Item Number: 2
City Council / Board of Directors
Public Hearing(s)
Meeting of: November 19, 2024
Submitted By:
Jenele Davidson, Deputy City Manager
Subject:
Public Hearing on the Formation of Community Facilities District No. 2024-01 to provide Municipal Services
Recommendation:
Staff recommends the Honorable City Council:
(1) Open and conduct the public hearing for the purpose of receiving public testimony and property owner protests regarding the formation of the proposed CFD 2024- 01 for Municipal Services;
(2) Close the public hearing;
(3) Adopt Resolution No. 24-102 forming Community Facilities District No. 2024-01 of the City of Victorville (Municipal Services) (“CFD 2024-01”), authorizing the levy of special taxes therein, and calling an election;
(4) Tabulate the ballots for the Formation of Community Facilities District No. 2024- 01;
(5) Adopt Resolution No. 24-103, certifying the results of a special election in the Community Facilities District No. 2024-01 of the City of Victorville (Municipal Services) (“CFD 2024-01”);
(6) Introduce Ordinance No. 2453, for adoption and first reading by title only; and (7) Waive further reading in full of proposed Ordinance No. 2453.
Fiscal Impact:
Establishment of CFD No. 2024-01 will allow for the levy of special taxes to pay for vital municipal services. In addition, CFD No. 2024-01 municipal services taxes will have an annual maximum allowable increase by either the percentage change in the Consumer Price Index (CPI) for the calendar year ending in December of the prior year or five percent (5%), whichever is greater, to ensure that the increased cost of providing services is adequately mitigated. Additionally, though not legally required per the Mello-Roos Act, staff will conduct an annual analysis to determine the need for, and amount of, any proposed annual escalator, not greater than the maximum allowable amount to be applied 3 8
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to the CFD. The City Council will be the approving authority on the annual levy amount, similar to the current process for assessment districts and other rate increases. In other words, the amount that will be levied each year will be determined by the City Council, subject to the not to exceed maximums.
Two separate funds will be created, one for each component of the municipal services associated with the Community Facilities District (CFD): Citywide CFD – Public Safety (Special Tax A) and Citywide CFD – Maintenance (Special Tax B). Following the formation of the CFD, new residential and non-residential projects will be able to annex into the Citywide CFD as a means to satisfy their project conditions of approval.
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.
Under Goal A, Financial Sustainability, Strategy 5 is focused on exploring the potential creation of a CFD or other financing mechanisms for operation and maintenance of various public improvements. If approved, this item will form a Citywide services CFD and allow future development projects to annex into the CFD. Implementing this new 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, unique funding mechanisms are analyzed to determine the feasibility of using other financial instruments to accomplish the City's financial goals.
These goals include ensuring there is a funding mechanism for infrastructure that is brought forth by new development and the City’s perpetual maintenance obligation. The current options for mitigating the cost of additional municipal services for new development include, annexing into or forming a Landscape Maintenance Assessment District (LMAD), Drainage Facilities Assessment District (DFAD), Maintenance Assessment District (MAD), Street Light Assessment District (SLAD), or the development may form its own Homeowners Association (HOA). However, the maintenance districts allowed under the Landscape and Lighting Act of 1972 do not cover road maintenance and graffiti abatement, two maintenance items that will be covered under the proposed new services CFD for maintenance.
In December 2021, staff began exploring CFDs and the possibility of forming a district within the City as one means 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 3 8
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is a special tax district formed when property owner(s) within a geographic area agree to impose a tax to fund infrastructure improvements and/or services.
The Mello-Roos Act, California Government Code Section 53311 et seq., 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). •Public Safety as it relates to code enforcement.
•Fire protection and suppression services, ambulance and paramedic services.
•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.
•Operation of library and recreation programs.
•Operation of future museums and cultural facilities.
•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).
With the help of the City’s CFD Consultant, Webb Municipal Finance, LLC (Webb), the City developed and applied a new condition of approval to all applicable project entitlements beginning in August of 2022, requiring projects to mitigate their ongoing economic impacts that require the City to provide additional municipal services, either through annexation into a citywide services CFD if one was formed by the City, or by an alternate, comparable funding mechanism.
In May 2024, Webb and City staff provided an overview of what a Citywide CFD would look like, what the tax rate might be given the estimated property values in the City, and the next steps required to move forward in the process.
