| TVMayor |
06-06-2013 06:53 AM |
From the Orlando Sentinel
From the Orlando Sentinel
Quote:
IRS rules that The Villages has no right to issue tax-exempt bonds
By Eloísa Ruano González, Orlando Sentinel
June 6, 2013
The Internal Revenue Service has ruled that The Villages doesn't have the right to issue the tax-exempt recreational and utility bonds that have been crucial to the development of the sprawling retiree haven.
Last week's decision could prompt The Villages government to strike a deal to pay the taxes on the bonds. Such a prospect "has a potential negative impact on residents," said Elaine Dreidame, president of the Property Owners' Association of The Villages.
The Village Center Community Development District's major revenue comes from annual amenity fees, which help pay for upkeep of golf courses and other recreational services. About half the money goes toward paying off bonds.
Dreidame said Wednesday she is concerned that more of the amenity fees, which cannot be raised, will go toward paying off the taxes.
"I hope the developer steps up," she said, referring to H. Gary Morse, a major GOP donor and fundraiser. She added that Morse — the drving force behind the the fast-growing development of 100,000 northwest of Orlando — should "pay to get us out of this problem rather than pledge the amenity fees."
The agency's final decision, dated May 30, comes after a five-year probe into the way the CDD borrowed money. The investigation focused on $364 million in bonds the district issued between 1998 and 2003, which the federal agency could now end up taxing.
"I'm disappointed at their conclusion," said Perry Israel, a California attorney representing the district. He added the district "is currently considering what its options will be as it goes forward."
Ultimately, the burden falls on the holder of the bonds, who can challenge the decision in court, Israel said. In such cases, he said developer districts also have the option of settling with bondholders or reaching an agreement with the IRS to prevent the agency from going after bondholders.
The IRS argued in a memorandum that Morse and his family controlled the district's board and made money from the bonds. The agency also argued that a government should be accountable to the public, which then decides how the money from the bonds should be spent.
"We believe that an entity that is organized and operated in a manner intended to perpetuate private control, and to avoid indefinitely responsibility to a public electorate, cannot be a political subdivision of a State," according to the memorandum from the IRS Tax Exempt Bonds division.
A state law in 1980 gave private developers across Florida the right to establish their own governments to help pay the costs of major projects. A provision allowing for tax-exempt bonds was an important part of the legislation, which made borrowing cheaper.
Although control of the CDD board would be transferred to residents once they owned the majority of the property in the district, the memorandum states that "even after over 20 years, this has not happened … Indeed, the facts indicate that Issurer [district] was intentionally structured to ensure that this never could happen."
The memorandum was mailed to District Manager Janet Tutt, who was out sick and unavailable for comment, an employee said.
Israel said there are thousands of similar developer districts in the U.S. that could be affected by the IRS' decision. Not only does it put a "new standard" on what is considered a "political subdivision," but it also will likely make it more difficult for developers to find money to build utilities and other services, he said.
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IRS officials: Villages not a "government" that can issue tax-exempt bonds - OrlandoSentinel.com
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