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October 24, 2023
ITEM TITLE
Community Facilities Districts: Amend City Council Policy No. 505 -04, Statement of Goals and Policies Regarding Establishment of Community Facility Districts
Report Number: 23-0191
Location: No specific geographic location
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
Adopt a resolution to amend City Council Policy No. 505-04, Statement of Goals and Policies Regarding Establishment of Community Facility Districts.
SUMMARY
Community Facilities Districts (“CFDs”) are special tax districts used to finance the construction of public facilities and provide maintenance services within the City of Chula Vista. City Council Policy No. 505-04, Statement of Goals and Policies Regarding the Establishment of Community Facilities Districts (the "Goals and Policies") governs the use of CFDs in the City. Staff is recommending amendments to City Council Policy No. 505-04 to align with current standards and practices for the formation and implementation of CFDs.
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.
BOARD/COMMISSION/COMMITTEE RECOMMENDATION
Not applicable.
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DISCUSSION
The Mello-Roos Community Facilities Act of 1982 (the "Mello -Roos Act") provides local jurisdictions with an alternative method of financing public c apital facilities and services, especially in developing areas and areas undergoing rehabilitation. Special tax districts formed pursuant to the Mello -Roos Act are referred to as Community Facilities Districts, or CFDs. As a prerequisite to forming CFDs, t he local jurisdiction must first consider and adopt local goals and policies concerning use of the Mello-Roos Act.
On January 13, 1998, the City Council adopted the Goals and Policies via Resolution No. 18860. The approval of this document ratified the use of CFDs in the City of Chula Vista as a public financing mechanism for (1) the construction and/or acquisition of public infrastructure and (2) the financing of authorized public services. The Goals and Policies were subsequently amended in July 1998, December 1998, November 2013, and April 2019 via Resolution Nos. 19103, 19300, 2013 -225, and 2019 -051, respectively.
CFDs have been used with great success in Chula Vista to construct public facilities and provide maintenances services. One of the benefits of CFDs is the ability to provide public facilities much sooner than would otherwise be possible with other financing tools. Additionally, maintenance CFDs fund services such as park, streetscape, trails, and open space maintenance that would otherwise be funded by the City’s General Fund. Currently the City has fifteen (15) CFDs for the construction of infrastructure and eighteen (18) CFDs which provide for ongoing maintenance of landscape, streetlights, open space, and parks.
Staff is proposing changes to align the Goals and Policies with current industry standards and best practices. The substantive changes include the following:
Allow CFDs to finance development impact fees . The Mello -Roos Act allows the financing of development impact fees (“DIFs”) which is currently precluded by the Goals and Policies, providing only for the construction and maintenance of public facilities. However, since DIFs also fund the construction of public facilities, it follows that DIFs may also be financed by CFD bonds.
Pursuant to federal tax regulations, funds generated by tax -exempt bonds must be used to construct public facilities within three years to maintain their tax-exempt status. This is problematic if there are no facilities ready to be constructed by DIFs within that time frame. A way to avoid this tax concern is to issue taxable bonds. Therefore, when DIFs are financed by CFD bonds, the City, in its sole discretion, will determine which fees may be financed with taxable bonds and which may be financed with t ax- exempt bonds.
Allow escalation of special taxes for a limited timeframe. The Mello-Roos Act allows special taxes to escalate at a rate of 2% annually. The City’s current Goals and Policies do not allow any escalation of special taxes. This has the effect of limiting the total amount of bonds that may be issued and therefore the number of facilities to be constructed. The policy is proposed to be amended to allow escalation of special taxes , consistent with the Mello -Roos Act , for the first 11 years only. This is a reasonable approach to increasing the available funds for construction of facilities wh ile protecting homeowners from an excessive special tax burden which could otherwise escalate for the term of the bonds, typically a term of 20-30 years.
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Minor amendments include clean -up and clarification of disclosure requirements to home buyers, clarification that public parks may be maintained by CFDs, and items that simplify and streamline the administration process for formation.
DECISION-MAKER CONFLICT
Staff has reviewed the decision contemplated by this action and has determined that it is not site-specific and consequently, t he real property holdings of the City Council members do not create a disqualifying real property-related financial conflict of interest under the Political Reform Act (Cal. Gov't Code § 87100, et seq.) Staff is not independently aware, and has not been in formed 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 as a result of this action.
ONGOING FISCAL IMPACT
There is no ongoing fiscal impact to the General Fund or Development Services Fund as a result of this action.
ATTACHMENTS
1. Redline strikeout - City Council Policy No. 505-04, “Statement of Goals and Policies Regarding Establishment of Community Facilities Districts.”
2. City Council Policy No. 505-04, “Statement of Goals and Policies Regarding Establishment of Community Facilities Districts.”
Staff Contact: Kimberly Elliott, Facilities Financing Manager, Development Services Laura C. Black, AICP, Director of Development Services