The next step in forming the Citywide CFD was to find a development project that was at a point within the development process where a tract map was nearly ready to record with developers willing to form the CFD. Staff worked with a variety of developers to ensure that a viable project would form the CFD.
CFD No. 2024-01 will be formed as a Citywide annexable CFD, and all future developments will be required to annex into CFD No. 2024-01 or another comparable funding mechanism to pay for certain City services.
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The initial project proposing to form CFD No. 2024-01 is Tract Map 14525 and comprises Tax Zone 1. The project is proposed to be residential use with 312 units and will be constructed on approximately 116.79 acres within the City’s limits.
CFD No. 2024-01 Municipal Services Special Taxes will be used to pay for eligible City services including public safety services; street and road maintenance; and the operations, maintenance and lighting of parks, parkways, streets, roads and open space and other authorized services specified in Government Code Section 53313 that the City will provide to this project area. Special Tax A will be for public safety services and Special Tax B will be for Maintenance Services, referenced as the CFD Special Taxes.
On October 15, 2024, the City Council accepted the petitions from the property owners of Parcel No. 0473-163-12 and Parcel No. 0473-181-27, requesting the initiation of formation for CFD 2024-01, to finance certain ongoing municipal services. As such, the City Council adopted Resolution No. 24-092, authorizing the intention to establish CFD 2024-01 to levy special taxes for municipal services with a public hearing date set for November 19, 2024. Resolution No. 24-092 explained the process to which a CFD must adhere, together with the rate and method of apportionment, establishing the tax rates to which the aforementioned properties would be subject, once building permits have been issued.
There are two components of the proposed CFD: Special Tax A for Public Safety and Special Tax B for Maintenance Services. Special Tax A is a general benefit tax of $525.35 per taxable unit of residential property. This will cover expenses related to the impact of new development for Police, Fire, and Code Enforcement services. The fully burdened rate to provide these services to a new taxable unit (or new dwelling unit) is $1,830.29.
This rate represents the full cost the City takes on for each new single-family residence, which is currently being borne entirely by either the City’s General Fund and/or Measure P fund.
As part of the cost-of-service analysis, a review of General Fund and Measure P expenses to provide these services was conducted, and in the last ten years public safety has comprised between 65-80% of General Fund and Measure P expenses. This fluctuation is due to the discretionary funding needs in other areas such as Animal Services and Sheltering, Homelessness Solutions, Parks, Recreation, Facilities and Library services. This analysis led to discussions amongst City staff with Webb regarding a fiscally responsible way to apply various revenue streams to offset the fully burdened rate of $1,830.29. As a result, staff are proposing to apply a cumulative revenue allocation of 71.3%, or $1,304.94, to offset the tax burden for new homeowners while also helping to ensure there is not a decline in the quality of life for residents due to an increase in the populace, as well as to prevent situations like the City’s current challenge with underperforming LMADs.
Special Tax B makes up the maintenance component of CFD No. 2024-01. This rate will change, depending on what infrastructure the developer brings forth that the City must 3 8
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maintain in perpetuity. This infrastructure includes items such as roads, landscaping, sidewalks, traffic signals, storm drains, and parks. Graffiti abatement services is also included as a flat cost per new dwelling unit. The size of a development and the quantity of the aforementioned items within the proposed development will dictate the Special Tax B rate. The maximum tax rate for Special Tax B for Tax Zone 1 is $165.47 per single- family residential unit.
Alternatively, developers have the option to mitigate the impacts of new development through creating a Homeowner’s Association (HOA), or an alternative method, that is subject to the City’s approval to ensure the developer is mitigating impact on City services and infrastructure that new development causes. Thus, future development may choose not to annex into CFD No. 2024-01, but an alternative plan must be presented to the City for approval.
Additionally, at the October 15th meeting, the City Council requested that staff meet with the Building Industry Association of Southern California, Inc. (BIASC) and the High Desert Association of REALTORS (HDAR) to continue discussions of the concerns the stakeholders brought forth in relation to affordable housing and the assumptions that went into the rate and method of apportionment.
