Cave Creek advances Hot Springs Revitalization District, directs staff review of $20 million infrastructure financing
CAVE CREEK, ARIZONA — April 27, 2016

Cave Creek advances Hot Springs Revitalization District, directs staff review of $20 million infrastructure financing

Council discussed major Hot Springs revitalization district proposal to finance $20M infrastructure while addressing utility department water waste crisis and unresolved west-side water access gaps.

Town Advances Hot Springs Revitalization District After Flagging Capacity and Maintenance Concerns

On April 27, 2016, Cave Creek Council engaged in a three-hour debate over a proposal to create a municipal revitalization district to finance approximately $20 million in infrastructure for Hot Springs, a 742-acre, five-phase residential development. The developer, represented by attorney Mark Stump and advisor Steven Betts, sought authorization to issue 30-year bonds backed only by project property, claiming zero town liability. Council members, however, raised sharp questions about staff bandwidth, maintenance reserve sufficiency, market conditions, and a separate water-access crisis affecting west-side residents whose wells are depleting after a five-to-six-year wait for service. The meeting culminated in a directive for staff engagement but no formal approval of the district mechanism.

Key Speeches

"The water treatment plant dumped 123 million gallons of water on the ground last year alone. This is about forty-five thousand gallons of water per residential connection in the town. That is water that was brought from CAP, pumped up the hill, treated, and then dumped through Rancho Manana on the ground. Over five years of poor operation, you get north of 500 million gallons of water dumped on the ground during an epic drought in the southwest." — Robert Morris, Water Advisory Committee member

"We have not lost our focus. We have not abandoned the project. We have not changed the concept, and we have maintained our desire to pursue this project. What this revitalization district is a financial form of district that we're asking your commission [to] allow. The statute has a number of steps which we must comply with, including additional public hearings to bring you before you the financial plan and give all residents an opportunity to comment further. If we can begin this work now, given what the statutory requirements are, given our bond counsel and investment bank, we should be able to begin construction sometime in the June or July time period and have this infrastructure completed by December of 2015." — Mark Stump, Hot Springs development representative

"Theoretically there is no direct exposure to the town. The town is not committing to these improvements. The town is not acting as a lender or financier. The town is not exposing its general fund to any liability, and the town is not in any way backing or credit-enhancing these bonds." — Steven Betts, advisor and former Suncor Development CEO (on revitalization district liability structure)

"I will assure you, Vice Mayor, that it will be an issue, but it's one that can be addressed commonly. The answer is the town can require credit enhancement so that there's a bond surety. It will require cash reserves that you must be held at least at some point. You can structure the deal in such a way that the money does not start flowing out to the developer until such time as your protection period has passed." — Steven Betts, on maintenance reserve mechanisms

Timeline

Opposition

Number of speakers against: 2 (Councilmember McGuire and Cynthia Driskell raised substantial concerns during council discussion; no speakers from the public formally opposed the project, though several raised infrastructure-equity concerns).

Main concerns:

  1. Staff capacity and timeline feasibility: Cynthia Driskell expressed concern that accelerating design and permitting to meet a June bond-issuance and July construction start would overburden an already-stretched utility and engineering team. Robert Morris noted that utilities staff are "overwhelmed with engineering work" and a critical performance-scoreboard program was already "far behind schedule."

  2. Market analysis and economic viability: Councilmember McGuire stated, "I also know something about markets, and if this is going to be financed on the prospect of selling a large number of lots at prices that reflect significant uncertain times, then it requires a careful analysis of market." He noted abundant vacant properties and "for sale" signs across north Phoenix and Cave Creek, questioning whether infrastructure bonds could be serviced if lot sales stalled.

  3. Abandoned property and community impact: Councilmember McGuire warned that abandoned properties and infrastructure in failed developments create negative externalities on neighboring blocks, undermining community quality.

  4. Maintenance reserve and financial structure: Councilmember McGuire pressed for specifics on maintenance reserves, asking whether a "cash reserve" or a "surety bond" would be required. He noted that typical Improvement Districts expose the town to liability, and he demanded assurance that the revitalization district's protections were structurally superior.

