Placentia City Council
AGENDA REPORT
TO: CITY COUNCIL
VIA: CITY ADMINISTRATOR
FROM: DIRECTOR OF DEVELOPMENT SERVICES
DATE: APRIL 18, 2023
SUBJECT: STUDY SESSION: REVISED INFRASTRUCTURE FINANCING PLAN FOR THE
PLACENTIA ENHANCED INFRASTRUCTURE FINANCING DISTRICT
FISCAL
IMPACT: Estimated range of $17 to $24 million in property tax increment over approximately 40 years
Up to $59 million in net fiscal impact revenue to the City SUMMARY:
In response to the elimination of redevelopment agencies, California Senate Bill 628, effective January 1, 2015, and California Assembly Bill 313, effective January 1, 2016, authorized public agencies to form Enhanced Infrastructure Financing Districts ("EIFDs"), which are public financing instruments designed to succeed former Redevelopment Agency financing mechanisms and provide more flexibility than Infrastructure Financing Districts ("IFDs"). An EIFD is a governmental entity, separate and distinct from the city or county that establishes it and is governed by a Public Financing Authority ("PFA").
EIFDs can aid local government entities in funding public capital facilities, or other specified projects of communitywide significance, primarily by capturing tax increment revenue ("TI") generated within the district. EIFDs provide an opportunity for agencies to issue bonds for an array of public infrastructure projects as well as supporting economic development efforts in specific areas. Those areas of particular interest to Placentia are in the newly established Old Town Placentia Revitalization Plan area.
On February 19, 2019 the City Council approved Resolution No. R-2019-05, A Resolution of Intention ("ROI") proposing the establishment of the Placentia Enhanced Infrastructure Financing District ("Placentia EIFD") with the County of Orange and the initiation of proceedings to form an EIFD within City boundaries. Subsequently, on April 23, 2019 the County Board of Supervisors approved their resolution to participate in the Placentia EIFD and PFA. In addition, on May 21, 2019 the City Council approved Resolution No. R-2019-23, A Resolution to establish the membership of the Placentia EIFD PFA.
On June 18, 2019, the Placentia City Council and in accordance with EIFD law, adopted Resolution No. R-2019-28 approving the Infrastructure Financing Plan ("IFP") for the EIFD. The IFP specifically defines the boundaries of the EIFD, identifies the public infrastructure improvements, and the financial analysis of expected tax increment over the life of the EIFD to allow for the issuance of bonds to pay for the identified public infrastructure improvements.
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April 18, 2023
City Council Agenda
April 18, 2023
However, a nascent EIFD bond market, the COVID pandemic, inflation, and related current economic conditions have contributed to delayed EIFD implementation and cost increases.
Specifically, the Old Town Streetscape Master Plan cost estimates have increased from approximately $8 million to $10.05 million, an increase of 25.6%. In addition, interest rates have risen, increasing cost of debt service, particularly to a "first-time" debt issuer, such as the Placentia EIFD. As a result, the existing financing structure approved by the City Council on June 18, 2019 will not facilitate private investment and will fall short of expected rate of Tax Increment (TI) growth.
Subsequently, an amendment to the Infrastructure Financing Plan ("IFP") for the EIFD is needed.
This item tonight describes the proposed amendment to the IFP and Staff is seeking City Council direction on the proposed IFP amendment.
STRATEGIC PLAN STATEMENT:
This item is consistent with the City Council approved 5 -Year Strategic Goal to Promote Community and Economic Development, under Objective #3.4, which is to Complete Financing Structure for Old Town EIFD.
RECOMMENDATION:
It is recommended that the City Council take the following action:
1. Review the Staff presentation on the proposed EFID IFP amendments; and
2. Ask any questions of Staff and the Financial Advisory Team; and
3. Approve in concept the proposed EFID IFP amendments and direct the City Administrator to bring forth the final proposed IFP amendments necessary to fulfill the revised EIFD plan.
DISCUSSION:
In response to the elimination of redevelopment agencies, California Senate Bill 628, effective January 1, 2015, and California Assembly Bill 313, effective January 1, 2016, authorized the formation of EIFDs, which are public financing instruments designed to succeed the former Redevelopment Agency financing mechanism and provide more flexibility than IFDs. An EIFD is a governmental entity, separate and distinct from the city or County that establishes it and is governedby a PFA that is comprised of one or more members from the participating EIFD parties.
