Reading · Letters to the Valley County Electorate

Regular readers of these posts know our favorite admonition by now: “just because government can do something, should it? Or, as comedian Chris Rock is credited with quipping, “you can drive a car with your feet, but does that make it a good idea?”

This year, the Idaho legislature approved expanding a little-used financing tool for developers. It’s called a Community Infrastructure District (CID). Coincidentally (or not) Tamarack Resort is embarking on an expansion consisting of just over 900 dwelling units, a hotel, a 20 acre commercial/retail development, and 400 acres for related uses, including another golf course (to download a short pdf description of the project, see the Links section).

The Tamarack developers are no doubt delighted that the smaller Red Ridge proposal up the road is vacuuming up all the public’s attention. Tamarack’s Heritage Community negotiations with the county commission are flying happily under the radar. Though the project’s concept is very similar to Red Ridge, it differs greatly in one fundamental way. Public opinion can’t sink it. The project received approval when the original Planned Unit Development (PUD) was issued decades ago. In simple terms, that means that if the resort elects to build the project, it will be built.

As a condition of its PUD, Tamarack is already responsible for providing the roads, water, sewer and other infrastructure required by its existing approvals. A CID doesn’t alter that. So a CID is only good for one thing: giving developers a government credit rating so that a project “pencils” faster than market forces support. We don’t think that was ever the intent of municipal bonding. In the Afterthoughts, we pile on CIDs some more. But for now, we ask readers to carefully ponder this:

When government’s credit becomes the crucial financing mechanism to secure a lower interest rate for a developer, government is in fact, actively enabling development rather than being a detached, independent arbiter of it.

Whenever Valley County voters have been asked if they want their government to get into the real estate business, the answer has been a resounding “NO”. This is precisely the same kind of question.

Back to that CID thing

The Tamarack developers are asking Valley County to form and administer a new taxing district to finance a part of the development referred to as “public infrastructure.” That term is different than it sounds, but that’s only material in court. The developers maintain that the district is a no-brainer, because the tax will be paid by future property owners and the developers will pay all the costs the county incurs collecting it. “The growth will pay for itself,” has reverberated through the three presentations to the county commission so far.

The stunner for us, was that none of the commissioners seemed to notice that all of the benefits of this proposal go to the developer. The wolf must have been guarding the henhouse when this financing contraption was initially cooked up almost 20 years ago. Not one tangible advantage to the taxpayer was cited that couldn’t be achieved without a CID. “The taxpayer has no liability, so why not?” went the developer’s relentless refrain to the commishes.

It’s that kind of no-fault logic that brought on the financial crisis that caused the Great Recession earlier this century. All those overcomplicated mortgage derivatives were “no risk” to the taxpayer then, either—until the government compelled the taxpayers to bail out the financial industry. Oversimply put, a CID taxing district dedicated to a development delivers cheaper finance costs to the developer because the district has taxing authority. That’s a very dependable revenue source, which is attractive to investors. It never came up that only three CIDs have been created in Idaho since 2008. Perhaps that’s because one, Harris Ranch in Boise, blew up in a homeowner revolt that went to the Idaho Supreme Court. We chronicle that awful mess in the Afterthoughts section.

And getting back to the Great Recession, where is the memory of what happened at Tamarack itself? There was a stampede of defaults. A trail of tears followed when the jobs the resort and its supporters touted themselves for creating vanished, leaving families desperate. To illustrate: in our four decades publishing The Star-News, the most insensitive April Fool’s gag we came up with was that Tamarack had been revived by a celebrity investor named Donald Trump. We were deservedly pilloried by anguished construction workers thinking they were going back on the job. The county spent thousands of dollars in our newspaper, billed to the taxpayers, publishing public notices of pending property impoundments for unpaid property taxes. (Additional transparency disclosure: it was a substantial contribution to our retirement fund)

Is this the first you’ve heard of Tamarack’s plan? Bet you’re not the only one.

None of the above memories have seen daylight in the current conversation. As of their July 13 meeting, the commishes appeared completely satisfied with the developer’s sales pitch. But in their zeal to embrace “why not?” they neglected their obligation to gravely question “why?” The 2008 experience certainly holds some key evidence for such an inquiry. Hindsight is 20/20, unless a governing body prefers to blind themselves to it.

Implicit in Tamarack’s sales pitch is that cheaper financing allows the project to proceed sooner, grow more rapidly or become financially feasible when private financing would make it impractical. Faster development can produce construction activity, employment, new businesses and grow tax base sooner.

That is a purely economic-development argument. It is not proof that the public will be better off.

