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APPROVE TWO RESOLUTIONS RELATED TO THE PROPOSED FORMATION OF COMMUNITY FACILITIES DISTRICT 2018-2 (WESTLAKE VILLAGES II)
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RECOMMENDATION
It is recommended that the City Council approve the following resolutions:
1. A Resolution of Intention to Form a Community Facilities District (“District”) and Two Improvement Areas, and to Levy a Special Tax Therein to Finance Public Services and the Acquisition and Construction of Certain Public Facilities in and for such District; and
2. A Resolution of Intention to Incur Bonded Indebtedness to Finance the Acquisition and Construction of Certain Public Facilities in and for Improvement Areas Within a Community Facilities District.
It is also recommended that the resolutions authorize the City Manager to take appropriate and necessary actions to carry out the purpose and intent of the motion.
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Summary
Approval of the recommended resolutions will facilitate the completion of the Westlake Villages development, which will include nearly 2,200 new homes. The formation of the Westlake Villages development was initiated in 2005 and approximately 300 homes were constructed, and limited infrastructure work was undertaken. The City formed a community facilities district (“CFD”) in 2006 as the development requires the construction of certain public improvements that cannot be readily funded solely by property tax proceeds, impact fees or other traditional governmental funding mechanisms. Eight Mile Development Inc. (the “Developer”) requested the City separate the undeveloped portion from the existing CFD and form a new CFD to enable the remainder of the development to progress. The new CFD will provide funding for the necessary improvements and services and will ensure that all benefiting landowners participate in facility and services financing. CFD bonds will be used to provide the primary funding for authorized facilities.
The resolutions necessary to begin the process of forming the Westlake Villages II CFD No. 2018-2 are attached. The City Attorney’s office has approved the resolutions as to form.
DISCUSSION
Background
The California Legislature enacted the Mello-Roos Community Facilities Act of 1982, as amended (Government Code Sections 53311 et seq.), to provide an alternate method of financing certain essential public capital facilities and services, especially in the developing areas of the State of California. Once duly established by a city, county, or other local agency, a CFD is a legally-formed governmental entity with defined boundaries, with the governing board or legislative body of the local agency acting on its behalf. Subject to approval by a two-thirds vote of qualified electors in compliance with the provisions of the Act, a legislative body of a local agency may issue bonds for a CFD and may levy and collect a special tax within a CFD to repay such indebtedness.
Present Situation
The Developer requested the City separate the undeveloped portion of the existing development into a new CFD to finance public infrastructure associated with the development of the 580± acre Westlake Villages II project. This project is planned to contain approximately 2,200 homes ranging in size from 1,400 to 3,500 square feet, and will, when fully developed, include a master-planned portion dedicated to 55+ living, multiple neighborhood parks, a school site and a series of man-made lakes to aid in flood control. The project area consists entirely of assessor parcel numbers (apn) 066-050-07 through 066-050-54 which are bounded on the west by Bishop Cut, on the north by Eight Mile Road, on the east by Regatta Lane (which separates the remaining development from the existing Spanos West CFD and the initial homes built in the original Westlake Villages CFD), and on the south by Disappointment Slough. Council will consider a separate resolution regarding the existing CFD (see item 18-4498). Pending Council approval, the two resolutions described in this staff report begin the process of forming the new CFD should the separate resolution on the existing CFD be adopted.
If formed, the new CFD will authorize a special tax to fund the construction of public infrastructure facilities in the project area, including major roads, traffic signals, bridges, sanitary sewer, water, drainage systems, stormwater basin, lakes and pump station, parks, public utilities, public access, and bike path improvements. It will additionally authorize a portion of the special tax to pay for City services and maintenance impacts to existing facilities attributable to the new development within the CFD.
The new CFD is proposed to contain two improvement areas (Improvement Area 1 and Improvement Area 2), each of which will be governed by a separate special tax formula, and bonded indebtedness limit.
Steps in Initiating the Formation of a Community Facilities District
The formation of a CFD is subjected to a formal public process beginning with Council adopting several resolutions that establish the parameters of the CFD.
The first resolution before Council for consideration is the Resolution of Intention (the 'ROI') to Form a CFD and Two Improvement Areas and Levy a Special Tax within the territory of the proposed Community Facilities District. The resolution includes:
• A formula defining the rate and method of apportionment of the facilities and services special tax for each improvement area (Exhibit '1' and Exhibit ‘2’ to ROI).
• A list of the types of public facilities and services proposed to be provided in the CFD (Exhibit '3' to ROI).
• Reference to a boundary map, shown as Attachment A to this report, showing the territory that is proposed to be included in the CFD, including each improvement area therein, and subject to the special tax levy.