EIFDs can aid local government entities in funding public capital facilities, or other specified projects of communitywide significance, primarily by capturing TI generated within the district. The primary source of revenue available to an EIFD, like a Redevelopment project area, is TI.
Essentially, the added improvements gained through EIFD funding would conceptually support future development and result in increased property values, which would generate increased property tax revenues from the base year (established from the most recent equalized tax roll prior to district formation). The increased revenue can then be leveraged for additional improvements through the issuance of bonds and/or applied to fund improvements on a "pay-as- you-go" basis from the date of formation.
City Council Agenda
April 18, 2023
Unlike Redevelopment, other affected taxing entities are not required to forgo their TI for the district; participation is voluntary. Each tax sharing entity that chooses to join an EIFD has the option to allocate up to 100% of its portion of TI to the district. Under the EIFD law, school districts are precluded from participation.
EIFDs provide an opportunity for agencies to issue bonds for an array of public infrastructure projects as well as supporting economic development efforts in specific areas. The area of particular interest to Placentia is the infrastructure needed in and around the newly established Old Town Placentia Revitalization Plan. This area will require a significant investment of infrastructure in order to attract developers to the area while improving the City's housing stock and retail opportunities for the public. Land use designations in the area include residential, commercial, industrial, open space and parks. The area contains over 300 acres, which is approximately 7.1% of the City's total 4,243 acres.
On June 18, 2019, the Placentia City Council and in accordance with EIFD law, adopted Resolution No. R-2019-28 approving the Infrastructure Financing Plan ("IFP") for the EIFD. The IFP specifically defines the boundaries of the EIFD, identifies the public infrastructure improvements, and the financial analysis of expected tax increment over the life of the EIFD to allow for the issuance of bonds to pay for the identified public infrastructure improvements.
However, a nascent EIFD bond market, the COVID pandemic, inflation, and related current economic conditions have contributed to delayed EIFD implementation and cost increases.
Specifically, the Old Town Streetscape Master Plan cost estimates have increased from approximately $8 million to $10.05 million, an increase of 25.6%. In addition, interest rates have risen, increasing cost of debt service, particularly to "first-time" debt issuer, such as the Placentia EIFD. As a result, the existing financing structure approved by the City Council on June 18, 2019 will not facilitate private investment and will fall short of expected rate of Tax Increment (TI) growth.
Subsequently, an amendment to the Infrastructure Financing Plan ("IFP") for the EIFD is needed.
This item tonight describes the proposed amendment to the IFP and will be a receive and file. A subsequent date will be scheduled for formal approval of the IFP amendment.
The amendments being discussed by City and County staff would generate the required estimated $10 million (net of debt issuance and interest costs) to completely fund the infrastructure outlined within the Old Town Streetscape Master Plan previously adopted by the City Council in 2017 at one time (instead of in phases), which will better induce private investment to fulfil Tax Increment ("TI") and economic benefit projections. This will also accelerate the City's timetable to meet regional housing needs, including affordable housing. Finally, construction of public funds in one phase will ultimately save the EIFD on construction costs.
Infrastructure Financing Plan
The Infrastructure Financing Plan ("IFP") prepared by Kosmont Companies ("Kosmont") for the Placentia EIFD includes tax increment revenue projections, a cap on the maximum tax increment revenue to be contributed to the EIFD by both the City and the County, bond authorization, a description of proposed facilities to be funded, a finding of communitywide significance, and a statement of the goals of the EIFD. The PFA is ultimately responsible for preparation and final adoption of an IFP for the Placentia EIFD, and the IFP is a proposal that will be provided for the
City Council Agenda
April 18, 2023
PFA to consider. As a participating taxing entity of the Placentia EIFD, the County Board of Supervisors will also have an opportunity to review and approve the IFP at an upcoming meeting.
