title
APPROVE A RESOLUTION AUTHORIZING AN INITIAL ISSUANCE OF SPECIAL TAX BONDS FOR AND ON BEHALF OF THE CITY OF STOCKTON COMMUNITY FACILITIES DISTRICT NO. 2019-1 (CANNERY PARK II), APPROVING AND DIRECTING THE EXECUTION OF A FISCAL AGENT AGREEMENT, APPROVING THE FORM OF PRELIMINARY OFFICIAL STATEMENT, APPROVING SALE OF SUCH BONDS, AND APPROVING OTHER RELATED DOCUMENTS AND ACTIONS
recommended action
RECOMMENDATION
It is recommended that City Council adopt a resolution to:
1. Authorize the issuance and sale of Special Tax Bonds, payable from Special Taxes for and on behalf of the City of Stockton No. 2019-1 (Cannery Park II), in the estimated amount of $9,410,000 (not-to-exceed $10,000,000); and
2. Approve and direct the execution of a Fiscal Agent agreement, approving the form of the Preliminary Official Statement, approving the sale of such bonds, and approving other related documents and actions.
body
Summary
The City Council (the “Council”) of the City of Stockton (the “City”) has conducted proceedings under and pursuant to the Mello-Roos Community Facilities Act of 1982, as amended, to form the “City of Stockton Community Facilities District No. 2019-1 (Cannery Park II)” (the “CFD”), to authorize the levy of special taxes upon the land within the CFD, and to issue bonds secured by said special taxes for the purpose of providing moneys for the construction and acquisition of authorized improvements for the CFD.
The Council, as the legislative body of the District, authorized the issuance of special tax bonds for the CFD in the maximum principal amount of not-to-exceed $25,000,000, and the City now desires to issue the first series of bonds (the “2022 Bonds”) in the expected amount of $9,410,000 and a not-to-exceed amount of $10,000,000.
Developments generally require the construction of certain public improvements that cannot be readily funded solely by property tax proceeds, impact fees or other traditional governmental funding mechanisms. As the development continues to progress, Holman Investors, LLC (the “Developer”) requested the City start the process to issue the first series of bonds in the CFD.
Adopting the resolution is necessary to complete the issuance process for the first series of bonds. The City Attorney’s office has approved the resolutions as to form.
DISCUSSION
Background
In 2005, the City formed the City of Stockton, Community Facilities District No. 2005-1 (Cannery Park) (the “2005 CFD”). The 2005 CFD encompassed the entire the 450-acre Cannery Park Master Plan area that was annexed to the City and originally approved in 2004 and designated for a variety of land uses ranging from more than 1,000 single or multi-family residential units to parks, an elementary school, fire station, business park as well as commercial and offices uses, and developable in accordance with a Development Agreement entered into in October 2004 (with a 20-year term). The original Cannery Park plans submitted in 2003 by the Developer were for 1,400 residential units, 1,100 of them single-family homes and the remainder apartments or condominiums. The 2005 CFD did not immediately undergo development largely due to the slow-down in the real estate market, neighbor concerns about water usage and regulatory delays associated with the construction of a bridge and utility infrastructure over Bear Creek.
In 2019, due to changes in development plans since formation of the 2005 CFD, the Developer requested that a large portion of the 2005 CFD be removed from the 2005 CFD and encompassed within a newly formed district. In April 2019, the City complied with the request and accepted participation in a new community facilities district as a form of prepayment of obligations related to the existing 2005 CFD. The portion of the CFD removed from the 2005 CFD is now subject to special taxes of the newly created adjoining district, the “City of Stockton Community Facilities District No. 2019-1 (Cannery Park II)” which is comprised of undeveloped land owned by Holman Investors, LLC and currently two merchant builders. The CFD comprises the Plan Areas B, C (excluding two industrial parcels), D and E of the Cannery Park Master Plan and has a total bond authorization of $25,000,000.
The CFD is comprised of the remaining 278± acres in the Cannery Park Master Plan. The project is planned for approximately 515 single-family homes, 206 multi-family units, and approximately 128 acres of non-residential uses including: light industrial / business park, business park / commercial, highway commercial and commercial office. LGI Homes has acquired 387 single-family lots and KB Home has acquired 128 single-family lots.
Below is a table of the status of current development in the CFD:
|
Completed Homes: Individual Homeowners |
32 |
|
Remaining Lots: LGI Homes |
355 |
|
Remaining Lots: KB Home |
128 |
|
Total Homes |
515 |
The Rate and Method of Apportionment
Parcels within the CFD pay a maximum special tax based on the rate and method of apportionment of special tax, commonly referred to as the “RMA”.
