(Originally published in the October 2008 Housing Journal)
Public Improvement Districts (PIDs) — Good Tools for Residential Development
Previous Housing Journal articles have reviewed how infrastructure improvements may be paid through Special Assessment Districts (SADs), Tax Increment for Development Districts (TIDDs), and Development (Impact) Fees. Each of those options has a component that can be used in residential construction, but none has as much promise for purely residential developments as Public Improvement Districts (PIDs).
Similar to TIDDs (which work best in large mixed-use developments) in many respects, PIDs are allowed to issue general obligation bonds that affect property taxes within the district. TIDDs are allowed to tap gross receipts and property taxes, whereas PIDs are only allowed the use of property tax. Since these bonds do not affect the bonding capacity of the municipality or county in which the development is located, they are relatively easy to have approved even where the local community has reached its bonding capacity. Because the bonds do not affect the amount of income to the municipality or county, they also do not carry the burden of having to prove their worth to representatives of areas of the community outside of the properties within the District. It appears elected officials may be more willing to approve increased property taxes for other areas of the municipality or county if it doesn’t affect the affordability of the area they represent.
PIDs are limited in that the general obligation bonds cannot exceed 60% of the final estimated value of the properties in the District. This shouldn’t be a problem when vacant land is converted to homes by a developer, or when the developer sells the improved lots to contractors, since the cost of barren land in New Mexico is relatively low. For example, one acre of unimproved land in Rio Rancho is selling around $40,000, but a ¼-acre lot improved with water, power, natural gas, sewer, and paved street sells for around $70,000. The limitation is designed to prevent surplus funds being collected.
In many other ways PIDs share some of the same benefits as TIDDs:
- District is its own political subdivision with its own board;
- District qualifies for NM Finance Authority funding, and bonds may be sold at public or private sale;
- District may enter into contracts, sell property and levy taxes or fees for operation and maintenance costs;
- Contracts for design, engineering, financing, construction and acquisition are exempt from the State Procurement Code;
- A broad list of improvements may be funded via these mechanics, and include building schools, libraries, police and fire stations and dedicating them to the municipality or county to operate and maintain.
PIDs have also been used successfully in redevelopment projects where cities seek to revitalize their downtown areas by upgrading streetscapes and can even be used to finance private security services.
This is the final installment of our series on infrastructure financing options in New Mexico. All of the articles are available online at www.nmhba.org/pages/memberservices.html in our 2008 Housing Journal publications. NMHBA created “Selecting the Infrastructure Financing Option that Fits Best” in 2006 for members to use when discussing the various infrastructure options with their local municipality. It is also available at www.nmhba.org/pages/memberservices.html.