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ADOPT RESOLUTION AUTHORIZING THE ISSUANCE OF SPECIAL TAX BONDS FOR AND ON BEHALF OF IMPROVEMENT AREA 3 OF THE CITY OF STOCKTON COMMUNITY FACILITIES DISTRICT NO. 2018-2 (WESTLAKE VILLAGES II), APPROVING AND DIRECTING THE EXECUTION OF A FISCAL AGENT AGREEMENT, APPROVING THE FORM OF PRELIMINARY OFFICIAL STATEMENT, APPROVING THE SALE OF SUCH BONDS, AND APPROVING OTHER RELATED DOCUMENTS AND ACTIONS
recommended action
RECOMMENDATION
It is recommended that City Council adopt a resolution to authorize the issuance and sale of Special Tax Bonds, payable from Special Taxes, for and on behalf of Improvement Area 3 of the City of Stockton Community Facilities District No. 2018-2 (Westlake Villages II) in the estimated amount of $13,960,000 (not-to-exceed $15,500,000), and directing the execution of a Fiscal Agent agreement approving as to form a preliminary official statement, and approving all other documents and actions in connection with the issuance.
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Summary
The City Council established the City of Stockton Community Facilities District No. 2018-2 (Westlake Villages II) (the “District”) on June 19, 2018, to provide financing for the acquisition of a portion of the public infrastructure improvements for the District. To date, the District has sold three bonds for Improvement Areas 1 and 2 totaling $23,280,000.
Development of Improvement Area 3 is now sufficiently advanced to support a bond issue for this phase of the development. Approval of the Resolution authorizes the issuance of special tax bonds for Improvement Area 3 of the District (the “2024 Bonds”) in the estimated amount of $13,960,000 and a not-to-exceed amount of $15,500,000 (with the actual principal amount being a factor of market conditions at the time of sale). This bond issue will reimburse the developer for the cost of public capital improvements in Improvement Area 3 of the District, consisting primarily of roadway, bridge, sewer, water, reclaimed water, dry utilities, storm drain, stormwater basin, street and parkway landscaping, curb and gutter, medians, median landscaping, traffic signals, entry signage, parks, trails, lakes, and pump stations.
In addition to the special taxes collected by the City to repay bonds issued to acquire improvements from the developer, the City also collects special taxes for authorized services and maintenance in each improvement area for or related to police and criminal justice, fire, ambulance, and paramedic, maintenance of parks, parkways, roads, streets, open space, and the maintenance and operation of any city real property including incidental expenses related to any authorized service.
The City also collects special taxes in each improvement area for administrative fees of the City and for those of the Fiscal Agent and the reimbursement of costs related to the formation of the District and each improvement area advanced by the City or the landowner(s).
DISCUSSION
Background
The City Council established the District in June 2018 to provide the funding necessary for the acquisition of certain public infrastructure improvements authorized for the District. The District was split off from CFD 2006-2 (Westlake Villages), which was dormant for many years after 322 out of the 2,622 planned homes had been built.
CFD 2018-2 (Westlake Villages II) comprises the remaining 580 acres of the original roughly 855 gross acres of contiguous parcels made up CFD 2006-2. The District is in North Stockton, South of Eight Mile Road and West of Highway 5, just east of White Slough and the Delta. The District is planned for 2,163 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 artificial lakes to aid in flood control.
The City formed the District via Resolution 2018-06-19-1501, which moved undeveloped parcels from CFD 2006-2 into the District and authorized special taxes to pay for administrative costs, the costs of acquiring public facilities through the issuance of bonds, and the provision of services. On February 4, 2020, a revision to Improvement Area 1 within the District was approved, which decreased the size of Improvement Area 1 and increased the area of Improvement Area 2 (via Resolution 2020-02-04-1501).
On December 7, 2021, the City Council adopted a Resolution of Consideration to begin the process of changing the boundary map to reduce the size of Improvement Area 2 by creating Improvement Area 3 and Improvement Area 4 out of the remaining area of Improvement Area 2. This process was concluded on January 11, 2022, after a public hearing and landowner election.
The District sold bonds for Improvement Area 1 in 2020 in the amount of $8,970,000 and in 2021 in the amount of $4,535,000. The District sold bonds for Improvement Area 2 in 2022 in the amount of $9,775,000. The maximum bond authorization for Improvement Area 3 was established at $18,500,000.
Present Situation
All of the 277 residential lots in Improvement Area 3 have been completed and sold to Lennar Homes of California, LLC (“Lennar”). All of the required backbone and in-tract improvements to develop the lots are now in place, including paved access and public utilities to the lots, and home building and sales activity is underway by Lennar. As of February 12, 2024, 191 building permits had been pulled, with home construction activities ongoing. As of January 15, 2024, 67 homes had been sold and closed to individual homeowners.
Approval of the Resolution authorizes the issuance of the 2024 Bonds in the estimated amount of $13,960,000 and a not-to-exceed amount of $15,500,000 (with the actual principal amount being a factor of market conditions at the time of sale). Approval of the Resolution also directs the execution of a Fiscal Agent Agreement, approves the form of Preliminary Official Statement and approves all the other related documents and actions required to bring the 2024 Bonds to market and to close the transaction.
