Enhanced Infrastructure
Financing District’s (EIFD) Potential
Impact on the City of Placentia’s
Fiscal Sustainability
May 6, 2025
Glenn Casterline
Bob McKinnell
Joe Rasic
1 Citizens’ Oversight Committee
Evaluation of the
Motivation to Form an Enhanced
Infrastructure Financing District (EIFD)
•EIFDs have been formed to
–Dedicate a portion of property tax revenues to a specific improvement purpose •Finance infrastructure remediation/maintenance
•Improve infrastructure to attract increased private investment/redevelopment •Offer the possibility of forming partnerships to gain investment from other entities with aligned priorities –Placentia EIFD is a partnership between City and County of Orange (the "County") 2 Purpose of the Placentia EIFD as it Relates
to Improving Fiscal Sustainability
•Formed in 2019 as a vehicle to finance
Enhanced Infrastructure Improvements in the
district’s identified boundaries
–In turn, increase/accelerate private investment
•Increase property valuation
•Increase property tax in perpetuity
•Provide sustainable source of increased revenue
•Improve fiscal sustainability
3 Note: The EIFD also may address other City non-financial goals, but those are outside this evaluation and not considered in the following analyses
Adopted Definition of Fiscal Sustainability
The City of Placentia will have achieved fiscal
sustainability when:
4 Forecasted revenues are able to fully
support forecasted expenditures
necessary to provide the desired level of
services for the foreseeable future while
maintaining adequate reserves to address
unforeseeable events
Reserves
•City Policy 460 establishes a desired unallocated cash reserve level of 25% of the operating budget
–Supports a minimum of 3 months expenditures
–Allows for year-to-year adjustments to budget
•Ability to cover unforeseen expenditure increases
–Provides a disaster recovery window
•Policy 460 provides a policy source to fund reserves
–Requires any new, ongoing, significant source of revenue to dedicate a specified amount of revenue to general fund reserves
5 History of General Fund Reserve Level
•In the original Measure U plan, it was going to take 6-8 years to reach original goal of 17% of general budget
•Goal was reached much sooner with unanticipated
revenues from the CARES Act
–Transitory levels as high as 40%
–Allowed the goal to be raised to the current 25% level •Recent trend is to draw down reserves to support
budget
–Current FY24-25 year end projection is 18%
6 Foreseeable Future
•Methodology chosen is to look at 10 year forecasts
–Ensures the ability to allow for at least one complete business cycle (downturn) •Future planning does not “plan” for a downturn, but allows for the downturn to be addressed by reserves •Assesses the ability of revenue growth rate to support expenditure growth rate •Current business cycle related to the pandemic is almost unprecedented in many ways (duration, level of government intervention, inflation effects) 7 Desired Level of Services
•Placentia residents have consistently expressed the desire to be a full services city – Public Safety
– Infrastructure Maintenance and Development
– Parks and Recreation Opportunities
– Community Services Programming
•Decisions have been made to provide these services internally, without using outside contract providers –Motivation was to maintain managerial control over costs as well as reap the economic advantages from “technology” or “model” improvements 8 Forecasted Expenditures
•City has varying levels of control over expenditures
–Legally mandated (“it is, what it is”)
–Market driven (“inflation driven”)
–Sole control (“ours to decide”)
•EIFD falls in this category
•Fiscal sustainability challenge is to control the absolute amount and growth of expenditures such that the
absolute amount and growth of revenues is adequate to
“pay the bills”
9 Forecasted Revenues
Problem - While expenditures are only partially controllable by the City, revenues are almost entirely uncontrollable by the City (City is the “tail” of the revenue dog)
10 Principal Revenue Sources
•Property Tax (growth rate largely statutorily determined by Prop 13’s 2% limit) –City's EIFD includes a partnership with the County of Orange allowing the City to receive a portion of the County's property tax received from the parcels within the EIFD ($3.5 million over EIFD lifetime) •Sales tax (growth rate tied to inflation, but not always in same direction) –Measure U is sales tax derivative
•Hotel Occupancy Tax (City sets the rate, economy determines the amount) •Franchise fees (City negotiations)
•Fee recovery revenues (City sets the rate, but can only recover identifiable costs)
Forecasted Revenues Growth Rate
11 •Calculated compounded growth rate consistent with entire City history under Prop 13
•Year -to-year variations due to inflation, business cycle dynamics (both positive and negative effects)
•Any expenditure growth rate that exceeds this level will require a compensating expenditure growth reduction to maintain
sustainability
•Absent an extraordinary revenue increase that is sustainable
Approach to Evaluating the Placentia EIFD
•Evaluate forecasted revenues, expenditures,
timeline, and effect on reserves for
reasonableness and completeness
•Identify financial risk areas and potential
magnitude of unfavorable outcomes
•Identify any risk mitigation strategies
•Draw conclusions/provide recommendations
where appropriate
12 What Was Not Evaluated
•Any non-financial costs or benefits of the plan
•Prioritization of EIFD relative to other City priorities •Any cross-benefits or expenditures related to the EIFD plan and other City plans •Oversight committee not in a position to effectively evaluate the validity of development forecast –Development forecast was generated with input and oversight from subject matter experts •Kosmont Financial Services
13 EIFD Timeline
•EIFD timeline is longer than the current fiscal sustainability forecast –Forecast shows net city-funded expenditures through year 10 –Net city revenues are generated after year 10 and will continue in perpetuity 14 Timeline takeaway – Can the existing 10 year sustainability forecast support the forecasted EIFD net expenditures to reap the ongoing net revenue benefit?
