Alabama Improvement District Financing

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Alabama Improvement District Financing

Alabama has Special Improvement Districts, Capital Cooperative Districts, Business Improvement Districts and Tax Increment Districts. See Code of Alabama, Sections 11-99, 11-99A, and 11-99B for more details.

In General

The Act permits tax exempt financing of infrastructure costs for subdivisions.

The District

	A county or city may form an Improvement District.
	The district may issue tax exempt and taxable bonds to finance infrastructure costs for a subdivision.
	Eligible costs include roads, water, sewer, storm sewers, drainage, curb and gutter, docks, harbors, flood control, dams, berms, sidewalks, parks, schools, athletic facilities fire and police protection facilities, mass transit facilities, air transport, business and industrial recruitment, hospitals and medical facilities, signs and other property owned by public or utility companies.
	Developments may be residential, commercial, or industrial.
	Generally private roads will not qualify for tax exempt financing.
	The county or city assesses the lots to pay principal and interest on the bonds.
	Assessments are payable over the term of bonds. No 10-year limit as under prior law.

Tax and Fee Exemptions

	Interest on bonds may be tax exempt for state and federal purposes, reducing cost of borrowing.
	Final IRS regulations approve this process.
	Bonds are not private activity, and so no state volume cap allocation is required.
	Bonds may be bank qualified.
	Tax exempt market allows for long term (20+ years) at fixed rates.
	Floating rates could be around 3.40% plus a letter of credit.
	Fixed rates could be from 4.7% (10 years) to 5.5% (25 years), plus a letter of credit fee.
	Bonds may be guaranteed by developer or issued non-recourse (backed by a mortgage but no or limited personal obligation).
	Full recourse bonds would carry above rates. Limited or non-recourse bonds would be from 6% to 8%, long term, fixed, depending on quality of project and extent of recourse.
	A districts property, purchases, sales and usage, and the recordation of its mortgages, indentures, deeds, or other instruments to which the district is a party or which reflect the security of any bonds of the district shall be exempt from all transaction and recording fees.
	With county or city’s consent, materials bought for improvements may be exempt from sales and use and gross receipts taxes.

Procedure

	All owners of the tracts petition county or city to form a district consisting of land owned.
	Once formed, county or city appoints a three-person board, which may be members of the developer.
	Board then designs improvements to be built and asks county or city to make a preliminary assessment, specifying improvements and assessed costs.
	District than bids or contracts for improvements.
	County or city than makes final assessment, allocating bond principal lot by lot in proportion to increase in lot value.

Other Information and Advantages

	Persons buying assessed lots may pay off assessment or assume assessment. Assessment will be prior to bank loan. In other states, banks allow assessment to remain in effect to allow homeowner benefit of low interest rate on assessment. Local banks may be reluctant to do so until educated on process.
	Assessment will be prior lien, ahead of any mortgage for purchase of land.
	Bonds may be placed directly with your bank if bank qualified, generally, less than $10,000,000 in bonds.
	Counties may not form districts within a city’s planning jurisdiction, without city’s consent.