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February 21, 2023
ITEM TITLE
Community Facilities District Annexation: Public Hearing and Election for Annexation of Property located at K Street and Third Avenue, known as Casa Estilo, into CFD 17-I
Report Number: 23-0031
Location: Intersection of K Street and Third Avenue
Department: Development Services
Environmental Notice: The activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act (“CEQA”) State Guidelines; therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required.
Recommended Action
Conduct the public hearing and adopt a resolution certifying the results of a special election relating to the levy of special taxes within Annexation No. 2023-02 to CFD 17-I.
SUMMARY
In March 2016, the City Council formed Community Facilities District 17 -I (“CFD 17-I”), the Western Chula Vista Development Impact Fee ( “DIF”) Financing Program. C FD 17 -I was established for the purpose of financing the payment of certain DIF obligations for multi -family, commercial or industrial properties in Western Chula Vista (i.e., the area generally located between Interstate 5 and Interstate 805), and the Chula Vista Auto Park, which is situated to the east of Interstate 805 and to the west of Heritage Road. In March 2016, the City Council also authorized the annexation of territory within the Future Annexation Areas in the future pursuant to the provisions and authorization of Article 3.5 of the Mello-Roos Community Facilities Act of 1982 (the “Act”).
ENVIRONMENTAL REVIEW
The Director of Development Services has reviewed the proposed activity for compliance with CEQA and has determined that the activity is not a “Project” as defined under Section 15378 of the State CEQA Guidelines because it will not result in a physical change in the environment; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines, the activity is not subject to CEQA. Thus, no environmental review is required.
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BOARD/COMMISSION/COMMITTEE RECOMMENDATION
Not applicable.
DISCUSSION
Investment in Western Chula Vista presents a financing challenge for potential investors and developers.
Financing challenges derive primarily from the lending industry’s increased requirements imposed upon infill development projects in Western Chula Vista. To help address the additional burden being placed on infill development in this area, the City Council formed CFD 17 -I, which allows the deferr al of DIFs to incentivize future investment in this area.
The deferral of the DIF payment reduces the additional burden by an amount equal to the DIFs. CFD 17-I enables the developer to shift the DIF burden from the construction/development cost side of their ledger to the operating side of the development. CFD 17-I is unique in that it is not used as a mechanism to issue debt, but rather as a way to finance DIFs over time.
When CFD 17-I was formed in March 2016, only one property was included within CFD 17-I. However, the City Council authorized the annexation of territory in the “Future Annexation Area” into CFD 17 -I at a later date, if desired. The purpose of forming a Future Annexation Area is that, pursuant to the Act, the City can expedite proceed ings significantly, and can complete the annexation with the unanimous consent of the property owners within the territory to be annexed.
Such Future Annexation Area includes multi-family, commercial or industrial properties in Western Chula Vista (i.e., the area generally located between Interstate 5 and Interstate 805), and the Chula Vista Auto Park, which is situated to the east of Interstate 805 and to west of Heritage Road. Property owners can voluntarily annex into CFD 17 -I through an election proc ess. An owner of a residential, commercial, or industrial property located within the Future Annexation Area may apply to have such property annexed to CFD 17-I.
Such owner may waive the public hearing otherwise required for annexations and may waive the time limit for conducting the election to authorize the levy of special taxes within the property proposed to be annexed into CFD 17-I. Prior to the proposed annexation, five properties have been annexed into CFD 17-I, including:
1. Annexation No. 2017-01: the Urbana Apartments located at 371, 385, and 395 H Street annexed into CFD 17-I (2017).
2. Annexation No. 2018-01: 62 multi-family residences located at 260-270 Broadway annexed into CFD 17-I (2018).
3. Annexation No. 2018 -02: 43 multi -family residences located at 288 Center Street, 336 Church Avenue, 338 Church Avenue, and 342 Church Avenue annexed into CFD 17-I (2018).
4. Annexation No. 2018 -03: 2 9 multi-family residences located at 230 Church Avenue annexed into CFD 17-I (2018).
5. Annexation No. 2020-02: 170 multi-family residences located on the north side of Bonita Glen Drive, just west of its intersection with Vista Drive and south of the La Quin ta Inn and the I -805 Freeway annexed into CFD 17-1 (2020).
