bonds. In her post on TOTV today, she threw into the mix the bonds we each pay on our residence and asked if we knew about them when we bought. Well, yeah, we did. Maybe her comments on these bonds in her thread today caused confusion in the minds of more than just myself.

Carla - after re-reading it I can see the confusion and why Ohio and others might get miffed. So I apologize to any that I've offended.

This is confusing though and that is why I asked for just facts and not opinion towards Ms. Ritchie.

Thanks V7, you explained it well. Everyone knows about the bonds that are paid with the purchase of the house, but not everyone is aware of the high debt other bonds for amenities bought from the developers. That fact kept us from buying in TV many years earlier, but when we did buy in Dec, we were aware of the bond liability, and purchased a smaller home than we would have had the bonds not existed. The IRS liability may become a totally new liabilty, but we are comfortable with our purchase.

Will They last for 30 years?
 

The real problem is that... will the properties that we are paying for, be still here when the bonds are paid off?

I did not know when I bought here that I owed $18,000 debt for the common areas and would be paying for them through my amenities fees for the next 30 years. I did not realize that 1/2 of my ammenities fees goes toward paying off bonds!

Take for example the Savannah Performing center. Will it be still functionong in 30 years? Look what happened to Paradise Center.. It was temite infested and ready to fall down, before they gutted it and rebuilt it!

If they take away the favored tax status for these bonds and we (the residents) have to pay a higher interest rate, will it take away from the maintenance of our common properties? Will we get a special assessment to cover the shortfall? I think the increase in the ammenity fee is tied to CPI so that can't be changed

Will this situation result in home prices going down as prospective buyers are turned off by the negative practices of the developer?

Time will tell

Thanks Ms. Ritchie
 

Good article Ms. Ritchie.
Once I figured out I had no say in The Villages I sold (with profit) and relocated to a very nearby community. Good news, I am happier all the way around. I did a great deal of research and realize many people are very happy where they live outside The Villages.
Don't knock other places if you have never lived there. I think you are all paying too much to the developer and I really hope you don't end up paying more.

How is that possible? There must be some paperwork that mentioned that you had a bond to pay.

After all is said and done, who owns the ammenities now and who will own them after the bonds are paid? When will the home owners be able to elect Central District board members? Does the developer currently subsidize the cost of maintenance for the ammenities?

As someone who has lived in Central FL for the past 25 years (except for 4 in DC), I'm no fan of the Sentinel. In the Orlando area, it's the only"game in town." I'm glad to be in an area outside its normal distribution.

Whatever the IRS does, that's between the IRS and the account being audited. If IRS rules against an account, then both sides are off to tax court because of the money level involved. When the final answer comes is anyone's guess.

Tax issues come up all the time in businesses, and most large businesses have a cadre of accountants and lawyers on call just for situations like this. The law firm representing Mr. Morse and all is one of the most respected in Central FL and the nation, and not one inexperienced in these matters.

Ms. Ritchie wrote her article in a manner of judge, jury and executioner, and intentionally sculpted it so as to cause fear and make herself (and the Sentinel) as the savior of us all. Shades of Harold Hill and 76 Trombones!

Time - and the legal process - will resolve the matter, and all the flame-fanning of the Sentinel won't change that. Facts, not insinuation, will prevail.

The Sentinel is in the business of selling newspapers, and wants to penetrate this market. Whipping up retirees into a frenzy is one way to try to make it appear as necessary reading, but it is a cheap marketing ploy.

I really don't care whether one auditor within the IRS isn't satisfied. There's a lot of auditors in IRS, and IRS also has a hierarchy to deal with before and if anything ever becomes "final." And then there's tax court and the appellate process.

In other words.....much ado about nothing. But that's my opinion, and it's as valid as any columnist - and I am not being compensated in any manner on the subject or to create the subject into more than it is!

In the end, I'm content to be living here. It's more affordable than anywhere else I"ve found, and I believe I more than get my money's worth.

The Sentinel had a link to the entire IRS report:

http://www.orlandosentinel.com/media...3/45365631.pdf

It is a rather long read, over 100 pages, but it shows the extent to which the Central district highly overpaid for all the recreation facilities. I would suggest starting around page 73, where the appraisal method used to purchase the facilities is analyzed.

Thank you Lauren. I, for one, tried to convey an opinion to some Villages residents that they need to be concerned about the meat of your column and not consumed with a possible personal agenda. I think you have explained yourself extremely well. KEEP WRITING!

