Item Number: 3
City Council / Board of Directors
Public Hearing(s)
Meeting of: December 17, 2024
Submitted By:
Jenele Davidson, Deputy City Manager
Subject:
Formation of Community Facilities District No. 2024-01 for Municipal Services Recommendation:
Staff recommends that the Honorable City Council:
(1) Adopt Resolution No. 24-102 – Resolution of Formation, forming CFD 2024-01 and setting an election for December 17, as requested by the property owners; (2) Adopt Resolution No. 24-103 – Resolution Certifying the Election Results, upon the City Clerk’s opening of the sealed ballots that have been received; (3) Open and Conduct the Public Hearing to hear arguments for and against the adoption of Ordinance No. 2453, to allow for the levy of special taxes for CFD 2024-01; (4) Close the Public Hearing;
(5) Introduce Ordinance No. 2453 for adoption and first reading by title only; (6) Waive further reading in full of proposed Ordinance No. 2453; and (7) Adopt Resolution No. 24-107, establishing Council Policy CP-24-06 for administration of CFD 2024-01.
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. This cost escalator has been derived as the maximum allowable amount due to the cost increases the City has experienced in expenses related to public safety and maintenance costs.
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 to the CFD. The City 3 9
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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 9
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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 (TM 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 maintain in perpetuity. This infrastructure includes items such as roads, landscaping, 3 9
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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.
On November 19, 2024, staff brought forth a public hearing item, to hear arguments related to the formation of the CFD and receive any property owner protests; adopt Resolution No. 24-102, forming the special district and establishing a date for the election; 3 9
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adopt Resolution No. 24-103, certifying the election results after the City Clerk opens the ballots received; and adopt Ordinance No. 2453, allowing for the levy of the special taxes.
Council opened the public hearing, received testimony and did not receive any ballot protests from the owners during the public hearing. Once the public hearing item was closed, Council moved to their vote on Resolution No. 24-102, Resolution of Formation and setting an election date, which ended with failed motion of 3-2. Later during Agenda Item No. 29 – Discussion and Possible Action Regarding Upcoming Agenda Items, there was discussion regarding suspension of the rules of the City Council Policy and Procedure Manual related to reconsideration of the item, but there was no affirmative vote to reconsider the item at that time.
On November 26, 2024, a Special City Council meeting was held during which the Council took action to suspend the rules in accordance with the City Council Policy and Procedure Manual, Chapter 5, Section II, Subsection M. After the suspension of the aforementioned rule, further action was taken by the Council to reconsider the Formation of Community Facilities District No. 2024-01 to provide Municipal Services as part of the agenda at the Regular City Council Meeting of December 17, 2024.
Discussion:
Moving forward in accordance with the Council’s decision at the November 26 th Special City Council meeting, staff is bringing forth the item that was heard on November 19, 2024, absent the public hearing to receive protests from the property owner, as the public hearing was completed on November 19, 2024, and no protests were received from the property owners.
Today, Council is considering the following items:
•Resolution No. 24-102, Resolution of Formation and calling for an election to be held after the adoption of this resolution, as requested by the property owners and included in the signed waivers from the property owner. •Opening the election ballots from the property owners, and should the ballots be in favor of forming CFD 2024-01, Council would adopt Resolution No. 24-103, certifying the election results.
•Conducting a public hearing to hear arguments for and against Ordinance No. 2453, closing the public hearing, introducing Ordinance No. 2453 for adoption and first reading by title only and waiving further reading in full. •Consideration and adoption of City Council Policy, Resolution No. 24-107, establishing CP-24-06, which outlines the annual administrative process for CFD 2024-01.
Resolution of Formation
Changes to the Rate and Method of Apportionment
The Resolution of Formation establishes the formation of CFD 2024-01, the future annexation area, authorizes the levy of the special tax, and calls for an election of the property owners of the district to levy the special taxes as outlined in the Rate and Methods of Apportionment (RMA), which was adopted as Exhibit C to Resolution No. 24- 3 9
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092, at the October 15, 2024, City Council meeting. As determined by the Mello-Roos Act, minor updates may be allowed between the adoption of the Resolution of Intention and the adoption of the Resolution of Formation, such as providing further clarity of definitions and being more restrictive in applicability than originally proposed. However, changes to the RMA such as increases to the escalators or changes to the rate and method of collection are substantive changes that are not permitted.