On October 25, 2024, City staff met with members of the BIASC, HDAR, and developers to discuss their concerns as presented at the October 15th meeting and to address follow up questions received via email. The meeting included a discussion of implementation and applicability of the CFD for different development types and at different development milestones; the calculations and assumptions utilized for the model for the proposed CFD; and state housing laws and affordability concerns. The City Council was copied on a November 6, 2024, letter of response to BIASC and HDAR which summarized the matters discussed (Attachment D). Since that time, no new or additional information has been presented by stakeholders for consideration as of the date of this staff report was drafted.
At the suggestion of HDAR, staff also met with a representative from the Apartment Association of Greater Los Angeles (AAGLA) to discuss the proposed CFD, the annual escalator, and any concerns they may have, especially as related to the limitations on increasing rental rates under Assembly Bill (AB) 1482. The conversation resulted in the representative indicating an understanding of what the CFD aims to achieve and acknowledging a developer’s option to seek alternatives such as forming an HOA in lieu of participating in the City’s CFD. No concerns were expressed specific to the proposed annual escalator or issues with the same as related to AB 1482.
Although this discussion has been focused mostly on the tax impact to single-family residential development, CFD No. 2024-01 will be applicable to all future development and includes rates, or the means of calculating the rates, for multi-family and non- residential uses.
Discussion:
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In accordance with the strategic plan goals and strategies previously adopted by the City Council, staff have determined the feasibility analysis of forming a Citywide CFD as a standardized means for new development projects to mitigate their ongoing economic impacts that require the City to provide additional municipal services. A Citywide CFD will help alleviate the financial burden on the General Fund and Measure P by providing funding to offset the increased cost of municipal services created due to new development for public safety, road maintenance, parks, landscaping, storm drain and graffiti abatement.
To fund the impact of new development for Tract Map 14525, the property owners provided petitions requesting to initiate the process to form CFD No. 2024-01. As part of the formation process, the Proposed Boundary Map and Future Annexation Area Map were filed with the San Bernardino County Recorder’s office within 15-days of the public hearing. Additionally, a Notice of Public Hearing (NOPH) was mailed to the property owners on November 4 th, 2024, and was published in Valley Wide Newspaper on November 8th, 2024.
The City Council must now hold a public hearing to hear testimony for and against the formation of CFD 2024-01 and tabulate the property owners’ ballots to authorize the levy of the special taxes therein and approve the annual appropriation amount. The election requires at least two-thirds approval by the property owners within the boundaries of the CFD. If the propositions pass, the property owners will be required to pay annual special taxes for CFD 2024-01 beginning on July 1, 2025, if a property has building permits issued, as described in the Rate and Method of Apportionment.
If the ballots are in favor of forming CFD No. 2024-01 (approved by more than a two- thirds vote of with qualified electors), staff recommends that the City Council approve Resolution No. 24-102 - Resolution of Formation (ROF) and Resolution No. 24-103 – Certifying Election Results, and Ordinance No. 2453.
The ROF establishes the annual levy of special taxes, the future annexable area and ratifies the Community Facilities District Report (CFD Report). Each year, the City Manager or his designee will bring forth an annual report and recommendation for the levy based on a cost-of-service analysis, prior to August 10 th of each year. The annual levy cannot exceed 5% or CPI (whichever is greater) as the maximum ceiling for the rates, and the final levy amount will be set by the City Council. The City will have the ability to levy the assessments beginning in Fiscal Year 2025-2026, if any properties are at the point the special taxes can be levied (if building permits have been issues).
Resolution No. 24-103 certifies the election results from the ballots that the City Clerk received for this special election to form the CFD and levy the special taxes. The City Clerk will open the ballots during the Public Hearing and will certify the results, as referenced in the resolution.
Ordinance No. 2453, authorizes the levy of special taxes within the CFD as required by Sections 53328 and 53340 of the Mello-Roos Act. The formation requirements outlined 3 8
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in the aforementioned act have been followed and the City Council, acting as the legislative body of CFD No. 2024-01, to authorize the levy of special taxes within the CFD.
Similar to the items outlined in Resolution No. 24-102, the City Manager or designee is authorized each fiscal year, prior to August 10 th, to assess and determine a levy for the District, as needed to mitigate the cost of public safety and maintenance services. The taxes will be collected as part of the ad valorem property tax process through the San Bernardino County Assessor and Treasurer-Tax Collector office.
Staff are available for any questions the Council may have.
Attachments: A. Resolution No. 24-102
B. Resolution No. 24-103
C. Ordinance No. 2453
D. Stakeholder Letter