Growth in Hays County has led to rapid build-out of neighborhoods, infrastructure and retail space. Increasingly, developers are utilizing public improvement districts, or PIDs—a tool created by the Texas Legislature in 1987—to finance these endeavors.
PIDs are such a complex tool that Hays County recently contracted the Austin-based law firm Armbrust & Brown to advise the county on the legal aspect of a PID proposal in San Marcos known as La Cima.
"Special districts are a mechanism created to provide basic infrastructure to make sure that our state can continue to grow and to be prosperous," said Will Conley, Hays County Precinct 3 commissioner. "Like any other tool of government, there are success stories and there are failures."
What is a PID?
A PID typically involves a municipality or county issuing bonds to fund various aspects of development. According to the legislation that created PIDs, the funds can be used for many things, including building water and road infrastructure and creating parks as well as "special supplemental services for improvement and promotion of the district, including services relating to advertising, promotion, health and sanitation, water and wastewater, public safety, security, business recruitment, development, recreation and cultural enhancement."
Unlike municipal utility districts, PIDs can be located within a city's limits, and would therefore be subject to city taxes.
Each lot within the district is assessed a dollar amount that must be repaid over a specified period of time. In the case of the La Cima proposal, the developer is requesting the issuance of $18 million of bonds in order to fund construction of infrastructure, parks and other amenities. The bonds will eventually be repaid by residents moving into the neighborhood and paying back their property's assessment in annual installments or in a lump sum in addition to paying regular property taxes. Counties and cities are typically protected from responsibility for repaying the bond debt.
The city of Trophy Club, a community of about 10,500 residents near Dallas, created the first municipally bonded PID in the state in 2007. Trophy Club Finance Director Steven Glickman said using a PID to build the Highlands of Trophy Club, a 1,400-home neighborhood, carried obvious advantages over traditional build-out that often occurs in slow, piecemeal fashion.
"Basically here [construction] was pretty much all complete within the first couple of years," he said. "We still have homes to be built out there, but all the infrastructure, all of the parks, all of the streets, those are all complete."
PIDs put the financial burden on residents in order to fund a speedier construction timeline, he said.
La Cima
A PID is being proposed in an area outside San Marcos' city limits. Chuck Perry, the developer responsible for the proposal known as La Cima, said homes in the neighborhood would start near $200,000.
Housing stock at that price point is hard to come by in San Marcos, and Conley and other officials have said they believe a neighborhood such as La Cima could help the city bolster its middle class by adding more mid-level housing to the city's market.
The developer is asking Hays County to create the PID and issue bonds, and San Marcos is being asked to defer annexation of the residential portion of the district until the PID debt is repaid in 30–45 years. If the county moves forward with the PID, San Marcos will have 30 days to object, thereby dissolving the district.
Bill Ward, one of the project developers, said the PID is being proposed because the planned inclusion of parks, retail space and a corporate campus, as well as costly water and road infrastructure, would make the project cost-prohibitive otherwise.
During a public hearing in May, Perry said the combined assessment and property tax for each lot in the neighborhood would have to be below $3 per $100 of home valuation in order to be competitive. As proposed, the PID would be outside the city limits, so residents would not pay city taxes.
Bunton Creek Village
In 2005 the Bunton Creek Village PID was created in East Kyle to fund the construction and related infrastructure for homes.
Kevin McCright was named as the manager of the PID in the district's founding documents. McCright worked with Richard Jenkins, the original property developer who funded the improvements.
Financing infrastructure in a small, quickly growing town, such as Kyle in 2005, was always an issue, McCright said. To assist in financing, Jenkins utilized a PID to fund the development, he said.
"They discovered [PIDs] were good financing vehicles, and banks would loan you money against the eventual cash flow stream that they produced when the assessments were levied and payments started coming back in," McCright said.
The timing of the development could have been better, though, he said. PIDs are dependent upon guesses as to how many home lots will be sold within a time period, and after the economy slowed in the late 2000s, Jenkins' estimations turned out to be too generous.
"This one from my viewpoint kind of fizzled because I guess in 2005 they had high hopes on selling a bunch of lots and building a bunch of houses real fast," McCright said. "On or about 2007 when that didn't come to pass, Rick sold his interest in it to a guy named [Joe] Alderman, at which time I left."
James Wilson and his family of four moved to Bunton Creek Village from Houston in May 2013.
Wilson, a small-business owner, said he was notified during closing that his home had been built in a PID, and he was responsible for paying the $2,954.96 assessment that had been assigned to his property. Wilson was given the option to pay down the assessment through an annual $207 payment over 25 years, and he was happy to do so, he said.
But in early 2014, Bunton Creek Village residents discovered their homes each had $5,000 liens placed upon them. If unpaid, the liens could force foreclosure on the property. After looking into the cause of the lien, it was discovered that the PID had gone unmanaged since 2007, when Jenkins sold his share of the project.
Residents had not been billed for their annual $207 assessment payment, and the principal amount had collected interest, ballooning to about $5,000 per lot. When residents discovered they were being asked to pay interest on a bill they had never seen, they petitioned City Council to take action.
In May, Kyle City Council put a moratorium on collection of the assessments until the issue could be sorted out. Kyle city attorney Ken Johnson said he hopes to bring forward a strategy to City Council by late July.
"Just because it's not on the front page doesn't mean we've forgotten about it," he said. "It's my number one priority right now."
