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HomeMy WebLinkAbout02-07-2017 Item 05 - Avila Ranch Community Facilities District Formation Meeting Date: 2/7/2017 FROM: Derek Johnson, Assistant City Manager SUBJECT: AVILA RANCH COMMUNITY FACILITIES DISTRICT (CFD) FORMATION RECOMMENDATION Authorize the City Manager to execute a contract for $54,825 with Economic Planning Systems (EPS) to assist the City with the financial analysis and related tasks necessary for the formation of a Communities Facilities District (CFD) for the Avila Ranch Project. DISCUSSION Background The purpose of this item is to obtain approval for a contract with Economic Planning Systems (EPS) to provide financial technical support for the formation of a Community Facilities District (CFD) to serve the proposed Avila Ranch Project. In addition to financial analysis, EPS will provide general management for the effort. Specifically, EPS will review existing fiscal analyses to determine any funding gaps related to ongoing services, estimated costs for the list of facilities to be maintained with CFD revenues, and prepare documents related to the formation of a CFD and attending all required City Council hearings. Staff will provide oversight and guidance throughout the formation process. The Community Facilities Act was enacted in 1982. CFDs are based on geographic area where special property tax applies if approved by registered voters within the district or if fewer than 12 residents reside by the landlords as qualified electors. CFDs provide a land based method of financing for qualified services where another source of financing may not be feasible. Although CFDs are a common financial tool for both infrastructure and services, the City has not formed any CFDs in the past. A CFD may be established by any County, City, Special District or Joint Powers Authority, pursuant to California Government Code §53311-53368.3 (The Mello-Roos Community Facilities Act of 1982). A CFD may be initiated by a sponsoring local government agency or by the request of property owners, as is the case with Avila Ranch. In the case where CFD boundaries include only those parcels of a single owner or developer, the consent of the owner is required with ongoing assessments falling to future property owners. This is the case even if the property is subdivided. A CFD assessment is levied annually for all parcels within its boundaries, and the term of the assessment may be limited to the amount of time required to pay off bonds related to capital improvements. If a CFD also funds services, the assessment may continue indefinitely or until an alternative funding source is available. The primary reason the City is considering a CFD for the proposed Avila Ranch project area is the projected gap in revenues compared to expenditures because of the proportion of property tax the City receives compared to all other agencies. The Avila Ranch property was annexed in 2008 pursuant to a Master Tax Exchange Agreement with the County. This agreement provides that 100% of existing and future property taxes go to the County for raw land pre-zoned Packet Pg. 51 5 commercial with all sales taxes going to the City. That same agreement provides that 100% of existing and 66% of future property taxes go to the County, and 33% of the future property taxes go to the City for pre-zoned residential land. Since the Avila Ranch property was initially annexed as commercial, the County will keep existing and future property taxes, despite the fact that the City is proposing to rezone the property to residential. While there will be a projected increase in overall sales taxes due to new residents, it is not projected to be enough to cover the costs of all City services. Residential property does not generate sales tax. City Staff will be meeting with the County to encourage them to split the property tax to what it should be for raw residential land. This is entirely a discretionary decision of the County and t he purpose any potential CFD levy for services is meant to be a “back up” revenue source should the City not be successful in resetting the distribution of property taxes. One of the primary reasons for obtaining outside consultant support is that the Avila Ranch project is a significant land use decision-involving complex ongoing and capital financial issues for the City. Anticipated actions include a specific plan with related public facilities financing plan, and the potential to create both a Communities Financing District (CFD) and/or an Enhanced Infrastructure Financing District (EIFD). The combination and relationship of these agreements, plans, and land based financing mechanisms requires