There will be a City Council public hearing tomorrow, July 15th, about creating a Public Infrastructure District (PID) for Black Desert Resort. That’s so they can secure up to $106 million of low interest financing. The City would have some oversight through a Governing Document, but no financial liability. All the debt would be paid for by residents of the “District” through an added real estate tax for 30 years. The tax won’t be more than 1% of the home value each year. It probably won’t be less than that either.
It sounds perfect, doesn’t it? The City has no liability but gets $50 to $100 million of “public infrastructure” and more revenue to the City. And it’s paid for by the home buyers and businesses within the District.
It is perfect, isn’t it? That depends on how comfortable we are as a city to be able to take care of the needs of 800,000 guests a year, 1,200 new homes, a 150-room hotel, related amenities, a 19-hole golf course, and 174,000 sq.ft. of commercial space. Black Desert Resort will probably happen even without the financing from the PID. But it might not be as big. Is that a bad thing?
I believe a PID can be a useful tool in difficult situations, like improving a blighted area. But the Black Desert site is an excellent location and many types of successful developments could be done there.
There are other issues. It may be a perfect deal for the City and developer. But is it a perfect deal for home buyers? If they know they will be paying more than twice the real estate tax the rest of us pay, and paying it for the next 30 years, then fine. That’s their choice. But will they really understand that? And what happens to those home buyers if the PID defaults on the debt? For these and other reasons the City Council should deny the request for a PID.
To help avoid the shock of additional real estate taxes, the City is requiring that initial buyers be given a disclosure notice that basically says, “a residence valued at $500,000 would have an additional property tax of $2,750.”
This isn’t a particularly good notice requirement. The City should take every precaution possible to ensure that buyers in the District are clearly aware of the added cost. Here are problems with the notice:
- There are two values on our tax statements, “market” and “taxable.” The notice does not say which it refers to. Doing some math makes it clear it is “market value” for a primary residence. Full time residents get a 45% discount from market value, leaving a taxable value of $275,000 and an added tax of $2,750. That’s on top of the normal real estate tax of about $2,600.
- If it is not a primary residence the taxable value is the same as market value and the additional tax would be $5,000. I believe the notice is insufficient and makes light of how much the extra tax will be. Plus, the notice should state what the base real estate tax is so buyers can understand what their total tax liability will be.
- The notice applies only to first-time transactions. That will create surprises down the road for future buyers.
- The notice only has to be given at closing. That’s a lousy time to tell anyone they will owe more money… and annually for the next 30 years.
And what about my other concern for home buyers? What happens to them if the PID defaults on the debt? I believe the City needs to clearly understand this potential risk. So do buyers. These future home buyers will be part of our community. So, we need to take care to ensure the PID does not create problems for them.
Here are some more concerns about the Governing Document:
Section V.A.1.a The District has authority to finance and develop public improvements within and without the boundaries of the district. Why would it have authority to do this outside the District when the District is the only area it can generate the added real estate taxes needed for debt payment?
Section V.A.2. The District may dedicate the public improvements to the City. Why would they do this, and if they did would that transfer and debt obligations and maintenance costs to the City?
Section V.A.2. First it says, “All parks and trails owned by the District shall be open to the general public and non-district residents subject to rules and regulations of the district.” Then it says, “trails interconnected with a city or regional trail system shall be open to the public free of charge.” Does this mean the trails and parks mentioned first might have a fee? Will other infrastructure, like the desert boardwalk and nature center be open to the public free of charge?
Section V.A.6.b The District can withdraw any area within the district boundaries from the district. Why would they do that? Wouldn’t that reduce the assets that pay the extra real estate tax to ensure repayment of the debt?
Section VIII.A The debt for the public infrastructure improvements is to be paid from the additional real estate taxes, but “The District may rely upon other revenue sources like fees, penalties, charges.” Does that mean property owners could end up paying more than the additional 1% real estate tax to repay the debt?
Section VIIID. The District may also rely upon Community Reinvestment Area revenue. Why is this in the agreement since the CRA was not approved?
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