Steps for Creating a Community Facilities City and Imposing a Special Tax I. OUTLINE OF STEPS
The following is a summary of the steps that the City must take in order to create a CFD and impose a special tax, each of which is discussed in detail later in this memorandum.
1. The City Council adopts local goals and policies for CFDs.
2. The City Council adopts a Resolution of Intention and a Resolution of Bonded Indebtedness (if applicable) and sets the date for a public hearing on the consideration of the CFD to be held within 30 to 60 days.
3. The City publishes notice of the public hearing in a newspaper of general circulation or provides notice by mail to the registered voters and landowners in the proposed CFD at least seven days before the hearing.
4. The City holds the public hearing and considers any protests. If there is no majority protest, the City Council adopts a Resolution of Formation and a Resolution Calling the Election.
5. Within three days of adopting the Resolution of Formation and Resolution Calling the Election, the City sends the election official the formation documents. 6 The election is held 90 to 180 days after the Resolution of Formation, and the tax is authorized if two-thirds of the votes are cast in favor of the tax.
7. Following a successful election, the City Council adopts a Resolution Determining Election Results and introduces an ordinance to levy the special tax, which requires a first reading at one City Council meeting and formal adoption at a second meeting.
8. The City records a notice of special tax lien with the county recorder.
The two most important dates are the date of the Resolution of Formation and the date of the election. All of the other dates flow from these two dates.
The Resolution of Formation must be adopted 90 to 180 days before the election. However, because the concurrence of the elections official is required if there is less than 125 days between the adoption of the Resolution of Formation and the election, the City should plan on adopting the Resolution of Formation between 125 and 180 days before the election.
The Resolution of Intention and Resolution of Bonded Indebtedness must be adopted 30 to 60 days before the hearing on the formation of the CFD.
The local goals and policies of the City for CFDs must be adopted before the Resolution of Intention, but this can be done at the same meeting.
II. DISCUSSION
A. The City has the power to create a CFD
The City has the power to create a CFD because it is a “local agency” that has the power to provide the facilities or services that a CFD is authorized to provide. (Gov. Code §§ 53316-53317). The City can use a CFD to finance facilities and services that it is already authorized to provide.
A CFD can finance many services, including police protection; fire protection and suppression; recreation programs; maintenance and lighting of parks, parkways, streets, roads and open space; flood and storm protection services; remediation of hazardous substances; and maintenance and operation of real or tangible property with an estimated useful life of five years or longer. (Gov. Code § 53313.) CFDs can also finance the purchase, construction, expansion, improvement, or rehabilitation of real or other tangible property with an estimated useful life of five years or longer. (Gov. Code § 53313.5.) B. Territory of the CFD
While the City can only create a CFD within its territorial boundaries (Gov. Code § 53316), the CFD does not have to be contiguous, and it can be less than the total area of the City. (Gov. Code § 53325.5.) The City thus has flexibility to propose an area for a CFD that will have the best chance of obtaining the required two-thirds vote.
Land that is dedicated to agricultural, open space, or conservation uses cannot be included in a CFD that provides facilities or services for sewers, nonagricultural water use, or streets and roads without consent of the landowner. (Gov. Code § 53312.8.) And land that is devoted primarily to the commercial production of agricultural, timber, or livestock products can only be included in a CFD if that land is contiguous to other land in the CFD and the City Council finds that the land will be benefitted by the CFD. (Gov. Code § 53325.6.) C. Procedure for creating a CFD
1. City Council Meeting #1 – Adoption of “local goals and policies” Before the City can begin the proceedings to create a CFD, the City Council must first adopt “local goals and policies” for CFDs. (Gov. Code § 53312.7.) These goals and policies must include all of the following:
The priority of facilities and services to be financed through a CFD.
The credit quality to be required of bond issues.
The steps to be taken to ensure that future property purchasers are fully informed of their taxpaying obligations to a CFD.
The criteria for evaluating the equity of tax allocation formulas and the desirable and maximum amounts of special tax to be levied on any parcel by a CFD.
The definitions, standards, and assumptions that will be used to determine the maximum amount of any bonds in relation to the value of the property securing the bonds.