“Invest now to leave something to the kids”
EIFD Revenues
•EIFD revenue estimates were generated based upon anticipated increases in property tax base, resulting in property tax revenue increase –Highly dependent upon size and timing of anticipated development •Includes EIFD dedicated revenues associated with City as well as County tax levy (50% of increased tax revenue) –County revenue capped at $3,547,000, city revenue unlimited •Revenue takeaway – Revenue forecast seems reasonable with near year forecasts satisfied with already completed or easily identifiable projects – Parametric risk assessment should be performed using 20% reduction in development value and 2 year delay in out-year projects 15 EIFD Expenditures
•Cost of infrastructure improvements originally
estimated at $9M, current estimate (2 years later) is
$10M
•EIFD expenditures will need to be supported by City
General Fund expenditures
–Initial $1M City loan to EIFD
•EIFD plan forecast includes repayment in out-years with interest –Debt Service on $10M City-guaranteed EIFD Lease Revenue Bonds
•Average city-funded yearly debt service of $120K for 10 years –$675K total debt service less average EIFD proceeds of $525K per year •Debt service covered by EIFD proceeds after year 10
16 Expenditure takeaway
•Initial $1M loan is not supported by current General Fund budget
•Debt Service would require General Fund support for as long as ten years, forecasted total debt service exposure $1.2M •Risk Mitigation – Initial $1M could be supported by delaying project and accumulating initial tax increments to reach $1M.
Debt Service could be reduced by adjusting size of Project. –Recommend bottom-up parametric analysis of cost/revenue benefit for projects sized $6M and $14M
–Determine timing delay necessary to accumulate $1M in initial EIFD tax increments
17 EIFD Impact on Reserves
•Current reserve forecast does not have excess reserves to support EIFD project •Any benefit to reserves occurs in the out-years
•Difficult to estimate the size of any negative impact on reserves absent the previously discussed risk issues •Reserve takeaway- Reserves can not be part of baseline plan. Completion of previous risk mitigation tasks would provide an estimate of any unplanned need for reserve funding requirements 18 Top -Level EIFD Plan Evaluation Conclusions
•Finding ways to use tools such as the EIFD is imperative to the City achieving sustainability –Relieve the City’s reliance upon organic property tax revenue growth –Develop significant, sustainable, new revenue sources
•EIFD Financial forecasts are reasonable, but lack adequate parametric risk assessment analyses •Present plan probably requires adjustment in timing as well as scope •Plan is attractive given the outside support of County 19 EIFD Fiscal Sustainability Recommendations
•Given the importance of finding the City new
sustainable revenue sources, continue efforts to find
an EIFD plan that “closes”
•Perform recommended risk mitigation tasks to
possibly support adjusting the timing and scope of
the project
•Work with partners to ensure continued support and
overcome non-financial obstacles given possible
changes to plan
20 Synergistic Fiscal Sustainability
Recommendations
•Fiscal sustainability can not be properly assessed given the present state of the City’s Capital Improvement
Program forecasting
–Present methodology collects project needs and executes projects as funds are available or a crises dictates
–“Whack – a – mole” methodology
•Need to develop a multi-year Capital Improvement
Forecast to determine ability to support identified long- range capital needs
–Provide a capital reserve fund to avoid action dictated by crises –Assess the need for ongoing General Fund support of the Capital Improvement Budget / Capital Reserve Fund
21 Fiscal Sustainability Takeaway
•Generating a Capital Improvement Forecast
will determine if the City has a structural
budget deficit associated with our Capital
Improvement and Infrastructure Needs
•Consider the use of ad-hoc citizen group to
perform a bottom-up review of General Fund
expenditures
–Assess desired level of service adjustments that
would provide General Fund support for Capital
needs
22 Fiscal Sustainability Assessment Process
General Fund Characteristics
Non-Discretionary Schedule Timing
Personnel
Utilities
Debt Service
General Fund Budget Surplus
Measure U
Capital Improvement Characteristics
Discretionary Schedule Timing
Infrastructure Maintenance
Infrastructure Improvement
Discretionary Fiscal
Reserves
General Fund Budget Capital Improvement
Budget
General Fund Forecast Capital Improvement
Forecast
Sustainability is confirmed when balanced forecasts address all identified service needs over the long term while maintaining desired level of fiscal reserves to meet unanticipated circumstances
Questions
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