Private businesses are more frequently being called upon to bear the costs of public infrastructure improvements necessitated by new facility locations and real estate developments. Long-standing practice has required businesses and developers undertaking new projects to construct adjoining or connecting roads, curbing, sidewalks, street lighting, utility lines, and similar improvements, and to dedicate these to public use. In addition, a more recent trend is to require developers to pay to cities or counties impact fees that reflect the costs of additional infrastructure needs arising as a result of a project, such as road widenings, traffic signals, buffers, parks, and highway ramps. The 1990 Georgia General Assembly enacted comprehensive impact fee legislation that is likely to increase the prevalence of impact fees.1
Both of these practices reflect the public policy of placing the costs of public improvements on the private businesses that require and use them. In many cases, however, the burden of financing these public improvements must be borne through conventional, high-rate loans, while local governments are permitted to finance public improvements through the issuance of tax-exempt bonds at substantially lower interest rates.2
This interest “subsidy” for local government financing is lost when private businesses are required to construct infrastructure and finance it at taxable rates. Prior to the Tax Reform Act of 1986,3 the states largely determined the types of projects that could be financed with tax-exempt small issue industrial development bonds,4 and Georgia permitted bond financing for such diverse projects as industrial and warehouse parks, office buildings, private medical facilities, and office buildings.5 Some smaller developments were able to finance their total development costs, including required infrastructure, through small issue bonds. Bonds of this type, however, may currently be issued only for manufacturing facilities, and this authority will expire on December 31, 1991, unless extended.6
There nevertheless remains an underutilized means for private parties to finance required public infrastructure improvements through tax-exempt bonds, that still imposes the burden of debt service on the private parties benefiting from the improvements. This technique is known as special assessment financing.7 In Georgia, tax-exempt special assessment bonds may be issued by community improvement districts to finance facilities for essential governmental functions such as extensions of municipal water systems, street paving, curbing, sidewalks, parking, parks and recreational areas, public transportation, streetlights, and storm water and sewage disposal facilities.8
The Georgia Constitution provides that the General Assembly may by local law provide for the creation of one or more community improvement districts (CIDs) for any county or city or some combination of cities and a county.9 A community improvement district is a unit of government with power to provide governmental services and facilities.10
The best-known example of a CID in Georgia is the “Platinum Triangle” embracing the Galleria complex in Cobb County.
In order to finance its facilities, a CID may incur debt without a voter referendum. The debt of a community improvement district is not an obligation of the State or any city or county, but is supported by the assessment power of the community improvement district.11
In order to provide funds to pay for such facilities or services, or to repay the indebtedness of the community improvement district incurred for such a purpose, the administrative body of each CID can assess fees , taxes, and assessments on commercial or industrial real property within the district. Residential, agricultural, and forest property, as well as personal property and intangibles, are annual tax, fee, or assessment generally is limited to two and one-half percent of the assessed value of the real property within the district. Such taxes, fees, or assessments must be equally apportioned within the district according to the need for government services and facilities that is created by the degree of density of the development of each property.12
The services and facilities provided by the community improvement district must be provided through a cooperative agreement executed by the administrative board of the community improvement district and the governing authority of the county or city within which the community improvement district is located. Such an agreement cannot limit the authority of the county or city to provide services within any community improvement district, and the county or city will retain control of any of its facilities located within the community improvement district.13
In order to create a community improvement district in any particular jurisdiction, the General Assembly must enact a local law establishing procedures for its activation. These activation procedures include the adoption of a resolution by the county and/or city governing authorities and the consent of certain landowners.” The governing authority of the county or city in which the CID is located, or both the county and city if the district is to be located within both an unincorporated area of the county and a city, must then pass a resolution approving the establishment of the community improvement district. A majority of the owners of real property subject to assessment within the community improvement district and the owners of real property constituting at least 75% by value of all real property subject to assessment within the CID must give written consent to the creation of such a district.15 So far, CIDs have been authorized by local law for only a few localities,16 but can be authorized for any jurisdiction.
An administrative board must be established for each community, improvement district in the manner provided by the governing law.17 The governing authority of the county, or city (or both) for which the community improvement district is created must be represented by at least one seat on the administrative board of the community improvement district. The governing law will provide for a selection method for the other seats on the administrative board. Usually, the majority of the administrative board members are elected by the landowners in the district.18 The governing law may also contain any limiting or prescriptive provisions regarding the facilities or services to be provided or the debt incurred.
Financing by Community Improvement Districts
Many developers are familiar with taxexempt private activity bond financing for manufacturing facilities, residential rental housing, certain transportation facilities, water, sewage and solid waste facilities, and redevelopment projects.19 Although the process is complex, it yields highly attractive tax-exempt interest rates. Such financings are subject to constraints on the types and amount of property that can be financed,20 the necessity for obtaining an allocation of a limited amount of bond issuing authority (volume cap) available to the state,21 the need to publish and conduct a public hearing,22 the limitation on the amount of issuance costs,23 the applicability of the alternative minimum tax to interest earned on the bonds,24 and the tax disadvantages placed on the purchase of such bonds by banks and other financial institutions.25 The issuance of special assessment bonds for public use infrastructure by a community improvement district can be free of all of these restrictions. Knowledgeable bond counsel can structure the bonds to be “governmental bonds” that may be issued without an allocation of the state volume cap on bonds,26 that are not subject to alternative minimum tax,27 and that, in some instances and in limited amounts, may be advantageously purchased by banks and other financial institutions.28
A private business or developer, or groups of private businesses and developers, can utilize a community improvement district to obtain tax-exempt financing for public infrastructure associated with their Private developments and in lieu of impact fees. To do this, the private parties petition the governing body of the county or city in which the development is located for the creation of a community improvement district. A district may be as small as one parcel of land, or might encompass a broad area. Assuming that the local law authorizing the creation of the CID places the election of a majority of the members of the CID administrative body in the hands of the landowners, as it does in many cases, the landowners can control the activities of the community improvement district and can direct the CID to undertake a financing and improvement program suited to the needs of the landowners.
