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PUBLIC HEARING: APPROVE FOUR RESOLUTIONS AND ADOPT AN ORDINANCE IN CONNECTION WITH FORMATION OF COMMUNITY FACILITIES DISTRICT 2018-2 (WESTLAKE VILLAGES II)
recommended action
RECOMMENDATION
At the end of the public hearing the City Clerk will conduct the landowner election, and assuming approval, it is recommended that the City Council take the following actions:
1. Approve four resolutions for City of Stockton Community Facilities District 2018-2 (Westlake Villages II), including:
a) A resolution to form a Community Facilities District and two improvement areas and to levy a Special Tax therein to finance public services and the acquisitions and construction of certain public facilities in and for such District; and
b) A resolution determining the necessity to incur bonded indebtedness for a Community Facilities District and two improvement areas therein; and
c) A resolution calling a special election for a Community Facilities District and two improvement areas therein; and
d) A resolution declaring results of a special election for a Community Facilities District and directing recording of Notice of Special Tax Lien
2. Adopt an Ordinance of the City of Stockton levying Special Taxes within the City of Stockton Community Facilities District No. 2018-2 (Westlake Villages II).
It is also recommended that the City Manager be authorized to take appropriate and necessary actions to carry out the purpose and intent of the resolutions.
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Summary
Approval of the recommended resolutions will facilitate the completion of the Westlake Villages development, which will include approximately 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 CFD authorizes the placement of annual property tax assessments on each parcel in the district that provide ongoing revenue for debt service, City services, and annual administration costs for the district.
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
Eight Mile Development Inc. (the Developer) requested that the City consider the formation of a new Mello-Roos Community Facilities District (“CFD”) to finance public infrastructure associated with the development of the remaining 580± acre in the Westlake Villages project area. This project is planned to house 2,198 homes ranging in size from 1,400 to 3,500 square feet, and when fully developed will 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 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.
On May 15, 2018, the City Council adopted Resolution 2018-05-15-1105-01 declaring intention to form a CFD and two improvement areas and levy a special tax therein to finance public services, and the acquisition and construction of certain public facilities in and for such district, and Resolution 2018-05-1105-02 declaring the intention to incur bonded indebtedness.
Adoption of the Resolutions set a public hearing date of June 19, 2018. At the public hearing, testimony concerning the proposed District, the extent of the proposed District or the furnishing of the particular types of public facilities and services can be heard, and protests can be considered from registered voters residing within the CFD and persons owning real property within the CFD. At the conclusion of the Public Hearing, the City Clerk will conduct the landowner election and announce the results.
Present Situation
All legal matters needing to take place prior to the Public Hearing concerning the formation of the proposed Westlake Villages CFD No. 2018-2 have been taken. The City has recorded a Boundary Map with the San Joaquin County Recorder on May 18, 2018, and published a Notice of Public Hearing was in the Stockton Record on May 22, 2018. Certificates certifying both of the actions regarding notification are on file with the City Clerk.
The law requires that the district can only be formed, and the tax approved, by a 2/3 vote of the eligible registered voters who reside within the proposed district. The law provides that if there are fewer than 12 registered voters residing within the boundaries of the proposed CFD (as is the case here), then the eligible registered voters are the landowners with one vote for each acre of land owned. All landowners have filed the necessary waiver and consent documents shortening the time periods and waiving various requirements for conducting a mailed ballot election.
Formation of the Westlake Villages II CFD 2018-2
The adoption of the recommended Resolutions and Ordinance will establish the City of Stockton Westlake Villages II CFD 2018-2. If the District is formed, it will establish a maximum debt authorization of $75 million, which will involve multiple bond issues. The actual bond issues and issuance costs will reflect market conditions at the time the bonds are sold.
Facilities and services to be funded
The types of public facilities proposed to be funded by bond proceeds include the construction of public capital infrastructure facilities in the project area, major roads, traffic signals, bridges, sanitary sewer, water, drainage systems, storm water basin, lakes and pump station, parks, public utilities, public access and bike path improvements. The proposed infrastructure CFD will reimburse the Developer for advance funding these public infrastructure needs, all of which will be dedicated to the City upon completion.
The types of services to be funded are a portion of costs related to police and criminal justice, fire, ambulance and paramedic services, and services related to parks, parkways, and open space. Maintenance and operation of any city real property or other tangible property with an estimated useful life of five or more years, including incidental expenses related to any authorized service will also be addressed.
In addition, certain incidental expenses authorized by the Mello-Roos Community Facilities Act of 1982 can be financed, including but not limited to, the cost of planning, engineering, and designing the facilities; costs associated with the creation of the District, issuance of bonds, and determination of the amount of taxes and the collection and payment thereof.
The Rate and Method of Apportionment
Parcels within the proposed Westlake Villages II CFD will pay a maximum special tax based on the rate and method of apportionment of special tax, commonly referred to as the Special Tax for the district.
Each year, the City will approve the annual costs for 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 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. The City will then apply the Special Tax Formula to determine the special tax levy for each parcel.
The tax formula is made up of two parts:
Special Tax A: This tax will be collected to finance the construction of capital infrastructure and is set up to allocate the maximum annual special tax first to developed parcels based on home size, with the maximum annual special tax (capital portion) for each single-family residential unit in the proposed Westlake Villages CFD ranging from $1,348 to $2,856. If the special tax levy from developed parcels is not adequate to cover annual costs, the tax is allocated proportionately to undeveloped property in an amount equal to $18,311 per acre. The annual tax levy includes an allowance for annual administrative expenses and an allowance to cover all special tax delinquencies that may occur in the CFD in a fiscal year. Special Tax A has an inflation factor which increases the tax by 2% per year to address increasing materials and maintenance costs. In most years, interest earnings on the bond reserve fund balance will generate revenue to offset potential special tax delinquencies.
Special Tax B: This tax is levied to finance services related to police and criminal justice, fire, ambulance and paramedic, parks, parkways, roads, streets, open space, and maintenance and operation of any city real property or other tangible property with an estimated useful life of five or more years, including incidental expenses related to any authorized service. The purpose of the tax is to offset the net negative financial impacts of residential development. Special Tax B starts at $500 a year for single-family homes and has an inflation factor that increases the tax by 4% a year. The City’s service costs increased at or above the rate of inflation for many years, and inflationary increases are necessary to sustain the City’s service levels. Should the development plan change to allow multi-unit housing, the Special Tax B rate will be based on 66% of the amount for single-family housing.
Incurrence of bonded indebtedness:
Based on the Developers' schedule, the initial bonds associated with the CFD are not being sold at this time. It is anticipated that Council will consider adopting the Bond Issuance resolution, a resolution approving a Bond Purchase Agreement and a resolution approving an Acquisition Agreement in the latter half of 2019. The details of the transaction will be presented and reviewed with the Council at that time.
FINANCIAL SUMMARY
There is no financial impact related to establishing and administering the District. Once the bonds are sold, the City will collect an administrative fee to cover the cost of bringing this item before the Council.
The Rate and Method of Apportionment includes a Special Tax A of $1,348 to $2,856 per parcel that will support the infrastructure associated with the development. This amount will annually increase by 2% to keep pace with inflation. At the payoff of bonds, 20% of the Special Tax A amount will transition over to the Special Tax B to pay for the City’s ongoing maintenance of the capital facilities that were financed.
The Rate and Method of Apportionment also includes a Special Tax B of $500 per parcel that addresses the City’s costs to service the new homes and to maintain the City’s infrastructure. This amount will annually increase by 4% to keep pace with inflation and the City’s service delivery costs.