The RMA had two minor definition updates from the time Council approved the Resolution of Intention to the Resolution of Formation:
1. Added a definition for Accessory Dwelling Unit – “Accessory Dwelling Unit” or “ADU” means an attached or a detached residential dwelling unit that provides complete independent living facilities for one or more persons and is located on a lot with a proposed or existing primary residence pursuant to California Government Code Section 65852 et seq.
2. Updated the definition for Residential Unit – “Residential Unit” or “R/U” means a residential unit that is used or intended to be used as a domicile by one or more persons, excluding Accessory Dwelling Units, as determined by the Administrator.
No other changes occurred between the Resolution of Intention and the Resolution of Formation. As such, the CFD Special Taxes are only applicable to new development projects that go through the City’s Entitlement process and are conditioned to annex into the CFD or otherwise mitigate their economic impacts. All ADUs are exempt from the special taxes and annexing into the CFD.
Levy of Special Taxes as outlined in the Rate & Method of Apportionment Special Tax A for Public Safety is a set rate per Taxable Unit for residential property and per Building Square Footage (BSF) for non-residential property, as seen in Table 1 of the RMA and shown below.
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These rates would be applicable to all properties that are considered developed property and have both a final recorded map by January 1 st of the preceding fiscal year and a building permit for new construction issued prior to June 1 st of the preceding fiscal year.
The maximum allowable levy amount is not allowed to exceed the percent change in CPI or five percent, whichever is greater. Special Tax A is only applicable to Developed Property.
Special Tax B for maintenance services, may be applicable to Developed Property, Approved Property and Undeveloped Property, dependent upon what the City would be required to maintain. As different stages of developments may require the City to begin maintaining items, the Mello-Roos Act allows for the collection of these taxes, subject to what maintenance will be required for the City. Each development will have its own tax district for Special Tax B, as each project will have its own unique maintenance requirements. Such maintenance requirements would be outlined in the annual report that staff will bring forth each year and showing the nexus for the collection of Special Tax B and the reason why Developed Property, Approved Property or Undeveloped Property will be taxed. Tables 2-4 of the Resolution of Intention outline the rate of taxation specific to TM 14525 for each land use category.
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In similar fashion to the escalator for Special Tax A, the maximum allowable levy amount for Special Tax B is not allowed to exceed the percent change in CPI or five percent, whichever is greater.
Proposed Boundary, Future Annexable Area and Project Applicability The Resolution of Formation also outlines the proposed boundary map for TM 14525 and the future annexation area, as allowed by the Mello-Roos Act. The future annexation area encompasses the City’s boundary.
Projects that have been conditioned to annex into the CFD or otherwise mitigate their economic impact are exempt from this requirement if they meet one of the following criteria prior to December 17, 2024:
1. Have recorded final maps with active building permits;
2. Have recorded final maps without active building permits; or
3. Have recorded final maps but still need a subdivision design plan (SDP).
If a project was conditioned to annex into the CFD or otherwise mitigate their economic impact and has a tentative tract map but not a recorded final map as of December 17, 2024, they would be required to annex into the CFD (if the CFD is formed on December 17), if the Developer does not have an alternative funding mechanism to provide for these services, such as a Homeowners Association (HOA).
The Community Facilities District (CFD) Report
Webb has provided the CFD report that summarizes that the City has been petitioned to form a CFD by property owners in accordance with the Mello-Roos Act. The report summarizes the Council’s action that took place on October 15, 2024, with the adoption of the Resolution of Intention along with the description of Services to be provided by the CFD, the cost estimate for services and administrative expenses for both Special Tax A and B, a description of the proposed development that has petition to form the CFD, the future annexable area, the rate and method of apportionment that was adopted in the Resolution of Intention and listed as Appendix A to the report. This report is required to be provided to the to the Council as outlined in the Mello-Roos Act. This report was provided as part of the Public Hearing on November 19, 2024, which was opened, received testimony and was closed with no protests received from the property owners.
The report will be ratified as part of the Resolution of Formation.
Setting the Date for the Special Election of Property Owners Given there was no majority protest from the property owners at the public hearing on November 19 th, and Council has conducted all precursory requirements for the establishment of the CFD pursuant to the Mello-Roos Act, a special election of the property owners is required within 180 days, unless waivers are received from the property owner waving this period of time. The City has received waivers from the property owners of TM 14525 waiving this time period and setting a special election for December 17, 2024. Should Council choose to move forward with staff’s recommendation 3 9
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and in accordance with the waiver’s received from the property owner, the election will occur after the adoption of the Resolution of Formation.