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) - Special Tax A (see below)
• Annual services special tax - Special Tax B (see below)
• Administrative expenses
• Replenishment of the reserve fund for bonds (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. The maximum annual facilities special tax for each single-family residential unit in each of the improvement areas in the proposed new CFD will be $1,600 per home, and a maximum annual special tax of $7,500 per acre multi-family, $4,500 per acre commercial, and $4,145 per acre for light industrial. These rates will not increase during the life of the district. Upon payoff of final bonds, or July 1, 2059, whichever comes first, Special Tax A reverts to a transition component that is added to Special Tax B and will be used to pay for area maintenance of specific infrastructure financed with Special Tax A.
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 in FY 2022-23 will be $585 a year for single-family homes and $386 for multi-family homes and will grow annually at a maximum rate not to exceed 4%, in perpetuity. 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.
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, including multiple neighborhood parks, major roads, sound walls, landscaping, traffic signals, bridges, sanitary sewer, water, drainage systems, storm water basin and pump station, public access and bike path improvements. The bonds sold for the CFD will reimburse the Developer for advance funding of 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 CFD; issuance of bonds for the CFD; and determination of the amount of taxes and the collection and payment thereof.
Documents to be Approved
There are several documents to be approved as part of the proposed resolution to authorize the issuance and sale of the 2022 Bonds.
• Fiscal Agent Agreement (Exhibit 1): This agreement governs the terms and conditions of the 2022 Bonds and identifies the net proceeds of the 2022 Bonds will be used for the following purposes:
o Make a deposit to the Project (Improvement) Fund
o Fund a Debt Service Reserve Fund
o Fund capitalized interest on the 2022 Bonds
o Pay the costs of issuing the 2022 Bonds
• Official Statement (Exhibit 2): Disclosure Counsel prepared this document, that upon Council authorization, will be distributed by the Underwriter and is used as the primary marketing document to prospective bond purchasers. The agenda packet includes the preliminary official statement (“POS”) deemed to be essentially final. A final version of this document, called the final official statement (“OS”), is estimated to be made available shortly after the 2022 Bonds are sold and will reflect all of the final bond sale information. A table of contents identifies critical topics such as the plan of finance, security for the 2022 Bonds, information on the CFD, continuing disclosure, the foreclosure covenant, and the form of opinion of Bond Counsel.
• The Continuing Disclosure Agreement (included as an exhibit to the Official Statement): This agreement governs the terms and conditions whereby the City will provide the holders of the 2022 Bonds an annual report updating the status of development in much the same form as some of the tables in the OS. In addition, should a material event occur, as listed in the agreement, the City will provide immediate disclosure to the holders of the 2022 Bonds. In addition, LGI Homes and KB Home and any other merchant builder or developer will provide semi-annual disclosures to the holders of the 2022 Bonds on the status of current development until such time as they own property in the CFD responsible for less than 20% of the annual special tax levy.
• Bond Purchase Agreement (Exhibit 3): RBC Capital Markets as Underwriter will execute this document agreeing to purchase the 2022 Bonds contingent upon the City satisfying the obligations imposed within the agreement. The Underwriter agrees to make a public offering of the 2022 bonds when authorized by the Council.
• Funding Construction and Acquisition Agreement (Exhibit 4): This agreement governs the terms and conditions by which the Developer will submit projects to the City for sign off, acquisition and reimbursement from proceeds of the 2022 Bonds.
Financing Schedule
Assuming approval, the financing calendar outlines the remaining steps and the timeline to complete the sale and closing of the 2022 Bonds. It is anticipated that the financing team will participate on a due diligence call the week of July 11th, post the POS during the week of July 18th, conduct the sale on August 3rd, finalize the documents and post the OS during the week August 8th and close on August 17th.
Financing Team
The financing team consists of representatives from the appropriate City vendor pools:
• Municipal Advisor: Del Rio Advisors, LLC
• Bond Counsel: Jones Hall
• Underwriter: RBC Capital Markets
• Fiscal Agent: U.S. Bank National Association
FINANCIAL SUMMARY
The Rate and Method of Apportionment includes a Special Tax A of $1,600 per single-family home, $7,500 per acre for multi-family, and from $4,145 to $4,500 for light industrial and commercial that will support the remaining infrastructure associated with the development. At the payoff of bonds, a transition component will be added 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 $585 per single family parcel and $386 for multi-family parcel in FY 2022-23 that addresses the City’s costs to service the new homes and to maintain the City’s infrastructure. This amount will annually increase by up to 4% to keep pace with inflation and the City’s service delivery costs.