The district might then enter into a cooperation agreement with the county or city as to the services and facilities the CID will provide. For example, the CID may construct and install the public roads, curbs, and traffic signals necessitated by the improvements, and the county may maintain them. The CID may finance these improvements through the issuance of its own tax-exempt special assessment bonds, which constitute the obligations of that separate unit of government. Those bonds are backed by the power of the CID administrative board to impose fees, taxes, and assessments on the landowners within the district. If required and if properly structured, private guarantees or security might also be provided for the bonds.
Because the bonds for these improvements are paid from taxes or assessments imposed on the property within the district over the course of the financing, the effect is the same as if the landowners obtained tax-exempt loans for these improvements. The developers otherwise would have to finance and construct these improvements conventionally and dedicate them to public use, or as an alternative pay impact fees to a local government unit for the construction of these improvements.
Infrastructure to be financed by a CID with governmental tax-exempt bonds must be in public use.29 For example, roads or utility lines that by their configuration or location can practically be utilized only to serve a particular landowner or narrow group of landowners cannot be financed with tax-exempt special assessment bonds.30 Through-streets and public improvements typically can be financed through a CID’s tax-exempt bonds.31
Another advantage of CID improvements over impact fees is that the developers usually retain a greater degree of input or control over the specific improvements constructed either through representation on the administrative board or the procedures utilized by the board.32 An overriding advantage of special assessment district financing over impact fees is that assessments may be paid over a period of years, and the obligation to pay passes to subsequent owners usually the ultimate users of the property. Thus, the cost of impact fees need not be built into the initial sales price of developed property.
The community improvement district is a very flexible and useful device for providing facilities and services to commercial and industrial developments. Community improvement district legislation and the district itself can be tailor-made for the particular circumstances. Primary benefits of the use of a community improvement district include the ability to issue tax-exempt special assessment bonds for public infrastructure improvements. Such bonds can replace impact fees or taxable financing. Practitioners, developers, and government officials should consider the creative use of special assessment financing through a community improvement district to reduce the costs of infrastructure improvements.
- 1990 Ga. Laws 692, codified at O.C.G.A. 36-71-1 et seq. (1982 & supp. 1990).
- Concerning the issuance of tax-exempt bonds for public improvements, see generally
I.R.C. Â§103 (1986).
- Pub. L. No. 99-514 (1986).
- See I.R.C. Â§ 103(b)(4) (1954) (repealed
- See, e.g., O.C.G.A. Â§ 36-63-2(b) (1982) (Development Authorities): O.C.G.A. Â§ 36-42-3(b) (1982) (Downtown Development Authorities).
- I.R.C. Â§ 144(a) (1986).
- See generally NATIONAL ASSOCIATION OF BOND LAWYERS, FUNDAMENTALS OF MUNICIPAL BOND LAW 25 (1985).
- GA. CONST. ART. IX. Â§ VII., PARA. IV.
- ID. para I.
- Id. para II.
- Id. para IV.
- Id. para III(c).
- Id. para V.
- Id. para. III(b)(1).
- Id. para. III(b(2).
- See 1985 Ga. Laws 4009 (Cobb County);
1985 Ga. Laws 4946 (Henry County); 1987 Ga. Laws 5460 (Fulton County). See also the following bills enacted in the 1991 session of the Georgia General Assembly, awaiting the signature of the governor at this writing: S. 414 (Dahlonega); H.R. 359 (Sumter County); H.R. 544 (Atlanta): H.R. 647 (Douglas County) & H.R. 1010 (Henry County).
- GA. CONST. art. IX, para. I.
- See, e.g., 1985 Ga. Laws 4016 sec. 5 (Cobb County Community Improvement Districts Act), 1985 Ga, Laws 4953 sec. 5 (Henry County Community Improvement Districts Act); 1987 Ga. Laws 5467 sec. 5 (Fulton County Community Improvement Districts Act).
- I.R.C. Â§ 141(e)(1986).
- See id. Â§ 141(e).
- Id. Â§ 146.
- Id. Â§147(f).
- Id. Â§147(g).
- Id. Â§ 55.
- Id. Â§ 265(b).
- See id. Â§ 146.
- See id. Â§ 57(a)(5).
- See id. Â§ 265(b)(3)(B)(II).
- See id. Â§ 141(b)(l).
- Priv, Ltr. Ruls. 86-18-008 (Jan. 30, 1986), 87-04-049 (Oct. 28, 1986).
- Priv. Ltr. Ruls. 89-45-032 (Aug. 15, 1989), 89-49-096 (Sept. 15, 1989).
- The laws governing Cobb, Fulton, and Henry Counties, as well as the bills enacted in 1991 for Atlanta and Douglas County provide for representative of the landowners on the administrative board. The bills enacted in 1991 for Dahlonega and for Douglas and Henry Counties have different methods for appointment of the administrative board, but permit landowners in approving the formation of the CID to specify the actions it may take.