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HomeMy WebLinkAboutRes 05-69 Formation of Mello-Roos Community Facilities District (CFD)CITY OF PALM DESERT STAFF REPORT REQUEST: APPROVAL OF CITY COUNCIL RESOLUTION NO. 05- 69 , ADOPTING A POLICY FOR THE FORMATION OF MELLO-ROOS COMMUNITY FACILITIES DISTRICTS WITHIN THE CITY OF PALM DESERT SUBMITTED BY: DENNIS M. COLEMAN, REDEVELOPMENT/HOUSING FINANCE MANAGER DATE: AUGUST 25, 2005 CONTENTS: RESOLUTION NO. 05- 69 GOALS AND POLICIES Recommendation: By Minute Motion, that the City Council approve Resolution No. 05-69 , adopting a policy for the formation of Mello -Roos Community Facilities Districts within the City of Palm Desert. Executive Summary: Adoption of this policy will comply with the Government Code Section 53312.7 (a) and will allow the City to form Community Facility Districts for the issuance of bonds for public improvements. Discussion: Staff has been working with developers of the University Park to establish a financing district to issue bonds to pay for public infrastructure improvements. The developers wish to utilize a Community Facilities District for this purpose. The Government Code Section 53312.7 (a) states that on or after January 1, 1994, a local agency can initiate proceedings to establish a Community Facilities District after they have adopted local goals and policies that include at least the following provisions: 1) A statement of the priority that various kinds of public facilities shall have for financing; 2) A statement concerning the credit quality to be required of the bond issues; 3) A statement concerning the steps to be taken to ensure that the prospective property purchasers are fully informed about their taxpaying obligations imposed; G ',RDA'Dennis Coleman'DATA1WP%REPORT&CFD Goals and Pohc es cc 82505 wpd Staff Report Approval of City Council Resolution Adopting Goals and Policies for CFD Formation August 25, 2005 Page 2 of 2 4) A statement concerning criteria for evaluating the equity of the tax allocation formulas and concerning desirable and maximum amounts of special taxes to be levied against any parcel; and 5) A statement of definitions, standards and assumptions to be used in appraisals required by Government Code Section 53345.8. The attached Goals and Policies contain the necessary items that govern the formation of a CFD by the City of Palm Desert. This proposed policy has been reviewed by our legal counsel, bond disclosure counsel, and our financial advisors. The policy can be modified, as necessary, at the pleasure of the City Council once adopted. The Investment and Finance Committee reviewed the Goals and Policies and has voted to recommend that the City Council adopt them. Staff recommends that the City Council adopt the Goals and Policies for CFD formation. Submitted By: Dennis M. Coleman Redevelopment Finance Manager DMC:mh Approval: JW McCarthy C Redevelopment Carlos L. Ort Executive Director G'.RDA'Denn,s Coleman1DAiAiWPAEPORrs%CFD Goals and Policies cc 82505 wpd Department Head: David Yrig6ye Director of development ( /,1///z- Paul S. Gibson Finance Director/Treasurer RESOLUTION NO.05- 69 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM DESERT ADOPTING A POLICY FOR THE FORMATION OF MELLO-ROOS COMMUNITY FACILITIES DISTRICTS WITHIN THE CITY OF PALM DESERT RECITALS: WHEREAS, the City Council of the City of Palm Desert (the "City Council") encourages development of commercial, residential and industrial property which result in reciprocal value to the City; and WHEREAS, the City Council will consider developer or property owner initiated applications requesting the formation of community facilities districts to assist these types of development in accordance with the "City of Palm Desert Policies and Procedures for Use of Mello -Roos Community Facilities District Financing" attached hereto and incorporated herein as Exhibit "A" (the "Policies and Procedures"); and WHEREAS, the City Council proposes to undertake proceedings pursuant to the Mello - Roos Community Facilities Act of 1982, as amended, commencing with Section 53311 of the California Government Code (the "Act"), to form a community facilities district; and WHEREAS, the Act provides that the City Council may initiate proceedings to establish a communities facilities district pursuant to the Act only if it has first considered and adopted local goals and policies concerning the use of the Act; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF PALM DESERT DOES HEREBY RESOLVE, DETERMINE, AND ORDER AS FOLLOWS: Section 1. The City Council hereby adopts the Policies and Procedures for the purposes of complying with the Act. PASSED, APPROVED, and ADOPTED this 25th day of August, 2005, by the following vote to wit: AYES: NOES: ABSENTS: ABSTAINS: Buford A. Crites, Mayor ATTEST: Rachelle D. Klassen, City Clerk P6401-103 2'•.827592v l .doc Resolution No. 05-69 EXHIBIT A CITY OF PALM DESERT POLICIES AND PROCEDURES FOR USE OF MELLO-ROOS COMMUNITY FACILITIES DISTRICT FINANCING A-] P6401-103 2`%827592 v l .doc Resolution No. 05-69 GOALS AND POLICIES FOR COMMUNITY FACILITIES DISTRICTS INTRODUCTION Section 53312.7(a) of the California Government Code requires that pursuant to the Mello -Roos Community Facilities Act of 1982 (the "Act") the City of Palm Desert (the "City") consider and adopt local goals and policies concerning the use of the Act prior to the initiation of proceedings to establish a new community facilities district ("CFD") under the Act. The following goals and policies are intended to meet the minimum requirements of the Act, and may be amended or supplemented by resolution of the City Council at any time. GOALS Except as otherwise provided; only those public improvements that benefit the particular development, but also provide a community -wide benefit at