Due to its success in inducing investment in western Chula Vista, in 2021 the City Council extended the program through March 2026. At this meeting, the Council is also considering proposed Annex ation No.
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2023-01 to CFD 17-I. If Annexation No. 2023-01 is approved, the proposed Annexation No. 2023-02 would increase cumulative CFD 17-I annexations from six to seven. The project seeking annexation into CFD 17 -I is as follows:
Annexation No. 2023-02
The project, known as Casa Estilo, is located at the intersection of K Street and Third Avenue and consists of 142 multi-family residences. The project occupies Assessor’s Parcel Number 573-371-25-00, which consists of approximately 1. 1 acres. Construction star ted in February 2021 , and the construction schedule is anticipated to be 24-28 months to final occupancy. The applicant estimates the total project cost to be $ 20 million.
Annexation Process
The owner of the property, as the qualified elector for the election to authorize the levy of the special tax on the property proposed to be annexed into CFD 17 -I, has waived the public hearing and the time limit for conducting such an election. Ballot documents were transmitted to the property owners and completed and returned by the property owner to the City Clerk on or before February 21, 2023. The City Clerk canvassed the ballot and determined that the property owner had cast the ballot in favor of authorizing the levy of the special tax on the property proposed for annexation into CFD 17 -I. By adoption of the resolution , the City Council will be determining the results of the election and determining and declaring that such propert y is added to and become a part of CFD 17-I.
DECISION-MAKER CONFLICT
Staff has reviewed the property holdings of the City Council members and has found no property holdings within 1,000 feet of the boundaries of the property which is the subject of this action. Consequently, this item does not present a disqualifying real property-related financial conflict of interest under California Code of Regulations Title 2, section 18702.2(a)(7) or (8), for purposes of the Political Reform Act (Cal. Gov’t Code §87100, et seq.). Staff is not independently aware and has not been informed by any City Council member, of any other fact that may constitute a basis for a decision-maker conflict of interest in this matter.
CURRENT-YEAR FISCAL IMPACT
There are no current year fiscal impacts to the General Fund or Development Services Fund with this action.
Most DIFs are paid by the applicant at the Certificate of Occupancy stage of development. For this annexation, Certificate of Occupancy would occur following construction, which, based on applicant estimates, would be approximately in July 2023. Additionally, all costs of this annexation are borne by the developer and the on- going administration will be funded entirely by the CFD. The City will recover the full cost of staff time expended for this annexation and administration activities in perpetuity.
ONGOING FISCAL IMPACT
The Western Chula Vista Financing Program will defer payment of following three DIFs: the Public Facilities Development Impact Fee ( “PFDIF”), the Parkland Acquisition and Development Fee (PAD) . This deferral would be for a period of thirty years incurring two percent interest, per annum, upon receipt of occupancy.
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There would be no obligation to make a payment on the deferment in years 1 through 10. The deferred fees are required to be repaid in years 11 through 30. If a property is sold or subdivided, the obligation to repay the fees runs with the land. The non-payment period aligns with standard commercial lending practices. It is anticipated that some projects will repay the deferred fees in year ten when the project is refinanced.
New developments are assessed DIFs for the incremental impacts resulting from said development. DIFs do not pay for or resolve the deficiencies of facilities that may exist today. As stated above, all new development will continue to mitigate for on-site impacts resulting from each respective project.
Should the CFD 17-I program be successful , it is anticipated to generate new development , which would translate into an increase in assessed valuation generating additional property taxes and have a positive impact on the neighboring property values , while also helping new residents and employees support the surrounding businesses located along the retail corridors.
DIFs to be deferred for the proposed annexation is as follows:
Annexation 2023-02
WTDIF Deferral PFDIF Deferral PAD Deferral Total Deferral -0- $1,627,605.25 $1,442,294 $3,069,899.25
The construction costs for the project represents a $20 million investment in Western Chula Vista.
ATTACHMENTS
1. Rate and Method of Apportionment (RMA)
2. Boundary Map
Staff Contact: Kimberly Elliott, Facilities Financing Manager, Development Services Laura C. Black, AICP, Director of Development Services