By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
By Anna Merlan
By Lee Escobedo
By Eric Nicholson
To get the state's blessing for the district, Vista Mortgage had to say it would give the state property for major highways, including what would become the State Highway 121 bypass just west of Interstate 35E.
Unlike other developments, which are usually built adjacent to existing highways, Vista Mortgage would improve or build 7.7 miles of major roadways that would make their land accessible for new construction. Developers needed a board composed of directors who owned property in the road district. So, right before they named them as temporary directors, developers gave five men, non-Vista employees selected by the developers, small pieces of land in the district. The five pieces of property are adjacent to each other and are located in a creek. Because no one else lived in the district, the five subsequently became the district's de facto elected officials. Later directors, who were somehow found to replace the old ones, just became new owners of a piece of "director property," according to research by Rider Scott, a lawyer working for Cheryl Bass and other road district board members. Before homeowners took over the board in 1998, three of the directors were involved in banking, one in real estate, and one in public relations. (A Denton County judge appointed the original directors for the three-member levee district board. They were not required to own property in the district.)
Road directors, who were typically asked by Vista to serve and then just filed for a vacant post, would serve at their pleasure from 1986 until 1998. Because the road district maintained a low profile, nobody seemed to know about the district, and nobody ran for office. It would be 12 years before a bona fide district election would be held and real taxpayers would take over. That's partly because homeowners would not start moving into the district in large numbers until the late 1990s. As in the case of the Bass family, residents would complain they didn't know about the tax district until they closed on their house and even then were unsure what it was.
The idea for the new type of road tax district was praised. An article printed in 1986 in a trade publication called Engineering News-Record called the proposed roads in the district "no-tax roads."
"At no cost to Texas taxpayers, the Denton County Road Utility District No. 1 north of Dallas is constructing 7.7 miles of arterial and feeder routes, constructing a drainage system and improving existing roads," the article said.
The article said the district idea was great because all the roads would be constructed simultaneously and because tax-exempt municipal bonds, which have lower interest rates than conventional notes, could be used to pay for them. While the Department of Transportation monitors the quality of the construction of roads within its jurisdiction, the district's board of directors is the only "outside" oversight agency that is supposed to act as a watchdog for taxpayer money. So, while Vista Mortgage put up money up front for roads and sewers, once the district property became valuable enough to get an acceptable rating for municipal bonds, the district's taxpayers would pay Vista Mortgage back for everything and with interest. Vista began moving dirt, and by 1987 the district's directors had approved issuing $14.6 million in bonds to partially repay Vista Mortgage.
Scott, the lawyer, says it was up to the developer-appointed road district board to make sure developer spending and road district borrowing was frugal and appropriate. For that reason, Scott questions the way the directors were allowed to rack up district debt, particularly the "soft" money associated with the massive bond issue.
"When you issue the bonds, there is absolutely no check and balance on these bonds. There is nobody to say, well, that's much too much money to be paying bond counsel or underwriters, so they run up exorbitant fees, large, large fees for the bond issue," he says.
The terms of bonds are variable and so are the "soft costs" such as fees for lawyers and those who handle the bond sale, Scott says. Issuing bonds that are paid back in five years rather than 20, for instance, might be more frugal, but someone interested in making money off the deal could recommend lousy terms. If district officials aren't careful, they'll put much more burden on the tax district than necessary, Scott says.
Barry Pound, a road district director from the district's first day until 1998, was asked how closely directors were looking at what the developers were spending money on.
"What we were looking at was what was happening to the tax base and maintaining the solvency of the district and providing returns for those bonds," he says. "I think that was our key consideration."
For developers, the road district setup is ideal. Once lots are ready and accessible by road, they can be sold at market price. But, if you account for the road and levee debts, the lots inside the district are more expensive than lots outside the district. That's because houses outside the district, for the most part, already have the costs of new roads and sewers wrapped into the purchase price.
Buyers like the Basses, for instance, didn't fully realize that because of the road debt, the sale price of their house is actually thousands of dollars more than the price of a house outside the district just a mile or two away. With the extra tax load of the two special districts, the Bass family is looking at an extra $20,000 to $30,000 at least in taxes over the next 20 years. Scott claims developers count on the ignorance of future homebuyers to sell their tax-burdened houses.
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