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Setting the record straight on the Sonoma Ranch extension project
Sharon Thomas
A recent posting by Michael Swickard contained many inaccuracies and reflects an incomplete understanding of the elements involved in the effort to extend Sonoma Ranch Boulevard north from U.S. Highway 70 to two new public schools and the new Las Cruces Country Club golf course. Here is what has happened to date:
For some time now, the members of the Las Cruces Country Club (LCCC) have been anxiously waiting for their new golf course and club house located north of US-70 at the end of the proposed Sonoma Ranch Boulevard. Originally, the LCCC had an agreement with the developer, Mr. Philip Phillippou, to obtain their new facility. Mr. Phillippou would build a new LCCC golf course and clubhouse and the LCCC would give Mr. Phillippou their old golf course and country club located at Solano and N. Main.
Mr. Phillippou did build the golf course, but not the clubhouse or other amenities, nor the extension of Sonoma Ranch Boulevard.
In Las Cruces, roads get built when the adjacent property is subdivided. The city does not usually build roads. If a developer asks to subdivide property in order to develop it, that developer is responsible for building the adjacent roads.
In this case, several parties probably assumed that Mr. Phillippou would build the road when he subdivided the property. That group could include the members of the country club, other developers and builders who have projects in that area, and the Las Cruces Public Schools (LCPS).
LCPS had agreed to participate in the building of the road as they know they are responsible for all off-site infrastructure (roads and utilities) needed for new schools. Early estimates for their share of the road were around $400,000 and for bringing the utilities to the schools around $600,000, for a total of approximately $1 million.
LCPS is currently putting in that infrastructure. It is being built to complement city standards and will be added to when funding becomes available to complete the road to meet full city standards. LCPS cannot be reimbursed from the proposed special assessment district (SAD). Reimbursement for work completed before the SAD was in place would be highly questionable.
The special assessment district proposal
In January, Mr. Moscato, who has apparently taken over Mr. Phillippou’s projects in this area, came to the city council to ask the city for support to apply for a SAD in order to extend Sonoma Ranch Boulevard north to the new golf course. Because this idea represented a possible solution to the problem of providing a road to the new schools as well, the city council passed a resolution declaring its intent to form that district and “to levy assessments on real property benefiting from the improvements to pay the cost of the improvements and the district.”
Part of the current confusion swirling around this road project probably stems from this resolution. First of all, it was a resolution, not an ordinance. Resolutions do not have the binding power of an ordinance. Secondly, “intent” in this case does not mean the SAD is going to be formed. “Intent” only triggers the process that must be followed in order (eventually) to pass an ordinance (the enabling legislation that would be binding, like a law).
The next step after the “intent” resolution was a “preliminary hearing.” That hearing was held in April at a council work session and included information on the proposed SAD, the improvements to be included, the appraisal results, a possible financing plan and schedule, etc. Council members are not allowed by law to vote at a work session. They can attempt to reach consensus through discussion, but they cannot vote.
If consensus had been achieved at this meeting, the next step would have been to bring forward a “formation resolution” at the April 19 council meeting, which would have been followed by the need to procure construction bids in order to determine the cost of the project. Then, there would have been a date set for a public meeting, after which an ordinance could be passed to formalize the SAD and delineate all the requirements.
At that point, the city would have to decide where to go to get funding for this project – the bond market, New Mexico Finance Authority, etc. Clearly, the process includes a number of statutory legislative requirements and could not have been completed before the new schools opened, even if consensus had been achieved at the preliminary hearing in early April.
Failure to gain consensus
In a SAD, the property owners agree to tax themselves in order to pay for the building of something from which they will all benefit. For example, the residents along an unpaved road might decide they want their road paved. They could go to the city or the county and ask for a special assessment on their properties in order to pay for the construction of the road.
The residents themselves can initiate a SAD or, more often, the city or county initiates the SAD for the purpose of correcting deficiencies – paving a dirt road, for example. The Sonoma Ranch Boulevard request was unusual because it was neither resident nor city initiated. Furthermore, in this case, the property to be assessed was not yet developed so the people who will eventually pay for the road (the future home and business owners who will pay the additional property tax assessment) could not be consulted. All of these factors contributed to the failure to gain consensus at the April work session.
In addition, it was unclear how the additional property assessment would operate. Most SADs previously approved by the City of Las Cruces have had triggers that determine when the SAD payments begin. There were no such triggers in this SAD proposal.
