Benson officials are in the early stages of creating an improvement district to pay for roads and other infrastructure for the Villages at Vigneto project.
What’s known as a Community Facilities District is planned for the 28,000-home development that would straddle Arizona 90 along the Whetstone Mountains, south of Interstate 10.
The district would sell bonds to pay for infrastructure, to be repaid by future homeowners and businesses, so existing residents won’t foot the bill.
It would be formed by the city government, and could be run by the City Council or an independent board — a decision the council must make.
Mike Reinbold, a partner for the project’s Phoenix-based developer, El Dorado Holdings Inc., told the council in the spring that a project of this scale won’t be financially attractive without a district because building infrastructure requires so much investment capital.
While council members agree the district is a good idea, controversy erupted last week over naming of its bond counsel. The attorney was the first staffer picked for the district. An attorney for national law firm Kutak Rock — recommended by El Dorado — was picked Monday night on a 5-2 vote, over objections of Benson City Attorney Gary Cohen.
The dispute was over whether the council should wait to hire the bond counsel until receiving written assurances that the city won’t pay his expenses or hire now based on verbal promises of a written guarantee later.
In the coming months, the council must vote to create the district, appoint a board to run it and name other staffers to help form the district and to structure and market bonds.
In two previous meetings, the council heard different presentations from El Dorado officials and what they called their “A” team of experts, and from Phoenix attorney Michael Cafiso who was seeking to be named bond counsel, city officials said.
Councilman Jeff Cook said last week he was “frightened” that El Dorado officials are pushing to have their allies named to all district board and staff positions.
Cook said it will be hard to have independent oversight of the district under those circumstances. He also said that Reinbold had told him personally that if the council selects attorney Michael Cafiso of Phoenix as bond counsel, El Dorado would kill its project because Cafiso would take twice as long and cost twice as much as the company’s preferred bond counsel would take to get the district started.
Mayor Toney King said he hasn’t received or sensed pressure or threats from the developer.
“He hasn’t even met with them that much. I don’t understand how he feels that pressure,” said King, who like Cook has been a strong supporter of the Vigneto project. “We are not going to listen to the developers. We are going to choose for ourselves.”
At El Dorado’s April 20 council presentation, Reinbold expressed hope the council would find the same value in company-recommended experts as El Dorado did. He deferred to the city, saying his concern is the team’s ability to serve both the city’s and El Dorado’s purposes, meeting minutes show.
Cost to Benson
Last Monday’s council conflict over a bond counsel addressed the fact that the financially troubled Benson government can’t afford an attorney’s costs for compiling a bond package. It could cost $200,000 if Ken Guckenberger of Kutak Rock’s Denver office were to charge on a pay-as-you-go schedule, Councilman Patrick Boyle said.
Guckenberger and Reinbold assured the council that they could come up with a written arrangement to free the city from the bond lawyer’s tab.
City Attorney Cohen urged delay, saying, “This is happening on the fly and lawyers like me, when things are changing on the fly, we get nervous.”
Mayor King said that if El Dorado did not provide the city by week’s end with a written agreement ready to sign pledging the city will incur no costs, “I will call a special meeting, an emergency meeting to cancel what we are doing here.
“We’re not holding back as a council. We want to go forward with it. I’m tired of people telling us we’re dragging our feet,” King said.
Quoting author Gale Sheehy of “Passages” fame, Councilman Joe Konrad, who sided with King, said, “Growth requires a temporary surrender of security. That’s basically what we’re wrestling with here.”
Cook said he felt very uncomfortable approving a deal, then renegotiating it quickly, since that would make the council “look like a bunch of stooges” in local media.
I don’t know why this action doesn’t make sense, the mayor countered.
“We already told them what we expect,” he said. “They told me what I wanted to hear.”
OUtside Expertise
In Reinbold’s April 20 talk to the council, he said that El Dorado Holdings sought outside expertise to help create the facilities district, because “sad to say, Arizona is very far behind in the process and in accomplishing the goals and tasks that many other states are doing and is not competitive on a national basis,” regarding performance of facilities districts, Reinbold said, council minutes show.
One expert, Gary White of Denver, told the council that his law firm represents 200 to 300 such districts in Colorado and that virtually “no development of any magnitude” there lacks one.
He said he hopes to help shape the district “so this type of project can maximize the opportunity and ultimately create the quality of development El Dorado has presented to council and everyone wants instead of more sprawl,” the minutes show.
When Konrad asked about the city’s exposure to liability if this development went belly up — as its predecessor Whetstone Ranch did — with partially developed infrastructure, Reinbold said his company wouldn’t let that happen, since it has done this kind of work a long time.
Using the current “players” in Arizona, it would be extremely lucky to get a district started in 12 to 18 months, but with El Dorado’s team, “6 to 9 months is attainable and should be the normal time frame,” Reinbold said, council minutes show. That timetable roughly matches El Dorado’s hopes to start development by January 2016.
The City’s liability
In his June 22 pitch to the council, Cafiso urged the council to make sure the city is protected against liability if a development or a facilities district collapses.
Representing the Greenberg Traurig law firm, he said he helped create Arizona’s first district in Phoenix in 1991 and has recently helped create one in Peoria west of Phoenix.
“These districts are very powerful in terms of what they able to do,” he said. “They can construct acquire, operate, own or lease pretty much any sort of what is defined in the statutes as public infrastructure.”
He has been involved in districts that took two years to form, but “that would be a long time, in my opinion,” he said. The Peoria district took six to eight months, maybe a year, he added.
What takes the most time in setting one up is, first, deciding if the city wants formal policies and procedures for them, he said. Second, it’s preparing a development agreement to decide a project’s appearance, what the district will do, how much debt will it incur and how it will be repaid, he said.
The council also needs to consider the advantages to the developers, he said.
“The developer gets to borrow off (the district’s balance sheet). It’s a pretty nice advantage for them,” he said. “I’m not saying it’s a bad thing. I make a living doing these things, but you also need to think about the developer getting an advantage, and you want to make sure you’re held harmless, in terms of expenses and indemnification.”