Proiected Tax Increment Updates
Kosmont prepared a tax increment analysis to determine district revenue potential based upon planned projects and future development potential. Based on this analysis, the City's contribution is capped at 50% of its share of property tax increment (-6.8 out of 13.6 cents on the dollar) within the district boundary for a maximum of $24,000,000 total over the approximately 40 -year district lifetime (estimated range of actual allocation is $17 to $24 million, depending primarily on interest rates). The County's contribution is similarly capped at 50% of its share (-2.95 out of 5.9 cents) within the district boundary for a maximum of $3,547,000 total over the first 25 years of the district's lifetime, with an option to extend to 30 years, only if needed. Both the City and County allocations would terminate sooner if project funding goals were achieved sooner than projected.
While the Placentia area would benefit from a new dedicated revenue source for infrastructure improvements, formation of the Placentia EIFD would result in a reallocation of property tax TI revenue from the City's General Fund. Once the Placentia EIFD terminates, TI revenue would no longer be allocated to the Placentia EIFD and will flow back into the City's General Fund.
Preliminary Bonded Indebtedness
Kosmont Financial Services provided a preliminary bonded indebtedness analysis with County's participation and estimated EIFD revenues. The structure of the analysis is a City -issued 30 -year lease revenue bond of approximately $10.5 million to net approximately $10.05 million in net proceeds. A total of approximately $19.1 million (principal and interest) would be repaid over 30 years with an average annual payment of approximately $676,000. The proposed IFP amendment would allow for up to 40 years to provide additional time for EIFD tax increment revenues to pay back debt service costs.
Financial Implication of Establishing Placentia EIFD
Kosmont concluded several regional financial implications for the establishment of the Placentia EIFD, including providing essential regional transportation infrastructure improvements, improved regional competitiveness for federal/state grant funds and support of the County's Comprehensive Economic Development Strategy (e.g., job creation, quality of life improvement, promote environmental sustainability). Locally, based on the Kosmont gross economic impact analysis, approximately 5,024 construction jobs will be created, 1,178 permanent jobs will be created, $695 million in economic output from construction, and $196 million in annual ongoing economic output.
Implementation of the Placentia EIFD is forecasted to create an acceleration of development and related fiscal revenues in the amount of approximately $59 million in net fiscal impact to the City and $50 million in net fiscal benefit to the County (present value net fiscal benefit over 50 years).
FISCAL IMPACT:
As described above, preliminarily, it is projected that approximately $10.05 million could be generated in net bond proceeds utilizing City and County tax increment revenues over the approximately 40 -year term of the Placentia EIFD to help fund core public infrastructure needed to support Placentia's growth. The City's contribution is capped at 50% of its share of property tax increment (-6.8 out of 13.6 cents on the dollar) within the district boundary for a maximum of
City Council Agenda
April 18, 2023
$24,000,000 total over the approximately 40 -year district lifetime (estimated range of actual allocation is $17 to $24 million, depending primarily on interest rates). The County's contribution is capped at 50% of its share (-2.95 out of 5.9 cents) within the district boundary for a maximum of $3,547,000 total over the first 25 years district lifetime, with an option to extend to 30 years only if needed. Both the City and County allocations would terminate sooner if project funding goals are achieved sooner than projected.
The recommended debt insurance structure is for the City to loan $1 million in General Fund reserves to accelerate Project financing which would reduce bond issues size, debt service, improve security and reduce the bond interest rate. In this proposed structure, the City would take the lead and issue its own 30 -year lease revenue bonds ("LRBs") in lieu of the PFA. The City would provide property/building collateral for underlying LRB lease in this structure.
While the Placentia area would benefit from the infrastructure improvements, the formation of the EIFD would result in a reallocation of TI (i.e., the City's share of taxes levied on property within the district boundaries on that portion of the taxable valuation over and above the taxable valuation of the base year property tax roll) from the General Fund to pay for the Placentia infrastructure improvements.
The aforementioned TI projections are based upon various assumptions made utilizing the future growth potential of the residential, commercial, and industrial development sectors in the area.
Once the EIFD has terminated, the property tax increment revenue allocated to the EIFD will flow back into the City's General Fund. The property tax generated up to the taxable valuation of the base year tax roll will continue to flow to the City's General Fund.
Prepa
Jeannette Orteg
Assistant to the City Administrator/
Economic Development Manager
Reviewed and approved:
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Jennifer Lampman� —
Reviewed
Joseph M. Lambert
Director of Development Services
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-Reviewed and ap
Damien R. Arrula
Finance Director City Administrator
Attachment:
PowerPoint Presentation