CITY OF MENIFEE
SUBJECT: Policy CC-20 – Special Assessment and Community Facilities District Goals and Policies Proposed Amendment MEETING DATE: July 8, 2025
TO: Finance Committee
PREPARED BY: Lauri Lockwood, Financial Analyst
REVIEWED BY: Travis Hickey, Chief Financial Officer
APPROVED BY: Armando G. Villa, City Manager
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RECOMMENDED ACTION
1. Review and provide feedback on the proposed revisions to the Special Assessment and Community Facilities District Goals and Policies (CC-20) including additional recommended policy updates.
DISCUSSION
Community Facilities Districts (CFDs) are authorized through the Mello-Roos Community Facilities Act of 1982, which provides a mechanism to fund public improvements and services. By establishing a CFD, an additional property tax is assessed to fund the specific improvements or services identified when the CFD is formed. The Menifee City Council originally approved Policy FN-09 – Special Assessment and Community Facilities District Debt Financing Programs in September 2011 relating to CFDs and Financing. Policy FN-09 was replaced in April 2020 by CC- 20 - Special Assessment and Community Facilities District Goals and Policies. Policy CC-20 governs the formation of a CFD, bond issuances, and CFD administration.
As part of the City’s goal to re-evaluate policies regularly to address changes in the business environment, staff is recommending CC-20 be updated to restrict/eliminate the use of a City-led bonded CFD for a development where bulk sales of property for rental purposes exceed 5% of the units. This update is based on prior feedback received by the Finance Committee to update the current policy to capture this requirement and return for review and discussion. Additionally, staff would like the Committee to review and provide feedback on several other potential bonded CFD policy consideration items including:
Additional Security Requirements for Developments Smaller than 100 Units. A neighboring agency, Eastern Municipal Water District (EMWD), has a policy that does not
City of Menifee Staff Report
Policy Amendment – Special Assessment and Community Facilities District Goals and Policies July 8, 2025
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allow for the formation of districts smaller than 100 units. A development of fewer than 100 units can represent a delinquency risk because each homeowner is responsible for a larger share of the bond debt payment than are homeowners who live in a 400-home development (1 out of 100 versus 1 out of 400 out of 400). An additional security from the developer in the form of the collection of an additional reserve could be used to offset the increased delinquency risk. Review Residents’ Debt Burden: Discuss memorializing in the City’s policy its previously expressed intent to reduce residents’ property tax burden whenever possible by diligently monitoring the economic environment and taking advantage of refunding opportunities. Annual Escalator: Discuss whether the City would like to minimize or eliminate an escalator associated with CFD-related bonds, meaning reducing the 2% increase (escalator) allowed each year, or not allowing an increase at all for all future CFDs.
Existing CFDs would require the escalator put in place be retained for debt service purposes. Either a reduction to 1% or the elimination of the escalator would reduce the amount of bond proceeds. This would keep residents’ property taxes associated with the bond debt service from increasing, but it also could make it more difficult for projects to pencil out for developers. EMWD’s policy does not allow for any escalators on the property taxes, and the agency is exploring a policy update restricting participation in future JCFAs where other agencies’ CFDs carry escalators.
Participation in future Joint Community Facilities Agreements (JCFAs): Review the City’s potential interest in participating in JCFAs where the bond is managed by another agency, such as a school district or water district. Historically, the City has participated in JCFAs where the City is the lead and in other cases where another agency is the lead.
The goal with participation in a JCFA is to achieve tax savings for homeowners by reducing associated costs of issuance, and ongoing administration costs. However, in cases where the City is not the lead, it would not retain control of the specific CFD for future actions such as refinancing the bonds. EMWD is considering revising its policy to require that it be the lead agency when it has the largest dollar amount of eligible costs. As a municipal government, the city can retain the right to be the lead agency for City related facilities and fees, however, the proposed policy change by EMWD could then result in multiple CFDs being necessary.
Maximum Percentage of Reimbursable Fees: Discuss if the city would like to formally specify a maximum percentage of fees that can represent part of the eligible fees/facilities.
Currently, the developer can finance facilities and/or fees with no percentage limitations.
If a developer chooses to finance City fees, there is a 20% premium assessed on the amount of fees financed. The City could choose to cap the percentage of the eligible fees/facilities that fees represent, but that decision could lead to a reduction in the associated City premium. Additionally, it could lead to a lower amount of eligible City fees/facilities, which could leave another agency, such as EMWD, with a larger share of eligible costs.
City of Menifee Staff Report
Policy Amendment – Special Assessment and Community Facilities District Goals and Policies July 8, 2025
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Line of Credit Requirements: Currently, City policy requires that a developer who owns more than 20% of the homes associated with a bond issuance establish a Line of Credit as an additional security for bondholders to offset the risk associated with the concentration of ownership. As part of the policy review, the City could consider easing this policy to allow for a waiver of that requirement if the provision is only triggered due to homes the developer has “sold” but has not closed on by the date the Preliminary Official Statement (POS) is posted. For instance, the pricing of the McLaughlin Village bonds was delayed by several weeks because the developer would have been over the 20% threshold and would have been required to post a Line of Credit as a result of homes that had been sold but had not yet closed.
This item is to review and provide feedback on the proposed draft revision of Policy CC-20, and other potential changes. The updated draft, incorporating Finance Committee input, would ultimately be presented to the City Council for consideration
ATTACHMENTS
1. Policy CC-20 - Redlined Version
2. Policy CC-20 - Clean Version