  5. Long-term town maintenance burden: Councilmember McGuire raised concerns that the town would eventually inherit a $20 million infrastructure system and bear the maintenance costs once bonds were paid off (in 30 years), particularly if lot sales and development stalled mid-project.

  6. West-side equity and unresolved infrastructure debt: Residents Carrie Smith, Gary Becker, and Terry testified that their wells are failing and the town has withheld $20,000–$30,000 in water-line pressurization and chlorination costs for five to six years, creating a two-tier service system. Carrie Smith stated the town "dragged his feet all this time," while the water lines are already built and in town standards.

  7. Capacity-fee uncertainty: Councilmember McGuire questioned who pays capacity fees for water served to Hot Springs units and whether existing capacity-fee calculations account for the new infrastructure's costs and capacity. He noted the ambiguity was "not a truth separate political division," suggesting the financing structure was not fully transparent.

Most compelling arguments:

Councilmember McGuire's market-analysis challenge was the sharpest critique: given the visible overstock of vacant property and "for sale" signs across the region, accelerating bond issuance and infrastructure investment on the assumption of robust lot sales seemed reckless, particularly during an economically uncertain period. His insistence on maintenance reserves, financial structures, and long-term town exposure resonated with council consensus that staff capacity was already limited.

Robert Morris testimony on water waste—500 million gallons dumped over five years due to lack of performance scoreboards and management systems—provided urgent context for why the town's utility department could not absorb additional infrastructure obligations without hiring a full-time engineer (a position still vacant and behind schedule).

Organized groups: None formally organized in opposition, but the West Side Saddle Mountain Road residents (Carrie Smith, Gary Becker, Terry) constituted a constituency with a distinct grievance about unequal service access.

Support

Number of speakers in favor: 3–4 public speakers (Carrie Smith, Gary Becker, Terry) supported the project as a pathway to water service; Steven Betts provided expert testimony on the revitalization district mechanism.

Main arguments:

  1. Infrastructure acceleration and quality: Mark Stump and Steven Betts emphasized that the revitalization district is a proven mechanism (used in multiple states by Suncor Development) for accessing lower-cost financing to construct large-scale, public infrastructure without burdening town bond ratings or budgets. Betts stated, "This is a way of accessing some lower-priced financing to a point of view that structure doesn't build a house or indivisibility the private stuff—it's just for public infrastructure that they need to exist in the town."

  2. No town liability: Both Stump and Betts stressed that, unlike traditional Improvement Districts, the revitalization district statute (passed 2011) does not make the town the obligor, district board, or liable party. Betts: "As one of your citizens, I don't have any liability. We don't have your budget that you were talking about. We don't get hit on us because we don't continually back these. We don't take any liability from them."

  3. Regional recreation and conservation impact: Mark Stump noted that Hot Springs "sits between both the [Caves] and Cross Ranch community recreation area in a critical spot to help create a land bridge between those two conservation areas." The development preserves and expands trail access to regional parks.

  4. Water service equity: Residents Carrie Smith, Gary Becker, and Terry advocated for the project as a tool to pressurize and chlorinate existing water lines on Saddle Mountain Road, serving west-side residents who have waited five to six years without service. Smith: "The lines are in. Everything has been done. In town just needs to accept it right now. The town is saying, OK, we want the developer to pay this twenty thousand dollars and include this one hook section of water. That's fine, this is going to take some time. I would like to see you move this discussion along and I think our town owes it to us to put up to twenty thousand dollars and then go to Mr. Stump, the development staff, like to be reimbursed for this so we can provide water to our residents."

  5. Phased construction and warranty protection: Stump outlined that the district would finance construction in phases, beginning with pressurization and chlorination of the existing Saddle Mountain Road water line within the first 60 days, followed by booster stations, storage tanks, and road improvements. Infrastructure would come with warranties and be subject to town inspection and approval.

  6. Landscape and neighborhood quality: One resident expressed support for landscape improvements to Saddle Mountain Road and hoped the development would address potholes and deteriorating infrastructure.

Organized groups: No formal advocacy groups, but development consultants (Steven Betts, Bill Hicks bond counsel, Piper Jaffray investment bank) testified to the mechanism's viability and safety.

