Gulf Shores Developer Asks for Special District

Status would allow tax-free construction of public improvements, bonds for construction

Published By Mobile Press Register
Wednesday, January 17, 2007
By RYAN DEZEMBER
Staff Reporter

GULF SHORES -- Developer Rick Fine has asked the City Council to form an improvement district at the Fort Morgan property where he has approval to build a 260-room hotel, which would allow some of the work to be financed tax-free.

The council approved Fine's plans for The Sanctuary in July, allowing the Daphne-based developer to build an eight-story main building and four smaller "villas," each with a dozen rooms on about 12 acres adjacent to the Bon Secour National Wildlife Refuge. As part of the deal, Fine pledged to spend up to $1 million to expand city bike paths about eight miles along Fort Morgan Road.

On Monday, Fine, accompanied by his lawyer, David Cherniak, and Merchant Capital Executive Vice President Ken Funderburk, initiated talks with the council about creating the legal districts that would allow him to finance parts of the construction with tax-free bonds and also to impose an extra tax on his hotel rooms to help pay off the debt.

Though Fine wasn't precise with what exactly he wanted, Mayor G.W. "Billy" Duke III asked him to put a proposal in writing and indicated that city officials would consider his request.

"The reason a municipality would want to do it is it helps the developer finance the work at a lower interest rate," the mayor said. "But at the same time it creates revenue for the city in lodgings taxes."

Permitted under a 1999 state law, improvement districts, among other things, allow cities to extend their tax-exempt status to private developers as an incentive to build revenue-generating projects.

Municipalities don't pay taxes, and in an improvement district that benefit is extended to landowners who pay for expensive infrastructure projects -- from installing sidewalks and parking lots to drainage, lighting and sewer work -- that might otherwise be funded by taxpayers.

While some developers might seek the tax break on materials, such as asphalt and pipes to build roads and sewers, Fine said he wishes to issue tax-free bonds through an improvement district.

With the proceeds of a tax-free issue, the developer couldn't build the actual hotel, but he could finance work on his and nearby public property -- such as sidewalks, driveways, parking lots and water and drainage improvements -- said Funderburk, whose firm has worked on other improvement district deals in Spanish Fort and Orange Beach as well as Gulf Shores bond issues.

"If the public enjoys the benefit of lighting from that lamp post in the parking lot, then it can be financed tax-exempt," Funderburk said. And by going tax-free, Funderburk said, "the interest payments are, of course, dramatically less than market financing."

More complex arrangements, called cooperative improvement districts, allow developers and municipalities to work out revenue-sharing deals and make it possible for developers to self-impose taxes on their projects -- an extra penny of sales tax, say, or an additional 2 percent levy on hotel rooms -- to help pay their bond debt, Funderburk said.

Fine first said he wanted the city to share a portion of its lodgings tax to help make the hotel happen. Councilwoman Carolyn Doughty said that she wouldn't be interested in letting a developer dip into municipal revenue, and Duke said he would listen to revenue-sharing proposals provided it was the hotel's revenue that would be shared.

Abandoning that proposal, Fine said he would instead ask in his request that the city set up the district to allow him to impose an extra tax on his customers.
Previously Fine has proposed a bay-front condominium tower called Cypress Point in Daphne -- designs for which he later withdrew -- and has had plans to redevelop the storm-damaged Romar Lakes condo complex in Orange Beach with a high-rise residential project called Marqueza.

Duke asked what might happen if the project failed and the tax-free bond debt was to be repaid with the extra tax. Funderburk said the city would have no obligation.

"That's between the developer and his creditors and does not affect the city in any way," Funderburk said. "It's not actually a city obligation; the investors are buying on the strength of the developer."

Said Fine, "The bottom line is the city's not on the hook for anything. You're not sharing revenue, you're not responsible for the debt. I mean really and truly there's not any reason to say no.'"

With that the mayor asked Fine to bring a written proposal to City Attorney David Whetstone, who court-tested several similar deals throughout Baldwin County when he was district attorney.