HomeMy WebLinkAbout1989-11-14; Council Policy No. 38 (RESCINDED) - Assessment District Financing-Public Improvements-CITY OF CARLSBAD COUNCIL POLICY STATEMENT General Subject: ASSESSMENT DISTRICT FINANCING OF PUBLIC IMPROVEMENTS Specific Subject: POLICY FOR USE OF THE MELLO-ROOS COMMUNITY FACILITIES ACT OF 1982
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Policy No. 38 Date Issued 11/14/89 Effective Date 11/14/89
Cancellation Date Supersedes No. 38 issued
10/13/87 Copies to: City Council, City Manager, City Attorney, Department and Divisions Heads, Employee Bulletin Boards, Press, File BACKGROUND: The City Council has adopted a Growth Management Program which contemplates the construction of a large number of various public facilities in the coming years. The City Council recognizes that the Mello-Roos Community Facilities Act of 1992 provides a flexible tool which may be useful in providing financing for the construction of public facilities in conjunction with development and has created an overall financing program to provide public financing for certain types of public facilities.
As well as the City's Growth Management Financing Program, the City Council anticipates that from time to time they will receive requests from property owners to use the Mello-Roos legislation for the construction of public facilities. PURPOSE: To establish a policy which will permit the use of the Mello-Roos Community Facilities Act in conjunction with the Growth Management Financing Program to assist in financing major public facilities.
To provide a procedure for processing applications for Community Facility District financing and to provide a staff committee to review such applications and to consider initiating Districts for Council consideration where appropriate.
This policy is primarily intended to apply to Community Facility Districts proposed for property which is predominantly undeveloped and where the City elects to use public financing for appropriate public improvements.
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CITY OF CARLSBAD
COUNCIL POLICY STATEMENT
General Subject: ASSESSMENT DISTRICT FINANCING OF PUBLIC IMPROVEMENTS
Specific Subject: POLICY FOR USE OF THE MELLO-ROOS COMMUNITY FACILITIES ACT OF 1982
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Policy No. 3g
Date Issued 11/14/89
Effective Date 11/14/89
Cancellation Date
Supersedes No. 38 issued10/13/87
Copies to: City Council, City Manager, City Attorney, Department and
Divisions Heads, Employee Bulletin Boards, Press, File
POLICY:
1.The City may allow the financing of public improvements or services underthe provisions of this policy where the public facilities or servicesrepresent, in the City's opinion, a significant public benefit, those thatcannot be specifically identified as being related to a single zone ordevelopment, and are so expensive that a coordinated effort is required.
2.Facilities which may be considered shall be public facilities of generalbenefit such as administrative facilities, libraries, fire stations, parks,. schools, arterial highways, major bridges and freeway interchanges.
3.For all Districts the City shall select the special tax consultant, bondcounsel, and, if required, the financial consultant. The design engineerand the underwriter will also be selected by the City but in consultationwith proponents of the District.
4.Where Districts are initiated by property owners,a sum sufficient to pay allfees and costs for the proposed Community �acil itfos District shall bgdeposited with the City by the proponents of the district prior to award ofany contract. The proponents shall also be required to deposit with Citya sum sufficient to cover all City costs incurred in connection with reviewof a proposed district including staff review, legal reyiew, administration,plan checking, investigation, City Council review and inspection. Thesesums will be retained by City to the degree used if the district is notsuccessfully completed or if such costs are not recovered by City from thedistrict. Where the district is successfully completed deposits may becredited against taxes or reimbursed by the district under the terms of aprior agreement.
5.Where Districts are initiated by the City, all costs associated with thepreparation, organ i zat i ori, and formation sha 11 be recovered through theDistrict.
