March 29, 2007
Editorial

Beware of SIDs

There is an insidious new trend creeping into our part of the country for which people need to be vigilant.

SIDs.

No, not “Sudden Infant Death Syndrome.”

Special Improvement Districts.

This is a sneaky new financing tool which is becoming popular among developers because it does two things which delights them.

First, it puts money in their pockets, which is what they live for.

Second, it passes responsibility to someone else.

Once upon a time, when a developer decided to build a new neighborhood, he built the houses, put in the roads, ran the electric, laid the water and sewer pipes, and even poured the sidewalks and put up street lights.

Then, they added up the cost of doing all of those things and divided that amount between the number of houses that they built.

When the new homeowner came along and bought his or her new house, they paid for the house, the land, and all of the infrastructure that went along with it.

The developer got paid when he sold all the houses or lots.

With a SID, here’s how it works:

After the infrastructure is finished, and a few houses are built, the city, county, or other quasi-municipal agency helps establish a Special Improvement District, which is actually just a kind of taxing authority.

That SID then goes out, using the city or county’s bonding muscle, and issues bonds for millions of dollars.

The developer then gets paid for all of the infrastructure he puts in, even though he hasn’t sold even half of the houses.

From that point, everyone who buys a house in that neighborhood is saddled with a “tax” that they have to pay for 20-30 years.

The day they buy that house, they have a lien against it from the Special Improvement District that lives with the property until the bond is paid off.

One advantage to the developer is that he doesn’t have to include the cost of the infrastructure in the price of the house, which would be great if the savings got passed along to the homebuyer, but that rarely happens.

Another is that if the developer decides to bail on the rest of the project, he at least got his money back for building the roads and other infrastructure, which eliminates his motivation for completing the project and provides a kind of “insurance” that he’s not going to lose money on the development.

Great deal for the developer.

Lousy deal for the homeowner, who has to pay the high price for the house, pay the property taxes, PLUS has to pay the SID fees each year.

Remember, the SID fees pay off a bond, which is an interest-bearing device.

So for example, instead of the $500,000 it might cost to put in the infrastructure and divide it between 100 houses at time of sale, the $500,000 winds up costing $966,000 after 30 years of paying 5% interest.

Again, the developer gets his money up front, and property owners wind up holding the bag for 20-30 years.

The use of SIDs has become enormously popular in Las Vegas and California, which is reason enough to be wary.

Now, this flim flam is coming to Lincoln County.

The Coyote Springs development is going to be gorgeous, and an incredible boon to this part of the state.

However, there isn’t a single house built yet and already the future property owners are going to be encumbered with not one but two “taxes” on top of the normal property taxes.

The developers of the project are already working on a SID for the water and sewage infrastructure.

Now, they’re asking the Lincoln County Power District to use their bonding authority to issue revenue bonds so Pardee Homes and others can get paid up front for the cost of the electric infrastructure, with the payments on that bond passed along to Coyote Springs homeowners on their monthly electric bill.

While we applaud the vision and courage of the CSI developers to try and create a community of 150,000 houses in the middle of empty desert, laying off their financial responsibilities and risk onto the backs of municipalities and power companies dilutes the nobility of their efforts.

In their giddy zeal to bring this project into Lincoln County, our elected officials need to be vigilant on behalf of current and future residents, and think twice before using the citizens’ bonding power to put more money in the pockets of developers.