To determine the value of all property within the boundaries of the CFD, factoring in the current status of home construction, IRR prepared an appraisal report dated May 20, 2022, with a valuation date of May 4, 2022. The appraisal report reflects an aggregate market value of $94.7 million, consisting of $5.0 million of assessed value of homes owned by homeowners on the tax roll and $89.7 million of appraised value of completed homes not yet sold, homes under construction, finished lots and final mapped lots. Assuming the 2022 Bonds are sold in the amount of $9,410,000, the value-to lien of the CFD to the total market value of the CFD will be approximately 10.06:1.
There is no financial obligation to the City. Repayment of the debt is secured solely from special taxes on property owners within the CFD and certain funds held under the Fiscal Agent Agreement.
Based on current market interest rates as of May 26, 2022, the expected principal amount to be issued on the 2022 Bonds is $9,410,000. Interest on the bonds will be payable March 1 and September 1 of each year, commencing March 1, 2022. Principal will be payable on September 1 of each year commencing September 1, 2024 with the final maturity on September 1, 2052.
Below is a table of the estimated costs of issuance for the 2022 Bonds:
|
Role |
|
Company |
Fee |
|
Bond Counsel Fee and Expenses |
|
Jones Hall |
$52,000.00 |
|
Disclosure Counsel |
|
Jones Hall |
$35,000.00 |
|
Municipal Advisor |
|
Del Rio Advisors LLC |
$43,250.00 |
|
Special Tax Consultant |
|
Willdan |
$10,000.00 |
|
City Administration Fee |
|
City of Stockton |
$59,550.00 |
|
Fiscal Agent |
|
U.S. Bank |
$6,500.00 |
|
Appraiser |
|
Integra Realty Resources |
$23,500.00 |
|
Absorption Consultant |
|
The Gregory Group |
$8,400.00 |
|
Printing of Official Statement |
|
TBD |
$7,500.00 |
|
Contingency / Rounding |
|
Miscellaneous |
$15,511.39 |
|
|
|
|
|
|
Total Estimated Costs |
|
|
$261,211.39 |
Below is a table of the estimated sources and uses of funds for the 2022 Bonds:
|
Sources of Funds |
|
|
Par Amount |
$9,410,000.00 |
|
Net Premium / Discount |
$0.00 |
|
Total Sources of Funds |
$9,410,000.00 |
|
|
|
|
Uses of Funds |
|
|
Project (Improvement) Fund |
$8,000,000.00 |
|
Reserve Fund (Parity) |
$654,700.00 |
|
Capitalized Interest |
$414,103.61 |
|
Costs of Issuance |
$261,211.39 |
|
Underwriter’s Discount |
$79,985.00 |
|
Total Uses of Funds |
$9,410,000.00 |
SB 450 COMPLIANCE:
In compliance with SB 450, the good faith estimates set forth herein are provided with respect to the 2022 Bonds. Such good faith estimates have been provided to the City by the Municipal Advisor. Each estimate is based on the City’s financing plan and current market conditions, including market interest rates prevailing at the time of preparation of the estimate.
Principal Amount: The estimated aggregate principal amount of the 2022 Bonds to be sold is $9,410,000.00.
True Interest Cost: The estimated true interest cost of the 2022 Bonds, which means the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the 2022 Bonds, is 5.510315%.
Finance Charge: The estimated finance charge for the 2022 Bonds, which means the sum of all fees and charges paid to third parties (or costs associated with the 2022 Bonds), is $341,196.39 consisting of $261,211.39 in fixed costs of issuance and $79,985.00 for the underwriter’s discount.
Amount of Proceeds to be Received: The estimate of the amount of proceeds to be received by the City from the sale of the 2022 Bonds, less the finance charge of the 2022 Bonds, as estimated above, and less estimated reserves and capitalized interest, is $8,000,000.00.
Total Payment Amount. The estimated total payment amount, which means the sum total of all payments to pay debt service on the 2022 Bonds, plus the finance charge for the 2022 Bonds, as described above, not paid with the proceeds of the 2022 Bonds, calculated to the final maturity of the 2022 Bonds, is $19,445,147.45.
The foregoing estimates are good faith estimates only. The actual figures may differ from the estimates owing to (a) differences between assumptions regarding the date of the sale of the 2022 Bonds, the principal amount of 2022 Bonds sold, the amortization of the 2022 Bonds, and market interest rates at the time of sale of the 2022 Bonds and, (b) other market conditions, (c) changes in the City’s financing plan, and/or (d) a combination of such factors.