large will be considered for financing. Such improvements include, but are not limited to, trunk water, sanitary and storm sewer and related facilities, bridges, major collector or "spine" streets, including related landscaping and lighting, parks, trails, and other recreational facilities, community centers, and fire stations. Unless specifically approved by the Council, whether through its approval of a development agreement or otherwise, in -tract utilities, streets, landscaping and lighting serving individual properties will not be financed in new development, nor will the acquisition of rights -of -way, lands and easements for public improvements for new development be financed. The City shall make the determination as to whether a proposed district shall proceed under the provisions of the California assessment laws or the Act. The City may confer with consultants and the applicant to learn of any unique CFD requirements such as facilities serving the regional area prior to making any final determination. All City and consultant costs incurred in the evaluation of new CFD applications and the applicant(s) will pay the establishment of CFDs by advance deposit. The City shall not incur any non -reimbursable expense for processing CFDs. Expenses not chargeable to the CFD shall be borne by the applicant. ELIGIBLE PUBLIC FACILITIES AND SERVICES Generally, the improvements eligible to be financed by a CFD must have a useful life of at least five (5) years. In some cases, up to five percent of the proceeds of an issue may be used for privately -owned facilities owned and operated by a privately -owned public utility. The development or redevelopment proposed within a CFD must be consistent with the City's general plan and must have received any required legislative approvals such as zoning or specific plan approvals prior to the issuance of public debt. A CFD shall not vest any rights to future land use on any properties, including those that are responsible for paying special taxes. The list of eligible public facilities include, but are not limited to, the types of facilities specified in Government Code section 53313, as it currently exists, or may hereafter be amended. The funding of public facilities to be owned and operated by public agencies other than the City shall be considered on a case -by -case basis. If the proposed financing is consistent with a public facilities financing plan approved by the City, or the proposed facilities are otherwise consistent with approved land use plans for the property, the City shall consider entering into a joint community facilities agreement or exercise of powers agreement in order to finance these facilities. The City will consider on a case -by -case basis CFDs established for the provisions of services eligible to be funded under the Act. Eligible services are as specified in the Act. Resolution No. 05-69 PRIORITIES FOR CFD FINANCING UNDER THE ACT Priority for CFD financing shall be given to public facilities which: (a) are necessary for economic development, or (b) are otherwise incident to an economic development project. If appropriate, the City shall prepare a public facilities financing plan as a part of the specific plan or other land use document that identifies the public facilities required to serve a project, and the type of financing to be utilized for each facility. CREDIT QUALITY REQUIREMENTS FOR CFD BOND ISSUES It is the policy of the City to comply with all provisions of the Act including, but not limited to, Section 53345.8, as such Section may be amended from time to time. It is the goal of the City to conform, as nearly as practicable, to the California Debt and Investment Advisory Commission's Appraisal Standards for Land - Secured Financings, as such standards may be amended from time to time, provided, however, that this City Council may additionally amend such standards from time to time as it deems necessary and reasonable, in its own discretion, to provide needed public improvements within the City, while still accomplishing the goals set forth herein. Unless otherwise specifically approved by the City Council as provided in Section 53345.8(b) or (c) of the Act, the district property value -to -lien ratio shall be at least 3:1 after calculating the value of the public facilities to be financed, and considering any prior or pending special taxes or assessment liens. The City may require a higher value -to -lien ratio in its discretion, in consideration of current market and related conditions. Property value may be based on either an appraisal or on assessed values as indicated on the county assessor's tax roll. The City shall select the appraiser, and the appraisal shall be based on standards promulgated by the State of California and otherwise determined applicable by City staff and consultants. The appraisal must be dated within three months of the date the bonds are issued. The public lien amount shall include the bond issue currently being sold plus any public indebtedness secured by a lien on real property currently existing against the properties to be taxed. Less than a three to one property value to public lien ratio, excessive tax delinquencies, or projects of poor economic viability may cause the City to disallow the sale of bonds or require credit enhancement prior to bond sale. The City may consider exceptions to the above policies for bond issues that do not represent an unusual credit risk, either due to credit enhancement or other reasons specified by the City, and which otherwise provide extraordinary public benefits. If the City requires letters of credit or other security, the credit enhancement shall be issued by an institution, in a form and upon terms and conditions satisfactory to the City. Any security required to be provided by the