No on Oklahoma SQ 833: Public Infrastructure Districts

Oklahoma has two state questions on the November 5, 2024, ballot. The first and most controversial and confusing is State Question 833. I have this uneasy feeling that the proposal is not so much about solving problems for cities or even for developers as it is about creating a new market for financial services companies. I'm voting NO on SQ 833.

Here is the gist that appears on the ballot:

STATE QUESTION NO. 833 LEGISLATIVE REFERENDUM NO. 376

This measure adds a new section, section 9E, to article 10 of the Oklahoma Constitution. Section 9E will permit the creation of public infrastructure districts to provide support, organization, operation, and maintenance of services. To create such a district, proponents for creating the district must file a petition with the municipality. The petition must include the signatures of one hundred percent of all surface property owners falling within the district's proposed boundaries. The municipality possesses the right to impose limitations on the district's powers prior to approving the district. Once approved, the district will be governed by a board of trustees.

Through the board, the district may issue bonds to pay for all or part of all public improvements implemented by and for the public infrastructure district. The district will be limited to issuing bonds issued for such improvements not exceeding ten (10) mills. For repayment of the bonds, the district, acting through its board of trustees, will levy and assess a special assessment on all property benefiting from the improvements in the district. Section 9E also authorizes the Legislature to enact laws necessary for the implementation of public infrastructure districts.

This question is a legislative referendum, which means the state legislature approved a joint resolution proposing a constitutional amendment, which must then be ratified by the voters. SJR 16 was authored by Sen. John Haste, R-Broken Arrow, Rep. Terry O'Donnell, R-Catoosa, and Rep. Lonnie Sims, R-Jenks, who is the Republican nominee for Tulsa County Commission District 2. The resolution passed the Senate 38-7, with most of the consistent conservatives (e.g., Dahm, Deevers, Hamilton, Jett) voting no, and passed the House 66-27, again with most of the consistent conservatives (e.g., Banning, Gann, Olsen) voting against. Some usually reliable conservatives voted yes in both houses (e.g. Prieto, Crosswhite Hader), but I also notice lots of prominent Democrat names on the yes side (e.g., Provenzano, Schreiber, Dossett, Nichols, Blancett).

Here is the language that will be added to Article X of the State Constitution if SQ 833 passes:

Section 9E. A. There are hereby created public infrastructure districts.

B. Municipalities may approve the creation of public infrastructure districts, which may incur indebtedness and issue public infrastructure district bonds to pay for all or part of the cost of public improvements within such districts. The cost of all indebtedness so incurred shall be levied and assessed by the board of trustees of a public infrastructure district on the property benefited by such improvements following the passage and approval of the organization of a public infrastructure district pursuant to subsection C of this section. The board shall collect the special assessments so levied and use the same to reimburse the public infrastructure district for the amount paid or to be paid by it on the bonds issued for such improvements not to exceed ten (10) mills for the purpose of providing funds for the purpose of support, organization, operation, and maintenance of such services.

C. A public infrastructure district shall not be created unless a petition is filed with the municipality that contains the signatures of one hundred percent (100%) of surface property owners within the applicable area consenting to the creation of the public infrastructure district.

D. The municipality may impose limitations on the powers of the public infrastructure district through the governing document presented by the public infrastructure district applicant.

E. The levy shall be in addition to all other levies authorized by this Constitution, and when approved, shall be made for the repayment of public infrastructure district bonds issued by the public infrastructure districts for the public improvements agreed upon by the voters of the district as provided by the governing document.

F. The Legislature shall be authorized to enact such laws as may be necessary in order to implement public infrastructure districts in this state.

Reading between the lines to think through how this would work:

A public infrastructure district (PID) would likely be set up by a single property owner, since the consent of 100% of property owners is required. The property owner would be the proponent and would develop the governing document for the public infrastructure, which would presumably spell out the number, terms, and process for appointment of the trustees.

Only a municipality can approve a public infrastructure district, but nothing in this amendment says that the infrastructure district has to be within that municipality's limits. (That may be implied by other law, but it ought to be spelled out here.) It says the municipality may impose limitations in the district's powers, but the only power authorized in this section is to incur indebtedness and issue bonds. Perhaps a limitation would include capping indebtedness or restricting what improvements could be financed in this way. The limit of 10 mills implies that the assessments must be ad valorem, based on property value, rather than some other measure, such as linear street frontage, land area, or proximity to amenities.

There's nothing in the amendment to specify how trustees should be appointed or how to disband a PID once it has served its purpose.

This would appear to be a way for a private property owner to sell tax-exempt bonds rather than taxable bonds, without having to ask a city or county industrial authority to issue conduit debt on his behalf.

Sen. Haste and Rep. O'Donnell issued a press release after SJR 16 passed the House in April.

"Oklahoma has a housing shortage across the state, and we know one of the most significant barriers to new homes is the need to build the necessary infrastructure to support them," Haste said. "PIDs will help our municipalities finance the infrastructure to handle our state's growth."

It's noteworthy that Haste and O'Donnell's districts overlap in the section of Wagoner County within Tulsa's city limits.

OpenSecrets has not identified any committees supporting or opposing the measure. A search of independent expenditures and state question expenditures on the Oklahoma Ethics Commission's website turns up nothing.

Utah has Public Infrastructure Districts, but they do not appear to be limited to municipalities. Here is a Salt Lake City TV news report on the use of Public Infrastructure Districts by the Utah Inland Port Authority and the website for a pair of PIDs, one residential, one commercial, called ROAM in Morgan County, Utah.

