Newberry City Commission approves Westone Community Development District

BY DAVID LIGHTMAN

NEWBERRY, Fla. – At their October 14 Regular Meeting, the Newberry City Commission learned how Community Development Districts (CDDs) operate and voted to approve a CDD application for the Westone planned development on first reading. 

Newberry Principal Planner Jean-Paul Perez introduced the first reading of an ordinance granting a Community Development District for the proposed 237-acre Westone Planned Residential Development. City Attorney Kiersten Ballou said, “This is an ordinance… providing for the district’s external boundaries, providing for functions and powers of the district, providing for the initial Board of Supervisors of the district… and an effective date.” Perez said staff recommended approval, but that only meant that they didn’t see any potential liability issues for the City, and it was up to the Commission to make the decision. He added that a CDD would help the developer to secure construction financing more easily, and the second reading of the ordinance will take place on October 28.

Mayor Jordan Marlowe asked about Celebration Pointe filing for bankruptcy and whether it had anything to do with their CDD. Both Perez and City Manager Mike New told Marlowe, “No.” 

What is a CDD?

Continuing his presentation, Perez explained, “Community Development Districts are a public financing option. So, instead of going to a bank, you will establish a district. That district will issue bonds. Somebody will buy that bond, and then you’ll use that debt to fund the improvements in the district. And then the residents that take up residency there – possibly the developer, at the beginning – will start making payments on those [bonds]. And so, like the fire assessment that the Commission just adopted, it’ll appear on the tax bills paid annually at the end of the year when their taxes are due. And it’s a one-time payment. They may have an HOA fee on top of the CDD fee, but typically it’s all rolled into one, so there’s only one fee on the tax bill at the end of the year. Alright, so that is essentially what a CDD is. It’s a special taxing district to pay for the improvements that are happening in the area.” Regarding the quasi-governmental members of the CDD’s board, Perez said, “That district will need to coordinate with the Supervisor of Elections and get all their candidates onto the ballot so they can vote for them in a general election.”

Marlowe invited the attorney of the developer, M3, to better explain the concept of a CDD. Wes Haber, of the law firm Kutak Rock, said, “By Florida law, a bond cannot exceed 30 years, and typically they are 30 years up front, as Jean-Paul mentioned. They’re paid by the landowner, but as a home gets sold, the debt assessment that’s allocated to that particular home remains for the term of the bond. Every property owner within the boundary of the CDD has the opportunity to pay it off early – sometimes that happens, because then if they want to sell their home in the community, they can tell their potential purchasers, ‘Your neighbor’s going to have this much of a debt assessment against their property for the next 28 years. I’ve paid yours off.’”

“But,” Haber continued, “more often than not, they don’t get paid off and they’ll remain for the term of the bond. Typically, when a bond is issued, the property is under development or may be completely vacant, and as a result, you’ll have a higher interest rate because the bonds are a little less secure. After the property gets developed, similar to a mortgage, if interest rates go down or the investment becomes more secure, you could get a rated bond. There’s an opportunity to refinance a bond, and oftentimes homeowners will get the benefit of a refinancing of a bond and their debt assessment will go down – another reason why people don’t pay off early… A CDD often is a perpetual entity because it will own, operate, and maintain the public infrastructure within its boundary. That’s often stormwater improvements, so even after the bonds that were issued to pay for those improvements are completely paid off, the CDD will remain in place. They will still meet the same way this City meets… They have to comply with Sunshine Law, Public Records Law. They’re audited annually, and they will continue to levy an O&M [operation and maintenance] assessment, and that O&M assessment will be paid on the tax bill.”

In response to a question from Commissioner Tony Mazon, Haber said, “You cannot extend the term of the bond. You can only refinance for the existing term. So, typically, you’re not getting any years added. You’re just reducing the amount.”

Questions from the City Commission about CDDs

Responding to Marlowe’s question about whether a CDD is “cheaper” for a developer, Haber answered, “I will say that it’s a more effective form of financing, operating, and maintaining improvements for a residential community. It gives the developer access to the tax-exempt bond market for financing, which means that all that money is up front when you issue the bonds, sitting with a trustee, ensuring that money is being used for only capital infrastructure improvements in the project. So, from a homeowner’s perspective, they’re benefited. Especially if you’re one of the early homeowners, you have less concern about a project going under because that money is sitting with a trustee. You know that your project is going to be – or you have a stronger likelihood – that that project’s going to be developed because the money is already in the bank… The cash efficiencies that a developer realizes by virtue of using a CDD often result in a nicer community for homeowners.”

Marlowe asked whether the City could become responsible for the debt. Haber said, “It’s a good question. Chapter 190 is clear in stating that the CDD’s debt cannot become the debt of the state, the city, or the county. The debt is secured only by the real property.”

Commissioner Tim Marden said, “This sounds like we’re growing government. It sounds like we’re complicating things for the residents. I could potentially see where a CDD becomes, if it’s big enough, I suppose it could become a little bit more… They could have more power than we have, in driving some of the narrative, at least.”

Haber said that Chapter 190 limits the powers of CDDs and added, “Pretty much the only thing a CDD is there to be is a mechanism for the financing and maintenance of public infrastructure.”

Responding to Marlowe, Haber said some CDD boards only meet at the minimum frequency required by law, such as twice a year, while others have many residents who enjoy the meetings and choose to meet monthly.

Marden said he wasn’t comfortable voting for the CDD until he had more information, but because Commissioner Monty Farnsworth was absent from the meeting, he said he could vote “Yes” to avoid a 2-2 tie and possibly vote “No” at the second reading. 

Commissioner Mark Clark said they needed more information and “We can always say no on the second round.”

Homeowners will have to pay approximately $1,200 per year

Returning to the topic of the Westone CDD, Perez said, “An initial cost estimate… came in at $32,600,000. It’s a spitball number. It’s not a final number. It could be higher, could be lower, but that’s just what they’re estimating….  $32,600,000 over 850 houses, which this development is approved for, is about $38,000 per lot, approximately. Again, these numbers are not final. If you spread that over 30 years, that’s about $1,200 a year.” Perez said that is comparable to a typical HOA.

Perez said the initial board members for the first five years will all be officers of the development company, M3 (David, Peter, Eleanor, and Caroline McDaniel and John Paccione).

Perez said the City hired a consultant to review the CDD application, and he found it to be satisfactory; also, staff said it is consistent with the Comprehensive Plan and land development regulations. 

Marlowe asked about payment for board members. Haber said the maximum they are allowed to receive is $200 per meeting or $4,800 per year, and board members who work for the developer are not usually paid.

CDD approved on first reading

Commissioner Rick Coleman made a motion to approve the ordinance, and Commissioner Mazon seconded the motion. It passed 3-1, with Marden in dissent and Farnsworth absent.

First meeting in November rescheduled

City Manager New said, “The first meeting in November occurs on a scheduled holiday, so staff proposes that the City Commission move the meeting to Tuesday the 12^th. So let’s just change our regularly scheduled November 11th meeting to November the 12^th.” Commissioners voted 4-0 to reschedule the meeting.