In our series on the Town of Hillsborough’s use of special assessments for project development financing we left by contrasting the tool with tax increment financing in Part I of this series. Part II reviews some of the unique aspects of the implementation process. The School of Government’s Kara Millonzi provides a detailed description of special assessments here, which also details the statutory procedure for using the special assessment method and outlines eleven steps in the implementation process. The Town of Hillsborough’s case provides an example of caveats to consider in this process.
Additional Considerations in Implementing the Special Assessment Method
Town of Hillsborough
- When determining the estimated cost of the project (Step 2), Millonzi provides an extensive list of the applicable expenses. The Town of Hillsborough sought to limit their risk by limiting the eligible project costs to the construction of the future amenities, rather than including past infrastructure investments. The Town also limited the amount of bond issuance based on the interest rate; therefore, the anticipated debt service as discussed during negotiations would not fluctuate with the market’s interest rate. While this strategy provided security for the Town, it left uncertainty in the principal available to pay for the infrastructure if the interest rate was higher than projected.
- By capping the amount of money that could be raised from the bond sale, the Town sought to finalize the preliminary assessment resolution, and subsequently the final assessment roll (Step 3). If the finalized bond amount was confirmed after the bond issuance, the public process for securing the assessment roll would be left to chance.
- Determining the project costs (Step 2) requires additional steps from the developer, including an appraisal, careful timing of the construction bids, and consideration of the bond structure limitations as noted above. The Town required the value-to-lien ratio be worth at least three times as much as the principal amount of the assessment bonds (although only a 2:1 ratio is suggested by the LGC). As a result, the land appraisal needed to reflect the estimated costs of the project. However, Stratford Land’s initial appraisal did not follow their projections, requiring some delay in their process and an additional appraisal process. The developer provided additional information, including a market study, to support their estimated value of the property.
For the Town of Hillsborough and Stratford Land, major caveats in the implementation process were a result of estimating the project costs to adopt the property assessment roll. For other local governments, the public hearing process might extend the estimated timeline. However, in the Town Hillsborough’s case, the developers owned 100% of the project area with limited neighboring property owners. Therefore the public hearing process moved along seamlessly.
Consideration of Hillsborough’s unique implementation process provides some of the lessons learned when seeking to levy special assessments. Stay tuned for Part III of this series, in which we will discuss the lengthy process to coordinate content experts and key documents prior to the implementation of the Special Assessment District.
Maggie Parker is a candidate for the MPA and MCRP graduate degrees. She is also a Community Revitalization Fellow with the Development Finance Initiative.