Cash-strapped Pima County looks to special taxing districts as 'last resort'

Sometime in the not-so-distant future, a somewhat novel election will take place in Pima County: A single ballot will be cast, and it will authorize the eventual issuance of up to $45 million in public debt.

That debt, which will be controlled by the Board of Supervisors, will pay for infrastructure in a large residential development over the next 15 years.

The vote will take place in the recently formed Rocking K Community Facilities District, which overlays the roughly 2,000-acre residential and commercial development Rocking K South near East Old Spanish Trail and South Camino Loma Alta.

As certified by the county, there aren’t any registered voters living in the district, and home closings aren’t expected to begin until 2019, according to the district application submitted by the developer, an affiliate of Diamond Ventures Inc. In the absence of residents, state law allows for landowners to vote in such elections.

“It’s going to be a landslide,” County Administrator Chuck Huckelberry quipped.

So, what exactly is a Community Facilities District and why is a transportation columnist writing about it?

A CFD is a special taxing district first authorized by the Legislature in 1988; counties got the ability to form them in the mid-2000s. Funded by property taxes assessed on district landowners, CFDs are intended to provide the means to build basic infrastructure like sewer mains, parks and — to answer the second question — arterial and collector roads. CFDs have also generated concerns and criticism .

With Rocking K, which is the first county-formed CFD, around $15 million of the nearly $40 million of district-funded improvements planned over the next 15 years will go toward roadway infrastructure. Some developers say the traditional sources of private financing for master-planned community infrastructure have dried up in the wake of the Great Recession, leaving few options to move projects forward.

“With the recession, virtually any kind of institutional, big bank financing has dried up,” said Dean Wingert, head of the Crown West Land Group, whose development Gladden Farms in Marana is one of just a handful in the county with a CFD. Wingert clarified that developers still have to pay for infrastructure upfront, and are only reimbursed by the CFD after it has been inspected and accepted, as is the case with Rocking K.

Priscilla Storm, Diamond Ventures vice president, said, “Arizona’s use of CFDs make us more competitive at attracting investment and growing our economy.”

In its 2015 comprehensive plan Pima Prospers, the county includes CFDs in a list of “funding options which should be fully utilized when expecting new development to pay for the cost of growth.”

“Funding options for roadway improvements, maintenance and repair are very limited,” Huckelberry noted in his recommendation that the board approve Rocking K, which it did 5-0 on Jan. 17. Storm agreed, saying the state “faces an infrastructure financing shortfall.”

Huckelberry later told the Road Runner the county’s rising — but qualified — regard for CFDs stems from “the frank realization that transportation finance and funding for any infrastructure in the state is poorly funded today, and the likelihood that it will be funded in the future is not very good.” Beyond funding road construction, CFDs also include a separate tax to fund maintenance in perpetuity, relieving the county of the financial burden of caring for roads once they’re completed.

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“It’s one of those last resorts,” he said of the county’s less-than-enthusiastic embrace of CFDs, adding later he would prefer “that they not exist.”

That lukewarm attitude is due to the fact that CFDs mean higher property taxes for district residents (Rocking K homeowners will likely pay between $2.30 and $2.80 more for every $100 of assessed value) and few — if any — eventual residents participate in the creation or initial debt authorization, which Huckelberry chalked up to the rules the Legislature set. Storm said there’s nothing unusual about that latter feature of CFDs, which is unavoidable when the undeveloped land has just one owner, as is the case with Rocking K South.

Kevin McCarthy, president of the Arizona Tax Research Association, which opposed the creation of CFDs, shared some additional concerns .

Because CFD residents also pay property tax to all other overlying taxing districts, and the roadways the district pays for are public and sometimes extend beyond the development itself, there is the possibility of what McCarthy called “double taxation.”

He also said the assumption that upfront home costs in CFDs would be lower, due to the fact the developer doesn’t have to incorporate infrastructure costs into the price, is not necessarily true.

With county-created CFDs specifically there are additional risks, according to McCarthy, including the encouragement of leapfrog development .

Huckelberry took issue with McCarthy’s “double taxation” claim, saying that CFD residents get an “enhanced service.” He also said leapfrog development existed long before counties could form CFDs.

The county has put in place a number of policies to guard against potential pitfalls. For one, the supervisors will serve as the governing board to help “maintain control of tax levies and issuing debt.” It will be up to the board to determine the “amount, timing and form of financing.”

Developers are also legally required to advise would-be buyers of the CFD’s financial implications.

DOWN THE ROAD

Starting early Monday, Drachman Street will be closed from Stone Avenue east to Seventh Avenue to allow for reconstruction. The stretch is expected to reopen by Feb. 27, though weather could affect the schedule.

Contact: mwoodhouse@tucson.com or 573-4235. On Twitter: @murphywoodhouse