The boundaries of the proposed CFD may be reduced during subsequent public hearings held in conjunction with the formation of the CFD; however, the boundaries cannot be expanded in that process.
In addition to the items mentioned above, adoption of the ROI sets the date, time and place for a public hearing on the establishment of the CFD. At the hearing, the City will hear testimony concerning the CFD, the extent of the CFD or the furnishing of the particular types of public facilities and services. Protests will be considered from registered voters residing within the CFD and persons owning real property within the CFD. The date of the public hearing for the proposed Westlake Villages II CFD No. 2018-2 is June 19, 2018, at 5:30 p.m. in the Council Chambers.
The second resolution before City Council for consideration is the Resolution of Intention to Incur Bonded Indebtedness within the Improvement Areas within the proposed CFD. The resolution sets forth the maximum proposed amount of bonded indebtedness for each of the two improvement areas within the proposed CFD. The proposed Westlake Villages II CFD No. 2018-2 will require multiple bond issues totaling no more than $75.0 million to fund major roads, traffic signals, bridges, sanitary sewer, water, drainage systems, stormwater basin, lakes and pump station, parks, public utilities, public access and bike path improvements. The proposed CFD will reimburse the Developer for advance funding of the public infrastructure improvements, all of which will be dedicated to the City upon completion except the lakes and stormwater basins which will be owned and maintained by a master homeowners association.
Rate and Method of Apportionment of the Special Tax
Parcels within the proposed Westlake Villages II CFD will pay a maximum annual special tax based on the rate and method of apportionment, and manner of collection of special tax commonly referred to as the Special Tax Formula. Each improvement area within the CFD will be governed by its own separate Special Tax Formula with a facilities and a service component.
Each year, the City will approve the annual costs for each improvement area within the CFD. The annual costs will include:
• Debt Service (i.e., principal and interest on bonds)
• Annual services costs related to the improvement area
• Administrative expenses
• Replenishment of the reserve fund (when necessary)
• An amount equal to estimated special tax delinquencies
The facilities portion of the annual costs funded by the levy of the special tax will be determined by subtracting other available revenues, such as reimbursement payments, fees, funds available from prepaid special taxes, interest earnings on the bond reserve fund, or receipts of delinquent special taxes from previous fiscal years, from the annual costs. The City will then apply the Special Tax Formula to determine the special tax levy for each parcel.
The maximum annual facilities special tax for each single-family residential unit in each of the improvement areas in the proposed new CFD is dependent on the lot size and ranges from $1,348 to $2,856 per home and a maximum annual special tax of $18,311 per acre that will grow at a rate of 2% per year during the life of the district. The maximum annual services special tax for each single-family residential unit in each of the improvement areas in the proposed new CFD is $500 based on FY 2018-19 and will grow at a rate of 4% per year in perpetuity. Should the development change in the future to include multi-family housing, the maximum annual services special tax for multi-unit housing would be $330 per year based on FY 2018-19 and will grow at a rate of 4% per year in perpetuity. The CFD Act allows for the annual administrative costs of the district to be included in the annual tax levy. The tax levy also includes an allowance to cover all special tax delinquencies that may occur in the CFD in a fiscal year. Should the bond reserve requirement be funded, rather than utilizing a reserve insurance instrument, interest earnings on the bond reserve fund balance will generate revenue to offset potential special tax delinquencies.
FINANCIAL SUMMARY
There is no financial impact to the City for the formation of the proposed CFD. The Developer provided funding for the legal and administrative costs of formation, including internal staff time. At such time that bonds are issued, the City will receive an administrative fee based on a sliding scale of the issuance based on three-quarters of one percent (.75%) up to the first $5 million of the par amount of the bond issue; one-half of one percent (.50%) of the par amount of the bond issue over $5 million up to $10 million; one-quarter of one percent (.25%) of the par amount of the bond issue over $10 million. The City’s administrative fee is a component of the cost of issuance and is paid from bond proceeds. An initial bonding is anticipated to take place in 2019 and based on an estimated $15 million issuance, the City’s administrative fee would be $75,000 and would offset the costs of its debt program. Future issuances would bring in an administrative fee that would be based on amounts issued in arriving at the full $75 million authorized in the district. All annual administrative fees are charged directly to the CFD as part of the annual special tax levy.
The special taxes generated by the proposed CFD will fund the infrastructure necessary to support construction of the planned residences and address the City’s permanent costs to maintain that infrastructure and provide services to the planned development. The financial structure contained in this proposed CFD supports the Council strategic goal of fiscal sustainability.
Attachment A - Boundary Map, Westlake Villages II CFD 2018-2