Furthermore, the city would have to assess and collect the additional property taxes or negotiate with the county to do so. That could be a complicated and costly project over the 20 years of the SAD as different properties will be developed differently and so have different resulting assessed values, plans might change over time, properties could be sold several different times, etc. From what we could ascertain, this would be a billing and collection nightmare.
Another problem is the fact that not all of the properties that will benefit from the road were included in the presented list of properties to be assessed. Even though the law requires that all properties that benefit should be assessed, the planned Metro Verde development, located at the end of the road and standing to benefit most from the project, was not included.
Developer could try again
In normal practice, the developer gets private financing to cover the cost of roads in areas of new development. These are not normal times, so the developer asked the city to help get the financing through a SAD. The question before the council was whether or not it was fiscally responsible for the city to work with this developer to access the SAD process.
In order to protect our residents, the city council must assess the risk to the city (and, therefore, the taxpayers) of joining in this SAD venture. Currently, the city has a very high credit rating. If the bond payments are not made, what happens? The city would be required to exercise the lien, sell the property, and use the proceeds to make the bond payments.
If the property doesn’t sell or the proceeds are less than the bond payment, the city does not have to make up the difference; those people who bought the bonds would suffer the loss. However, the city’s credit rating could be indirectly, but severely, impacted. That could put a damper on the city’s ability to borrow money for other projects.
The April work session was only a preliminary hearing on the SAD proposal, and no vote was taken. The city council expressed concerns just as any responsible party would in a business negotiation. The first offer is seldom the final offer. Some of those concerns came to the council from their constituents who had questions about the city entering into this particular business agreement with this particular developer on this particular property. There was no “anonymous” memo. Rather, citizens (taxpayers) were asking questions about the development and the developer’s financial well being.
As in any business negotiation, the developer could come back to the city council with a revised proposal that answers some of the concerns expressed at the preliminary hearing. Council could hold another preliminary hearing to hear another proposal. If consensus is reached, the process could begin.
Thomas is the Las Cruces city councilor representing District 6 and the mayor pro-tem.
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Yes, Michael Swickard continues to maintain that the developer’s plans had already been approved by the NM Finance Authority (NMFA). This is not true. A Special Assessment District (SAD) requires several steps. The NMFA was contacted to find out if there was a possibility of doing a SAD. The NMFA did say there was enough land value to pursue a SAD, that there was enough land value to begin the process. They did not approve the SAD. They will require far more information and investigation to actually approve a SAD.
They will want to know how much the construction of the road is going to cost and that will require a lengthy public bid process. As a government, we have to publish the request, solicit bids, follow our procurement process, etc. Everything has to be done publicly and transparently. Then there has to be a public hearing and, if that goes well, the council has to pass an ordinance. Then, NMFA will begin their investigation.
NMFA will investigate the credit worthiness of the developer. NMFA is like any other lending institution. They don’t give you the loan to build the house based on the value of the land. They also want to know that you will be able to pay for the house or, in this case, the road. The city has a stellar credit rating, but the developer cannot ride on the coat tails of the city. He has to prove his own credit worthiness.
Yes, if the project fails, the land is the collateral that would be used to pay off the loan. Usually, a developer puts up the land for collateral in an agreement with a private lending institution and the developer adds the extra cost to the cost of the lots, and the developer is responsible for making the payments and, if the project goes south, the developer has to sell the land and collect the proceeds and hope there are enough proceeds to pay off the debt. If there is not enough money to pay off the debt, the developer gets the black mark.
In this case, the developer is asking the city, in a sense, to co-sign on the debt. If the city does so, the city has to impose additional property tax, the city has to collect that tax, and the city has to pay off the bonds. If the project goes south, the city has to sell the land, collect the proceeds, and pay off the debt. If there is not enough money to pay off the debt, the city gets the black mark.
So, the city’s role is a lot more than just being the intermediary. Why should the city take on these responsibilities? Why doesn’t the developer just get his own funding for the project? Those are the questions being asked by the public. In some cases, the city is willing to take on these responsibilities. For example, we might want to encourage a particular project and we know lower interest rates are possible with a SAD, so we agree to participate. Or, using a SAD might mean the project can get done more quickly or by working together we can do a bigger project and, therefore, get more done. If this SAD, for example, means that the whole road can be built, all the way to the last subdivision, beyond the golf course, that might be a reason to take it on. None of these discussions have yet taken place.
The developer now knows that there are many more steps in this process and he now knows that his credit worthiness will be investigated as well as the city’s credit worthiness. It’s up to him whether or not he wants to continue to pursue the SAD.
Add me to the group that appreciates Councilor Thomas’s detailed response to Mr. Swickard’s charges. We’re lucky to have her on the council.