Project Details

Infrastructure scope (per revitalization district proposal):

Vote Breakdown

Final: No vote taken on the revitalization district authorization. The item was designated "discussion only" and advanced with a staff-engagement directive.

Separate votes and outcomes (from other items on the agenda):

Outcome & Next Steps

Council directed town staff, in consultation with legal counsel (Bond Counsel Bill Hicks), to engage with Hot Springs Corporation and its representatives to:

  1. Develop the revitalization district process: Work through statutory requirements, including preparation of a financial plan and preparation for additional public hearings. No timeline was specified, but the developer indicated that bond issuance by June 2016 and construction start by June/July 2016 were required to meet the December 2015 completion target.

  2. Determine west-side water-line costs: Robert Morris and Council directed staff to meet with the developer and determine the actual costs (stated as $20,000–$30,000) to complete pressurization and chlorination of the existing Saddle Mountain Road water line to serve west-side residents. Council did not commit to town funding of this segment but acknowledged the equity concern.

  3. Develop protective covenants and maintenance structures: Council emphasized that before any revitalization district is formally established, staff must work with the developer to define:

    • Infrastructure quality standards and engineering specifications.
    • Maintenance reserve requirements (cash reserve vs. surety bond).
    • Market-analysis and demand forecasting documentation.
    • Capacity-fee allocation and water-service responsibility.
    • Warranty periods and third-party inspection protocols.
    • Protection mechanisms for town liability exposure.

Continuance: No formal continuance date was set. The matter is expected to return to council after staff completes preliminary discussions with the developer, though the developer's aggressive June 2016 bond-issuance timeline creates pressure for expedited town action.

Conditions: Implicit conditions include adequate market analysis, maintenance reserve structures, and town acceptance of infrastructure design standards prior to formal district establishment.

Controversies & Context

Utility Department Water Waste Crisis

Robert Morris testimony on utility department performance revealed a systemic management failure with fiscal and environmental consequences. Morrison stated that the water treatment plant dumped 123 million gallons of water in fiscal 2014 alone—equivalent to 45,000 gallons per residential connection—by discharging treated water through Rancho Manana pond. Extrapolated over five years of poor operation, Morrison estimated over 500 million gallons of water were wasted during the Southwest drought.

Morrison credited newly hired utility manager David Prince with discovering the waste during contract renegotiation and called Prince "an exceptionally capable and effective engineer." However, Morrison emphasized that the town lacked performance scoreboards and management systems—standard utility benchmarking tools—that would have flagged the problem years earlier. He stated the Water Advisory Committee recommended implementing these scoreboards by July 2014, but the deadline was missed by approximately four months, and a full-time utility engineer position, also recommended, remained unfilled (only a part-time engineer was added after six months' delay).

Morrison requested council to prioritize hiring the full-time engineer position and completing the performance-scoreboard implementation on an expedited basis. This context is material to the Hot Springs revitalization district proposal because Cynthia Driskell raised concern that overburdening an already-stressed utility staff with accelerated design and permitting for the revitalization district infrastructure could compromise both staff health and project quality.

West-Side Water Access Inequity

The meeting exposed a five-to-six-year infrastructure stalemate affecting residents on Saddle Mountain Road and surrounding areas. Water lines have been constructed to town standards and are already in place, but they have not been pressurized and chlorinated—steps necessary to legally serve domestic water. The town and developer have been in dispute over $20,000–$30,000 in costs to complete this final segment.

Residents Carrie Smith and Gary Becker testified that their wells are failing and they lack equal access to services compared to other town areas. Smith stated, "The lines are in. Everything has been done. In town just needs to accept it right now." She contrasted the town's delay with its stated inability to fund the work, asking the town to appropriate $20,000–$30,000 and seek reimbursement from the developer once the revitalization district is approved.

Councilmember McGuire acknowledged the equity issue but questioned why the town should pay for infrastructure that benefits a private development. Robert Morris directed staff to meet with the developer to "determine actual costs" but made no commitment of town funding. This unresolved equity gap underscores tension between the town's capacity to serve existing residents and its willingness to fund infrastructure preceding large-scale development.