--CI1Y OF CARLSBAD COUNCIL POLICY STATEMENT
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Policy No. 38
Date Issued 11/14/89
General Subject:
Specific Subject:
Copies to:
ASSESSMENT DISTRICT FINANCING OF PUBLIC IMPROVEMENTS
POLICY FOR USE OF THE MELLO-ROOS COMMUNITY FACILITIES ACT OF 1982
Effective Date 11/14/89
Cancellation Date
Supersedes No. 38 issued
10/13/87
City Council, City Manager, City Attorney, Department and Divisions Heads, Employee Bulletin Boards, Press, File 6.If the City Council determines it is necessary, a financial feasibility/market absorption study may be required prior to initiation of aDistrict. Where such a study is required the City will select and retainthe consultant with funds deposited by project proponents. It is expectedthat the project property value to-debt ratio should 4:1 after theinstallation of the improvements to be financed. A project may be approvedwith a ratio between 4:1 and a minimum of 3:1 if the ratio is recommendedby both bond counsel and the underwriter and if the City Council finds thereduced ratio to be within parameters acceptable to them. The value of theproperty proposed to be taxed shall be determined by an M.A.I. appraisal,performed by an appraiser selected by the City.
8.The Developer of residential property shall be required to discharge anyportion of the Mello-Roos for City facilities at the time building permitsare issued.
9.The Developer of non-residential property will be required to provide forfull and complete disclosure of any Community Facilities District financingapplicable to the property to prospective purchasers. The requiredprocedure shall include, but not be limited to, all of the following:
a.Provide for full disclosure of this and any other assessmentfinancing applicable to the property to prospective purchasersincluding prinicpal, interest rate, duration and amount of monthlypayments.
b.List the amount of the tax in all sales brochures, all advertisingand a 11 purchase documents adjacent to the sales price of theproeprty and in the same size type.
c.Give prospective purchaser an option to have the tax dischargedprior to close of escrow or to assume the tax by a pass through
as a part of the sales price or by a reapportionment of theassessment.
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CI1Y OF CARLSBAD
COUNCIL POLICY STATEMENT
General Subject:
Specific Subject
ASSESSMENT DISTRICT FINANCING OF PUBLIC IMPROVEMENTS
POLICY FOR USE OF THE MELLO-ROOS COMMUNITY FACILITIES ACT OF 1982
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Page 4 of 5
Policy No. 38
Date Issued 11/14/89
Effective Date 11/14/89
Cancellation Date
Supersedes No. 38 issued
10/13/87
Copies to: City Council, City Manager, City Attorney, Department and
Divisions Heads, Employee Bulletin Boards, Press, File
10.The City or a consultant selected by the City will determine the taxingformula. Although this policy does not fix the method of determining theformula, strong consideration should be given to (a) a fixed annual amountor (b) a fixed amount increased annually by a small percentage.
PROCEDURE:
1.Proponents desiring to form a Mello-Roos district shall submit anapplication requesting a study for the establishment of a CommunityFacilities District which shall do all of the following:
a.Request the City Council to consider proceedings to establish a MelloRoos Community Facilities District.
b.Describe the boundaries of the territory proposed for inclusion in theDi strict.
c.State the types of facilities to be financed by the District.
d.Provide a detailed financial alternative analysis exploring alternativefunding options and demonstrating the advantages which make a MelloRoos Community Facilities District the most desirable financingmechanism for the proposed improvements.
e.Be signed by not less than ten (10%) percent of the registered votersresiding within the proposed District or by owners of not less than ten(10%) percent of the land area within the proposed District.
2.It is the intention of the City Council that proponents of a District havean early opportunity to have the proposal reviewed by City staff forcomp 1 i ance with :this policy. In that regard, the City Council herebydirects the creation of the Project Review Committee. The Committee shallconsist of the City Manager, Assistant City Manager, Assistant to the CityManager, City Attorney, Community Development Director, Finance Director,Planning Director, and City Engineer. The Committee shall meet on requestwith proponents of a district to review a proiect to determine whether ornot the requirements of this policy have been satisfied. Committee reviewshall take pl ace prior to the presentation of a Community FacilitiesDistrict project to the City Council. Whenever any such project ispresented to the Council it shall be accompanied by a report containing the
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CITY OF CARLSBAD
COUNCIL POLICY STATEMENT
General Subject: Assi::ssMrnr DISTRICT nNANCING OF PUBLIC IMPROVEMENTS
Specific Subject: POLICY FOR USE OF THE MELLO-ROOS COMMUNITY FACILITIES ACT OF 1982
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Policy No. 1s
Date Issued 11/14/89
Effective Date 11/14/89
Cancellation Date Supersedes No. 38 issued 10/13/87
Copies to: City Council, City Manager, City Attorney, Department and
Divisions Heads, Employee Bulletin Boards, Press, File
findings and recommendations of the Committee made. in regard to such project. The Committee may require the proponents to furnish any additional information necessary to the evaluation of the proposed District.
