BACKGROUND:
California Statewide Communities Development Authority (CSCDA) is a joint powers authority sponsored by the League of California Cities (the “League of Cities”) and the California State Association of Counties (“CSAC”). Membership in CSCDA is open to every California City, County and local agency. Currently, CSCDA has 532 member agencies, including the City of Cathedral City (the “City”).
SCIP financing is available for development projects (“Projects”) situated within cities or counties which have elected to become SCIP participants (each, a “Local Agency”). Eligibility to become a Local Agency requires only (a) membership in the Authority, and (b) adoption of a resolution making the election (the “SCIP Resolution”).
Participation in SCIP entails the submission of an application (an “Application”) by the property owner (the “Applicant”) of a Project for which development entitlements either have been obtained or are being obtained from a Local Agency. For projects determined to be qualified, SCIP provides non- recourse financing of either (a) eligible development impact fees payable to the Local Agency (the “Fees”) or (b) eligible public capital improvements (the “Improvements”) or both. Under certain circumstances, to be determined on a case-by-case basis, development impact fees payable to local agencies other than the Local Agency can be financed.
SCIP was instituted by CSCDA to allow owners of property in participating cities and counties to finance the development impact fees that would be payable by property owners upon receiving development entitlements or building permits. The program has since been expanded to include financing of public capital improvements directly and has further expanded to provide for a choice between community facilities districts and assessment districts. If a property owner chooses to participate, the selected public capital improvements and the development impact fees owed to the City will be financed by the issuance of taxable or tax-exempt bonds by CSCDA.
CSCDA will impose a special assessment or special tax on the owner’s property to repay the portion of the bonds issued to finance the fees paid with respect to the property. With respect to impact fees, the property owner will either pay the impact fees at the time of permit issuance and will be reimbursed from the SCIP bond proceeds when the SCIP bonds are issued; or the fees will be funded directly from the proceeds of the SCIP bonds. In the former case, the City is required to pay the fees over to SCIP at bond issuance (unless already spent on public improvements), and in the latter case, SCIP holds the bond proceeds representing the fees. In both cases the fees are subject to requisition by the City at any time to make authorized fee expenditures. But by holding and investing the money until it is spent, SCIP is able to monitor the investment earnings (which come to the City) for federal tax law arbitrage purposes. SCIP encourages the City to spend those amounts before any other fee revenues of the City.
DISCUSSION:
Consistent with the City Council established goal of identifying ways to establish assessment district(s) (AD) and/or Community Facilities District(s) (CFD) to provide necessary infrastructure in the North City and Extended North City planning areas, the Council is being asked to amend the existing resolution to include not only an AD, but also a CFD to participate in the Statewide Community Infrastructure Program (“SCIP”), which is a program of the California Statewide Communities Development Authority (the “CSCDA”).
The benefits to the property owner include:
•Only property owners who choose to participate in the program will have assessments or special taxes imposed on their property. •Instead of paying cash for public capital improvements and/or development impact fees, the property owner receives low-cost, long-term tax-exempt financing of those fees, freeing up capital for other purposes. •The property owner can choose to pay off the special assessments or special taxes at any time.
•For home buyers, paying for the costs of public infrastructure through a special assessment or special tax is sometimes better to having those costs “rolled” into the cost of the home. Although the tax bill is higher, the amount of the mortgage is smaller, making it sometimes easier to qualify. Moreover, because the special assessment/special tax financing is typically at tax-exempt rates, it typically comes at lower cost than mortgage rates. SCIP can finance projects as low as $500,000, which would not be economical on a stand-alone basis. •Owners of smaller projects, both residential and commercial, can have access to tax-exemption financing of infrastructure. Before the inception of SCIP, only projects large enough to justify the formation of an assessment or community facilities district had access to tax-exempt financing.
The benefits to the City include:
•As in conventional assessment and CFD financing, the City is not liable to repay the bonds issued by CSCDA or the assessments or special taxes, as applicable, imposed on the participating properties.
•CSCDA has an underwriter, legal counsel, trustee, assessment administrator, special tax consultant, and program administrator to handle district formation, district administration, bond issuance and bond administration functions.
Participating agencies can provide tax-exempt financing to property owners through SCIP while committing virtually no City staff time to administer the program.
•Providing tax-exempt financing helps participating cities and counties cushion the impact of rising public capital improvements costs and development impact fees on property owners. Many developers rely on assessment district or CFD financing or CFD financing through SCIP in making the decision to purchase land thereby improving a City’s competitive advantage in attracting new development.
•The availability of financing will encourage developers to pull permits and pay fees in larger blocks, giving the participating city immediate access to revenues for public infrastructure, rather than receiving a trickle of revenues stretched out over time. As part of the entitlement negotiation process, the possibility of tax-exempt financing of fees can be used to encourage a developer to pay fees up front.
•In some cases, the special assessments on successful projects can be refinanced through refunding bonds. Savings achieved through refinancing will be directed back to the participating city for use on public infrastructure, subject to applicable federal tax limitations.
Amending the existing resolution for the City to participate in the SCIP program for a Community Facilities District allows CSCDA to accept applications from owners of property within our planning jurisdiction to apply for tax-exempt financing of public capital improvements and development impact fees through SCIP not only as an Assessment District, but also as a Community Facilities District.
FISCAL IMPACT:
Other than staff time, no cost to the City
FIVE-YEAR STRATEGIC PLAN:
GOAL C: Fiscal Stability and Sustainability
Objective: Cathedral City has economically prospered by facilitating the investment of private dollars in high quality development which benefits the community. We remain financially solvent by instituting prudent fiscal policies and transparent financial practices.