NMProf wonders if the Special Assessment District (SAD) is any different than impact fees in terms of consultation with future owners. It may be equally difficult to consult future residents — an impossibility on undeveloped land — but it needs to be noted that SAD’s and impact fees are very different things.
SAD’s have traditionally been used for property owners to remedy past infrastructure oversights. I think this explains Mayor Miyagashima’s enthusiasm for this kind of entity — he saw it work effectively in the county, when groups of residents created a SAD to pave a dirt road past their homes, for example. It’s unusual to create a SAD as a mechanism for new development, for all the reasons Councilor Thomas cites. An additional issue is that a SAD used for new development sidesteps the normal development process, and can short-circuit efforts at good and efficient planning.
Impact fees are different. They are fees for the construction of infrastructure that would serve new development that has already been approved, development that will entail specific, quantifiable costs for roads, flood control, etc. that somebody needs to pay. It makes sense — to me, anyway — that the people who will benefit from that infrastructure should pay for it, rather than taking the money from the general tax base. As Nick Voges has pointed out in his recent blogs on the subject, not imposing impact fees drains money from maintenance of existing neighborhoods and allows existing infrastructure to deteriorate.
I recommend Mr. Voges’s blogs on impact fees — the most recent one is available at http://www.nmpolitics.net/index/2010/08/outraged-by-impact-fees-talk-to-the-experts/ He’s done his homework, and he is making valuable contributions to this discussion.
I also appreciate Councilor Thomas’ piece. I wish more of our local politicians would engage us this way, and not simply make decisions without informing us of their rationale. I also happen to have a couple of comments.
You cite as one of the major reasons for passing on the SAD the following: “Furthermore, in this case, the property to be assessed was not yet developed so the people who will eventually pay for the road (the future home and business owners who will pay the additional property tax assessment) could not be consulted.”
Correct me if I’m wrong, but isn’t this the exact same case as impact fees? Future owners of houses affected by impact fees have no input into what those fees may be. They are simply assessed and charged, whether they like it or not. I know from following your comments that you are a proponent of impact fees, and one of the main forces behind raising them to make infrastructural improvements equitable, yet in this case you feel that future owners of the property should be consulted and their opinions taken into account. Why the sudden concern for the future occupiers of that land?
I’m also curious about the funding source questions you raise, as I guess someone is either misinformed, confused or just plain wrong. After reading Dr. Swickard’s piece, and listening to his discussion on the radio again today, he contends that the developer’s plan had already been approved by the NM Finance authority, and that the collateral–as judged and appraised by the NMFA–was sufficient to guarantee the SAD. In other words, the city had little collateral stake in it, it’s credit was not jeopardized, nor were we taxpayers. The city’s only role was that of intermediary and local authority for the building of the roadway.
This is quite different than the scenario you are describing, which includes questions about where the financing was coming from, how it would be secured, and the risks that the city and the residents were facing.
Which is the truth?
A few days ago, Councilor Connors submitted a similar essay response addressing this issue, which I found both useful, and corrective to other information being circulated. I’m equally pleased to read Councilor and Mayor pro-tem Thomas’ essay here today, which adds additional important facts and is also corrective to bad info that is out there on this extremely complicated issue.
I sort of have an impression at this point that I’m well informed thanks to these two councilors efforts. At least there is a written resource now available to the community that may, when including those other opinions we have read, constitute a sort of public record beyond what was available through observing the council.
Perhaps the developer would like to join in with their point of view, on the record here. I’m sure that there are some facts that support their point of view as well, and the city is not above criticism, nor perfect in it’s machinations.
Four comments:
1) No one should ever say development issues are easily understood. They’re not.
2) Hopefully the reduction of Council time devoted solely to land use will not affect issues such as this, where just stating the important facts in a public meeting could take considerable time, to say nothing of time for debate and clarification.
3) Those who have warned about depending too much on the “pledges of developers”, rather than tight ordinances, have been proven wise. A stitch in time may have saved our community from what appears to be a cascading series of bad or undefined situations devolving from an earlier decision to allow the LCCC swap with Phillipou without all the contingencies covered.
4) The proposed super park at the old LCCC is clearly also a complicated arrangement. My personal view is that after all the city and its citizens have suffered in dealing with certain developers over the years, I’d like to see something come back to us for our pains. Call it “Developer’s Park” if necessary, but using the old LCCC property to benefit us all as a green sanctuary for our community, seems a fitting way to make us whole, and put the developer community back in our good graces. To those with decision making power, please make it so.