applicant may be discharged by the City upon the opinion of a qualified appraiser, retained by the City, that a value -to -lien ratio of three to one has been attained per land use category, including any overlapping special assessment or special tax liens. As an alternative to providing other security, the applicant may request that a portion of the bond proceeds be placed in escrow with a corporate agent in an amount sufficient to assure a value -to -lien ratio of at least three to one on the outstanding proceeds. The proceeds shall be released at such times and such amounts as may be necessary to assure a value -to -lien ratio of at least three to one per land use category, including any overlapping special assessment or special tax liens. DISCLOSURE REQUIREMENTS FOR PROSPECTIVE PROPERTY PURCHASERS a. Disclosure Reauirements for Developers. Developers who are selling lots or parcels that are within a CFD shall provide disclosure notice to prospective purchasers that comply with all of the requirements set forth in Section 53341.5 of the Government Code. The disclosure notice must Resolution No. 05-69 be provided to prospective purchasers of property at or prior to the time the contract or deposit receipt for the purchase of property is executed. Developers shall keep an executed copy of each disclosure document as evidence that disclosure has been provided to all purchasers of property within a CFD. b. Disclosure Requirements for the Resale of Lots. Pursuant to Section 53340.2 of the Act, the City Finance Department shall provide a notice of special taxes to sellers of property (other than developers), which will enable them to comply with their notice requirements under Section 1102.6 of the Civil Code. The City shall provide this notice within five working days of receiving a written request for the notice. A reasonable fee may be charged for providing the notice, not to exceed any maximum fee specified in the Act. EQUITY OF SPECIAL TAX FORMULAS AND MAXIMUM SPECIAL TAXES Special tax formulas for CFDs shall provide for minimum special tax levels which satisfy the following: (a) 110 percent debt service coverage for all CFD bonded indebtedness, (b) the reasonable and necessary annual administrative expenses of the CFD, and (c) amounts equal to the differences between expected earnings on any escrow fund and the interest payments due on bonds of the CFD. Additionally, the special tax formula may provide for the following: (a) any amounts required to establish or replenish any reserve fund established in association with the indebtedness of the CFD, (b) the accumulation of funds reasonably required for future debt service, (c) amounts equal to projected delinquencies of special tax payments, (d) the costs of remarketing, credit enhancement and liquidity facility fees, (e) the cost of acquisition, construction, furnishing or equipping of facilities, (f) lease payments for existing or future facilities, (g) costs associated with the release of funds from an escrow account, and (h) any other costs or payments permitted by law. In structuring the special tax, projected annual interest earnings on bond reserve funds may not be included as revenue for purposes of the calculation. The special tax formula shall be reasonable and equitable in allocating public facilities' costs to parcels within the CFD. Exemptions from the special tax may be given to parcels which are publicly owned, are held by a property owners' association, are used for a public purpose such as open space or wetlands, are affected by public utility easements making impractical their utilization for other than the purposes set forth in the easements, or have insufficient value to support bonded indebtedness. The maximum annual special tax, together with ad valorem property taxes, special assessments or special taxes for an overlapping financing district, including such potential taxes and assessments relating to authorized but unissued debt of public entities other than the City (collectively, the "Overlapping Debt Burden"), in relation to the expected assessed value of each parcel upon completion of the private improvements to the parcel is of great importance to the City in evaluating the proposed financing. For residential parcels, the Overlapping Debt Burden shall not exceed two percent (2.0%) of the projected assessed value of each improved parcel within the district. As it pertains to commercial, industrial, or other parcels within the district, the City reserves the right to exceed the two percent (2%) limit if, in the City's sole discretion, it is fiscally prudent. The City, in its discretion, may allow an annual escalation factor on parcels within a district. Special taxes will only be levied on an entire County Assessor's parcel, and any allocation of special tax liability of a County Assessor's parcel to leasehold or possessory interest in the fee ownership of such County Assessor's parcel shall be the responsibility of the fee owner of such parcel (except where the City is the fee owner of the parcel and has leased the parcel pursuant to a lease with a term of at least 5 years, in which case the lessee shall have the responsibility for the special tax liability) and the City shall have no responsibility therefore and has no interest therein. Failure to pay or cause to be paid any special taxes in full when due, shall subject the entire parcel to foreclosure in accordance with the Act. The City shall retain a special tax consultant to prepare a report which: (a) recommends a special tax for the proposed CFD, and (b) evaluates the special tax proposed to .determine its ability to adequately fund identified public facilities, City administrative costs, services (if applicable) and other related expenditures. Resolution No. 05-69 Such analysis shall also address