3.Upon rQV1QW of thQ proposQd Community �acilitiQs District and aftQrconsidering the report of the Committee, the City Council shall determinewhether or not to approve proceeding with the formation of the District.It is the pol icy of the City Council of the City of Carlsbad to limitprojects to the criteria set forth in this policy. The City Councilreserves to itself the authority to approve or disapprove any proposedCommunity Facilities District based upon the evidence received at thehearings held by the City Council. Any exceptions to the criteria of thispolicy will be approved only upon an express finding by the City Councilthat the project is so affected with a public interest that the City shouldassist in providing tax-free financing for the improvement in order tosatisfy a public need. If the City Council approves proceeding with theformation of the District, City staff and the proponents shall proceed inaccordance with State law and the requirements of this policy.
4.Where there are multi p 1 e proponents of a proposed District they sha 71designate a spokesman authorized to act for the proponents in their dealingswith the City. The spokesman shall be responsible for collecting any feesfor deposit with the City, providing any necessary information to the City,and for communicating as necessary back to the proponents.
-EXHIBIT #2 November 6, 1989
TO: CITY MANAGER
FROM: Assistant to the City Manager/e
Finance Director ·._
City Engineer
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GROWTH MANAGEMENT FINANCING PROG M - RECOMMENDATION
Introduction:
As directed, staff has completed a comprehensive review of the use of a Community Facilities District in relationship to the City's Growth Management Program. The following will provide an overview of the process undertaken and the recommendations being made as a result of this work.
Background:
The adoption of the Growth Management Program in 1986 set in motion a comprehensive review of capital facility financing alternatives. Prior to this action the City had depended on a Pay-as-you-go program supported by development fees. With growth management came the responsibility to properly coordinate the capital program and to bring the development community into the planning process.
For some time the City considered the funding alternatives that would allow the maintenance of facility standards while the community grew. These alternatives are shown below.
1.Pay-as-you-go -The Capital Improvement Program (CIP) forfor the City has historically been based on a pay-as-you-goconcept. The various development fees (PFF, Traffic Impact,Bridge & thor. etc) were created to co 11 ect the funds necessaryto construct the infrastructure of the City. However, thisalternative did not supply funds when they would be requiredto support the cost of design and construction of facilitatesto guarantee that these improvements were available to meetdemand (standards). The cash flow was adequate in total, butwas inadequate in timing to meet the standards required by theGrowth Management Program. The Council addressed this issuein part when the PFF was revised to include debt service costsfor the Library, Macario Canyon Park and City Hall.
2.Mello-Roos financing of key facilities -The pay-as-you-goCIP had its advantages, but was evident that it could not beused as the sole method of financing infrastructure ifstandards were to be met. The staff and Council thenconsidered the inclusion of debt financing methods for certaintypes of projects. These projects fell into two major
categories: projects that were generally too large for asingle developer to provide an adequate guarantee of funding,and major streets.·1
Overview:
-e The Mello-Roos Community Facilities District was a financing method that provided the City with the ability to fund several types of major projects. Some of the features of Mello-Roos districts are shown below;
o District may be formed by a vote of land ownersoThe tax formula may allow for the taxation ofvacant landoBond issues can be timed to guarantee theconstruction of certain major facilities concurrentwith demandoThe Mello-Roos district may be used to finance awide variety of infrastructure including:-Libraries and civic buildings-Circulation improvements-Schools-Operating and administrative costsoTax rates are set annually by the governing body
The ability to impose a tax on vacant land allows the issuance of debt which provides the necessary financial guarantee to meet the performance standards of the Growth Management Program without depending on a pay-as-you-go program.