The commishes aren’t exhibiting any intent to seriously vet what they could be walking their public into. If there’s a Harris Ranch style homeowners’ revolt for instance, the county’s phone number is on the bill, not Tamarack’s. Public paid staff will be fielding those calls. It’s not rational to think they will be able to accurately account for that staff time to turn over to the developer for reimbursement.

In Tamarack’s defense, all but the most die-hard no-growthers acknowledge the value of the resort in its current iteration. It has expanded recreational opportunities, created jobs and added significantly to the county’s tax rolls. But that can’t erase the fact that resort development is a highly speculative business operating in a topsy-turvy world. The expense of operating the taxing district doesn’t go away if the project stalls. Should the Heritage project hit the skids, once again leaving the county to clean up the mess, where is the so-called “reimbursement money” going to come from? If there’s a good answer to that question it is not on the public record because it hasn’t been asked.

Is accelerating a resort’s development a legitimate public objective? Only for enthusiasts of crony capitalism. In the end, the commissioners are responsible for the operation of the district no matter who pays the bill. If they decide to stick their public’s neck in that noose, it had better be for a more salable reason than “why not?”

Just. Sayin’.

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🟧 Harris Ranch was Idaho’s first CID. When residents got hit with an assessment many didn’t know they had signed on to, enough revolted to finance a lengthy lawsuit out of their own pockets. Just as with the Tamarack “no risk” argument, no skin came off the noses of taxpayers at large. But do you want your government involved in such a fracas? Just as Tamarack will do, the CID was formed before any properties were sold. The homeowners didn’t read the complex fine print when they bought the property. When they did, they found what the assessment paid for to be more to the developer’s advantage than theirs. They lost the lawsuit because not reading fine print isn’t a legal defense. But it is a cautionary tale, especially to developers. Is a CID valuable enough to risk defending a lengthy lawsuit? And even if it is, what does the stigma and the lingering hard feelings do to the ambience/sale-ability of the project itself? The county commission should be talking Tamarack out of this idea instead of the other way around.

🟧 A CID is not a “set it and forget it” arrangement. It requires ongoing administration, engineering review, legal oversight, bond compliance, public meetings, financial reporting, and responses to taxpayers who inevitably have questions about assessments and reimbursements. There are genuine and numerous risks of improper oversight—especially if, as Tamarack suggests, a contracted entity operates outside county staff. If disputes arise, the county—not the developer—will have to resolve them and apply for reimbursement. The idea of the county taking on any complex accounting task is enough to send shivers through anybody who has been following their budget deliberations the last few months (more on that in a future post).

🟧 It is worth noting that the federal government loves to say that the 2008 bailout was mostly repaid, but that is typical government sleight of hand accounting. It does not include the multitude of millions in administrative costs billed to the taxpayer to create and oversee the programs. Anytime government expands or becomes more complicated, the accounting becomes more opaque. That fact alone represents substantial taxpayer “risk”.

🟧 If the reason Idaho only has three CIDs is because most developers don’t see enough benefit to the costs, then having idle code with precedent laying around is dangerous. If a developer applies for it ten years from now, nobody will be familiar with how it works. Inventing the wheel starts all over again at the taxpayer’s expense. On the other hand, if it becomes all the rage, the county commission will be riding herd on several of these, each with its own set of oversight pitfalls. Our budget shivers will turn to frostbite.

🟧 The developer’s interest rate is lowered with a CIP because a tax assessment collected by a public entity is a highly dependable source of revenue, much more resistant to the ups and downs of property sales. That is because the assessment stays with the property as it changes ownership. In conventional financing, once a property is sold, a bank loses any lien on it. The more property is sold, the less there is to foreclose on if things go south. Also, the developer incurs less bank debt. As mentioned earlier, the county incurred unenumerated expenses dealing with property tax collection when Tamarack hit the skids circa 2008. If a similar melt-down occurs with a CIP, it’s logical to assume the county would double that liability because it would be responsible for collecting both property tax and the CIP assessment (which isn’t going to be reimbursed by a broke developer).

🟧 The developers leaned heavily on what they called their “smooth” experience with partnering with the North Lake Recreational Water & Sewer District for financing sewer development to serve the resort. That is probably accurate because the assessment was plainly just for sewer. But CIDs have authority to finance a much broader range of public improvements. That’s how the Harris Ranch homeowners got confused. It’s just not realistic that homeowners would keep track of a bunch of different kinds of expenditures over time. That kind of ambiguity just begs on its knees for conflict. Only three of these types of taxing districts exist. That makes the recorded odds for a homeowner/developer fist fight 33.3%. Why would a county gamble setting a precedent on such high stakes?