Community Development Districts have been in the news lately, causing worries among some homeowners in these districts.
A Community Development District, or CDD, is a local unit of special-purpose government established to finance public infrastructure, such as roads, utilities and drainage, along with amenities like parks and recreational facilities in locations where local county governments are not prepared to provide such facilities.
Homeowners are more than willing to pay CDD assessments if they feel they are getting quality services in return – just ask residents in a number of successful CDDs in the Tampa Bay area, such as Fishhawk and Westchase in Hillsborough County and Ballantrae and Seven Oaks in Pasco County.
Recently, CDDs have been blamed for causing some districts to go into delinquency on their bond obligations. This is simply not true. The problem stems from the decline in the residential housing market. Developers around the state whose sales disappeared have fallen behind on debt payments to the CDDs, causing some CDDs to go into default. But, it is not the fault of the CDD structure, but rather a function of a housing market that overheated then stalled.
Why does all this matter? Because it's important that the facts be known about CDDs, since their continued viability is important to the state's continued growth. Here are some key points:
* Homeowners are not saddled with additional debt when a developer defaults. If one property owner fails to pay an assessment, homeowners are not responsible for the shortfall.
* Local governments are not responsible for defaulted bonds; there is no burden on taxpayers of the county. Florida law specifically states that, "A default on the bonds or obligations of a district shall not constitute a debt or obligation of a local general-purpose government or the state." The bondholders are responsible for dealing with any shortfall.
* Homeowners do not buy into communities unaware of the existence of CDD assessments. State law requires full disclosure of the existence of the CDD and amounts of assessments with each sale of property.
Information distributed by a South Florida consultant overstated the default problem by stating that entire bond issues are in default when in many cases they aren't. For the CDDs on that list, which are managed by Rizzetta & Company, we found the estimates of default totals overstated by nearly 100 percent.
An important point in understanding the scope of the problem is this: If one landowner is late on a payment, or if one parcel of land is in default, it does not mean the entire bond issue is in default.
Some have implied that CDDs are a way for developers to get rich. That is hardly the case, as many developers who have fallen behind on their bond payments have lost everything. CDD reserve funds are designed, and required by investors, to be used to make interest payments in the event of a shortfall. Slanted language such as "raiding" reserves is simply a weak attempt to paint developers as the bad guys.
Of the 580 CDDs in Florida, well over 300 have bonds outstanding, and more than two-thirds of these are thriving communities, financially stable and have no issues with delinquent payments. While the default situation is causing difficulties for many communities, some CDDs have successfully restructured their bond debt and have already started turning their communities around. In addition, several distressed CDD communities are making use of reserve funds for maintenance, which is valuable in communities with residents. Opportunities such as these are typically available only to CDDs.
Our hope is that as Florida's real estate industry works through this challenging time, current and future homeowners understand the long-term advantages of CDDs for the communities they serve.
Bill Rizzetta is president of Tampa-based Rizzetta & Company Inc., which manages 116 Community Development Districts and 120 homeowners associations in Florida and Alabama.