Revitalization District Statute as Unproven Mechanism

Steven Betts noted that the revitalization district statute was passed in 2011 and is "a really new statute." He stated that he was unaware of any revitalization districts currently in operation in Arizona, though he mentioned that the statute was originally intended (but not used) to finance redevelopment of the "motor mile" along McDowell Road in partnership with the Salt River Pima-Maricopa Indian Community.

Councilmember McGuire pressed Betts on why developers did not use the more-familiar Community Facilities District (CFD) statute, which has been employed for decades and allows assessment-based financing of public infrastructure. Betts acknowledged that both mechanisms could theoretically achieve the same result but noted that bond counsel and investment banks were reportedly more comfortable with CFD structures due to established track records. He stated, "Some people say they don't like the RD statute because it's unproven and they don't like the language." This concern was reflected in council discussion: several members noted they lacked familiarity with the statute and wanted assurance from bond counsel before proceeding.

Market Conditions and Economic Risk

Councilmember McGuire raised questions about market conditions, noting abundant vacant property and "for sale" signs across north Phoenix and Cave Creek. He emphasized that financing $20 million in infrastructure bonds on the assumption of robust lot sales during an economically uncertain period required detailed market analysis. McGuire stated, "I do know something about markets, and if this is going to be financed on the prospect of selling a large number of lots at prices that reflect significant uncertain times, then it requires a careful analysis of the market."

He also raised concern about "abandoned properties" and negative externalities: "The terrific infrastructure in an abandoned community where they can't sell properties then after the natural failures associated with the filaments bonds—" (transcript is unclear at this point, but McGuire's intent was to note that if the Hot Springs project stalled mid-development, the town could be left with expensive infrastructure and a blighted neighborhood). This concern was not directly addressed by the developer but implicitly acknowledged as a risk requiring protective covenants.

Staff Capacity and Timeline Feasibility

Cynthia Driskell and Robert Morris both questioned whether the town's utility and engineering staff could meet the proposed June 2016 bond-issuance and June/July 2016 construction-start timeline. Morrison noted that utilities staff are "overwhelmed with engineering work" and the critical performance-scoreboard implementation (already behind schedule) would be further delayed if staff were diverted to accelerated Hot Springs design and permitting.

Cynthia Driskell stated, "We add to the staff, at least with respect to water-related issues. Now we're suggesting that we need to accelerate the staff's inclusion in the design of infrastructure that surely has former components to it in order to meet this schedule." She implied the timeline was unrealistic given staff constraints and the complexity of infrastructure design.

Duration

Other Notable Items

Comprehensive Annual Financial Report (FY 2014) Approval: Council unanimously approved the town's clean audit. Maryland & Company CPA partner highlighted an upcoming accounting standard change (GASB pronouncement on defined-benefit pension plans) that will shift the town's ASRS and PSPRS underfunded pension liability from footnotes to the balance sheet starting FY 2015. Robert Morris asked whether this change would increase the town's contribution rate to the state retirement system. The CPA clarified that contribution rates are set by the state, not the town, and recent returns have been improving; the employer contribution rate is expected to decrease for the first time in five years on July 1. Councilmember Larry Smith raised concerns about accounting fairness, noting that the town will appear to assume liability for an underfunded state system it does not control. The CPA and town manager explained that the change is purely accounting presentation—no operational change occurs; the town's actual liability and contribution obligations remain the same.

Water System Debt Service Coverage: The CPA noted that the Desert Hills water system did not meet its contractual 120% debt-service coverage requirement. Town Manager Prince stated the town is discussing revised reserve requirements with the bondholder but has not yet finalized terms. This issue was flagged but not resolved.

Cave Creek Rodeo Association Recognition: Tracy Sally introduced the 2015–2016 KPBS rodeo queen and announced that the rodeo association was a national PRCA award finalist. The 21st annual rodeo is scheduled for March 27–29, with an expanded parade and kickoff celebration. This was informational and received positive council reception.

Media Bias and Campaign Integrity Concerns: David Smith testified about what he characterized as "dark money equivalent" in local media (Salon News), which he said has published inaccurate guest editorials, at least one author of which is now running for council. Smith compared the tactics to propaganda and expressed concern about misinformation affecting elections. No council action was taken on this comment.