the resulting aggregate tax burden of all proposed special taxes plus existing special taxes, ad valorem taxes and assessments on the properties within the CFD. APPRAISALS The definitions, standards and assumptions to be used for appraisals shall be determined by City on a case - by -case basis, with input from City consultants and CFD applicants, and by reference to relevant materials and information promulgated by the State of California, including the Appraisal Standards for Land -Secured Financings prepared by the California Debt and Investment Advisory Commission. In any event, the value - to -lien ratio shall be determined based upon an appraisal by an independent Member Appraisal Institute ("M.A.I.") appraiser of the proposed CFD. The appraisal shall be coordinated by and under the direction of the City. All costs associated with the preparation of the appraisal report shall be paid by the entity requesting the establishment of the CFD through the advance deposit mechanism. ABSORPTION STUDY An absorption study of any proposed development project may be required for land secured financing. The absorption study shall be used A) as basis for verification that sufficient revenues can be produced; and B) to determine if the public financing of the public facilities is appropriate given the timing of the development. Additionally, the projected absorption rates will be provided to the appraiser for use in the appraisal required in Section V, above. TERMS AND CONDITIONS OF BONDS The City shall establish all terms and conditions of the bonds. The City will control, manage and invest all CFD issued bond proceeds. Each bond issue shall be structured to adequately protect bond owners and to not negatively impact the bonding capacity or rating of the City. These security measures could include a combination of credit enhancement, foreclosure covenant, special reserve fund or deposits and/or a contractual commitment by the proponents and successors to pay the special taxes or assessments during the initial development stages of the development project. The City has the sole discretion to determine the types of credit enhancement, foreclosure covenant and reserve fund that may be required. All statements and material related to the sale of bonds shall emphasize and state that neither the faith, credit nor the taxing power of the City is pledged to security or repayment of the Bonds. The sole source of pledged revenues to repay CFD bonds are special taxes, bond proceeds and reserve funds held under the bond indenture, and the proceeds of foreclosure proceedings and additional security instruments provided at the time of bond issuance. The City is under no obligation to issue tax-exempt debt. The ability to issue tax-exempt debt depends upon the particular facts and circumstances of each CFD. If the City, in its sole discretion determines to issue tax- exempt debt, the developer must agree to cooperate in connection with any covenants or other requirements of state and/or federal tax law that may be necessary in order for the City to issue tax-exempt debt. CFD COST DEPOSITS AND REIMBURSEMENTS All City and consultant costs incurred in the evaluation of CFD applications and the establishment of CFDs will be paid by the entity requesting the establishment of the CFD by advance deposit. The City shall determine the amount of the initial advance deposit. The City shall not incur any non -reimbursable expenses for processing and administering CFDs. Expenses not chargeable to the CFD shall be directly borne by the applicant. The initial deposit in the amount determined by the City to fund initial staff and consultant costs associated with CFD review and implementation shall accompany each petition for formation of a CFD. If additional funds are needed to off -set costs and expenses incurred by the City, the City shall make written demand upon the applicant for such funds. If the applicant fails to make any deposit of additional funds for the proceedings, the City may suspend all proceedings until receipt of such additional deposit. Resolution No. 05-69 The City shall not accrue or pay any interest on any portion of the deposit refunded to the applicant or the costs and expenses reimbursed to the applicant. Neither the City nor the CFD shall be required to reimburse the applicant or property owner from any funds other than the proceeds of bonds issued by the CFD. CONTINUING DISCLOSURE Landowners owning land within any CFD, and which are responsible for twenty percent (20%) or more in the aggregate of the special taxes or assessments, must agree to provide A) initial financial disclosure at the time of issuance of any bonds relating to such CFD; and B) annual financial disclosure as required under Rule 15c2-12 of the Securities Exchange Commission until the time at which the aggregate special tax of such landowner is less than 20%. The City may require a higher or lower threshold than 20% of the aggregate special taxes, depending on the appropriateness due to the facts and circumstances of the financing. USE OF CONSULTANTS The City shall select all consultants necessary for the formation of the CFD and the issuance of bonds, including the underwriter(s), bond counsel, financial advisor, appraiser, absorption consultant, and the special tax consultant. Prior consent of the applicant shall not be required in the determination by the City of the consulting and financing team. EXCEPTIONS TO THESE POLICIES The City may find in limited and exceptional instances that a waiver to any of the above stated policies is reasonable given identified special City benefits to be derived from such waiver. Such waivers only will be granted by action of the City Council. MODIFICATION OF THESE POLICIES The City Council reserves the right to modify or amend the policies.