2. City Council Meeting #2 – Resolution of Intention and Resolution to Incur Bonded Indebtedness a. Resolution of Intention
The City Council begins the proceedings to create a CFD by adopting a Resolution of Intention. (Gov. Code §§ 53318, 53321). While it is customary to adopt the local goals and policies and the Resolution of Intention at two distinct meetings, the Act only requires the local goals and policies to be adopted prior to the Resolution of Intention. Both could be adopted in a single meeting if necessary.
The Resolution of Intention must include the following:
A description of the boundaries of the proposed CFD. (Gov. Code § 53321(a).) The proposed name of the CFD as “Community Facilities City No. ____.” (Gov. Code § 53321(b).) A description of the facilities and services to be financed by the CFD, including identification of any public facilities to be leased, purchased, or financed. (Gov. Code § 53321(c).) A description of the tax to be levied through the CFD, including the rate, method of apportionment, and manner of collection. (Gov. Code § 53321(d).) The time and place for a public hearing on the formation of the CFD, which must be held within 30 to 60 days following adoption of the Resolution of Intention. (Gov. Code § 53321(e).) The proposed voting procedure for the tax. (Gov. Code § 53321(e).) b. Resolution to Incur Bonded Indebtedness
If bonds are to be issued, their maximum amount and term must be specified in a Resolution to Incur Bonded Indebtedness, which must be passed along with the Resolution of Intention at the same meeting.
3. City Council Meeting #3 – Public hearing and Resolution of Formation (30 to 60 days after Meeting #2) Thirty to sixty days after the adoption of the Resolution of Intention, the City must hold a public hearing to consider any objections to the proposed CFD. If there is no majority protest, the City Council then adopts a Resolution of Formation. a. Hearing Notice
The City must publish notice of the hearing on the formation of the CFD in a newspaper of general circulation (Gov. Code § 53322) or provide notice by mail to the registered voters and landowners in the proposed City (Gov. Code § 53322.4) at least seven days before the hearing.
The notice must include the text or a summary of the Resolution of Intention, the time and place of the hearing, and notice that testimony of all interested persons or taxpayers will be heard regarding the establishment and boundaries of the CFD and the specific facilities and services to be provided by the CFD. (Gov. Code § 53322.) Failure of any person to receive notice does not affect the validity of any proceedings or prevent the City Council from conducting the hearing. (Gov. Code § 53315.3.) The City must also send a copy of the Resolution of Intention to the County. (Gov. Code § 53315.6.) However, because the Local Area Formation Commission (“LAFCo”) has no authority to review, approve, or deny a proposal to create a CFD, and does not have authority to annex territory to a CFD that is already within the boundaries of the City, LAFCo does not need to be notified of the public hearing on the formation of the CFD. (Gov. Code §§ 53316, 53318.5.) b. Protests
At the hearing, protests regarding the establishment of the CFD, the extent of the CFD, or the furnishing of public facilities or services by the CFD may be made orally or in writing by any interested person, although protests pertaining to the sufficiency of the proceedings must be in writing. (Gov. Code § 53323.) If 50% or more of the registered voters within the proposed CFD or the owners of 50% or more of the property within the proposed CFD (and not exempt from the proposed special tax) file written protests against the creation of the CFD, then the City must postpone for at least one year the proceedings to create the CFD or to levy a special tax. (Gov. Code § 53324.) c. Completion of the hearing and the adoption of the Resolution of Formation In general, the hearing must be completed within 30 days, but it can be continued for up to six months if the City finds that the complexity of the CFD or the need for public participation requires additional time. (Gov. Code § 53325.) During the hearing, the City Council can eliminate proposed facilities or services from the CFD, reduce the proposed special tax, or amend the territory of the CFD. (Ibid.) After the public hearing, if there has not been a majority protest and the City Council decides to proceed with the CFD, it adopts a Resolution of Formation. The Resolution of Formation must contain the following:
All information contained in the Resolution of Intention. (Gov. Code § 53325.1(a).) A statement that the proposed special tax was not precluded by majority protest. (Gov. Code § 53325.1(a)(1).) The identification of facilities or services proposed to be funded by the special tax. (Gov. Code § 53325.1(a)(2).) The name, address, and phone number of the office responsible for preparing an annual roll of special tax levy obligations by APN and for estimating future special tax levies. (Gov. Code § 53325.1(a)(3).) A statement that upon recordation of a notice of special tax lien, a continuing lien to secure each levy of the special tax will attach to all nonexempt real property in the CFD, which will continue until the special tax obligation is permanently satisfied or collection of the tax ceases. (Gov. Code § 53325.1(a)(4).) The book and page in the book of Maps of Assessments and Community Facilities Districts where the boundary map of the proposed CFD has been recorded. (Gov. Code § 53325.1(a)(5).) A determination by the City Council that all proceedings were valid and in conformity with the requirements of the Act. (Gov. Code § 53325.1(b).) D. Election on the special tax (90 to 180 days after the Resolution of Formation)
1. Resolution Calling the Election
After the City Council adopts the Resolution of Formation, it can begin the process of levying the special tax. Usually, the City Council will pass a Resolution Calling the Election for the tax at the same meeting at which it adopts the Resolution of Formation. The Resolution Calling the Election will designate the official to conduct the election (generally the county clerk or registrar of voters), and will submit the special tax to a vote of the electorate in the next general election or special election within 90 to 180 days of approval of the Resolution of Formation. (Gov. Code § 53326(a).) If the election is to be held within 125 days of the approval of the Resolution of Formation, the concurrence of the election official is required. (Ibid.) Within three business days of adopting the Resolution of Formation, the election official must be provided with the following (Gov. Code § 53326(a)):
The Resolution of Formation.
The Resolution to Incur Bonded Indebtedness (if adopted).
A certified map of sufficient scale and clarity showing the CFD boundaries.
A sufficient description of the CFD to allow the election official to determine the CFD’s boundaries.
2. Adjustment of the appropriations limit
When the City submits the tax to the electorate, it should also submit to the electorate a measure to increase the appropriations limit of the City to accommodate the special tax. (Cal. Const. Art. XIII B; Gov. Code § 53325.7.)
3. Voting
Voting is by registered voters within the CFD. (Gov. Code § 53326(b).) If the City submits the tax to the voters in a special election, the election can be conducted by mail. (Gov. Code § 63326(d).) The tax is authorized if two-thirds of the votes cast are in favor of the tax. (Gov. Code § 53328.) If the tax does not pass, the City Council cannot take any further action with respect to the tax for one year. (Gov. Code § 53329.)
4. City Council Meetings #4 and #5 – Resolution Determining Election Results and Ordinance Levying Special Tax If the election is successful, the City must first adopt a Resolution Determining Election Results, and then introduce an ordinance to levy the special tax. The ordinance must undergo a “first reading” at one meeting, and then can be formally adopted after a “second reading” at the next meeting. The Act provides the City with authority to enact an ordinance, even if the City does not otherwise have that authority. (Gov. Code § 53316.) The ordinance should include the designation of the office that will annually prepare the special tax levy. (Gov. Code § 53340.2.) The special tax may only be levied at the same or lower rate and in the manner of apportionment specified in the Resolution of Formation. (Gov. Code § 53330.5.)
5. Recordation of Notice of a Special Tax Lien
Concurrently with the passage of the Resolution Determining Election Results and the Ordinance Levying Special Tax, the City must record a notice of special tax lien in the office of the county recorder of each county in which the CFD is located. (Gov. Code 53328.3.) The language required in the notice is set forth in section 3114.5 of the Streets and Highways Code and must include a description of the special tax and the name of the owner of each assessor’s tax parcel in the City. This document has the potential to be lengthy, and the City should consider the amount of time it will take to prepare.
If the election is held less than 125 days after the Resolution of Formation, the concurrence of the election official is required.
There are also special provisions for situations where a majority protests only a specific facility, service, or tax. In those instances, the protested facility, service, or tax may be removed from the Resolution of Formation, while the CFD formation otherwise proceeds. (Gov. Code §53324.) The City Council may reduce the proposed CFD to include less territory than was presented in the hearing notice, but it cannot add territory to the CFD. (Gov. Code 53325.5.) If the area of a proposed CFD has less than 12 registered voters, the Act allows for a vote by just the landowners. The constitutionality of this provision, however, is in question. (See City of San Diego v. Shapiro (2014) 228 Cal.App.4th 756.) Steps for Creating a Community Facilities City and Imposing a Special Tax