Property Owner Special Election
The City Clerk, as directed in the adopting of Resolution of Formation, sets the special election date of December 17, 2024. The City Clerk shall conduct the election, opening the sealed mailed in ballots from the property owner and then certify the election results.
Resolution No. 24-103 certifies that the election was approved by more than a 2/3rds vote of the property owners within the proposed project area, the Council is allowed to levy the special taxes, and within 15-days of the adoption of the Resolution, a notice of special tax lien will be filled with San Bernardino County Assessor-County Clerk Recorders office.
Public Hearing for Ordinance No. 2453
As required by City policy, a public hearing is required for all ordinances. This public hearing is not a requirement of the Mello-Roos Act but adoption of an ordinance for the City in its capacity as the legislative body for CFD 2024-01, an ordinance authorizing the levy of special taxes within CFD 2024-01, is required by the Mello-Roos Act.
This is the final requirement for establishing the CFD pursuant to the Mello-Roos Act.
Resolution No. 24-092 the Resolution of Intention was adopted at the October 15, 2024 meeting; a public hearing was held on November 19, 2024, and no property owner protests were received; and if Council moves forward with staff’s recommendation and adopts Resolution No. 24-102 - Resolution of Formation; holds the election and receives affirmative ballots from the property owners; adopts Resolution No. 24-103 – Certifying the Results of the Election in the CFD; the last step per the Mello-Roos Act as outlined in Sections 53328 and 53340, is to adopt an ordinance authorizing the levy of the special taxes for CFD 2024-01.
The special taxes will be levied in accordance with RMA and beginning July 1, 2025 for Fiscal Year 2025-2026. Each year, prior to August 10, the City Manager or his designee is responsible for providing the required items to the County to collect the special taxes through the annual property tax collection process. Should Council move forward with the implementation policy, the City Manager will bring forth the annual CFD report, CFD budget and recommended CFD levy amount that will ultimately be up to the Council on what amount is levied with a cap on the maximum allowable amount. The City Clerk will provide a certified copy of the ordinance to the San Bernardino County Assessor and Treasurer-Tax Collector and the ordinance will take effect 30 days following its final passage. The second reading for Ordinance No. 2453 would be scheduled for January 21, 2025, should Council move forward with staff’s recommendation.
Council Policy CP-24-06 – Victorville CFD 2024-01
As a direct result of Council comments provided in relation to the November 19, 2024, public hearing item, Council Policy CP-24-06 has been drafted for Council consideration to provide additional clarity regarding the administration of the CFD. As this policy would be adopted solely at the discretion of the Council, it can also be amended via resolution in the future if desired by the Council.
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As currently drafted, the policy outlines implementation of the CFD, applicability of projects, exemptions, the calculation of the annual maximum levy for Special Tax A and Special Tax B, as well as the annual process for City Council review and approval of the enrolled levy. Staff believe that the policy captures what has been previously communicated with the Council and stakeholders relative to the intended implementation of the CFD, should it be formed.
Conclusion
This CFD allows the City to have a standardized funding option for developers to mitigate the ongoing economic impacts created by new development. A developer is not required to annex into the CFD, but they are required to provide a way to mitigate these ongoing economic impacts.
The property owners of TM 14525 have petitioned the City to form this CFD as the property owners are choosing to utilize the CFD to mitigate the ongoing economic impacts from their development.
Should Council move forward with staff’s recommendation, this CFD will be an available option that other developers can choose to utilize. Staff will bring forth an item annually, as outlined in Council Policy CP-24-06, for the City Council to review and ultimately decide on the amount to be levied each year.
Staff recommends adopting Resolution No. 24-102, forming CFD 2024-01 and setting an election date of December 17, 2024; allowing the City Clerk to open and tally the ballots received for the election; and adopting Resolution No. 24-103, certifying the election results. After the adoption of Resolution Nos. 24-102 and 24-103, it is further recommended that the Council open the public hearing to receive testimony for Ordinance No. 2453, introduce Ordinance No. 2453 for adoption and first reading by title only, waive further reading in full of Ordinance No. 2453, and adopt Resolution No. 24-107, establishing Council Policy CP-24-06, which outlines the annual administrative process for CFD 2024-01.
Staff are available for any questions you may have.
Attachments: A. Resolution No. 24-102
B. Resolution No. 24-103
C. Ordinance No. 2453
D. Stakeholder Letter
E. Resolution No. 24-107