Item Number: 13
City Council / Board of Directors
Written Communications
Meeting of: May 7, 2024
Submitted By:
Jenele Davidson, Deputy City Manager
Subject:
Citywide Community Facilities District (CFD) Presentation Recommendation:
This item is for informational purposes only and does not require City Council action.
Fiscal Impact:
There is no fiscal impact at this time. Once the CFD is formed and Special Taxes begin, two separate funds will be created, one for the Citywide CFD – Public Safety and one for the Citywide CFD – Maintenance. Moving forward, future residential and non-residential properties would be required to annex into the Citywide CFD as part of their project conditions.
Strategic Plan Goal:
The City Council adopted the updated Strategic Plan with seven overarching goals to be completed between 2023 and 2026 and various strategies aimed to achieve these goals.
Goal A is Financial Sustainability and Strategy 5 is focused on exploring the potential creation of a Community Facilities District (CFD) or other financing mechanisms for installation, operation and maintenance of various public improvements. This item and presentation are the first step in establishing a CFD to finance operations for public safety and maintenance services. Implementing a Citywide CFD will help alleviate the financial burden on the General Fund by addressing future impacts of new development on public safety and maintenance services.
Background:
The City’s Strategic Plan was last updated in August 2023, outlining goals for the next three years. Among them, Goal A is Financial Sustainability, was carried forward from the 2020 Strategic Plan and intended to ensure fiscal health through disciplined long-term planning, cost control, increased revenues, and cost recovery. As staff continue to evaluate the City’s needs and expense obligations for each of the funds it manages, 3 5
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unique funding mechanisms are analyzed to determine the feasibility of using other financial instruments to accomplish the City's financial goals.
In December 2021, staff began exploring CFDs and the possibility of forming a district within the City to require new development to mitigate the cost associated with the provision of additional municipal services attributable to such development. A CFD falls under the Mello-Roos Community Facilities Act of 1982 (Mello-Roos Act) and is a special tax district formed when a property owner(s) within a geographic area agree to impose a tax to fund infrastructure improvements and/or services.
The Mello-Roos Act authorizes the City to establish a CFD to finance certain public services through the levy of a special tax. The services that can be financed by a CFD under the Mello-Roos Act include the following:
•Police protection services, including, but not limited to, criminal justice (limited to providing services for jails, detention facilities, and juvenile halls). •Fire protection and suppression services, ambulance and paramedic services. •Recreation program services, library services, maintenance services for elementary and secondary school sites and structures, and the operation and maintenance of museums and cultural facilities (these services can be funded only with a registered voter election or a non-residential district). •Maintenance and lighting of parks, parkways, streets, roads, and open spaces. •Flood and storm protection services, including, but not limited to, the operation and maintenance of storm drainage systems, plowing and removal of snow, and sandstorm protection systems.
•Services with respect to removal or remedial action for the cleanup of any hazardous substance released or threatened to be released into the environment. •Maintenance and operation of any real property or other tangible property with an estimated useful life of five or more years that is owned by the local agency or by another local agency (by agreement).
To a degree, this is very comparable to the annexation requests we routinely facilitate on behalf of developers when they choose to self-impose and seek to be a part of maintenance assessment districts such as a Landscape Maintenance Assessment District (LMAD). The tax must have a reasonable relationship to the improvements and/or services the district will fund. With limited experience with CFDs, staff determined it would be best to retain the services of an experienced consulting firm to help better understand the process and evaluate the feasibility of citywide CFD.
After extensive evaluation as part of the procurement process, the City brought on Webb Municipal Finance, LLC in July 2022, to help the City navigate the feasibility of a Citywide CFD, the formation process and annexation process.
Additionally, in August 2022 staff proactively began adding a development condition requiring that, should a Citywide CFD be formed, new developments must annex into the 3 5
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City’s CFD. The written condition included among the conditions of approval for new development reads as follows:
“The proposed development is required to mitigate its ongoing economic impacts that require the provision of additional municipal services. To mitigate ongoing economic impacts created by new development, the City is preparing to form a Community Facilities District (CFD) to fund the ongoing costs of City services permitted by the CFD, including such services as public safety, street/sidewalk maintenance, and other eligible service impacts. Once formed, the City CFD will have established a uniform, standardized City-wide rate structure that will apply to new developments as a condition of development approval. If the City forms said CFD prior to the recordation of a final map or issuance of a building permit for the proposed development, the Developer shall annex the subject site into the CFD or shall establish a funding mechanism to provide an ongoing source of funds for the additional services comparable to the uniform standardized City-wide rate established in the CFD Resolution and associated Financial Impact Analysis report.”
The use of a Citywide CFD for new development only, particularly a CFD maintenance levy, will allow the City to collect a dedicated form of revenue to cover the lifelong economic impacts of such development. The most impactful example used to illustrate lifelong economic impacts may be neighborhood streets. For existing residential tracts, neighborhood streets require maintenance to help maintain a roadway’s life expectancy by conducting maintenance such as crack sealing, slurry seals, or pavement overlays, with the intent that such maintenance efforts can help avoid a more costly reconstruction effort.
Considering the aforementioned neighborhood roadway maintenance effort, the maintenance of the entire roadway system, which includes neighborhood streets is paid for from either Gas Tax or Measure I funds. As our Community grows, and more streets are built, the lifelong maintenance effort for those new roads will cost an amount we believe is exponentially greater than the growth rate for Gas Tax and Measure I funds.
Said differently, the new roads built by new development will have to compete for a finite amount of money generated in Gas Tax/Measure I that must also be spent to maintain the already existing (+/-) 450 miles of roadway found in the City.
Discussion:
Today’s presentation is to bring forward the feasibility of a Citywide Annexable CFD with two components, a maintenance services component and a public safety services component. Through our CFD consultant, Webb Municipal Finance, staff is presenting an alternative funding source for future City services related to:
•Landscaping – Hardscape and Softscape
•Streets/Roads
•Parks
•Drainage – Catch Basins, Under Sidewalk and Box Culverts 3 5
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•Traffic Signals – 25% not included in the Street Lighting Assessment District •Graffiti Abatement
•Public Safety – Police, Fire and Code Enforcement (excluding animal services) The maintenance services and public safety services special taxes would apply to both residential and non-residential properties and the assessment will be collected through the annual property tax collection process. Each development will have a unique assessment based on their development’s design.
Attachment A is an example residential property tax breakdown, based on an average home price of $423,000. With the addition of the two proposed special tax components, combined with the other existing property tax assessments, the annual property tax rate is still under the 2% property effective tax rate cap. It is important to note that, in the case of residential development, annexation into the Citywide CFD would be in lieu of annexation into other existing maintenance assessments districts for landscaping, drainage and park maintenance.
As part of this exercise, Webb Municipal Finance has put together two sample project cost sheets for a residential development with 319 single family homes and for a 66-acre non-residential property. Residential developments are assessed on a per unit basis for single family homes and non-residential developments are assessed based on a per-acre rate. Attachment B highlights the associated costs based on the development design for the aforementioned sample projects.
Our consultant, Webb Municipal Finance, is here to present the analysis that has been conducted, answer any questions the Council may have and receive feedback before finalizing the proposed Citywide CFD.
The next step in establishing the Citywide CFD will be to identify a project/developer to form the annexable CFD, which we expect to bring to the Council for consideration in the coming months.
Staff and the consultant are available for any questions the Council may have.
Attachments: A. Residential Property Tax Assessment Example B. Development CFD Assessment Cost Sheet Examples