Special district costs LPGA residents more

Article Courtesy of The News-Journal
Published August 31, 2011


DAYTONA BEACH -- The gathering resembled any number of local government meetings. Board members sat at the front of the room, shuffling through papers dense with numbers. A couple of dozen residents took turns complaining about how the numbers added up to bigger tax bills.

But this wasn't city hall; it was a conference room at the Holiday Inn on LPGA Boulevard. And these weren't commissioners or council members; they were members of Indigo Community Development District Board of Supervisors.


The taxes were just as real, though, and growing at a rate that prompted one retiree to say something that's probably never been uttered at a city meeting.


"I'm paying more than I should to you folks or I'm paying less than I should to the city," LPGA resident Al Glenn told board members at their budget hearing Wednesday. "I think I get more services from them."

The property tax notice Glenn and many of his neighbors received in the mail last week showed they'd be paying two flat assessments totaling $981 to the district -- more than they'd pay to either Daytona Beach or Volusia County. Glenn wasn't the only one wondering what he got for his money. The answer isn't simple, involving a mixture of lush landscaping, arcane government rules -- and a cratered real estate market.




Community Development Districts are about as local as government can get. Some of the best-known examples are probably Celebration near Disney and The Villages retirement community in west Central Florida. They're overseen by developer-initiated governments that can issue tax-free government bonds to fund infrastructure like roads, sewers and landscaping within a development project.


In most neighborhoods, those costs are paid for by a developer with private financing and passed along in the sales price of a home. A homeowners association may cover ongoing maintenance, billing residents on a regular basis.


But in a CDD, the developer can issue the bonds to get the money upfront -- then pass along the costs to the buyers, who can be taxed up to 30 years to pay off the bonds. Maintenance fees also can be added to tax bills. All the decisions are made by a board, which is generally controlled by the developer until a certain level of sales is met. Then residents take over and vote for board members.


Despite disclosure requirements, more than a few new homeowners have been surprised by the arrangement when the bills come due. But the deal has proven popular with developers, who see it as a way to save on upfront costs and guarantee a standard for appearances and amenities.

There are 600 CDDs throughout Florida, state records show, including 11 in the Volusia-Flagler area such as LPGA and Flagler County's Grand Haven.


Developers helped write the laws that have governed the districts since 1980, but they really didn't take off until the real estate bubble. About two-thirds of Florida's CDDs were created between 2003 and 2008, said Richard Lehmann, a Miami Lakes-based investment advisor who maintains a newsletter and web site on the subject.


The timing couldn't have been worse, and now developers who couldn't sell enough parcels before the bubble burst are on the hook for bond payments and maintenance fees. About one-third of CDDs are in default or in danger of going into default before the market turns around, Lehmann said.

And it could get worse before it gets better, he added, saying their failure could represent "the single biggest default event" involving municipal bonds in the past 30 years, totaling some $3 billion in losses.

Not all CDDs are struggling. Districts like Grand Haven, which is mostly built out, are less vulnerable to financial troubles than those where developers still hold many of the parcels, said Craig Wrathell, the district manager for Grand Haven.


Grand Haven's collection rate on assessments through July 31 actually exceeded 100 percent, Wrathell said, because many of the community's 1,900 property owners don't take advantage of a 4 percent discount for paying early.


"Built-out residential communities have actually done well," said Wrathell, whose Coconut Creek company manages districts across the state.




The same can't be said for LPGA, which started in 1995, two years before Grand Haven, but has been slow to sell its 4,000 house lots. Board members blame part of the financial troubles on CoastOak Group, a Texas-based developer they say has refused to pay its assessments and is now nearly $1 million in arrears.


Following more than a year of negotiations, the board agreed last week to begin foreclosure proceedings on some of the developer's parcels. Board members said CoastOak refused to pay because it argued that many of its parcels couldn't be developed; a representative of the company could not be reached last week.


That's put the district in a bind financially.


LPGA's board members are residents, and they've cut the district's expenses by nearly one-third since 2007. Yet operating assessments are up more than one-third, to $559 per unit because of the shortfall. (Residents were bracing for a $637 bill, but further cuts to the budget lowered it.) On top of that, homeowners pay an assessment for the cost of construction bonds, another $344 in most cases, as well as homeowners association fees that vary depending on where they live within the subdivision.

Board member Thomas Leek Sr. said there wasn't an alternative.


"All of us are residents here, too," he told residents during last week's meeting. "We're in the exact same boat, and we don't like it, either. We're as frustrated as you -- probably more, for being directly involved with it."


The operating assessments cover costs for landscaping common areas, streetlights, maintaining lakes and the administrative costs for the district. The district also pays half the cost -- about $100,000 -- for maintaining the appearance of the Interstate 95 interchange that bears the subdivision's name.


"So what you're telling me," resident Richard Mathis asked board members, "is that for the rest of my life, as long as I live in LPGA, I'll be paying 50 percent of the upkeep for the interchange."


Board members said they hope the threat of foreclosure will prompt CoastOak to make good on its debts. That could lead to lower assessments for residents in the future. Finances also will improve as more of the subdivision is developed, they said.


To make sure that happens, though, it's important for residents to protect their investment, board member Leek said.


"Our primary concern is not letting property values decline because of upkeep," he said following the board meeting. "The market is one thing. We can't do anything about that. But we need to keep the neighborhood attractive to developers and buyers."