title
PUBLIC HEARING TO CONSIDER AUTHORIZING CITY PARTICIPATION IN THE CALIFORNIA MUNICIPAL FINANCE AUTHORITY BOND OPPORTUNITIES FOR LAND DEVELOPMENT PROGRAM
recommended action
RECOMMENDATION
It is recommended that the City Council hold a public hearing to consider public comments andtestimony regarding the City of Stockton’s participation in the California Municipal Finance Authority (“CMFA”) Bond Opportunities for Land Development (BOLD) Program. At the conclusion of the public hearing, it is recommended that the City Council adopt a resolution authorizing the City of Stockton to participate in the Bond Opportunities for Land Development Program.
body
Summary
The California Municipal Finance Authority (“CMFA”) is a joint powers agency, of which the City is a member. CMFA works on behalf of its members to facilitate economic development in local communities throughout the State of California (“State”). City staff has been provided information regarding a program offered by CMFA known as the “BOLD Program,” which can be used to finance public infrastructure required for new development within the City. Authorizing use of the BOLD Program will allow greater flexibility for the development community in the City and lessen the administrative burdens on City staff.
DISCUSSION
Background
Background on CMFA
The City is a member of CMFA, a Statewide joint powers authority (“JPA”) whose members are numerous cities, counties, and other public agencies throughout California. CMFA has the authority to issue bonds to meet its mission of supporting economic development, job creation and social programs throughout the State, while giving back to California communities. By supporting member communities and their local charities with a portion of the revenue generated through the issuance of tax-exempt bonds for public, private, and non-profit entities, CMFA is able to directly contribute to building strong communities to support the health and welfare of the residents of California.
Background on the BOLD Program
CMFA recognizes that new residential development often challenges municipalities' mission to provide infrastructure and schools, since new development triggers the need to construct, acquire, or otherwise provide additional public facilities to accommodate that growth. The BOLD Program offers a means to finance new or continuing construction of infrastructure and public facilities through bonds CMFA issues as an alternative to issuance of land-secured bonds directly by a public entity. The BOLD Program is designed to help local government municipalities, schools, and land developers throughout the State work together to cost-effectively finance public infrastructure projects and development fees.
Under the BOLD Program, bonds are issued by a community facilities district (“CFD”) formed by CMFA under the Mello-Roos Community Facilities Act of 1982 (California Government Code Section 53311 et seq.) (the “Act”). The Act offers great financing flexibility and is commonly used by cities, schools, and other local agencies throughout the State to generate funds for the payment of public facilities, including development fees for facilities. CFDs can also be structured to pay for maintenance of public facilities and other service costs of the City.
The City has previously approved participation in the BOLD Program via entrance into a joint community facilities agreement with CMFA related to the Ligurian Village project being undertaken within the County of San Joaquin, via Resolution No. 2024-08-20-1204 adopted on August 20, 2024.
Staff recommends City Council approve full participation in the BOLD Program so that a broader range of fees and facilities may be eligible for financing for a broader array of projects developing within the City.
Financing Team
The BOLD Program is handled by a team of bond industry professionals with significant experience in CFDs in the State. All have highly specialized expertise in CFD bond issuance and sales and are consistently ranked among the top firms in the field. In addition, if the City desires to use a municipal advisor of its own choosing to review the BOLD Program application and/or other program documents may do so, with all related costs payable from bond proceeds. Specifically, the BOLD Program utilizes Jones Hall for bond counsel services, Goodwin Consulting Group, Inc. for special tax consulting services, and Piper Sandler & Co. for underwriting services.
Benefits of BOLD Program to Local Governments
Although the CFD would be formed within the City’s jurisdiction, little involvement is required. The City Council is only required to take a single action to approve participation in the BOLD Program and CMFA thereafter works with staff to ensure the program is meeting the City’s objectives. CMFA and its consultant team will form and approve each CFD, CMFA will issue bonds on behalf of the CFD, and levy and collect the special taxes each year. By working directly with developers, the BOLD Program facilitates financing for infrastructure and fee obligations of developers, covering a broad range of development cost obligations necessary for new development imposed by municipalities, including both facilities and/or impact fees. Using the BOLD Program alleviates local agency staff time constraints and allows staff to focus on other aspects of processing land development projects.
