Frequently Asked Questions for Developers

Through numerous contacts and meetings with property owners contemplating improvements we have compiled a list of the most commonly asked questions. The following are summaries of questions and answers; a community meeting is always the best way to get information to the people involved. We are pleased to assist with issues relating to formation and district management.

Special taxing districts (commonly known as improvement districts) are formed under the Arizona Revised Statutes Title 48 and are an excellent avenue for property owners outside of municipalities to acquire or upgrade water and wastewater systems to improve their quality of life.  Districts have the legal authority to distribute costs of improvements and operations among the properties that benefit.  With a combined effort for funding, districts typically provide a more feasible way to establish improvements than can be obtained through individual investments.  Other types of Districts may also be formed for improvements such as roads, street lights and fire protection.  Contact Yavapai County for more information regarding formation and operation of these districts.

What is an improvement district?
Each level of government has specific purposes and duties.  Improvements such as water and sewer typically fall under the responsibility of municipalities and not the County level of government.  When subdivisions or communities outside of an incorporated area desire or require improvements the Arizona Revised Statutes allow for the formation of a special taxing district.  Specific boundaries are established and the district is formed with the approval of 51% of the property owners.  Once formed, the district operates as a political subdivision of the State of Arizona.  A Board of Directors made up of property owners governs the functions of the district.  The Board is initially appointed by the Board of Supervisors and thereafter elected by residents.  Districts have the authority to impose taxes and assessments on the benefited properties, charge fees for service, acquire funding, adopt ordinances, contract for professional services (i.e.: engineers, attorneys, administrators), construct and operate the improvements, and in many ways function similar to a municipality or a county.

How is an improvement district formed?
Boundaries are established and petitions are circulated to the property owners within those boundaries. Once the signatures have been acquired and the petitions are submitted, the County Board of Supervisors has the final approval for the formation of an improvement district.  Some counties provide assistance to residents during the formation.  They will usually require a bond at the beginning of the process for the reimbursement of the county’s cost for personnel time and other related items. 

What are the steps involved in the formation of an improvement district?
The following is a summary of the events that precede formation:

1. Establish boundaries and prepare a legal description.

2. Circulate petitions to collect signatures requesting establishment. Petitions shall be signed by a majority of the persons owning real property or by the owners of 51% or more of the real property within the proposed District boundaries.

3. Petitions with the required number of signatures are filed with the Board of Supervisors.

4. The Board of Supervisors sets a hearing date and the bond amount.

5. Protests can be filed with the Board of Supervisors up to the time of the hearing.

6. The hearing is held.

7. If the District formation is approved, the Board of Supervisors issues and records the Order of Establishment.

8. A volunteer Board of Directors is appointed.

Once petitions are submitted to the county the process takes approximately 45 to 60 days.  It is may be beneficial to hold a meeting of the affected property owners to discuss the formation of a district.

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How much does it cost to form an improvement district?

Costs vary from county to county and by the size of a district.  An estimate of potential charges should be obtained from the county prior to the start of the process.

How can an improvement district help my community?
Improvement districts give communities outside of municipal boundaries the opportunity to purchase, condemn, construct or repair sewer and water systems with a combined financial effort.  A district establishes an authority that is responsible for these improvements.  Decisions are made locally and in open meetings to allow public input and notification to property owners of the status of the district’s operation.  Inter-Governmental Agreements can be established between cities and improvement districts to provide such services as water supply or sewage treatment.  Typically a city government is more willing to enter into this type of service agreement with an improvement district than any other type of organization.  Improvement districts can assess properties and impose taxes to allow for equal financial contributions from properties receiving a benefit from the improvement.

What is the benefit of forming an improvement district vs. a non-profit corporation?
Improvement districts have the authority to assess properties and impose ad valorem property taxes to distribute the cost of improvements among the properties benefited. (The county collects taxes on behalf of the district in a similar manner as property taxes.) As decisions are made in open meetings the residents have the opportunity to be heard on issues concerning the system and the district.  Additionally, the Corporation Commission does not regulate improvement districts, which in most cases allows for a simpler operation.  

What are the requirements to operate an improvement district?

Improvement districts must function in accordance with the Arizona Revised Statutes and their environmental compliance is regulated by the Arizona Department of Environmental Quality.

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Does the Corporation Commission regulate an improvement district?
No, the Corporation Commission has no authority over an improvement district.

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Is an improvement district considered a non-profit corporation?
No.  However, an improvement district is considered a political subdivision of the State of Arizona, which is a governmental agency and can not profit.  Fees charged shall cover the cost to construct, repair and operate the improvement.

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Can an improvement district be formed event thought a utility company or corporation currently exists?
In some cases existing utility companies or corporations are willing to transfer ownership of the system to an improvement district.  The district would be required to negotiate the transfer and follow the requirements to transfer ownership.  Additionally, in some cases a district can condemn and take over a utility.

What types of capital project funding options are available to an improvement district?
An improvement district can conduct a bond sale or acquire State and/or Federal funding.  Property assessments and system revenues are ways to repay these types of funding.

How is the operation of the improvement district funded?
Typically a district charges a monthly or quarterly user fee.  These fees can cover the cost for administration, operation, and maintenance of the improvement.  Most districts also have the authority to impose an ad valorem tax to cover costs not recovered in user fees.

Who is responsible for financing an improvement district?
The fees charged to the properties benefited by the improvement cover the financing of a district.  It is the responsibility of the Board of Directors to establish these fees, but it is the obligation of the users of the system to pay for the construction and operations of the improvements.

Is an improvement district tax-exempt?

Yes.  Improvement districts do not pay property or income tax.  They are, however, required to pay sales tax on purchases.  In the case of water districts, sales tax is charged to customers and then forwarded to the State.

For more information contact Jennifer Bartos, (928) 443-9484