ARGYLE — The Town Council has delayed action until November or later on creating more special taxing districts to finance a new sewer line. Council mem­bers cited a need for more information during their regular meeting last week.

DRC/Barron Ludlum

Homes are in varying stages of construction in the Cross Oaks Ranch subdivision. The developer has asked Oak Point for additional public financing for the subdivision on FM720.

Developers of two large-scale developments, Belmont and Canyon Falls, have requested two different kinds of public financing to pay for the roads, water, sew­er and other public infrastructure for their subdivisions.

Both plan on creating freshwater supply districts, with Belmont’s formation election called for Nov. 6.

Canyon Falls developer Casey McGin­nis told the council that he plans to formally petition for a freshwater supply district election within the next few weeks.

But the new freshwater supply districts did not provide enough financial backing for sewer bonds, according to Misty Ventura, an attorney for both the districts. The projects are so large — with as many as 7,000 new homes between them — that they require a $17 million expansion of Trinity River Authority’s wastewater system in the area.

If both Argyle and Northlake create public improvement districts, or PIDs, to pay for the sewer line, that should provide enough backing for the Trinity River Authority to issue investment-quality bonds, Ventura told the council.

Public finance 101

Most special taxing districts — whether a freshwater supply district, municipal utility district or water control and improvement district — are their own political entities, with publicly elected boards.

The Texas Legislature created them so that poor, mostly rural, areas could de­velop. However, in the past 20 years, these special taxing districts have become some developers’ preferred financing tool for large-scale suburban projects. After many special districts collapsed in the 1980s and left taxpayers holding the bag, the Legislature rewrote the law to protect taxpayers if a developer goes under.

But PIDs are not separate political entities from the cities that create them. In the past, cities formed PIDs in declining neighborhood or business districts in order to shore up a public area — dressing up a median or lighting a walkway, for example — and stimulate reinvestment in that area.

PID assessments were typically small, proportionate and project-oriented — a property owner with more street frontage would pay a larger percentage of the cost of new sidewalk lighting, for example. While they are popular in Grand Prairie and increasing in Arlington, the city of Dallas ruled out using them for residential areas two years ago. Dallas found only commercial areas suited to the additional taxing burden that comes with a PID.

A different PID

In Denton County, Oak Point formed one PID as part of its agreement with the developer of Cross Oaks Ranch, also a freshwater supply district. But it was unused until last month when Marlin Atlantis, Cross Oaks’ developer, asked to use it to raise another $2 million.

“This one is different,” Oak Point City Manager Richard Martin told the City Council. Instead of using the PID for maintenance of public areas, Marlin Atlantis wants to use the PID to back city-issued bonds for new construction.

In the past year, developers have approached cities all over the region asking for PID-backed financing of brand-new subdivisions.

“Developers are finding more and more creative ways to finance their projects, rather than spending money to build infrastructure that historically has been a start-up cost for land development,” said Martin.

Privately, many public officials have expressed concern that the increase in requests for tax-backed financing is coming at the same time as the housing industry is in decline, both nationwide and locally. A <ITAL>Denton Record-Chronicle analysis of area foreclosures found a rising number of residential foreclosures in four special taxing district communities. Providence, Savannah, Paloma Creek and Cross Oaks Ranch posted a total of 175 residential foreclosures from January through October, up 20 percent from 146 in the same period in 2006.

But publicly, area cities continue to receive requests and form policies for PID-backed bonds. Trophy Club, which established a PID for emergency services this year, has gone the furthest in the process, according to Keenan Rice, whose firm, MuniCap, helps cities manage PIDs.

In Denton, the City Council this summer approved guidelines for the creation of public improvement districts, but the city has not received any applications, said Linda Ratliff, economic development director. The guidelines call for the city to review applications on a case-by-case basis and consider approving those that promise unique, high-quality projects.

Denton developed the guidelines after representatives of Inspiration, a proposed mixed-use development in south Denton, expressed interest in creating a public improvement district to help fund an estimated $300 million in infrastructure costs.

Sanger has also received a request for PID-backed financing from Land Advisors, which wants to build a large-scale subdivision there. 

Appropriate for bonds?

Argyle council member Bonny Haynes said she wanted to wait for an opinion the town has sought from the Texas attorney general’s office about the appropriateness of PID financing for Argyle’s sewer project.

The town’s bond counsel, Leroy Grawunder Jr., said he sought an opinion of whether it is legal for Argyle and Northlake to oversize the sewer line with PID money. While cities often build sewer lines larger than needed in order to accommodate future growth, in this case, the larger line ultimately would provide benefit to those outside the district, he said.

In other words, only one group of people would pay for a public project that benefits many more.

The town also needs a ruling of whether PID assessments could pay for the maintenance an operation of the line.

“We don’t know for sure whether a PID could fund M&O [maintenance and operation] if the Trinity River Authority takes over the line,” Grawunder said.

Council member Mark Bogosian asked why the town had to create the district first, before knowing the entire financing picture. He said he felt that the council didn’t have what they needed to make an informed decision.

“We get pretty far down into the process [of creating PIDs] before we know whether it’s something we really want to do,” Bogosian said.

Ventura said that while she agreed some of the information arrives late in the process, Argyle couldn’t guarantee that the developer would reimburse costs if they varied from the PID-formation guidelines dictated by the state. The town could still back out if it didn’t like the financing scenario.

A consultant presented an economic impact study of the Canyon Falls project, but it remained unclear what the tax burden would be for individual homeowners living in the districts. The consultant, Bob Farley, used a $2 per $100 valuation model to show what the subdivision would bring to the wider area, but that figure covered only school, county and emergency service district taxes. 

Special taxing district revenue remains inside the district. Freshwater supply districts routinely charge about $1 more per $100 valuation. PID assessments can add as much as 20 to 40 cents more to the tab, unless the developer reduces the other tax accordingly. 

The property tax burden for Denton County residents is already the third highest in the state, according to new data released by the Tax Foundation.

As long as developers leapfrog around rural areas of the county with large-scale developments, using public financing tools to pay for them, the tax burden will remain high for individual homeowners, Martin said.

“There’s no economy of scale,” he said.

Staff writer Lowell Brown contributed to this story.

PEGGY HEINKEL-WOLFE can be reached at 940-566-6881. Her e-mail address is pheinkel-wolfe@dentonrc.com .

Developers of several fresh water supply districts — Belmont, Canyon Falls, Cross Oaks Ranch — are requesting a second kind of taxing district, which means homeowners in those developments could have some of the highest tax burdens in the county.

The foundation calculated the average property tax burdens nationwide and found that homeowners in 10 New Jersey and New York counties paid the highest tab overall — from $6,663 to $7,999 each year.

Many Texas counties weren’t far behind, not only in the total tab, but also in comparing the percent of taxes to home value and to homeowners’ median incomes. Here’s how Denton County medians compare with medians in the five highest property tax counties in the state:

*Of 783 U.S. counties with populations greater than 65,000 in the study

Note: Before school tax reform, the median property tax burden was 1.86 percent of the home value in Texas, the highest in the nation.

SOURCE: Tax Foundation, www.taxfoundation.org