Association for Public Policy Analysis & Management

Neighborhood-scale, multipurpose development districts are increasingly used to facilitate infrastructure investments necessary for new urban and suburban development. Prior research suggests that fragmented and overlapping local governments stress local fiscal resources, and that policy decisions and spending made by specialized governments are less scrutinized or publicly accountable than general-purpose local governments. This evidence, however, largely stems from cases of special districts created by city or county administrators--often purposely as a way to work around fiscal constraints. Development districts, being citizen (i.e., developer) initiated, are a more atomistic, market-driven phenomenon. This creates the potential for boom and bust cycles that we do not typically observe in local government. Busts are economically and environmentally costly, resulting in significant public debt obligations and unused-but-developed land.

Community Development Districts (CDDs) in Florida are a special form of this trend. Developers initiate and implement creation these multi-purpose development districts, using them to float bonds which underwrite infrastructure build-outs for planned communities. While once a popular alternative for developers, CDD growth in Florida has been curvilinear: cresting and collapsing alongside the bursting housing bubble. The research question we address is: Does the cooling pattern of CDD growth have more to do with national and international exogenous shocks to the housing market, or financial over-extension and over-building by developers? Combining administrative data from multiple sources, we construct a panel dataset of fiscal health for the 700+ CDDs in Florida over time and analyze the role of debt and declining fiscal health in the boom-and-bust pattern of CDD formation. We use a multilevel regression modeling framework to fit both time-varying CDD measures and time-invariant characteristics, cluster CDDs by developer, and account for spatial proximity.

The findings hold important implications for both formation and administration of specialized governance in states considering such approaches to finance urban infrastructure. If CDD formation cooled largely due to international financial crisis, then this institutional approach to urban development may remain an appealing alternative to general-purpose government formation and fragmentation. But if it cooled because developers overused the mechanism to leverage speculative investment strategies, this suggests a downside to self-organizing growth and development mechanisms that merits more attention by policymakers in high-growth states such as Florida, Texas, and Colorado that rely on these institutions.