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Business Observer Thursday, Oct. 1, 2009 12 years ago

Money for Nothing

Land developers pay big bucks to reserve utility and road capacity for when they'll need it, but what happens to the money when projects are delayed or die varies greatly across the board.

Land developers pay big bucks to reserve utility and road capacity for when they'll need it, but what happens to the money when projects are delayed or die varies greatly across the board.

Collier and DeSoto counties operate at opposite ends of the spectrum. Coastal Collier is one of the wealthiest in the nation and home to Fortune 500 executives. Rural, inland DeSoto is known for little more than its orange groves, the rodeo and antique stores.

DeSoto has barely 10% of the population of Collier's 333,000 residents. And while Collier has the highest impact fees in the state at $35,725 for a single-family home, DeSoto terminated their briefly charged fees and gave back what had been collected.

But one thing they now have in common is giving development a break from charging upfront fees to reserve capacity for roads and utilities. Whether the breaks are enough may be up to the courts.

In Collier, developers had been paying 50% of their impact fees upfront and the other 50% over the next three years. That payment plan came out of a different time, when the county had a backlog of road projects and a high growth rate, according to Norm Feder, the county's transportation services administrator.

By paying upfront, developers get the certainty that road capacity or other infrastructure capacity is reserved for them and not snatched away by another developer while working through the tedious permit process.

Now, after working with a stressed development community, Collier has come up with a more lenient payment plan. For those who already paid the 50%, they can now pay the other half over five years at 10% a year.

And for new development, it's now 20% per year for each of five years. “It makes it more feasible for industry to absorb it,” Feder says.

DeSoto County doesn't have the big road capacity problems of the faster-growing coastal counties. But it does have significant water and sewer capacity issues with a couple master planned developments in the pipeline. So, the county, wanting to avoid a bond issue, approached developers to help finance plant expansions.

On Sept. 22, after six months of negotiating, DeSoto Land Holdings, LLLP, a 4,820-acre future master planned development, came to terms with the county on their February 2007 water and wastewater capacity reservation agreement.

The site took a year to assemble and straddles State Road 17 south of Arcadia between Fort Ogden and Nocatee. The development is planned for 13,500 dwelling units, two million square feet of commercial use plus 748 acres of heavy industrial land use, including 628 acres already zoned for heavy industry next to a rail line.

The new deal allows the landowner to defer about $16,000 monthly in capacity reservation charges that the partnership stopped paying in March when they entered into negotiations with the county to adjust the terms of the original agreement.

The deferral expires Oct. 1, 2010 and may be extended. Shawn McIntyre, a partner in the development, hopes the economy is on the mend a year from now. “We're hopeful it's not extended,” he says.

For the 19 months they won't be paying the fees, the temporary savings amounts to about $300,000 at the developer's disposal that otherwise would be in county coffers. With a lengthy permitting process still ahead of them, the extra capital can now be put to more productive use than earning a little interest in a county account.

Already the partnership has paid more than $3 million in impact fees, capacity reservation charges, and wastewater system maintenance fees.

McIntyre also emphasizes that the agreement was amicable. “We are not at odds at all,” he says. “We are very active with the county as a partner.”

'Wait in line'
A bit more at odds is Ray Blacksmith, president of Cameratta Properties, with an office in Fort Myers. He represents Charlee, LLC, developers of a 5,700-acre 2x4 Ranch off State Road 31 east of the DeSoto land.

Charlee contributed 160 acres of the site for a sanitary sewer facility after the county approached them about the county's sewer capacity needs. The temporary plant is set to expand to an eight million gallon facility and Charlee paid $1.2 million to reserve capacity for its mixed use master planned development.

With the project on hold due to the economy, Charlee sent a letter to the county in January asking for relief from the monthly maintenance fees.

Blacksmith, who says they're willing to give up the capacity reservations fees, doesn't see much logic in paying maintenance fees for capacity that's not being used. He's hopeful the county will defer the payments for a year as DeSoto did.

In the meantime, Blacksmith remains philosophical, saying, “We're trying to work something out...but such is life in today's economy.”

He might take some consolation from what's going on in Orange County. There, some developers whose projects have stalled and/or they're headed into bankruptcy, are in line for refunds for capacity reservation fees — as much as $3 million in the case of Transeastern Properties — with nearly $9 million authorized by the county this year.

A county ordinance allows for such refunds and the county has budgeted $20.5 million for future refunds, though the amount sought may exceed $30 million.
Renzo Nastasi, Orange County's manager of the transportation planning division, says the reservation fees will be refunded if available. “It's not an automatic refund. If there's no available funds, they have to wait in line,” he says.

Lawyers' field day
Across the Gulf Coast, local governments take different approaches to reserving infrastructure capacity and how impact fees may be paid to fund roads and utilities.

Manatee County, for example, keeps it relatively simple. When a project's site plan or subdivision plat is approved, the developer has to meet infrastructure needs. Impact fees are paid at the building permit stage. Lee County's system is similar.

Sarasota County relies more heavily on 10-year development agreements. With these deals, projects become 100% funded allowing road projects to move up into the county's five-year capital improvements schedule and enables developers to secure future road capacity.

The county typically works with multiple landowners, as it has for projects at Fruitville Road (State Road 780) and Cattlemen Road, where a Lowe's was built; Honore Avenue and Clark Road (State Road 72); and East Venice with a $6.5 million roundabout now under construction at Jacaranda Boulevard and Venice Avenue.

Seven property owners, including Sarasota Memorial Hospital and Centex Homes (now owned by Pulte Homes), pooled their resources together to fill a $3.5 million funding gap for road and intersection improvements at Clark and Honore.

But now, at least two private parties to the deal, Heritage Development and builder Kimball Hill, have financial difficulties. Kimball Hill is in bankruptcy and M&I Bank has foreclosed on Heritage Development, according to attorney
Charlie Bailey of Sarasota law firm Williams, Parker, Harrison, Dietz and Getzen. Another party, Civix/Sunrise, was able to transfer their commitment to the public hospital when the developer halted their development plans.

In Charlotte County, some developers pre-paid impact fees when the fees were set to increase. But instead, the fees were lowered and now developers are having trouble getting their money back, according to Geri Waksler, a land use and development attorney who does work in Charlotte and DeSoto.

Lawyers might end up having a field day with all this. With apologies to 1980s rock band Dire Straits, it all may boil down to: money for nothing.

Tampa attorney Ron Weaver, of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. says such deals may be voidable contracts when there is no consideration to the developer — meaning there's been a payment, but in the end nothing's received in return.

Deborah Martohue, a St. Petersburg attorney specializing in land use and impact fees, puts it this way, “You can't get over the dual rational nexus hurdle,” referring to the impact fee legal doctrine that says the impact fee payer must receive a benefit roughly proportionate to the fee paid. “If developers aren't making an impact, you can't take their money.”

Unless you already have it. Then it's a different game.

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