OhioGolf:

Please don't infer that Ms. Ritchie was inferring that Villages residents are old fools and feeble minded. While the majority of us did research the bonds, amenity fees, taxes, etc. before we bought here, I can't believe there are some who didn't fully understand all these facets and the more Ms. Ritchie writes, the more we can see how confusing it can be. I think all of us will have surprises in the future and it should be transparent.

The thing you are not stating is, that in most other communities, these fees ARE included in the price of the home. Impact fees for infrastructure ARE a reality that almost every developer has to pay the city, town, state, etc. where they are. There is NO way around this, the only question is wether it is totaled in the price of the home, or separated, as TV's chose to do. Now, the interest is alot, IF you choose to do it this way, if you pay it right away, then of course, that interest isn't a factor. I respect what you say about you are a columnist, but get ALL the facts, please, BEFORE you make YOUR opinion public.

Yes, but look at so many communities around this area that advertise "close to The Villages". What is the reason? People from the areas come into The Villages for entertainment and such. I'd rather pay a little more to be here, instead of living in another area, and have to commute to here.

Steve:

Everyone should be able to express a view in the form of a statement or question without being chastised for it. While I don't question your level of knowlege on these issues, I do have a concern on your comments toward those who may not be at your level. If you feel you're getting a good bang for your buck, no one should try to make you feel otherwise, but we all should be vigilant and ask that all the layers of these issues be easier to understand.

Also, how many other local newspapers are there around The Villages other than the Daily Sun?

After reading Laurens article about 25 times, I e-mailed her to thank her for the informative article. She replied back to me and all she is doing is letting the Villagers know what is going on with this bond issue. Her intent is not to be condescending nor does she think the Villagers are in anyway old,feeble,uneducated and can't think for themselves. She does not have any agenda towards the Villages. She is simply doing her job and giving the Villages a heads-up.

RCT, I am not sure that we are all talking about the same bonds. Yes, there is the one that comes with your home when you buy it new. You can pay it off with no interest.

However, the bond that is being talked about here is a different bond, for many millions of dollars, that the owners of TV owe the developer for the amenities, ie golf course, etc., sold to the owners. (I think that many assume that the amenities belong to them when they buy, but that is not always the case.) That pay off is a large % of your monthly expense charge paid to TV. There is no way for an owner to pay off their share that I am aware of.

Maybe she will do a follow up post here since she started this thread.....GN

I'm the one who made the "old fool" comment, and did read the entire examiner's report. I still believe in the "innocent until proven guilty" concept. I don't like it when a newspaper uses its journalistic pulpit to whipsaw people and cause consternation for its own commercial gain.

If this is an accounting dispute between the IRS and others, that will be determined according to the law. If there is anything beyond that, then the appropriate state and/or federal authorities will get involved.

So far only one side of the story has been heard, and that's of the IRS examiner, and based on only that side an "opinion" has been published. There's still a lot to hear before any real "truth" becomes evident, and everyone deserves that before being "opined" negatively.

The second article does address the bond on your home, yes. I understand the article, the first one, is about amenities, and all this was disclosed, and talked about, when the lawsuit came up, and the developers agreed to pay millions and millions for future upkeep of all the centers and such. My complaint still being about her is, that I agree, she is an opinion writer, but still, to form an opinion, you still must gather facts, to state and informed opinion, don't you? Not just gather enough to make a shocking story. This avenue makes her no better than a radio shock jock, in my opinion.

IRS bonds - more from Lauren Ritchie
 

Hi again,

I don't want to bore you folks -- just thought I'd try to clarify a couple things. First, I don't see Villages residents as feeble minded or stupid. Most of the folks I've met up there are retired professionals with excellent minds. I particularly enjoy the League of Women Voters ladies who have asked me to speak several times. They're sharp.

That said, if I were looking for a retirement home, I'm not sure I'd do a ton of behind-the-scenes investigation to figure out some murky financing structure that doesn't on the surface seem to affect me. Unfortunately, it actually does in this case.

Several of your posters got it right -- there are two types of community development districts in The Villages, and they issue two types of bonds. The bond that is "attached" to your house, the one that you're told about and appears on your tax bill, is issued by what are usually referred to as the "numbered districts." Those bonds buy concrete properties, such as sewer plants, and only the residents of those districts are obligated to repay those bonds.

