Management and Mismanagement of Municipal Special Improvement Districts
| Publication year | 1993 |
| Pages | 2263 |
| Citation | Vol. 22 No. 10 Pg. 2263 |
1993, October, Pg. 2263. Management and Mismanagement of Municipal Special Improvement Districts
Recently, real estate contracts have introduced a "standard" statement which, in its edited form, reads, "Buyer Beware of Possible Assessment Liens." The longstanding concerns of lenders, municipal officials and bondholders regarding the magnitude of the homeowner's potential liability as a result of assessment liens is now public knowledge. This article discusses the opportunities municipalities have to maximize their payments to the bondholders while minimizing the fiscal exposure which they may encounter through their contractual commitments and statutory obligations.
The enabling authority for the creation and operation of special improvement districts ("SIDs") by statutory municipalities is primarily found in Article 25 of Title 31.(fn1) Home rule cities may have elected to follow the statutes or may have chosen to adopt comparable charter and ordinance provisions.
The active participation of municipal attorneys in the creation and management of SIDs is of relatively recent origin. Prior to the current increase in SID delinquencies, the municipal attorney's token involvement was generally limited to reviewing documents associated with the issuance of the official statement. Currently, the municipal attorney's legal involvement has been precipitated by deficiencies in collections from within districts where the value of the land is equivalent to or less than the assessment lien.
Because even the smaller SIDs have typically issued bonds in excess of $1 million, the fact that there may be significant deficiencies draws the attention of not only the municipality's financial staff but also bond counsel and the bondholders. After a municipality has depleted the surplus and deficiency fund it may have generated from prior successful districts, the municipality is faced with two alternatives. It must either reduce its payments to the bondholders or explore alternative funding sources. It is at this point that someone asks, "Who is responsible for the payment of these bonds?" The municipal attorney would hope that this interrogatory comes from the board, council or staff, rather than from the bondholders.
Once a municipality's SID surplus and deficiency fund is depleted, the second financial option available is to proceed with the sale of the delinquent properties. This may be accomplished either through the office of the municipal...
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