significant expertise. Scope of Work EPS’s scope of work is separated into two distinct tasks, as shown in Attachment A. This includes, 1) Pre-formation advisory services, and 2) Preparation to form the CFD. The scope of work was crafted in a manner to address the broad range of financial analyses that will be required to appropriately evaluate the financing tools and strategies that will be used to construct public facilities and provide services for the project. One of the principal tenants of the City’s General Plan is that the costs of public facilities and services needed for new development should be borne by new development1. It is recommended that the City secure these services from EPS. EPS was selected through a competitive RFP process in 2013 to lead an effort to evaluate the current development impact fee programs in the City, and identify options for future land-based financing. As a follow up task, they have been advising the Community Development Department and City Council during the past year on the variety of available financing tools, and have developed a policy framework to approach a comprehensive update of the City’s AB 1600 Fee Program. As directed by the City Council, these policies will be incorporated into the 2017-2019 Financial Plan per Council action on December 13, 2016. EPS’s experience and direct knowledge of the City’s development impact fee program, and their selection through a competitive process, is aligned with Section 3.24.070 which provides that 1 13.9. Costs of Growth The City shall require the costs of public facilities and services needed for new development be borne by the new development, unless the community chooses to help pay the costs for a certain development to obtain community-wide benefits. The City shall consider a range of options for financing measures so that new development pays its fair share of costs of new services and facilities which are required to serve the project and which are reasonably related to the new growth attributable to the d evelopment. Packet Pg. 52 5 specialized consultants, like EPS can be approved by the City Council. The co st for the EPS’s current work for public financing advisory services is $50,000 and the proposed work on the Avila Ranch Project is $54,825. EPS is advising on the proposed Development Agreement for the San Luis Ranch Project and that contract is for $60,770. This contract is before the City Council because the combined contract amounts exceed the City Manager’s purchasing authority of $100,000 for consultant services. CONCURRENCES The Public Works, Community Development, and Finance Departments concur with the recommendations in this report. ENVIRONMENTAL REVIEW The formation of a Community Facilities District falls within the definition of a “project” under the California Environmental Quality Act (CEQA). A draft EIR for the Avila Ranch Project was released in mid-November. A CFD is intended to be a funding mechanism to fund City services and the maintenance of infrastructure. FISCAL IMPACT The proposed work is not to exceed $54,825. It is anticipated that most of the work can be done remotely and should meetings be required, they will also be billed on a time and materials basis. The scope of work is being paid by the project applicant. The City’s adopted fee schedule provides that the City’s mark up of 30% for administrative overhead, which allows the City to recover its direct costs for forming a CFD. If this agreement is approved, the City shall enter into a reimbursement agreement with the project applicant so that all costs to form the CFD are covered per the City’s cost recovery policies. ALTERNATIVES 1. The City Council could modify the scope of work. This is not recommended as the identified tasks were developed to address the broad range of issues by task that will need to be addressed to form a CFD. Moreover, the scope of work was drafted to compliment work being done by the applicant team and maximize synergy and efficiency in forming a CFD. 2. The City Council could reject the item and not approve any contract. This is not recommended as third party expertise is needed to help evaluate the financing of public services. The applicant team has its own financial experts advising them on the funding services and the City needs an expert to represent the City’s interests. Attachments: a - EPS Revised Work Program Avila CFD Packet Pg. 53 5 Economic & Planning Systems, Inc. 1 C:\users\kchristi\appdata\local\temp\minutetraq\slocityca@slocityca.iqm2.com\work\attachments\2492.docx EPS Work Program Avila Ranch Community Facilities District Formation Project Understanding Proponents of the Avila Ranch project (Project) are