Financing Team
The financing team consists of representatives from the appropriate City vendor pools:
• Bond Counsel: Jones Hall
• Municipal Advisor: Del Rio Advisors, LLC
• Underwriter: Oppenheimer & Co. Inc.
• Fiscal Agent: US Bank National Association
Legal Authority and Procedures
The Special Taxes levied in the District are paid on the property tax bill and are treated the same as other taxes, such as the ad valorem, general obligation bonds for schools, and other overlapping assessments and special taxes from other jurisdictions. Should a property owner become delinquent on any portion of their property tax bill, the property is subject to accelerated judicial foreclosure, and the amount of lien on the property associated with the special taxes can be paid from the proceeds of any foreclosure action. This process provides security to the bondholders.
Schedule
If approved by the City Council, the transaction schedule is as follows:
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Timeline |
Item |
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Friday, March 22nd |
Post Preliminary Official Statement |
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Tuesday, April 2nd |
Pre-market the 2024 Bonds |
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Wednesday, April 3rd |
Market the 2024 Bonds |
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Wednesday, April 17th |
Closing and Transfer of Funds |
Documents for Consideration
1. Fiscal Agent Agreement: This Agreement governs the terms and conditions of the bonds and the role and responsibilities of the Fiscal Agent. It also includes the covenants of the City concerning the levy of the special tax, foreclosure of delinquent parcels, and related matters.
2. Preliminary Official Statement: This is the offering document provided to investors with all material information related to the proposed bonds and the District. This document includes a Continuing Disclosure Certificate, which is the document detailing what ongoing information will be provided to investors.
3. Bond Purchase Agreement: This document details the agreement related to the terms of the negotiated sale of the bonds to the underwriter and the conditions for closing the bond issue.
FINANCIAL SUMMARY
There is no impact on the City’s General Fund or any other unrestricted fund as a result of taking the recommended action.
Capitalized Interest is being funded as part of the 2024 Bonds. The capitalized interest will pay interest on the bonds due on September 1, 2024, and will partially cover the interest on the 2024 Bonds payable on March 1, 2025, and September 1, 2025. The debt service balance due on March 1, 2025, and September 1, 2025, will be paid from the collection of special taxes placed on the tax roll around August 1, 2024. Final sizing of the 2024 Bonds will ensure that the special taxes are sufficient to consider City administrative fees and debt service coverage beyond actual debt service payments. Bond investors take the risk that if delinquencies were to exceed 10% and the funded debt service reserve fund was depleted, there may not be sufficient funds to pay debt service when due. However, the foreclosure remedy remains a potential source of later payment.
This CFD issuance is reported in a custodial fund that does not report revenues and expenditures. For this reason, the adoption of this resolution approves the costs related to the transaction, which include those costs shown in the good faith estimates (See “SB 450 Compliance”).
The estimated costs of issuance are $275,000, which includes fixed costs for the fees and expenses of bond counsel, disclosure counsel, municipal advisor, fiscal agent, special tax consultant, the City’s administrative fee of approximately $62,500, the appraiser and other costs including printing the preliminary and final official statements. The other primary cost is the compensation to the Underwriter as the underwriter’s discount in the estimated amount of $132,620 (0.95% of the principal amount of bonds).
SB 450 Compliance (“Good Faith Estimates”)
California Government Code Section 5852.1 requires that the City disclose specified information obtained as good faith estimates from an underwriter or municipal advisor prior to authorization of the issuance of the 2024 Bonds. The City has received such information from the Underwriter, which is set forth below:
(1) Name of Underwriter: Oppenheimer & Co. Inc.
(2) City Council Meeting Date: March 19, 2024
(3) Name of Bond Issue: Improvement Area 3 of the City of Stockton, Community Facilities District No. 2018-2 (Westlake Villages II), Special Tax Bonds, Series 2024
(4) The Underwriter has provided to the City the following required good faith estimates relating to the 2024 Bonds:
a) The true interest cost of the 2024 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 new issue of bonds: 4.972164%.
b) The finance charge of the 2024 Bonds, which means the sum of all fees and charges paid to third parties: $407,620.00, which includes both the underwriter’s discount in the estimated amount of $132,620.00 and fixed costs of issuance in the estimated amount of $275,000.00.
c) The amount of proceeds received by the public body for sale of the 2024 Bonds less the finance charge of the 2024 Bonds described in subparagraph b) and less any reserves or capitalized interest paid or funded with proceeds of the: $11,772,349.93.
d) The total payment amount, which means the sum total of all payments the public body will make to pay debt service on the 2024 Bonds (which total payment amount is calculated to the final maturity of the 2024 Bonds): $29,534,311.11.
The foregoing estimates constitute good faith estimates only. The actual principal amount of the 2024 Bonds issued and sold, the true interest cost thereof, the finance charges thereof, the amount of proceeds received therefrom and total payment amount with respect thereto may differ from such good faith estimates due to a variety of factors. The actual interest rates borne by the 2024 Bonds and the actual amortization of the 2024 Bonds will depend on market interest rates at the time of sale thereof. Market interest rates are affected by economic and other factors beyond the control of the City.