Summit's special assessment bond carries benefits and risks

Monday , June 01, 2015 - 12:00 AM

OGDEN — In 2013, Weber County officials went to great lengths to try to shield taxpayers from undue risk as they established parameters for the $17.6 million special assessment area bond to help launch Summit’s Powder Mountain development.

“We started this in January 2013, and I spent anywhere from one to four hours per day through a period of weeks and weeks and weeks, because it was pretty complex,” Weber County Treasurer John Bond said of their efforts to balance the development’s benefits and risks in the best possible way.

“We currently have two years of reserve bond payments as a way to signal our taxpayers, as well as the bond community that invests in this, that we’re making every effort to minimize the risk,” Bond said during a meeting with the Standard-Examiner Wednesday that included Clerk-Auditor Ricky Hatch, Alan Westenskow — Zions Bank vice president of public finance, Douglas Larsen — executive director for Weber Economic Development Partnership, and Weber County Public Affairs Director Holin Wilbanks.

Bond referred to one year’s $1.5 million payment built into the bond amount, plus a second year’s $1.5 million payment set aside in a reserve account by the developer, Summit Mountain Holding Group.

In addition, over time, the bond will gather another six months of debt-service reserve from $6,000 fees charged on 120 Equivalent Residential Units that apply for building permits in the assessment area.

“This is the belt, suspenders and duct tape approach,” Hatch said of the 2.5 year payment cushion intended to diminish risk without overburdening the developer.

In 2006, Western American Holdings purchased the 10,000-acre Powder Mountain from owner Alvin Cobabe, with big ambitions to build malls, golf courses and up to 10,000 homes. Due to heavy opposition — and the Great Recession — that development never got off the ground, and in 2013, Summit bought the mountain and ushered in a different vision that would add 1,000 single- and multi-family dwelling units plus 290,000 square feet of commercial space.

“With modern mountain design and natural preservation as core values, the Summit Powder Mountain development will consist of more than 500 ski accessible home sites connected to a village core of similar scale that includes cultural amenities and miles of walking, biking, and nordic trails,” Summit states on summitpowdermountain.com.

As Bond sees it, the special assessment bond supplied Summit with an initial boost.

“The county was a catalyst in their behalf, to put them into a position to be attractive to investors,” Bond said.

How the bond works

These particular funds, by statute, can only be used to install publicly owned improvements. In this case, that includes 15,810 linear feet of county-owned road construction; 11,700 linear feet of culinary water lines, valves, fittings and connections; Summit’s 415,000-gallon water tank, booster pump station and connecting water lines; and 23,340 linear feet of sewer lines, manholes, casings and sewer-lift stations.

Through a competitive bid process, Weber County awarded the $14,850,000 contract to Geneva Construction.

While a home site would be considered one ERU, a hotel room or smaller housing unit would qualify as 20 to 50 percent of an ERU.

Of the 1,000 ERUs in the entire 1,700-acre development area, 529 would be served by both the road and water and sewer improvements funded by the bond, so each of those units would pay a $22,096.46 assessment or $1,941 per year. But the 471 ERUs served only by the bonded road improvements will be charged a lesser assessment of $12,698.46 — or $1,115 per year. These ERUs will tap water and sewer service from later upgrades. The assessments are payable over 20 years.

In that way, the people who get direct benefit from the bond are those paying for it, Westenskow said, adding that some have chosen to pay the lump $22,096 up front

Otherwise, lot owners are required to make annual payments by July 15, while the annual $1.5 million debt payment is not due until Jan. 15 of the following year. That sequence starts this July.

Should lot owners default on their assessment payment, the county would commence collection procedures, Hatch said, which could involve taking title to the property and selling it.

“It’s designed that you can go through the entire process within six months,” Westenskow said. “By the time the bond payment is due in January, that land would have been foreclosed upon, someone would have bought it and that money would be there to make the bond payment.”

However, the two years of reserve payments are also in place as backup if needed.

“If we don’t get proceeds from sale of foreclosed property prior to making the bond payment, then we pull from the reserve fund, then replenish it from proceeds from the sale,” Hatch said.

Some risk remains

An inch-thick appraisal of the 1,685-acre property, compiled by Valbridge Free and Associates in July 2013, valued the property “as is” at $5.1 million, but with the “as proposed” improvements, that value increases to $69 million.

However, if the improved 121 lots and 154 ERUs in Phase 1 were sold in bulk, that value appraised at $34.5 million.

The project’s 1,000 ERUs are spread out over eight phases, to develop over time as the market allows.

“The state requires that the value of the land after the improvements are done has to be at least three times the amount that you’re borrowing,” Hatch said, which in this case equals about $60 million. “It speaks well to the developer and to the county’s conservatism. With that value of $69 million, we could have issued a higher amount of bonds.”

According to county documents, should all of the bond’s safeguards fail, Weber County would be on the hook to repay the debt.

Repayment options would include 1) a general fund appropriation, 2) appropriations from other county-approved sources, 3) the issuance of general obligation bonds, which requires voter approval, or 4) a property tax levy not to exceed 0.0002 per dollar of taxable property in the county.

That last option, if calculated according to 2014 taxable values, would necessitate a 0.000129 levy, or about $7 on a primary residence valued at $100,000.

More information about this bond, including the developer’s quarterly disclosure reports, can be found on the Electronic Municipal Market Access website (emma.msrb.org).

So far, approximately 30 of the 121 lots in Phase 1 have sold. The state engineer with Utah’s Division of Water Rights has yet to issue his decision concerning the developer’s exchange application to put its mountaintop Hidden Lake Well into operation. That request has been hotly protested by several entities who fear interference with their senior water rights. No building permits can be issued for these lots until a water source gets approved.

Tax incentives expected

According to Westenskow and Bond, no more county-backed bonds are anticipated as Summit works toward project build-out.

“Additional bonds would have to be heavily considered in the backdrop of everything else that we’ve done,” Bond said.

However, tax increment — the increase in tax revenue that flows from the development itself — will likely be funneled back into the project for a period of 20 years.

In October 2013, Weber County commissioners approved the Summit-Eden Community Development Project Area that could allow 50 to 75 percent of that increase to be used to bolster the development and fund further infrastructure .

Larsen said that the tax-increment agreement is expected to come up for further discussion in the next 30 to 60 days.

During Wednesday’s session, Wilbanks called Summit’s multi-phased project “one of the biggest developments that we’ll see in Weber County” and underscored the commission’s support and participation in the process.

“They know how the bond operates, and they know the structure of it,” Wilbanks said, “so they’ve supported it completely and obviously want to support the taxpayers first and foremost.”

Contact reporter Cathy McKitrick at 801-625-4214 or cmckitrick@standard.net. Follow her on Twitter at @catmck.

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