By Deborah Goonan, Independent American Communities

Here on IAC, I’ve been following a growing trend. Subdivisions, and planned communities — many of them HOA-governed — are turning to Special Districts to pay for failing infrastructure and other neighborhood improvements.

On this website, you can read about dozens of communities across the U.S., where homeowners look to their local governments to collect taxes or fees for various projects.

When it’s not possible or practical for a homeowners association to drastically raise assessments, and the local government is unwilling or unable to provide services, a Special District can raise the funds the HOA needs or desires.

In other cases, a neighborhood or community with no mandatory membership HOA, finds it impossible collect fees and manage services as needed.

Generally, Special Districts have one thing in common — they create a mandate for some people within a municipality or county pay for repairs or added services, without increasing costs for all taxpayers of a city or county.

 

Development Districts vs. Special Districts

Before getting to the 9 questions homeowners should ask about a proposed Special District, let me make an important point.

This article focuses on Special Districts, not be confused with Development Districts.

Development Districts are private-public tax districts created primarily for the benefit of developers of new or expanding subdivisions and planned communities.

These districts allow a developer to finance capital improvements through the issue of bonds. This reduces the landowner’s upfront personal or business investment, and shifts the cost of new development to future property owners.

As taxing authorities established by original landowners, with (usually rubber stamp) approval from local government, Development Districts are created before homes are built. Thus, all buyers are automatically part of the district as the community is developed.

Development Districts go by different names across the U.S., such as Community Development Districts or Municipal Utility Districts.

By contrast, local governments generally form Special Districts at the request of property owners who seek additional public services, which are not provided for in the municipal or county operating budget.

So, how can property owners, especially homeowners, analyze the benefits vs. costs of Special Districts?

 

10 Questions to ask about a proposed Special District

 

Q1: What is the purpose of the district?

Will the money collected by the Special District be used for paving or repairing roads? Upgrading storm water management? Providing flood control? Providing access to public water or sewer utilities?

Or will the funds be used for less essential services such as building or improving parks and recreation facilities? Or perhaps neighborhood beatification — things like adding custom street lights, signage, decorative sidewalks, or planter boxes?

Will the district use the money to contract with private security guards, and will those guards be armed or unarmed? Or do they intend to add security cameras and license plate readers?

Are Special District services truly needed, or would they simply nice to have, but not essential?

Keep in mind that, some services, especially private security, can create valid concerns about privacy or potential infringements on civil rights.

Q2: Who decides to create the Special District? What is the voting process?

Local governments typically require a majority of property owners to  sign a petition, asking to create a Special District. That petition is followed by a formal government resolution and a vote within the proposed district boundaries.

The key question: who gets to vote on whether or not to establish a Special District?

Will all “qaulified electors” receive a voting ballot?

Or will ballots only be distributed to each property owner?

In the first case, the registered voters who reside in the proposed district make the decision. Each registered voter gets one vote.

In the second case, owners of property might be allowed to cast a ballot for each piece of real property they own, regardless of residency in the proposed district. (Casting more than one vote)

This method of voting disenfranchises non-owners, including tenants, who will pay District taxes or fees indirectly, in the form of higher rents.

 

Q3: How much will each property owner pay? What is the proposed fee structure?

Will Special District taxes or fees be based upon assessed value or taxable value of each property?

Or will owners of each property be charged a flat fee?

The answer to this question is important. It helps property owners recognize situations where investors and wealthy landowners seek to pass most of the cost of community services to owner-occupants of modest homes.

Homeowners can then decide whether each property owner would be paying a “fair share” of the cost for added services.

Q4: Will the district place a lien on an owner’s property for nonpayment? Can the district foreclose on that lien?

Since most Special Districts are tax districts, the answer to this question will probably be “yes.” However, fees collected by some Special Districts are not officially classified as “taxes.” But since they’re not voluntary contributions, nonpayment could be subject to lien and foreclosure. So it’s worth asking about.

Q5: Will the district turn a voluntary payment obligation into a mandatory financial obligation?

If your home is currently not HOA-governed, or if your HOA is a voluntary membership organization, the answer to this question will be “yes.”

If the Special District gets a vote of approval, as required by state law, you’ll have to pay the taxes or fees, even if you voted against the Special District.

Q6: If the District is approved, will HOA fees be reduced?

If so, will the reduction in HOA fees offset additional taxes or fees charged by the Special District?

If your HOA says thaat Special District costs won’t be offset by lower HOA fees, ask your HOA, why not?

Q7: Can experts credibly document that the district will improve property values? Will everyone benefit, or just a few property owners?

Property owners in favor of a Special District will promise you that your property value will be protected or enhanced by additional services.

In some cases, such as repairing a crumbling private road, or adding a public sewer system, that might be true.

But if the proposed funds are for nonessential or discretionary services, ask for documented proof that the extra costs will make your house worth more than it is now.

Q8: Who will govern the district?

In many cases, supervisors of the proposed Special District will be appointed by your City Council or County Commission. Therefore, they cannot be held directly accountable. In order to change your District leaders, you’ll probably have to elect new local officials.

If Special District supervisors are to be elected, who will vote? Will it be all registered voters, or just property owners?

 

Q9: Who will have the right to vote on budget increases? How will voting take place?

Will the District board decide on budget increases and higher fees? Or will the City or County play a role in that decision? Or does your state law require a referendum vote?

Once again, if a vote is required, find out who gets to vote. Will it be all registered voters, or just property owners?

Q10: Who decides if and when the Special District should be dissolved?

And ask about the procedure for getting rid of the District. Find out who gets to vote on dissolution, and if and when the dissolution process can begin.

Otherwise, you could be forever obligated to pay fees, even if the district has already served its purpose.