title
APPROVE RESOLUTION OF INTENTION TO FORM A COMMUNITY FACILITIES DISTRICT AND FUTURE ANNEXATION AREA, AND LEVY A SPECIAL TAX TO FINANCE PUBLIC SERVICES
recommended action
RECOMMENDATION
It is recommended that the City Council approve a Resolution of Intention to Form a Community Facilities District and Future Annexation Area, and Levy a Special Tax. It is also recommended that the resolution authorize the City Manager, Chief Financial Officer, and other City officers to take appropriate and necessary actions to carry out the purpose and intent of the resolution.
body
Summary
The recommended resolution will implement Title 5, Chapter 5.05 of the Council Policy Manual, which Council amended in July 2018 to require new residential development as defined to provide adequate resources for the provision of services and maintenance of facilities impacted by the development. Previously, staff analyzed the financial impact of potential residential development and determined that it would add net General Fund costs not included in the Long-Range Financial Plan (L-RFP). The Council Policy adopted in July allows for the formation of a new services and maintenance Community Facilities District to offset the cost of new residential development. Approval of the proposed resolution is the first step in the creation of a new Services and Maintenance CFD (“CFD 2018-3”) that will provide the mechanism to collect the necessary taxes to provide services and ongoing maintenance of facilities required to meet the demands of new development in the City. If approved, the City will hold a public hearing no earlier than 30 days from this meeting to complete formation of the new district.
On May 15, 2018, Council approved the Calaveras Estates #4 development via resolution 2018-05-15-1503. As part of the approval, the developer agreed to include the development in CFD 2018-3 when formed. The Calaveras Estates #4 project is proposed to be included within the initial boundary of CFD 2018-3. The boundary map also includes a “future annexation area” for all subsequent new residential developments. New residential development subject to the amended Council policy will annex into CFD 2018-3, with existing developed property in the City not subject to the tax. This approach is more economical and efficient than creating a new district with each new development.
In June 2018, the City formed CFD 2018-2 Westlake Villages II as the first district to require special taxes for City services and maintenance costs. That district includes two special taxes, one for capital financing of facilities and another for services and maintenance. Once bonds are paid off, a portion of the capital facilities tax will transition to a special tax for ongoing maintenance of facilities within the district. The level of taxation in CFD 2018-3 to pay for City services and maintenance costs mirrors the terms enacted in the Westlake II CFD.
The resolution necessary to begin the process of forming CFD 2018-3 is attached. The City Attorney’s office has approved the resolution as to form.
Consistent with Council policy, Council may waive or reduce the special tax (by 50 percent) on new residential development located in infill areas as defined in Municipal Code 16.52, or state-designated disadvantaged areas.
DISCUSSION
Background
The California Legislature enacted the Mello-Roos Community Facilities Act of 1982, as amended (Government Code Sections 53311 et seq.) (the “Act”), to provide an alternate method of financing certain public capital facilities and services, especially in the developing areas of the State. 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 levy and collect a special tax within a CFD to finance the provision of services and ongoing maintenance of facilities. If there are fewer than twelve (12) registered voters within the boundaries of a proposed CFD, the qualified electors are the landowners in the CFD and votes are allocated by acreage. If 100% of the qualified landowner electors agree, the time periods and other matters relating to the election can be streamlined.
Previously, staff conducted analysis related to residential development and drafted policies to establish a citywide services CFD. The services CFD is intended to address the deficit created because the revenues generated by residential development are less than the City cost of services to support that development. The fiscal analysis of new residential development focused primarily on General Fund impacts. The Council Policy adopted in July 2018 set a special tax of $500 annually per new single-family residence. The special tax on new multifamily residential is two-thirds of the single-family amount ($330) per unit. The policy also established that the maximum allowable assessment would be escalated each year by 4 percent. Council retains the ability to assess an amount less than the maximum allowable amount. To encourage infill development and development in disadvantaged areas, annexation into the proposed services and maintenance CFD is optional under the adopted Council Policy.
Under the adopted policy, annexation is a requirement for future residential development, and existing developed parcels will not be subject to the tax. The City historically utilized CFDs only to finance infrastructure related to new development. Local governments in California increasingly use CFDs to finance services and maintenance.
Present Situation
On May 15, 2018, Council approved the Calaveras Estates #4 development via resolution 2018-05-15-1503. As part of the approval, the developer agreed to include the development in CFD 2018-3 when formed. With the developer ready to proceed, the Calaveras Estates #4 project is proposed to be included within the initial boundary of CFD 2018-3. The boundary map also includes a “future annexation area” for all subsequent new residential developments. Parcels within the future annexation area can be annexed to the CFD only with the unanimous approval of the owner or owners of each parcel or parcels at the time that parcel or those parcels are annexed, without any requirement for further public hearings or additional proceedings.
Calaveras Estates #4 is a roughly 8 acre parcel that will include 40 homes and is located between El Dorado Street and the Union Pacific Railroad line south of the Calaveras river as shown on Attachment A. The project area consists entirely of assessor parcel number 115-300-02, which is bounded on the west by Alvarado Avenue, on the north by the Calaveras River, on the east by the Union Pacific Railroad, with single-family and multifamily housing to the South of the Oak Park softball fields.
Pending Council approval, the resolution described in this staff report will begin the process of forming CFD 2018-3. Council will also need to hold a public hearing on the formation of CFD 2018-3 and the related future annexation area, followed by approval of the formation (Resolution of Formation). The date of the public hearing is March 19, 2019, at 5:30 p.m. in the Council Chambers.
