Florida’s annual legislative session doesn’t start for more than a month, but State Rep. John Cortes will be in Tallahassee for upcoming committee meetings to push for what he couldn’t get done last year.
The central Florida Democrat plans to meet with committee chairmen in hopes of getting hearings on his bills, which he said resulted from discussions with unhappy residents living in community development districts and others dealing with home and condo associations.
Cortes has filed
Cortes has also filed
“This is one more year of trying to get something done” for homeowners, Cortes said. “I just want to be fair [to everyone, including developers], but also to be fair for the moms and pops too.”
Florida currently has 1,341 active districts that have the power to issue bonds. Of those, 673 are CDDs that can issue bonds, according to the Special District Accountability Program operated by the Florida Department of Economic Opportunity.
Cortes, who represents Osceola County where the Solivita retirement community is located, said he was prompted to file HB 151 and similar-but-unsuccessful legislation last year because residents there had to hire an attorney to oppose two bond validation complaints filed by the Poinciana CDD and the Poinciana West CDD.
The two CDDs, which cover different portions of Solivita, planned to issue $102 million of 30-year bonds. Of the proceeds, $72.9 million would have been used to purchase 15- to 17-year-old amenities in Solivita such as pools and parks from the developer, which charged residents club fees to use the facilities.
After 1,578 Solivita homeowners signed a petition urging the board to obtain an appraisal and the request went unheeded, residents hired their own Florida-certified real estate appraiser who valued the parcels and existing amenities to be purchased at $19.25 million.
After a court struck down the CDDs’ first bond validation complaint, the districts filed a second complaint that also based the purchase amount for the existing amenities on a formula that capitalized 30 years of future club membership fees charged by the developer. Those fees, however, would have been eliminated had the bonds been issued.
In court, the homeowners argued that the CDDs and the developer improperly used the income-based approach — instead of getting a certified appraisal — to value the amenities in excess of their worth. A judge rejected that argument in the first validation case.
Before the validation process was completed, the developer in November formally terminated an agreement to sell the amenities to the CDDs – a decision that was made just days before an election in which candidates opposed to the deal won positions on the community development districts' boards.
In April 2017, Solivita homeowners also filed a class-action lawsuit challenging the legality of the developer’s club fees. That case is still pending.
This year, Cortes said he plans to discuss HB 151 with committee chairmen in hopes of advancing the measure, which has been referred to the Local, Federal and Veterans Affairs Subcommittee, the Ways and Means Committee, and the State Affairs Committee. Cortes is a Democrat in a legislature controlled by Republicans.
A companion bill is being drafted in the Senate, but is not yet available for review. Lawmakers will be in Tallahassee starting Monday and continuing for the next three weeks for pre-session committee meetings. The annual legislative session starts March 5.
Lita Epstein, a Poinciana CDD supervisor who opposed the amenity purchase and bond issue since she before was elected in November 2016, told The Bond Buyer that the legislation being proposed by Cortes is necessary because residents believe some developers have used the districts as “cash cows” to the detriment of homeowners.
“There is no reason residents should be forced to pay more than a third party would pay for the same assets just because the builder controls the purchase process,” said Epstein, who became chairman of her CDD board after three new supervisors were elected in November on a platform opposing the Poinciana CDD bond issue.
Cortes’ bill would ensure that all CDDs must obtain appraisals from a licensed Florida property appraiser prior to buying new assets, said Epstein. “A licensed Florida property appraiser would provide greater protection to current and future Florida property purchasers,” she added.
Epstein said similar purchases to that which was proposed in Poinciana were made in other CDDs before residents could take control of the board away from the developer, “yet they are the ones stuck with the debt for as long as 30 years after the builder has finished the project.”
Emails filed with court records during the Poinciana bond validation case showed that at least one former supervisor was concerned about whether an independent real estate appraisal should be obtained to support the size of the bond issue.
The supervisor wrote that his experience living previously in the central Florida Villages CDD “dictated” that Poinciana should obtain an outside appraisal.
The email included a copy of a 2009 Bond Buyer article about the Internal Revenue Service questioning whether the Villages CDD improperly issued tax-exempt bonds in an amount based on overvalued amenities that were purchased from the developer Gary Morse, who died in October 2014.
The Villages also used an income-based approach to value the price of its recreational facilities, according to a 1996 opinion on the value of district facilities prepared by a consultant.
After an investigation that went on for years, the IRS concluded that the Villages district did not overpay for the amenities it purchased with tax-exempt bonds, although the inquiry led the IRS in 2013 to rule that Florida CDDs are not political subdivisions that can issue tax-exempt bonds.
The decision, handed down in a 12-page technical advice memorandum, was sent to the Village Center CDD calling into question approximately $364 million of bonds that could be declared taxable.
The memorandum also threw into question the status of all Florida CDDs.
In 2015, the Village Center redeemed the tax-exempt bonds in question with taxable debt, and the IRS
Rep. Cortes said after hearing various complaints about CDDs and related organizations, such as homeowners’ associations, he also filed HB 163 for the upcoming session.
The bill would require that a developer or parcel owner provide any prospective purchaser of property in a dependent special district with increased disclosure about district membership, assessments and the penalty for non-payment of assessments. It would also give the purchaser the right to cancel the sales contract if the purchaser hasn’t received the disclosure summary and to seek damages in some cases.
Florida law already requires property sales contracts to disclose when land is being purchased in a CDD.
Cortes said people from different areas across the state have complained to him that they haven’t received complete information about CDDs or condo and homeowners’ associations.
“They are all complaining about the same thing. They are not getting informed,” Cortes said. “My main goal is to make it fair for everybody, so we don’t get all of these problems.”