proposing the formation of a Mello-Roos Community Facilities District (CFD) to fund public services within the Avila Ranch Project Area. The Project Applicant has retained a Special Tax consultant (Kosmont) who has been advising them regarding the formation of the CFD. The City is in the process of forming a financing team to advise the City on the formation process and the preparation of CFD formation documents and has asked EPS to serve as the Special Tax Consultant to the City and assist with the preparation of CFD formation documents and to review proposals for the structure of the CFD special tax and authorized services submitted by the Applicant’s Special Tax consultant. The City has identified special counsel and their current financial advisor (PFM). These initial team members would assist the City in developing a CFD formation schedule; identifying key documents that need to be prepared, and structuring the appropriate financing strategy, assuming bond financing will be pursued. EPS understands that Kosmont has prepared draft goals and policies, as well as a preliminary design of a Rate and Method of Apportionment (RMA), and a list of public services to be financed under a CFD. The Kosmont team will also prepare the CFD boundary map. EPS and the City Team will take primary responsibility for initial drafts of the Resolution of Intention (ROI), Resolution of Formation (ROF), and the CFD Report for Kosmont’s review. However, the City’s Team, including EPS, will have final responsibility for these documents, particularly the CFD Report. EPS proposes the following Scope of Work to assist the City with the CFD formation process. Task 1: Pre -Formation Advisory Services Formation of the CFD will not formally commence until the entitlements for Avila Ranch are in place. However there are a number of steps that can be taken to position the City so that formation can begin upon Project approval. Subtask 1.1: Review Fiscal Analysis A fiscal analysis of Avila Ranch is being prepared by Applied Development Economics (ADE) based on the fiscal impact analysis that was prepared for the LUCE. EPS will review the assumptions memo being prepared by ADE and will provide comment on the structure and framework of the analysis to make sure it provides the flexibility to determine the level of public services expenditures that may need to be reflected in the CFD. Subtask 1.2: Confirm List of Public Services and Estimated Costs The Project Applicant will circulate an updated list of facilities to be maintained with revenues generated from the CFD which the City will review to make sure it is complete. This review will include confirmation of select mitigation recommendations. The City’s Public Works Department will review and confirm the list of public services and the estimated costs. EPS will assist the City Packet Pg. 54 5 Revised Work Program January 9, 2017 Economic & Planning Systems, Inc. 2 C:\users\kchristi\appdata\local\temp\minutetraq\slocityca@slocityca.iqm2.com\work\attachments\2492.docx and the Applicant with reviewing the list to ensure that the services are appropriate for inclusion in the CFD based on the City’s land-secured financing policies. Subtask 1.3: Resolution of Intention EPS will work with the City to prepare the Resolution of Intention which can be adopted by Council prior to Task 2. Task 1 Meetings The budget for Task 1 includes EPS attendance at two (2) in-person meetings, to be scheduled at the City’s request. Task 2 : Prepare Project C FD Subtask 2.1: Conduct Project Initiation and Analyze CFD Structuring Following project entitlements, EPS will meet with the City staff to review features of the CFD as proposed by the Project Applicant and preliminary documents provided by the Project Applicant. The City should have a draft goals and policies, preliminary special tax structure, list of items to be financed and the CFD boundary map. EPS will review these documents prior to the meeting and be prepared to discuss the suggested structure with City staff at project initiation. While the City does not anticipate any changes to the proposed land use program, the special tax structure should be flexible enough to anticipate any possible land use changes that may occur throughout build out of the project, to the extent that the phasing of development changes or development takes longer than anticipated. The special tax structure should ensure that regardless of the development at build out of the project that there is no net loss of special tax revenues. Special features like partial prepayment of the maximum special tax should be included to allow for potential land use changes throughout build out of the