If formed, CFD 2018-3 will provide a funding mechanism for City services and maintenance impacts attributable to new development within the CFD. The special tax will be used to fund the provision of various City services, including police and fire services, and the maintenance and operation of City property.
The special tax proposed to be levied in CFD 2018-3 will have two components, one for the provision of services that will begin immediately and another that will begin later, for the maintenance impacts to facilities attributable to the new development. The second component will only occur for those developments that are not financing the infrastructure necessary as a condition of development through a separate CFD. In these instances, the second component would be required to provide a mechanism of maintaining and/or replacing the specific capital improvements put in place as a condition of the development proceeding.
Formation of a Community Facilities District
The formation of CFD 2018-3 is subjected to a formal public process beginning with Council adopting resolution(s) that establish the parameters of the CFD.
The resolution before Council for consideration is the Resolution of Intention (the 'ROI') to Form a CFD and Future Annexation Area, and Levy a Special Tax within the territory of the proposed CFD. The resolution includes:
• A list of the types of public services and maintenance proposed to be provided in the CFD (Exhibit '1' to ROI).
• A formula defining the rate and method of apportionment of the special tax within the CFD (Exhibit ‘2’ 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, and subject to the special tax levy, and the territory that is proposed to be included in the future annexation area and annexed to the CFD in the future.
The boundaries of the proposed CFD may be reduced during the subsequent public hearing held in conjunction with the formation of the CFD and the future annexation area; however, the boundaries cannot be expanded in that process. Parcels within the future annexation area can be annexed to the CFD only with the unanimous approval of the owner or owners of each parcel or parcels at the time that parcel or those parcels are annexed, without any requirement for further public hearings or additional proceedings.
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 CFD 2018-3. At the hearing, the City will hear testimony concerning CFD 2018-3, the extent of CFD 2018-3 and the future annexation area, and the furnishing of the types of services and maintenance to be provided by CFD 2018-3. If there are more than twelve (12) registered voters, the City will consider protests from those parties residing within the CFD. In this instance, since there are fewer than twelve (12) registered votes, the qualified electors are the landowners in CFD 2018-3, and votes are allocated by acreage. If 100% of the qualified landowner electors agree, the time periods and other matters relating to the election can be streamlined. The date of the public hearing for the proposed CFD 2018-3 is on April 2, 2019, at 5:30 p.m. in the Council Chambers.
Rate and Method of Apportionment of the Special Tax
Parcels within CFD 2018-3 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. For areas not financing capital improvements through a CFD, having separate zones will enable each area to have the second tax to be governed by its own separate Special Tax Formula that will start thirty (30) years after the developments’ annexation into the district and will provide funds to finance maintenance and/or replacement of the capital improvements put in place as a condition of approval for the development.
As required by Section 53339.3(d) of the Act, the special tax proposed to pay for services to be supplied within the future annexation area will be equal to any special tax levied to pay for the same services in the existing boundaries of CFD 2018-3, except that a higher or lower tax may be levied within the future annexation area to the extent that the actual cost of providing the services there is higher or lower than the cost of providing those services in the existing CFD 2018-3. However, the City is not limited in its ability to levy a special tax within the future annexation area to provide new or additional services beyond those supplied within the existing CFD 2018-3. Additionally, the Special Tax Formula provides that a lesser Special Tax (half of the full amount) can be charged in areas designated as a disadvantaged community area pursuant to California Senate Bill 535 or in infill areas as defined in section 16.52 of the Stockton Municipal Code. Council can also choose to waive the tax in these areas. These options are consistent with Title 5, Chapter 5.05 of the Council Policy Manual.
Each year, the City will approve the annual costs for CFD 2018-3. The annual costs will include:
• Annual services costs for parcels in the district
• Annual maintenance costs for those parcels subject to the secondary tax
• Administrative expenses
The services portion of the annual costs funded by the levy of the special tax will be determined by calculating the annual cost of $500 per year single-family residential unit or $330 per year for multi-family residential from the base year of 2018/19 and will grow at a rate of 4% per year in perpetuity.
The area-specific tax, for those areas not subject to a transition tax through a separate CFD formed to finance capital infrastructure, will be calculated in a manner that mimics how transition events occur in capital districts. In these districts, residents pay an annual tax that begins with the initial bond financing and continues until all bonds are retired or approximately thirty (30) years beyond the final issuance. At that time, the final year tax transitions to a 20% maintenance/replacement tax. For those areas subject to this separate tax in this district, the tax will be calculated as follows:
$1,800 base year rate (what would be the typical capital financing tax in capital CFDs) inflated at a rate of 2% annually for 30 years which becomes $3,260 in year 31. This amount would transition to the 20% maintenance/replacement tax at a rate of $3,260 X .20= $652 and then grow at a rate of 2% per year in perpetuity. By beginning the tax at $360 and inflating it at 2% and applying it in year 31, the tax implemented is the same as if it had had the capital tax and it fell to 20% at the payoff of the capital bonds in the transition year.
The Act allows for the annual administrative costs of the district to be included in the annual tax levy.
FINANCIAL SUMMARY
The City is paying the costs to form CFD 2018-03. Those costs include legal fees of $20,000 and formation district consultant fees of $24,000 and are budgeted to be paid out of 201-2001-510.20-65.
The rate of development that would pay these special taxes is unknown and projecting estimates of these revenues is not possible. A hypothetical residential development of 1,000 units (800 single family/200 multifamily) would generate $466,000 per year from the services tax assuming all units were built at the same time. After 10 years, that development would generate approximately $663,000, and after 20 years, approximately $982,000, and after 30 years $1.3 million.
Attachment A - Boundary Map, Services and Maintenance CFD 2018-3