When a developer buys land for development a Sanitary Improvement District or SID is used to install streets, sewers, power, and the SID can also be used to buy land for public parks. In order to pay for these items a SID will issue bonds and assign special assessments to individual lots in the subdivision.
SIDs were established by the Nebraska Legislature in the 1940's to help with the huge influx of building that took place after World War II. Sanitary Improvement Districts are good because it keeps the cost of development lower which helps the builder and the buyer. Also, investors like SIDs because they issue tax free bonds and are generally a very stable investment.
When you buy a home and if the property is located in a SID you are required to receive a copy of the SID statement. This will show you the amount of the indebtedness of the SID. If you have questions about the SID it is best to contact the SIDs board of trustees and/or attorneys involved to ask about the SID's financial situation.
Taxes in SIDs are typically higher than in established parts of the city. This means a higher mil levy. The city generally requires a base level and the higher mil is used to pay for items such as a intersection in a development that is used by all inhabitants of the development. Codes for sewers and streets in a new development are stricter and the cost is higher which will also raise the mil levy.
A special assessment is assigned to items that are particular to a specific individual lot. For example, the street directly in front of the property and the sewer connected to the home benefit that particular home and these items are assigned special assessments.
Some buyers are concerned about what about if a development or a particular builder goes bankrupt. What does that mean for the SID? Does the buyer have to pay a higher assessment? No. It is extremely rare for a SID to go bankrupt, but it can happen. If it does it could mean a higher mil levy. Generally, if a SID goes bankrupt the indebtedness is reorganized to pay the bond.
This is just a general overview of SIDs if you have specific questions it may be best to consult an attorney. I also realize that this may not be the most exciting topic. Today's topic is courtesy of the KKAR and the real estate reality hour hosted by Steve Smithberg and Tori Lynn Ross. Steve Smithberg and Tori Lynn Ross host a local real estate radio show and Steve is owner of Homes by Design One and Tori is owner of Ross-Designs - Omaha's premier home stager.
David Matney, CRS,GRI
Considering selling your home? CLICK HERE for a list of questions to ask when selling your home.