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MUNICIPAL SPECIAL IMPROVEMENT DISTRICTS

SUMMARY OF PROCEDURES

 

A special improvement district (“SID”) is a vehicle through which a community may finance improvements and secure the payment of the financing by imposing a special assessment tax. A SID is a very flexible tool for financing improvements. Frequently, communities do not have sufficient funds to finance desired improvements, in which case a SID can raise funds to do so. Also, communities often use a SID to attract development in their community. A community may finance most improvements with special assessment tax through the following procedures:

  1. NOTICE OF INTENT TO CREATE. The community needs to adopt a resolution declaring its intention to create a special improvement district. This must state the following:
    • The purpose for which the assessments are to be levied.
    • The method for levying the assessments, i.e. per lot, per acre, per linear front foot, etc.
    • The description of the district.
    • The description of the improvements.
    • The estimated cost of improvements.
    • The proposal to levy an assessment.
    • The time and place for a public hearing and filing protests.
    • The method for determining the necessary number of protests required to defeat the SID.
    • Whether a reserve fund will be used.
    • If only consenting properties will be included in the SID.
  2. PUBLICATION OF NOTICE. The notice shall be published 4 times in a newspaper and mailed within 10 days of the first publication to each property owner at the address of the owner on the last assessment roll of the County Recorder and to each property in the SID with an address (this is known as a double-mailing).
  3. PUBLIC HEARING. At the public hearing, if fewer than 50% of the property owners protest, then the SID can be created. Only written protest are considered to be valid protests.
  4. CREATION OF SID. If after the public hearing, fewer than 50% protest, then the SID may be created and the community may proceed to construct and finance the improvements. Notice of the creation of the SID must be sent to the County Recorder and recorded on all properties in the SID within 5 days of its creation. This provides notice to any subsequent purchasers of property in the SID.
  5. INTERIM WARRANTS. For lengthy construction projects, the community may issue interim warrants (temporary financing) to pay for 90% of the completed construction as it progresses. To do this, the community will need to adopt a resolution authorizing interim warrants. Where the construction period is short, communities often do not issue interim warrants and immediately call a Board of Equalization.
  6. BOARD OF EQUALIZATION. Once the improvements are completed and the costs known, the community will need to adopt a resolution calling a Board of Equalization and providing notice of the proposed assessment based on the actual (as opposed to estimated) construction costs. The Board of Equalization must meet for at least one hour per day on three consecutive days. The purpose of the Board of Equalization is to provide property owners the opportunity to challenge the amount of proposed assessment to make sure the assessment is fair for everyone. Notice of the Board of Equalization must be published one time in a newspaper and must be mailed to each property owner and to each property in the SID (again, the double-mailing).
  7. ASSESSMENT ORDINANCE. After the Board of Equalization, the community can adopt an Assessment Ordinance. This actually imposes the special assessment on each of the properties. The Assessment Ordinance takes effect upon publication. Notice of the Assessment should be sent to each property owner and recorded with the County Recorder. Citizens are given a period of 30 days after publication of the Assessment Ordinance, in which they may challenge the Assessment.
  8. PREPAYMENT. Property owners are given 15 days to prepay the entire special assessment. If they do not prepay within 15 days, they can pay the assessment in equal payment, generally over 10 year, but in no event to exceed 20 years.
  9. BOND RESOLUTION. After the 30 day contestability period is over, the community usually adopts a bond resolution. This provides for the permanent financing on the improvements. The bonds will repay any interim warrants that have been issued. The special assessment bonds authorized in the bond resolution will be secured solely by the special assessment levied under the Assessment Ordinance and certain funds, such as the reserve fund that are created with respect to the SID. Shortly after the bond resolution is adopted, the closing is scheduled and the community will issue its bonds and receive the financing for the improvements.

The above outline is merely a summary and does not detail all legal requirements related to a SID financing. Typically, bond counsel prepares all of the resolutions and coordinates all of the legal requirements for creating a SID and issuing bonds.