The Village Center Community Development District is a different critter, and I've never heard anyone say that this was explained at the time of purchase. But perhaps it is. I'd love to hear if someone was told about it.

The Village Center CDD has the authority and power to issue bonds and to levy property taxes, though it has never done the latter yet to date. It also has the power to make everyone in the Villages repay the bonds, not just property owners inside the district, which, as I'm sure most of you know, are all commercial. The board is controlled by the developer, who acknowledges this openly in all the bond documents and in replies to the IRS, which are public record. The district is set up so that Morse always will control it until he choses to relinquish that control.

The Village Center CDD has the power to issue a different type of bond -- a recreational revenue bond -- which buys not only concrete things like swimming pools and golf cart paths, but also, "blue sky" items, such as the right to collect amenity fees.

One of the posters mentioned that people pay for these items, regardless of where they live, and I should get my act together before coming down on this method of payment.

To a degree, that is correct. Of course, any developer must charge for recreational things like pools and clubhouses and golf courses. I believe, however, that Villagers are paying twice and perhaps three times for the same items.

Think about it: When a developer builds a subdivision with clubhouses and pools and so forth, he typically includes those items in the cost of the house.

In this case, the developer has sold those goodie-type items to you through a purchase by the Village Center district, so those things ought to be deducted from the price of the house, right? In addition, he's sold you the infrastructure, such as sewer and water plants, through the numbered districts. Those items, too, ought to be deducted from the purchase price of the house, then.

Were they? Did you get a really sweet deal on your house? Did you pay far less for your house than people in other retirement communities pay? I think not. Ask yourself...when I bought a house, what did I buy? Theoretically, you bought only the actual lot and structure -- you're paying for everything elese separately, right?

If that's the case, you should have gotten a pretty cheap house. I don't think you did. The truth is that the cost of the amenties and the infrastructure was included in your house price. So, you're paying for them twice. Then, you're paying for them a third time because of the interest being paid on what are unnecessary bonds.

If that's OK with you, then God bless. Have fun. Ignore these columns. I disagree with your poster who doesn't think that Villages residents will be dragged into this IRS investigation. YOU are the district. YOU are its only source of income. It's not some disembodied entity. It's a taxing authority that issued bonds on YOUR behalf.

The fellow whose opinion is that nothng is going to happen may wish to do additional research. He will find that in other situations around the country where tax free bonds have been deemed taxable, the IRS typically requires that all or part of the bonds be redeemed or 'called'. To do that, the district would have to pay off the loan. And where would this money come from? It could come only from you, the property owner. I flatly asked the Village Center district manager if the district it had the financial capability to call the bonds (without bankrupty) and district officials did not answer. (tomorrow's column)

If the IRS can make stick its contention that the district and the developer are essentially one entity, then I think that opens the door to collect from the developer, too.

The notion that columnists who write for the Sentinel or any other newspaper do it to sell papers is a tired old claim without credibility that has long since lost any basis in reality. That's a diversion from the real issue, and if that were true, nothing in any paper would be believable. I don't mind when people disagree with my column -- and there's plenty of room to do so in this situation in particular -- but let's do it from a position of knowledge and respect.

I have done considerable research to try to present reasonable scenarios of how this might play out. There are more possible ways than I can detail, and I do not claim to be a bond expert. I don't think anyone can say what will happen yet. It's too early. But I think that there's at least a box to be drawn within which folks can see the possibilities, and that's what I've attempted to do with Wednesday's column.

Thank you for allowing me space to respond and to provide more information. I appreciate everyone reading the columns, too. And I look forward to hearing more from all of you.

Lauren

RCT

The lawsuit did not address the bonds used to buy the recreation facilities. It involved the developer not using part of the amenity fee to establish reserves needed to cover capital expenditures to maintain/rebuild recreation facilities and the like, such as cart paths. Although the value paid the developer for these facilities has been criticized by many, the lawsuit had nothing to do with this type of bonds used, the method used to value the facilities and controlling interest held by the developer over the non-resident central district.

In addition, the lawsuit also involved the use of tee times for lifestyle previews. In settling the lawsuit, the developer was limited as to how many tee times could be used on courses north of Rt. 466. It is because of this settlement that tee times south of Rt. 466 are in short supply as he just increased the number available for lifestyle previews on these courses.

As far as the article being "shocking", all I see her doing is summarizing the opinion of the IRS documents and providing a link to them for all village residents to read and form their own opinion of the dealings of the developer.
Read them through and let me know what you think of her article then.