D. A. Davidson, a Denver-based financial services company, has a Special District Group that works with cities and developers to set up PIDs; their presentation, explaining PIDs and providing examples, is included in the minutes for the July 11, 2024, Millville, Utah, City Council meeting. Here is a draft policy statement from the City of Toquerville, Utah, setting out the basis on which PIDs would be established by the city; document metadata indicates it was written by Laci Knowles, a managing director of D. A. Davidson's Special District Group. I found her name on several similar policy statements from other cities.

(By the way, Utah has a website for collecting every public notice issued by every public body in the state, including municipalities. The search engine could be better, but this is a great idea.)

Texas has Public Improvement Districts, which are municipal. Here is an analysis of Public Improvement Districts by John Whitsell, the City Manager of Chandler, Texas; it sounds very similar to what is proposed in SQ833.

I ran searches for Public Infrastructure District and Public Improvement District on the websites of the American Legislative Exchange Council (ALEC) and the National Conference of State Legislatures (NCSL), two organizations that develop model legislation that state legislators reuse and adapt to local circumstances, and could find no reference to either concept.

The general idea seems to be that a developer would be able to have the city issue bonds on its behalf to fund a new subdivision's streets, sidewalks, sewers, waterlines, and common areas, and then the bonds are paid back by the assessments on the property owner(s) within the PID. This would be in lieu of the developer needing commercial financing for those costs as part of the overall financing for the project. This sort of infrastructure financing has been done with a TIF, but a TIF diverts the additional property tax or sales tax revenue generated by the development (e.g., Tulsa Hills, Jenks Outlet Mall) from taxing entities, while in a PID, the taxing entities would collect the entire millage, even on the increase in value, and the over-and-above PID assessment would go to repay the bonds. Someone buying a lot to build a home in a PID would pay more in property taxes over the years, even after his mortgage is paid off, instead of paying a higher price upfront (the infrastructure cost of the development would be rolled into the initial price).

It would help a lot to know who brought the idea to Sen. Haste and Rep. O'Donnell and who was lobbying for SJR 16. It looks like it would be a moneymaker for bond attorneys and bond underwriters. I did not find any Oklahoma lobbying expenses listing D. A. Davidson as a principal ("principal" is the lobbyist's client), but I could imagine that a financial services company might push to create this type of district to open up an entire state for new business opportunities.

Maybe there is some value to this idea, but the proposal needs more clarity, limitations, and safeguards. I plan to vote NO.

P.S. If you want to induce nausea, go to that Lobbyist Expenditure search page, enter the last name of a current legislator, and then look at the lobbyist column and be appalled and disgusted at the large number of former legislators who are trading on their legislative connections for the benefit of special interest groups. Maybe we'd be better off as a state if we paid departing legislators a big pension while banning them from serving as lobbyists.

UPDATE 2024/10/21: Former State Rep. Jason Murphey writes that SQ 833 creates a moral hazard:

SQ 833, if approved, would create yet another form of special government district. To be known as a Public Infrastructure District (PID) and in a massive giveaway to developers, city government could decide to allow a developer to put his property in a special district, issue large amounts of debt--much to the delight of the high-powered attorneys and bond underwriters who would make bank on this whole deal--and pay off that debt with years of excess property taxation, which would increase costs long after the developer has gotten out from under the development.

He notes the way that TIFs brought special interest money to elections for Logan County Commissioner and predicts that SQ 833 will have a similar effect:

Up to that time, local county commissioner campaigns, in our county, had been mostly free of special interest influence. Commissioners spent little in the way of campaign funds, and that limited money that was spent likely came from the candidate himself or from friends and family. Their election was determined by issues of the county budget, the ability to articulate a plan for improving county roads, and, in the best campaigns, putting forward an encouraging vision of meeting core needs while downsizing the size and scope of government and taxation.

But a few years ago, I took note of the particular deep-pocketed special interest, who had previously shown no interest in these races, dropping significant funds into the county campaign....

In my view, this donor's interest lay in receiving a very special, lucrative benefit: the declaration of a TIF that would raise the value of a property he sought to develop.

Here's the moral hazard:

The developers of the future will be divided into two classes: those who have the political pull to receive the immediate benefit, and those who aren't able or willing to play the political game and who, as a result, will be at a great disadvantage to those who are favored by the politicians.

The principled politicians of the future, subject to this tremendous pressure, will likely become fewer in number. Few will have the bandwidth to understand what is going on; the principle to know that the smallest and simplest government is the government that governs best; and the incredible self-control to not play the game, give in to temptation, and thrive on the role of being big government economic developers, which is no doubt very alluring to the small-time, local-level officeholder who, because of these laws, now gets to play ball with the developers and the powerful of society.

Murphey, who was term-limited in 2018, started a Substack earlier this year. He was one of the few state legislators to refuse any gift from any lobbyist or entity that employs lobbyists. (Rep. Tom Gann, R-Inola, has followed in his footsteps.) He is also one of the most analytical people ever to sit in the Oklahoma legislature, so what he has to say about the degenerate legislative culture at the State Capitol is essential reading. While any piece older than two months is behind a paywall, new pieces are available with a free subscription, and you can read his very first Substack piece, "These Are Not Serious People," as a guest column at the Oklahoma Constitution website.