BRADENTON, Fla. — Florida’s governor and Cabinet yesterday unanimously approved higher interest rates than allowed by law for six community development districts.
The CDDs, created by developers and builders, want to issue tax-exempt bonds to finance infrastructure improvements like roads, utilities, and parks in order to build new homes and commercial projects in various areas of the state. As the property is improved and sold, the new landowner pays back the debt through assessments.
However, Florida law limits the maximum interest rate on the bonds to The Bond Buyer’s “20 Bond Index” plus 300 basis points, which recently was at 7.44%, Florida Division of Bond Finance director Ben Watkins said yesterday.
Because of volatility in the credit markets largely resulting from the subprime mortgage crisis, Watkins said underwriters for the CDDs believe investors will demand a higher interest rate since the debt will be land-secured.
“Why would we want to do this?” asked Gov. Charlie Crist. “Wouldn’t it make it more expensive to purchase the land in these developments?”
Watkins said developers’ use of CDDs, and the availability of tax exempt financing, has been the traditional way to finance infrastructure in Florida for years. “There have been hundreds of millions, if not billions, of bonds issued through this process to finance the infrastructure within these districts,” Watkins explained.
Interest rate exceptions have not been brought to the state Cabinet for approval since around 2000 because of historically low interest rates. But even when the rates were below the state cap, the financing costs were passed along to landowners, noted Attorney General Bill McCollum, who is a Cabinet member along with Florida’s elected Chief Financial Officer Alex Sink.
“If we don’t approve [the waivers] then these communities are not going to put their infrastructure in,” said Sink, who added that she felt comfortable knowing that the CDDs would sell the bonds at the lowest rate possible.
In action involving other CDDs, the Cabinet also unanimously approved expansion of a 1,711-acre CDD where 5,396 residential units and 400,000 square feet of commercial space are under construction in Citrus County. They also approved the creation of two new CDDs — a 1,055-acre CDD in Sarasota County where 375 homes are planned, and a 1,036-acre CDD in Hernando County where 2,800 residences and a golf course are planned.
The Cabinet evaluated for approval CDDs if they encompass 1,000 acres or more. Districts under 1,000 acres are considered for approval by cities and counties throughout the state.