3.Assessment District Financing (1913/1915 act assessments) -Under this option the major roads could be constructed using1913/1915 act bonds. The City has used assessments of thistype in other areas to construct Co 11 ege Blvd and PalomarAirport Road. In these cases the assessments were placed oncommercial or industrial property. The City has notestablished a 1913/15 act district in residential areas. Someof the major features of the 1913/15 act assessment are shownbelow:
o Assessment districts have a long and wellestablished history with a strong legal baseoAssessment districts are formed by the City andexisting land ownersoAssessments are set at the time of projectconstruction and are not the subject of furtherpublic hearings over the life of the debtoRoads to be constructed could include:-Rancho Santa Fe-Alga/ Poinsettia-Cannon-Melrose-Carri 11 o Way-El Fuerte-College-Palomar Airport Road
On January 10, 1989, the City Council directed staff to investigate the use of a Community Facilities District and to develop a comprehensive financing program for major public facilities. Staff began this work by hiring NBS/Lowry Engineers and Planners to assist in the initial data base structuring and cash fl ow analysis. Staff al so hi red Mac Brown of
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Brown and Diven to provide additional guidance dealing with the process and legal structures of the Mello-Roos Community Facilities District, and Carl Kadie of Kadie-Jensen, Johnson and Bodnar to provide additional financial analysis functions.
The initial structure of the overall financing program was to provide for major city and school district public facilities. The City Council directed staff to work with the four school districts which serve the City to determine their interest in pursuing a joint financing district. Staff has been in contact with each of the four districts and to date, the Carlsbad Unified School District, San Dieguito Union School District and the San Marcos Unified School District have indicated a desire to participate in an overall financing program with the City. The Encinitas Union High School District has indicated that they are not interested in participating in such a financing district.
During the review of the proposed financing plan, it was determined that the major ci rcul at ion improvements required as a result of the Local Facilities Management Plans should also be included in the overall plan. Therefore, in February, staff returned to the City Council to receive specific direction as it related to the financing of these major circulation roadways.
Staff has received a great deal of input from the property owners in the undeveloped areas of the City. Several property owner meetings were conducted by staff to explain the overall program and to address questions. Over 100 property owners participated in these meetings. Additionally, numerous meetings were held with the various consultants working with major property owners in the City. The recommended program takes into consideration the comments, suggestions, and concerns of these property owners. Although, not all of these suggested have been incorporated into th� proposed financing program because they generally are aimed at project specific concerns and issues.
Issues:
During the review of the proposed financing program with property owners several issues were discussed:
1.Development Agreements/Entitlement Guarantees
Property owners expressed an interest in having the City enter intoDevelopment Agreements with them as part of this program. Staffstressed the need for this type of agreement was not necessary.The property owners were told the most effective way to ensure theirrights to develop is to provide the public facilities required tomaintain conformance with the public facility performance standards.The Growth Management Program allows development to occur so longas public facilities improvements are made and future improvementsfinancially guaranteed so these standards can be met.
The proposed financing program presumes a certain amount ofdevelopment will occur to provide the cashflow necessary to fund thedebt service of the outstanding bonds. As individual zone financingplans are prepared to meet the ·specific zone requirements,development will be allowed to begin and will be sufficient tomaintain the cashflow necessary to fund the debt required for thesefacility improvements.
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2.
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Pass through of Taxes
The proposed program recommends no pass through of taxes for residential development. The program is being created as a way to finance public facilities which are currently within the City's existing fee programs. The developers within the district wi 77 receive fee reductions when building permits are pulled. The City does not currently allow fees to be passed through to the home buyer in the form of a tax or assessment and as result the proposed program does not pass these taxes through to the home buyer. It should be emphasized the home buyer may pay for the cost of the district in the price of the home just as the current fees are absorbed into the buy of the home.