Determining Special Tax Rate
Formation of each CFD requires establishing the annual special tax rates. The formula for computing special tax rates will be included in the resolutions to be adopted as part of the CFD formation proceedings. Typically, the formula will include a basic, undeveloped land tax with an increase in rate and shifting of the tax to developed lands at the building permit stage. The total amount of taxes on developed land generally will not exceed 2% of its projected market value in its completed state, per industry standards.
Bond Issuance
Bonds are issued through CMFA, with little involvement from local agencies needed for the issuance process. The City will need to approve the use of a CFD to acquire public facilities and the financing thereof, and enter into a joint community facilities agreement, acquisition agreement, or similar agreement to receive the bond proceeds, and to meet the general requirements to maintain the tax exemption of interest on the bonds. CMFA adopts the resolutions needed to authorize and issue the special tax bonds and awards the sale of the bonds to the bond underwriter.
Use of Bond Proceeds
Once the bond issuance occurs, bond proceeds are available for disbursement. The proceeds are held by a bond trustee and are available, as directed by the developer and approved by the local agency, to meet obligations to the City and other local agencies according to the structure and timing required for development approvals. Pursuant to an acquisition agreement or similar document, the City will determine and agree to its role in inspecting and accepting infrastructure and/or payment of financed impact fees.
Underwriting for Bond Issuance
The CFD may be formed early in the development process, with issuance of bonds at a later time or in multiple series. The following are the typical criteria for bond issuance.
• Minimum 4:1 value-to-debt ratio overlapping (assessed or appraised)
• No discretionary approvals required for build-out of the portion of the CFD directly relating to the bond security
• Entitlements received that are necessary for phase to be bonded
• Financing plan for backbone infrastructure complete or imminent and/or performance bond in place
Credit criteria will be reviewed by the underwriting team on a case-by-case basis to ensure reasonable interest rates at issuance. Additionally, similar credits can be pooled together into a single bond issue with pooling flexibility assuring the most cost-effective bond issuance for each project.
Outsourced Administration of the Bonds and the CFD
Administration of all aspects of the BOLD Program is handled by CMFA, without cost to or burden on the City. City staff time can and will be reimbursed by the participating developers upfront and by CMFA once bonds are issued.
Giving Back to Local Communities
CMFA shares a portion of its issuance fees directly with its member communities. In addition, a grant from a portion of the issuance fee is made to the California Foundation for Stronger Communities (“CFSC”) to fund charities designated by the member communities. A portion of the annual fees received by CMFA are in turn directed to charitable activities within its member communities. This unique commitment to give back directly to the communities in which they operate sets CMFA apart from other JPA conduit issuers.
Information for Bond Marketing
Tax-exempt municipal bonds are sold through an offering document known as an Official Statement, which describes to potential purchasers of the bonds the terms, security and repayment of the bonds and details about the property securing the bonds. Since, prior to home sales, the land is owned by the developer entity(ies), relevant information for the Official Statement needs to describe the developer and the development plan. The financing team will work with the developer to provide the required information and approve the final language to be provided to prospective bond buyers.
Disclosure of Special Tax to Home Buyers
California law requires developers to disclose to home buyers the lien of any CFD special tax which will be present on the purchased property. The form of disclosure is simple and becomes part of the various sale documents presented to buyers for signature prior to a home sale.
Present Situation
The BOLD program is a cost-effective form of land-secured financing, and the more cost-effective a bond financing is, the greater the overall public benefit (since more proceeds are available for the acquisition of public infrastructure). The development community has expressed a desire for the City to adopt and implement the BOLD Program, and it is an offering of CMFA that the City, as a member of CMFA, is entitled to utilize. It is recommended that the City hold a public hearing on the BOLD Program and adopt a resolution authorizing the BOLD Program within the City’s boundaries.
FINANCIAL SUMMARY
The fiscal impact associated with this item is for the staff time required to establish the City’s participation in BOLD. All other costs and expenses related to the formation, issuance of bonds, and ongoing administration for any CFD formed by the BOLD program are the responsibility of CMFA, and there is no liability or fiscal impact on the City. The City can be reimbursed for any staff time expended on the program.