COMMENTARY
The ABCs of CDAs
By Kenneth Powell MANAGING DIRECTOR, STONE & YOUNGBERG, LLC
Editor’s note: The Chesterfield Board of Supervisors has identified Community Development Authorities (CDAs) as one potential solution for building new county roads and improving existing ones. At the county’s Transportation Summit last month, Kenneth Powell, managing director of Stone & Youngberg, LLC, urged the board to consider using CDAs. Stone & Youngberg sells CDAs to investors. Below, Powell explains what CDAs are and how they can be used.

Powell

Used properly, CDAs are arguably the most effective and efficient tool available to localities today for financing needed public infrastructure. CDAs basically allow developers to build a higher quality of needed infrastructure up front without liability to the county and without cost to the current taxpayers. Today, special tax districts of some variety are provided for in all 50 states. The key to successful utilization lies in the ability of the county and the developer to work together to achieve mutually advantageous goals which meet the needs of both parties and are embraced by both parties.

CDAs work like this: Landowners ask for the district. The Board of Supervisors (or city council) approves and sets up the CDA, a separate governmental body. The CDA works with the developer to set out the plan for the infrastructure and the financial plan. The plan is presented to the county for approval. After approval, the CDA issues bonds to finance part or all of the plan of the infrastructure, and the project begins. The repayment of the bonds comes from a special assessment on the property owners within the CDA district. In many cases, the county is also willing to pay over a portion of the incremental increase in taxes generated within the district. If the bond debt service is not paid, the property is sold to pay the bonds. It is the developer that bears the risk for repayment, not the county.

The county is not liable for the repayment of the bonds. In fact, it is unlawful for the county to use public funds to repay any portion of the bonds unless an agreement was reached prior to the issuance of the bonds. If CDAs are used to achieve needed transportation and quality infrastructure for a county to expand its tax base and increase the citizen quality of life without increasing taxes on current residents, that could be viewed as positive.

This leads to the “crucial” issue: Which projects are best suited to use a CDA to help finance the infrastructure? The answer to this question depends on many factors including the needs of the county, the finances of the county and the creativity of the developer to add additional value to support the CDA debt while meeting the needs of the county. For example, if a county needs additional transportation infrastructure, but is unable or is not willing to raise taxes on its citizens to finance such improvements, then a CDA which allows a developer to upgrade his development plan to include additional transportation infrastructure and improvements that meet the needs of the county may be appropriate. Another example might be a developer who proposes to use CDA funding to upgrade the quality of his development such as a “new urbanism” project which allows citizens the option to live, work, and play and pay taxes in one location. Another reason CDAs are rapidly gaining popularity is that the county gets the improvements at the front end of a project and not later after new development has exacerbated existing transportation and other problems.

At present, there are at least 19 jurisdictions in Virginia that have used or are considering the use of CDAs to help address existing needs or to raise the quality of housing or commercial development in their jurisdictions. Locally successful CDA projects have been completed in New Kent County, Hanover County, Henrico County and the City of Richmond. The leadership of Chesterfield is absolutely correct to proceed with due caution and carefully examine the usage of this financing and land use planning tool. CDAs must be used in a way that will not only preserve the excellent quality of life of Chesterfield residents, but to enhance any future development so that Chesterfield remains an extremely attractive place in which to live, to move about and to do business both now and into the future. CDAs can provide that tool, if used properly.