project. Such features allow for land use or density changes without causing the special tax burden to become so onerous that it prevents the feasible development of alternative land uses. Such features were very useful as project were entitled prior to the Great Recession but had to be changed to respond to the new market reality post-recession. Upon review of all documents, EPS will discuss possible implication of the proposed special tax structure, consistent with adopted City policy and industry-based special tax and underwriting standards. EPS will work closely with City staff and its Financing Team to identify any problems with the proposed special tax structure and provide advice regarding modifications that will meet the Proponent’s objectives while being consistent with City policy and professional standards. Once the City has reviewed and approved the resulting Financing Plan (that identifies what will be funded and in what amounts), Special Tax structure, and pro forma cash flow feasibility analysis, EPS, in coordination with other Team members, will prepare and/or review the required CFD formation documents and assist the City with the necessary legal proceedings and public hearings. Subtask 2.2: Prepare CFD Formation Documents Following review of the Applicant’s suggestions, EPS will prepare a Rate and Method of Apportionment of Special Tax (RMA) that describes the features of the CFD, the amount of the special tax by land use, and the method of apportionment of the special tax. The RMA initially Packet Pg. 55 5 Revised Work Program January 9, 2017 Economic & Planning Systems, Inc. 3 C:\users\kchristi\appdata\local\temp\minutetraq\slocityca@slocityca.iqm2.com\work\attachments\2492.docx will be delivered to the City and its Financing Team for review and comment. Once all requested edits and revisions have been made, the RMA will be presented to the property owners for review and comment. If further edits are required, EPS will prepare a final draft of the RMA for consideration by the City Council. EPS also will assist the City and other City CFD Financing Team consultants by preparing all CFD formation documents (e.g., Resolution of Formation). Subtask 2.3: CFD Hearing Report EPS, again in collaboration with the Applicant and other members of the Financing Team, will prepare the CFD Report. EPS may recommend the preparation of a more detailed report that discusses in detail the features of the CFD and RMA. This becomes a handy document as the City administers this CFD through termination of the CFD. As new staff is hired and others leave, or retire, this document provides guidance for future staff in administering the CFD. Task 2 Meetings Task 2 anticipates five (5) in person meetings: one as part of Task 2.1; one as part of Task 2.2; one as part of Task 2.3; and two others to be scheduled as needed. Budget EPS estimates that the level of effort required will cost $54,825, including meetings but not including the cost of the other Financing Team members. Please see Table 1 for a task-by-task budget. Packet Pg. 56 5 Revised Work Program January 9, 2017 Economic & Planning Systems, Inc. 4 C:\users\kchristi\appdata\local\temp\minutetraq\slocityca@slocityca.iqm2.com\work\attachments\2492.docx Table 1 Proposed Budget Task/Staff Cost Direct Total Description Kieser Kanat Powell Subtotal Costs Cost Senior Principal Executive Vice President Senior Vice President Production Task 1: Pre-Formation Advisory Services Subtask 1.1: Review Fiscal Analysis 2 8 0 0 $2,470 $0 $2,470 Subtask 1.2: Confirm List of Public Services and Estimated Costs 2 6 0 0 $2,010 $0 $2,010 Subtask 1.3: Resolution of Intention 1 0 16 2 $4,095 $0 $4,095 Task 1 Meetings [1]12 12 0 0 $6,540 $1,000 $7,540 Subtotal, Task 1 17 26 16 2 $15,115 $1,000 $16,115 Task 2: Prepare Project CFD Subtask 2.1: Conduct Project Initiation and Analyze CFD Structuring 8 8 12 2 $7,240 $0 $7,240 Subtask 2.2: Prepare CFD Formation Documents 4 6 8 2 $4,620 $0 $4,620 Subtask 2.3: CFD Hearing Report 12 8 16 2 $9,400 $0 $9,400 Task 2 Meetings [2]18 6 24 0 $12,450 $5,000 $17,450 Subtotal, Task 2 42 28 60 6 $33,710 $5,000 $38,710 Total Project Hours 59 54 76 8 Billing Rates [3]$315 $230 $225 $90 Total Project Costs $48,825 $6,000 $54,825 [1] Task 1 assumes two (2) in-person meetings - six (6) hours per attendee, plus direct costs of $500 per trip. [3] Billing rates shown are applicable during 2017 and are subject to annual increases. EPS Staff [2] Task 2 assumes five (5) in-person meetings - three for Walter Kieser (18 hours), one for Ashleigh Kanat (6 hours), and four for Russ Powell (24 hours), with some staffing overlap. Packet Pg. 57 5 Page intentionally left blank. Packet Pg. 58 5