The developer behind the StoneGate development in Cold Springs is requesting the City of Reno to issue bonds to help pay for $36 million in infrastructure costs.
For nearly two years now, the developer has been seeking to have the city approve the creation of a special assessment district and issue bonds to help pay on the front end for the installation of infrastructure, including streets, sewer and improvements to the Highway 395 interchange residents of the future development will use.
The request has already drawn opposition before being heard by the City Council at its next meeting in January.
“This is another way that developers want to be subsidized by the public for their profit-making schemes,” said Bob Fulkerson, local activist, development director and co-founder of Progressive Leadership Alliance of Nevada.
“And they’re going to try and ring as much money out of the public as possible—and it just shows that not only is this project an environmental disaster via the leapfrog sprawl of putting a city the size of Fallon on the backside of Peavine with all of that inherent traffic and climate change inducing pollution it will cause, but, it sounds like … they want to fleece the public financially as well,” he added.
There are multiple types of special assessment districts (SADs). In Reno, homeowners may be familiar with special assessments placed on their properties when the sidewalks surrounding them need to be fixed up. When the city fixes the sidewalks, only the homeowners whose houses abut those sidewalks are assessed fees for their repair. SADs associated with these types of projects are common in Reno.
In this case, however, the developer is seeking the creation of a construction district—and it comes at a much higher price tag than any SAD the city has ever approved before.
When this idea was first floated in early 2019, the developer was seeking more than $50 million in bonds to be issued by the city. However, according to the city’s own SAD guidelines, the appraised value of the property needs to be at least 1.5 times the amount of proposed bonds. The property in the StoneGate development therefore would only warrant the issuing of $36 million in bonds.
The reasoning behind forming a construction district has to do with the fact that the bonds will be used to pay for infrastructure that does not yet exist on land where there are no individual property owners, other than the developer, to which fees may be assessed.
The bond money would pay for this infrastructure, which will eventually be owned by various government agencies. The developer would at first pay the assessments on property in the district, then any builders to which subplots of the land are sold and eventually individual homeowners in the development.
When this funding model was first proposed, City Council Member Jenny Brekhus was the lone voice on the council to oppose it.
Brekhus said that while the bonds would not be backed by the city’s general fund and would be secured by the land itself—which the city could foreclose on if the developer or subsequent landowners failed to make the assessment payments—the city’s credit rating and ability to take on new debt in the future could be damaged if the bonds were ever defaulted on. She told This Is Reno that she will again oppose the proposal for these same reasons.
Deborah Lauchner, finance director for the city, said she thought it unlikely the bonds would ever go into default.
“The risk would be if the developer just walked away from the entire development, and then … we foreclose on the property,” she said. “And then we own property … way outside of town that we really can’t service very well. And then our recourse would be to sell it and try to recoup the money for the bond. The city itself is not responsible, but that would be where the risk would lie. So, we’ve really worked on tightening up those agreements to make the risk as minimal as possible.”
Lauchner also explained that there are additional steps that will need to be taken to get the plan approved, including forming the district through an ordinance. A part of the reason the process has taken this long, she said, is that not only is the price tag large, but the plan is also fairly novel for Reno.
“For Reno, we haven’t done this large scale,” she said. “This will be the largest one that [the council has] considered, and I’ve been working with them for nearly two years to get it to this point where we can take it to council. And then council gets to decide if they want to keep moving forward on it or not.”
While this type of funding plan is largely new for Reno—with only a few, smaller projects like work on Somersett Parkway having been financed through similar means—it has become increasingly common in Southern Nevada and in other states since the housing bubble burst preceding the Great Recession. Since that time, commercial lenders for projects like the StoneGate development have become harder to find. And the COVID-19 pandemic has exacerbated this.
“What I’m hearing is that, with the pandemic, a lot of the commercial lending—those lenders sometimes are backing off on commitments they had made pre-pandemic,” Lauchner said.
The next step toward getting the construction district plan approved will be taking the Development and Financing Agreement (DFA), which includes an appraisal and an engineer’s report on assessments, to the Reno City Council. This DFA is expected to be presented to the Reno City Council on Jan. 13.
This Is Reno reached out the developers of the StoneGate development for comment but did not hear back prior to publication of this story. This story may be updated should we receive a response.