Community Development Districts (districts) have been used throughout Florida for more than thirty years to assist in the development and infrastructure of new communities. These districts provide a mechanism by which the government may finance new communities by essentially providing tax incentives. However, in the wake of Florida’s housing and real estate crisis, many developers and investors were forced into bankruptcy proceedings to reorganize or restructure their debts, including special assessments levied by a district. Simultaneously, districts have been forced to become creditors— despite their own objections at times—in bankruptcy proceedings to attempt to recover unpaid assessments. This Article discusses whether federal bankruptcy courts can constitutionally provide for the restructuring of assessments over a district’s objection.
The Authors begin by discussing the value that districts afford local governments, primarily through the financing of the development of new communities through special, long-term bonds that provide more favorable repayment terms and other benefits. Further, the Authors argue that states have the power to create laws under the Tenth Amendment, and that under the Eleventh Amendment, bankruptcy law cannot infringe upon certain rights guaranteed under the United States Constitution, particularly in the regulation of a local government’s own fiscal affairs. The Article also discusses the Rooker-Feldman doctrine, which provides that federal courts, with the exception of the United State Supreme Court, cannot review final judgments of state courts. Specifically, the Article provides that because state courts issue rulings on the methodology used by a district to levy the special assessments, allowing bankruptcy courts to order the restructuring of special assessments— over the objection of the district—violates the Rooker-Feldman doctrine.
The Authors conclude by providing that bankruptcy courts should not direct the restructuring of government assessments over a district’s objection because to do so would be in violation of the Tenth and Eleventh amendments of the United States Constitution, Florida state law, and the RookerFeldman doctrine. Further, the Authors opine that a bankruptcy court’s interference would be detrimental to local governments’ fiscal affairs and lead to increased costs for the public.