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Colorado HOA Management: Mutant HOA

A recent article in the American Planning Association’s “Planning” got me thinking. It was about a community in Downtown Philly that is hoping to form a Neighborhood Improvement District (NID) to generate funding for a public park.

NIDs belong to larger family of quasi-governmental financing entities called Special Districts. Everybody knows about school districts, and those of us in the business of serving HOAs are familiar with Metropolitan Districts and Water and Sanitation Districts. Some of us might even have experience with Business Improvement Districts. These quasi-governmental financing entities, called Title 32s in Colorado, help communities and developers leverage future assets and revenue toward public improvement projects. Simply put, revenue generated within a district, stays in the district, thereby boosting money available for streets, landscaping, irrigation, etc. within a designated area.

Although you don’t necessarily have to be a member of an HOA to create a special district, the relationship between HOAs and special districts isn’t completely random. HOAs made up of single family detached houses are almost always subdivisions, developed in one fell swoop by a single entity. In order to keep the cost of houses down and reduce its up front financial obligation, a developer will help homeowners organize special districts to pay for anything from utility infrastructure to parks and trees.

Bonds for these improvements are payed off over time by the homeowners, with the assumption  that an increasing assessed value of the homes will eventually overcompensate for the initial loans taken.

In the newest neighborhoods this assumption can be costly, especially during an economic depression. In the instance where a neighborhood does not grow to meet its “build out” potential, homeowners can be stuck with a larger share of the loan payment.

Yet, in older neighborhoods that have little to no outstanding debt services, and fairly steady vacancy rates, the formulation or re-issue of a special district can not only create a mechanism for boosting the value of the homes in a neighborhood, but also increase the quality of life for residents by providing funds for improvements to sidewalks, landscaping and utilities.

Because the formulation of a district requires a vote by the property owners, an HOA has an advantage over non-Associated neighborhoods because it already has mechanisms for reaching out to its members and garnering some consensus. Also because many HOAs already have some regulatory guidelines about design and architectural character, dictated in the adopted  Architectural Design Guidelines, they have the ability to expand those design principals into common area improvements.

In conclusion, special district may not serve all neighborhoods, but for an older neighborhood or one that is in need of an infrastructure and design upgrade, the creation of a special district can improve the overall value of a community in terms of marketability and quality of living. Who wouldn’t want to live in an established neighborhood that still has the shine and sparkle of something new?

In the mean time if you are an HOA Board Member or homeowner and you live within a special district here are a couple of thinks that you should have a handle on:

  • Know about the districts ability to support debt based upon the value of real property.
  • Find out about the debt service: Is there a balloon payment in a future year; is there any unissued debt; has the district petitioned for an adjustment on the debt due to bankruptcy?
  • Who holds the bonds: the public or the developer?
  • What is the rating of credit rated bonds?
  • What revenue is used to pay the debt service?

Your Property Manager is able to help you gather information about what districts currently exist in your neighborhood and can also discuss with you some other options to help fulfill your communities needs.