When Governor Katie Hobbs signed H.B. 2999 in June, Arizona created an entirely new statewide infrastructure-finance vehicle. Effective Sept. 14 the State Affordability Infrastructure District framework becomes operational, and developers can begin the formation process with the Arizona Finance Authority. The focus has now shifted from creating the SAID framework to making it operational.

What’s Happened Since June?

In the months since H.B. 2999 was signed, the attention has shifted from the potential associated with this legislation to implementing this transformational tool in development projects across the State of Arizona. The Arizona Finance Authority (AFA) has developed the process through which landowners may seek formation of a SAID, and developers are now assembling the formation petitions and supporting documentation necessary to begin forming districts under the new law.

Taft has been at the center of Arizona’s SAID framework from its conceptualization and creation to the current implementation phase. Tyler Cobb, Taft’s Arizona Public Finance Chairman, served as the lead drafter and principal legal architect of H.B. 2999, helping design the statutory framework that now governs SAID formation and financing. Since enactment, Taft’s Phoenix Public Finance team has worked closely with the AFA as well as members of Arizona’s construction, development, and public finance communities to implement the act. We are currently advising developers and preparing petitions for SAIDs expected to be among the first submitted under the new framework.

That implementation work has required addressing questions that go well beyond the statutory text, including district boundary design, infrastructure eligibility, preliminary financing assumptions, assessed value and debt capacity modeling, title and ownership considerations, governmental coordination, and the selection of the appropriate general obligation, assessment or revenue bond structure. These are not merely formation issues. Decisions made at the outset regarding the foregoing considerations can directly affect a SAID’s future financing capacity and the structure of its bonds. Taft’s implementation work therefore approaches SAID formation with the eventual capital markets transaction in mind from the beginning.

What Should Developers be Doing Now?

With the SAID Act becoming effective, developers considering a SAID can move from preliminary evaluation to actual formation planning. The most effective approach is to begin with the anticipated financing transaction and work backward, so that the district formed today is structured to support the infrastructure program and bond financing ultimately contemplated for the project.

Developers evaluating a SAID should focus on several workstreams at the outset:

• Identify the financing opportunity. Determine which public infrastructure costs, development impact fees, and other eligible expenditures could be financed or reimbursed through the district, and when those costs are expected to be incurred.
• Design the district around the development plan. Consider whether the project is best served by a single SAID or multiple districts and whether district boundaries appropriately correspond to anticipated development phasing.
• Select the appropriate financing structure. Evaluate whether general obligation bonds, assessment bonds, revenue bonds, or a combination of financing tools best fit the project.
• Model financing capacity early. Before formation, developers should evaluate projected assessed values, absorption, tax or assessment burdens, applicable debt limitations, and anticipated bond sizing to identify structural constraints before district boundaries and financing assumptions become embedded in the formation process.
• Prepare for the AFA formation process. Developers should begin assembling the materials necessary to support a formation petition to the AFA.

Perhaps most importantly, formation should not be treated as separate from the eventual bond financing. Decisions made during formation concerning district boundaries, infrastructure, financing assumptions and governing documents can materially affect the district’s future financing capacity, the security structure for its bonds, and the disclosures ultimately made to investors. Developers therefore should involve their public finance team early enough to structure the district with the capital markets transaction in mind from the outset.

Taft’s Phoenix Public Finance team is already working with developers on each of these workstreams, including preparation of SAID formation petitions and preliminary financing structures, with the objective of providing continuity from initial district planning and AFA formation through bond issuance as bond counsel and disclosure counsel.

Formation Is Only the First Step

Formation of a SAID is not an end in itself. For most projects, the objective is ultimately to create a district capable of accessing the capital markets on terms that support the project’s infrastructure needs and development plan. The decisions made during formation therefore should be evaluated not only for statutory compliance, but also through the lens of the financing transaction that is expected to follow.

Taft is positioned to provide continuity throughout that process. The work begins with evaluating whether and how the SAID Act can be used for a particular project, continues through preparation of the AFA formation materials and structuring of the district, and extends through the eventual financing transaction, including service as nationally recognized bond counsel and disclosure counsel. Since Taft’s team has been involved in the SAID framework from its legislative origins through AFA implementation and the preparation of initial formation petitions, the formation process is approached with the requirements of the eventual bond transaction in mind from the outset.

What Is Being Seen as the Market Develops

The SAID Act was driven in significant part by the need for additional infrastructure-financing tools for Arizona’s housing market. However, the variety of projects now evaluating SAID structures demonstrate the breadth of the new framework.

Developers are considering SAIDs not only for large master-planned residential communities, but also for mixed-use, commercial and industrial developments and other projects in which substantial public infrastructure must be funded in advance of vertical development. In some cases, the threshold question is how best to size and phase district boundaries around projected development and assessed value growth. In others, the principal issue is whether an assessment, general obligation, or revenue bond structure best matches the project’s ownership and revenue profile.

These early projects reinforce an important feature of the SAID Act: there is no single SAID structure that will be appropriate for every development. District boundaries, infrastructure, development phasing, financing assumptions, and bond security should be designed around the economics and legal structure of the particular project.

The SAID Act Is Now Open for Business

Sept. 14, represents the beginning of the SAID era for development throughout the State of Arizona. Developers that have been evaluating the new law can now move from conceptual planning to the preparation and submission of formation petitions to the AFA. Taft’s Phoenix Public Finance team is already engaged in that process: from leading the legislative effort for H.B. 2999, through coordinating the implementation of the SAID Act with the AFA, and advising developers preparing SAID petitions and financing structures. That involvement provides Taft with a distinctive understanding not only of the statutory text, but also of the financing objectives, legislative intent, structural choices, and implementation considerations that shaped the act.

As the first generation of SAIDs moves from formation to financing, Taft is prepared to assist developers and districts throughout the lifecycle of a transaction: from initial feasibility and district design through the AFA formation process, to the structuring, issuance and disclosure of SAID bonds. Developers evaluating whether a current or planned Arizona project could benefit from SAID financing should contact Tyler Cobb or a member of Taft’s Phoenix Public Finance team to discuss formation and financing strategies under the new law.