City Council Memorandum
TO: HONORABLE MAYOR AND CITY COUNCIL DATE: APRIL 26, 2022 FROM: FINANCE DEPARTMENT WARD: 7
SUBJECT: PUBLIC HEARING AND RESOLUTION AUTHORIZING ISSUANCE OF SPECIAL TAX BONDS, SERIES 2022A AND 2022B FOR COMMUNITY FACILITIES DISTRICT NO. 2015-2 (POMELO) IN AN AGGREGATE PRINCIPAL AMOUNT NOT TO EXCEED $6,000,000 AND APPROVING CERTAIN DOCUMENTS AND TAKING CERTAIN OTHER ACTIONS IN CONNECTION THEREWITH ISSUES:
Conduct a Public Hearing and adopt a Resolution authorizing the issuance of the Community Facilities District 2015-2 (Pomelo), Special Tax Bonds, Series 2022A (Tax Exempt) and 2022B (Federally Taxable) in an aggregate principal amount not to exceed $6,000,000, approving the financing team, approving the form of acquisition agreement, and authorizing the execution and delivery of associated financing documents.
RECOMMENDATIONS:
That the City Council:
Conduct a Public Hearing to consider the issuance of the Community Facilities District No. 2015-2 (Pomelo) Special Tax Bonds, Series 2022A (Tax Exempt) and 2022B (Federally Taxable) in an aggregate principal amount not to exceed $6,000,000; and Adopt a Resolution authorizing the issuance of the Community Facilities District No. 2015-2 (Pomelo) Special Tax Bonds, Series 2022A (Tax Exempt) and 2022B (Federally Taxable) in an aggregate principal amount not to exceed $6,000,000; and Approve the financing team, as identified herein, for this transaction and authorize the City Treasurer or any duly authorized designee, to pay the costs of such firms in connection with this financing from CFD 2015-2 Series 2022A and 2022B bond proceeds; and Approve the form of Acquisition Agreement between the City of Riverside, and Friends of the Airport, LLC; and Authorize the City Manager and Chief Financial Officer, or designees, to execute all documents related to the issuance of the Special Tax Bonds for Community Facilities District No. 2015-2 (Pomelo) and the ability to make minor changes to these documents as required to carry out the financing.
BACKGROUND:
On December 1, 2020 the City Council adopted Resolution No. 23650 (Resolution of Intention) with respect to the establishment of Community Facilities District No. 2015-2 (Pomelo). On December 28, 2020 the City held a public hearing and a Special Election of all landowners within the proposed CFD 2015-2 regarding the formation of CFD 2015-2. At the same time, the City adopted a Resolution establishing CFD 2015-2 and a Resolution determining the necessity to incur bonded indebtedness in an aggregate principal amount not-to-exceed $7,000,000.
The Resolution of Formation specified that special taxes (Special Tax A) will be levied on all parcels of taxable value within CFD 2015-2 to pay the principal and interest on any bonds of the District that may be issued and sold to finance the City Facilities, to pay the costs of the design, construction and acquisition of the facilities, and to pay the annual administrative expenses of the City and the District in determining, apportioning, levying and collecting special taxes and paying the principal and interest on the bonds. A Special Tax B will also be levied on all parcels of taxable value within CFD 2015-2 to pay for services related to the maintenance and repair of City owned facilities within the District, including parks, flood and storm protection district, street, roadways, and traffic signals, as well as Public Safety services.
DISCUSSION:
The Developer of CFD 2015- 1 requested the City sell bonds to reimburse them for expenses related to the formation and facility improvements associated with CFD 2015-2. The development is almost 100% completed and market conditions are advantageous for a cost- effective bond sale. CFD 2015-2 contains 108 parcels. Such a small ownership pool makes the risk of default due to delinquency higher than in a CFD containing at least 150 parcels. To mitigate this default risk, staff recommends the formation of a Special Reserve fund. The Rate and Method of Apportionment (RMA), approved at formation, allows the City to levy a Special Tax on each taxable property within the CFD once a building permit has been issued. The City of Riverside first levied CFD 2015-2 in Fiscal Year 2021 based on this method. Funds levied prior to bond sale will be used to establish this Special Reserve fund to offset any risk of shortfall due to delinquent Special Tax payments.
The Form of Acquisition Agreement (Attachment 9) between the City of Riverside, Friends of the Airport, LLC provides for the levy of Special Taxes, and the issuance and sale of the Bonds of the District secured by those Special Taxes. The agreement outlines the representations, covenants and warranties of the owners, including the requirement to disclose the special tax to all prospective purchasers within CFD 2015-2 (Pomelo), and outlines the eligible uses of the Special Tax.
