If you live in a CDD community, pay attention

Article Courtesy of The St. Petersburg Times
By Dan DeWitt
Published October 18, 2010


Mary Arthur, who lives in the Sterling Hill subdivision off Elgin Boulevard in Spring Hill, is aware she pays something extra to the community as part of her annual tax bill.

But she couldn't say how much of that bill goes to the Sterling Hill Community Development District. In fact, she didn't even know there was such a thing.

"I'm not too in tune with it," said Arthur, 50.

Some of her neighbors knew a bit more. They knew the CDD has an elected board of supervisors. One neighbor, Harry Reinhard, a former housing inspector, even had a pretty good grasp of how CDDs work.

Fees assessed on each lot allow the district to issue bonds that pay for roads, sidewalks, water lines and community centers and to keep them all maintained.

One view is that this is a way of billing homeowners for expenses that would otherwise be included in the price of their homes; the other is that it's a way for developers to eventually dump infrastructure costs on residents.

Regardless, the lesson here is one that can be applied to every level of local government, especially during election season: Pay attention.

People such as Arthur are not that unusual when it comes to development districts, said Richard Lehmann, a Miami Lakes businessman whose Debt Securities Newsletter tracks the state's nearly 580 CDDs.

As that number suggests, these districts are more common than many realize.

In Hernando, there are at least four CDDs in existing developments: Southern Hills, Sherman Hills, Silverthorn and, of course, Sterling Hill. That is dwarfed by the 45 in Pasco County, according to the state Department of Community Affairs website.

Even well-informed people, such as Reinhard, may not know many details of their districts. He didn't know, for example, that U.S. Bank had notified bondholders in September that Sterling Hill's district had defaulted on payments of some of its bonds; it has issued a total of $47 million worth for the project.

He didn't know that a company headed by one of Sterling Hill's developers, Don Buck, had drawn a $50,000 fee for "property management" for several months in 2008 and 2009.

He didn't know that an audit of the development district's finances for the 2009 fiscal year found it deficient because it dipped into its reserve fund to make monthly payments to bondholders.

Buck formed Devco Development in 2002 as a partnership with Bob Sierra, who is best known in Hernando County for receiving approval for the planned Hickory Hill subdivision in Spring Lake.

Buck was the managing partner and served as chairman of the CDD board since it was formed six years ago. Devco had nothing to do with the default to bondholders, he said; that was caused by builders who had bought large number of lots and fell behind on paying the assessments.

The monthly payments to a separate company he formed, Hernando Developers LLC, were legitimate, he said, because the company really was managing construction of roads, community centers and other infrastructure in the development.

But Buck acknowledged he was taking the payments shortly before he unloaded two phases of the project in 2009. The company realized, he said, the value of the land was less than that of the bonds, and turned the property over to bondholders instead of making payments.

"That's his way of milking this for all he can," Lehmann said of the monthly payments.

Sorting out who is right will be the job of the new board, which for the first time will not be dominated by Buck and others affiliated with Devco. Three seats are open, two of which will be decided by Sterling Hill residents in the Nov. 2 general election. Candidates had to register with the supervisor of elections, just like they would if they were running for any other public office.

Frank Zuilkowski, one of the candidates, said if he's elected, the first order of business will be an audit of the district from when it was under Buck's control.

Of course, there's already quite a bit of information available. CDDs have to conform to the state's public record laws. Sterling Hill's district meetings, agendas and previous audits are available on its website, sterling hillcdd.org.

If you're a resident, all you have to do is pay attention.