Non-residential pass through is being recommended because of the unique nature of commercial and industrial development. The buyers of the non-residential property are also sophisticated and it is a common business function to prepare complex financial pro-formas as part of any purchase or lease arrangement.
3. Vacant Land Taxes
4.
Efforts have been made throughout the formation of the program tocreate the lowest practical vacant land tax. The vacant land taxeswill be kept as low as possible so long as the cashflow needs of thedistrict are met.
The program will allow the vacant land tax on non-residential landto be adjusted as development takes place to meet the cashflow needsof the district. As more land is developed, the revenue fromdeveloped taxes increases and the vacant land tax on non-residentialland can be reduced while the cashflow remains sufficient to fundthe debt service.
Agricultural Land
The intent of this program is to allow property owners who want tokeep their land in agricultural uses to do so as long as they wish.The structure of the program will bring agricultural land, thoseareas defined in the Local Coastal Pl an or designated as agri cultura 1through zoning, into the district at a zero tax. Once a developmentproposa 1 is submitted for this property, then this 1 and must beannexed into the district and taxed according to the existing generalplan.
Financing Assumptions:
In order to effectively choose the most appropriate financing mechanfsm(s), the following financing assumptions were considered and must be reviewed:
1.There is a limited ability to issue debt on the avail ab 1 evacant land within the city.
2.Public debt financing mechanisms should be used first toprovide for major city and schoo 1 faci 1 it i es, then used toprovidi:i for major circulation roadways and associati:id si:iwi:irand water facilities.
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3.Vacant land taxes should be kept as low as practical to providethe necessary cash flow to fund these needed public facilities.
4.The amount of debt allowed to be passed through to propertyowners within the city should be limited.
{The examples used in this report limit the pass through to$1800 per dwelling unit which includes school facilities andmajor circulation improvements.)
5.The public projects to be financed using the CommunityFacilities District should be limited to:
a)those that cannot be specifically identified asbeing related to a single zone or development,and
b)those that are so expensive that a coordinatedfinancing effort is required.
Growth Management Financing Proposal -Overview:
The proposed Growth Management Financing Program is one component of the overall financing mechanisms to fund capital improvements. The Growth Management Financing Program operating in combination with the City's established Capital Improvements Program wi 11 create the complete financing mechanisms to be used to fund future City capital improvements.
The Growth Management Financing Program can be divided in three separate segments.
First Segment:
Proposes to use a Mello-Roos Community Facilities District to fund the following improvements:
Mello-Roos Community Facility District Proposed Schedule (Million Dollars)
Project
Library City Hall Macario Park Faraday Ave. Cannon Rd. La Costa Ave. Olivenhain Rd. Leucadia Blvd.
$ 16.0 20.0 14.0 3.0 6.5 5.0 6.0 3.5 La Costa Intchg. Poinsettia Intchg Pal. Arpt. Rd.
7.0 9.4
Intchg. ·Maintenance andWarehouse Fae.
Total City:
9.45
3.54
$103.39
Years --1.:.L
$12.0
3.0 6.5 5.0
7.0 9.4
9.45
$52.35
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$
Years 6-10
20.0 7.0
6.0
3.54
$36.54
Years Years 11-15 16-20
$ 4.0 $ -
7.0
3.5
$ 4.0 $10.5
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The Mello-Roos Community Facilities District is proposed to finance facilities currently funded by various City fee programs. Therefore, participants in the Mello-Roos District will be paying for these facilities through the district and as a result will have reduced Public Facility Fees, Traffic Impacts Fees, and no Bridge and Thoroughfare Fees to be paid at the time building permits are pulled.
Second Segment:
Creates debt space for the various school districts operating in Carlsbad to implement their own debt financing program for school facilities.
Third Segment:
Proposes to finance major ci rcul at ion improvements through the use of 1913/1915 Act Assessment Districts. These circulation improvements may include:
-Rancho Santa Fe-Alga/ Poinsettia-Cannon-Melrose-Carri 11 o Way-El Fuerte-College-Palomar Airport Road
Recommendations:
Based upon review of these-financing assumptions, staff was able to analyze various financial alternatives. It is necessary to point out that from the beginning of the review process, it has been apparent that continuing on the pay-as-you-go fee system will not allow the city to provide the necessary public facilities as required by the Growth Management Program. Although the fee program could eventually fund these projects, the timing of the financing falls short of the timing of the need. The most viable alternative available for matching the timing of funding and need for facilities is the use of a debt financing mechanism{s).