Financing Team
The Financing Team for this transaction consists of City staff from the Finance Department, CSG Advisors, Inc serving as the Financial Advisor, Stradling, Yocca, Carlson & Rauth, acting as Bond and Disclosure Counsel, and Raymond James & Associates, Inc. serving as Underwriter, selected based on their response to a competitive request for proposal. The total cost of issuance will be paid from bond financing proceeds.
Kitty Siino & Associates, Inc. conducted an Appraisal dated January 31, 2022 (Attachment 3) of certain land and existing improvements within the District to provide an estimate of the market value of the land and improvements. The Appraisal Report provides an estimate of the approximate market value of the "as-is" condition of the property in the District subject to the levy of Special Taxes, assuming that development of the property as currently planned will consist of 108 single family detached residential units. The Appraiser concluded that the minimum market value of all of the parcels within the District subject to the Special Tax was $43,440,401 as of December 15, 2021 the "Date of Value"). If the Appraisal needs to be updated for investors due to the elapse of time between assessment and bond sale, a Supplemental Appraisal Report can be prepared bringing the date of value forward.
Good Faith Estimates
On October 9, 2017, Senate Bill 450 (SB 450) added Section 5852.1 to the California Government Code. SB 450 requires, prior to issuance of bonds, a public agency disclose in a public meeting good faith financing estimates provided by an Underwriter, Municipal Advisor or private lender. These estimates include: a) the True Interest Cost of the bonds; b) the total finance charge of the bonds equal to the sum of all fees and charges paid to third parties; c) the amount of estimated bond proceeds minus the total finance charge of the bonds, and any reserves funded from proceeds of the bonds; and d) the total payment amount. The total payment amount should be calculated to the final maturity of the bonds. The attached Resolution of Issuance (Attachment 1) Appendix A contains the details of the Good Faith Estimate, prepared by Municipal Advisor, CSG Advisors, Inc., in consultation with Underwriter Raymond James & Associates, Inc.
The table below provides the estimated total finance charges associated with the bond issuance, based on estimated fees.
Estimated Cost of Issuance
Series 2022A/B Bonds
Bond/Disclosure Counsel (Stradling)
$75,000
Financial Advisor (CSG)
25,000
Property Appraiser (Siino)
18,000
Trustee (US Bank)
6,500
Underwriter (Raymond James) – includes Counsel
47,000
Special Tax Consultant (Webb)
25,000
Printer
3,500
City Administration
15,000
Contingency
5,000
Total
~$220,000
STRATEGIC PLAN ALIGNMENT:
This item contributes to Strategic Priority No. 5 High Performing Government Goal No. 5.3 – Enhance communication and collaboration with community members, to improve transparency, build public trust, and encourage shared decision-making.
This item aligns with EACH of the five Cross-Cutting Threads as follows:
Community Trust – The formation of a Community Facilities District provides a transparent and equitable way to finance, administer, and report on specific infrastructure and services related to new development.
Equity – CFD 2015-2 (Pomelo) shares the cost of infrastructure and maintenance services among each property owner and spreads the cost long-term across the generations of property owners that benefit from it.
Fiscal Responsibility – Payment of the Community Facilities District financing is paid over the term of 30 years through Special Tax, ensuring the cost of the service is borne by those that benefit directly from it.
Innovation – Utilizing Community Facilities Districts is an innovative way to plan and direct revenue to directly support each new development.
Sustainability & Resiliency – Adding a Services Special Tax B offsets the cost to maintain the financed facilities well into the future.
FISCAL IMPACT:
There is no fiscal impact to the City of Riverside. The cost of financing, staff administration, and the debt service on the bonds will be paid through Special Tax revenue levied on CFD 2015-2 (Pomelo).
Prepared by: Heidi Schrader, Debt and Treasury Manager
Certified as to
availability of funds: Edward Enriquez, Chief Financial Officer/Treasurer Approved by: Kris Martinez, Assistant City Manager
Approved as to form: Phaedra Norton, City Attorney
Attachments:
Resolution of Issuance
Bond Indenture
Appraisal Report
Preliminary Official Statement
Continuing Disclosure Certificate
Bond Purchase Agreement
Presentation
Public Hearing Notice
Acquisition Agreement
CFD 2015-2 (Pomelo) Bond Sale