Developers in Mississippi are taking advantage of significant economic incentives for the financing of basic project infrastructure through the creation of public improvement districts, or PIDs.
“Typically, developers have to accept the risks associated with out-of-pocket expenses related to the construction of such infrastructure,” said John England, a public finance lawyer for Butler, Snow, O’Mara, Stevens & Cannada, PLLC, of Jackson. “For example, residential developers have been forced to rely on traditional financing to finance infrastructure, which would be repaid as lot sales are completed with financing over a maximum of five to seven years. With the creation of Mississippi’s Public Improvement District Act, however, developers may now reduce the risks associated with traditional financing by creating an independent public body known as a PID.”
A PID is established at the request of the landowner by a petition filed with the governing body of a city or county. Once established, the PID offers creative financing by issuing tax-exempt revenue bonds for the purpose of financing qualified infrastructure. This allows the governmental authority to offer an effective economic development incentive through a lower, tax-exempt interest rate. Special assessments may be levied to the benefited property within the PID to satisfy the debt service of the revenue bonds.
“PIDs are for creative financing, which is a great way to help build communities by providing basic infrastructure to support industrial, residential and commercial developments,” said England. “PIDs could be used for roads and water and sewer improvements, all within a residential subdivision, but only for public infrastructure.”
The success of the state’s PID program depends on working with strong, tried-and-proven developers, said England.
“Until he sells the lots, the assessment will be against the developer’s property,” he said. “And of course, once he sells the lots, the lot owners inherit those assessments.”
Several PIDs have been created in Mississippi, and others are in the works, said England.
“Nobody has really opposed setting up a PID because all the landowners — the ones who would be assessed — have already approved it,” he said. “They recognize the advantage of forming a PID. It’s a good alternative. From the city and county standpoint, general obligation bonds may be issued to finance infrastructure, which would be a tax across the board. Here, the city or county doesn’t have to issue the bonds. The PIDs issue the bonds, which are secured and paid by the special assessments on the property benefited. It’s not a general across-the-board tax.”
From a developer’s standpoint, PIDs are beneficial tax-exempt bonds, which are typically financed for a longer period of time, from 10 to 20 years.
“Response to PIDs from city and county governments has been positive,” said Jet Hollingsworth of Butler Snow. “It’s a good method for building communities.”
Here’s how a PID works:
• A petition is initially filed with the governing municipality containing the description of the boundaries of the PID, written consent of 100% of landowners within the PID, the designation of at least five people to serve on the governing body of the PID, the proposed name of the PID, a map showing existing infrastructure within the PID boundaries and a proposed timeline for construction of qualified infrastructure and estimated costs.
• The governing body is required to hold a public hearing within 45 days from the petition filing. Notice must also be published once a week for four successive weeks prior to the public hearing.
• Once properly established, the PID becomes a political subdivision of Mississippi and is subject to the same requirements as other political subdivisions and local governments, such as open meetings and public bid laws.
• A PID does not impact or affect state and local regulations regarding development, zoning regulations, impact costs, or regulations and/or permits from the Mississippi Department of Environmental Quality and other state agencies.
• Interest rates, maturity and terms and conditions of any revenue bonds are based on the strength of the developer, the type of development and the specifications of the bond purchaser.
• The bonds may be sold as bank-qualified, tax exempt (if less than $10 million per year) at a substantial interest savings, or to investors as non-recourse or recourse debt at a market rate subject to underwriting restrictions.
“The PID concept has been used in other states, such as Florida,” said England. “We’d had some special assessment-type legislation that state lawmakers passed years ago. Butler Snow became involved last year when we were asked to help draft more flexible legislation.”
The Mississippi Legislature passed the PID Act in 2003. The enabling legislation for PIDs may be found at Section 19-31-1 of the Mississippi Code.
Contact MBJ contributing writer Lynne W. Jeter at email@example.com.