Citywide Growth Management Finance Program -Mello-Roos & 1913/1915 Financing Program -Limited Pass Through:
The facilities listed in the Overview section of this memorandum should be funding using a Mello-Roos Community Facilities District. These facilities are consistent with the assumptions and goals of the program. The tax structure for this district should take into consideration the total tax and assessment burden placed on the property owner. The policy recommended seeks to limit the tax burden pl aced on the homeowner by requiring all Mello-Roos obligations for City facilities be paid at the time building permits are issued rather than allowing these taxes to pass through to the homeowner.
The pol icy further recommends that Mell a-Roos taxes related to nonresidential development be allowed to pass through to the property owner. Non-residential development is different from residential development because it is used to generate an income for the owner. In structuring long-term financing program which depends on land to generate sufficient
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funds to issue debt, it is more cost effective to allow the tax to be passed through in the form of an annual payment so these costs may be amortized over a longer period. Non-residential land buyers understand the financial obligations placed upon potential properties they wish to purchase and have the sophistication to make complex fiscal calculations and decisions prior to purchasing the property.
The tax structure proposed in Policy 38 allows sufficient leverage to remain in the property to adequately finance school facility construction programs using a Mello-Roos district. In addition, any financing capabilities of the land not reserved by a school district could be used to finance facilities such as major circulation roadways. It is recommended that each school district administer their specific financing district separately from the City's and we continue to coordination these activities.
Major circulation roadways throughout the undeveloped areas of the city could be financed with the use of assessment district financing. These improvement costs should be included within the overall structure of the financing program to ensure the ultimate debt levied against vacant land is completely analyzed and considered.
The overall Growth Management Financing Program shall be incorporated in all undeveloped areas of the City. This program will not effect developed
property. The overall structure of the program will be established initially, although, only a portion of the total undeveloped areas of the City wi 11 form the first finance district. It is anticipated the completion of the overall district will be made through the annexation of additional vacant land as the Local Facilities Management Zone Plans are completed and approved in those areas.
Recommendation Summary:
Based upon all of the information analyzed and input from property owners, it is recommended that the City Council adopt the revised Council Policy 38 and direct staff to return with the necessary documents to implement the first Growth Management Financing District. The following components would be included:
1.Public financing would be restricted to:
a)Citywide facilities
b)School facilities
c)Major circulation roadways and associated water and sewerfacilities
2.Residential developers would be required to discharge the portionof the Mello-Roos tax related to City projects when building permitsare pulled. Developers of non-residential property would be allowedto pass through Mello-Roos taxes to the future property owner. Thebuyer of the non-residential property will have the option to buyout of the district.
3.Vacant 1 and tax would be established at a set rate with the formationof the CFD. Additional areas will be annexed into the CFO with theadoption of the Local Facilities Management Zone Plan.
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4.Circulation facilities shall be spread by benefit formula using theconventional 1913/15 assessment district process. The assessments
related to these improvements may be a11owed to pass through to-theproperty owner as defined in City Council Policy 33.
5.Active disclosure shall be required to enable the buyer to choosethe option which best suits their needs as it relates to thefinancing of circulation improvements (assessments may be paid attime of escrow at owner's option). Non-residential buyers will havethe ability to buy out of both the mell o-roos di strict and anyassessment district.
6.There wi 11 be no exemptions from growth management short fa 11 s.Financing facility deficiencies would be the responsibility of thedevelopers or will be financed as established in the City's CapitalImprovement Program.
7.No development agreements or entitlement guarantees will be made aspart of this program.
8.The total tax (school facilities} and assessment (circulationimprovements) burden for the average residential unit should notexceed $1,800 (in 1989 dollars).
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