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HomeMy WebLinkAbout6/18/2019 Item 4, Peck From:Stephen Peck < To:'Heidi Harmon'; Aaron's Email; Christianson, Carlyn; 'Andy Pease'; Stewart, Erica Cc:CityClerk; Andy Mangano Subject:Agenda Correspondence for Consent Item 4; Avila Ranch Reimbursement Agreement Attachments:Agenda Correspondence on Avila Reimburement Agreement.pdf Attached is agenda correspondence for the Avila Ranch Reimbursement Agreement. City staff and Avila Ranch representatives have met with affected properties owners (individually and collectively). Answers to the questions that have come up in those meetings are attached. We have been able to successfully address and resolve most questions. The staff report also includes responses to these and other questions. Please let me know if there are other questions that we can address. Stephen J. Peck, AICP Peck Planning and Development, LLC 2455 Greenwood Avenue Morro Bay, CA 93442 Planning*Development*Economics Steve@PeckPlanning.com (559)731-5778 cell 1 Questions on Private Reimbursement Agreement Over the last several months the Council has approved reimbursement agreements with Avila Ranch for the offsite road improvement that are funded by the TIF fees (December, 2018), and for the wastewater lift station (June 4, 2019). The last agreement in the trifecta that is called for in our ap- proved Development Agreement (DA) is the “private reimbursement agreement” that will provide reim- bursement to Avila Ranch for improvements that it is funding and constructing, and which benefit other properties, and/or which eliminate substantial impediments to the development of other properties. The City and Avila Ranch have conducted a number of public and private meetings on the Pri- vate Reimbursement Agreement that will be heard by the City Council on June 18th. Those meetings have reflected a deep misunderstanding of how public infrastructure is financed, the financial obliga- tions of property owners and developers in getting development permits for their properties, the legal constraints faced by the City in allocating the “fair share” cost of improvements, and the significant ad- vantages of having Avila Ranch install improvements that will effectively unlock the development poten- tial of the Benefitted Properties. The following questions have been posed in those meetings. The ques- tions are followed by the answer in italics to assist Council in sorting through probable public commen- tary on the subject. Q: Why do we have to pay for TIF fees and pay these private reimbursements assessments? A: Roads are funded from several sources including transportation impact fees and developer im- provements. The vast majority of actual road improvements, including virtually all local and col- lector streets, are funded by a developer and are built as a condition of development and subdivi- sion approvals. TIF fees pay for improvement that are of benefit to the community or regional as a whole, and usually only include major roads. The improvements contained in the private reim- bursement agreement are NOT funded with TIF fees and are not eligible for TIF reimbursements. Q: Why shouldn’t Avila Ranch pay for 100% of all of the improvements in the private reimburse- ment agreement? A: Because the City can only charge Avila Ranch for its fair share of the improvements. That fair share was determined by a traffic study and is memorialized in the Development Agreement (DA). Section 5.04.2(g) of the Development Agreement provides that the City shall enter into a reimbursement agreement with the developer which provides for the reimbursement of all costs and expenses incurred by Avila Ranch in constructing infrastructure beyond its fair share in ac- cordance with Government Code section 66485 et seq. and section 16.20.110 of the City’s Munic- ipal Code. The agreement only relates to the properties that actually benefit from those im- provements, or which would otherwise be fully responsible for the improvements being paid for by Avila Ranch. Benefitting properties are defined by the Municipal Code as those which adjoin or are nearby Avila Ranch, or which are directly benefitted by the improvements. Improvements were determined to be of “direct benefit” if they relieved a development constraint or prohibi- tion (such as Buckley Road) or which would otherwise be the sole, 100% responsibility of the Ben- efitting Property at the time of development (such as for Earthwood, Horizon and Suburban). Page 2 of 4 Q: Why shouldn’t Avila Ranch have to “buy into” the use of local streets and collectors that have been installed by others? A: There is no citywide “buy in” fee. Just as previous developments did not compensate their prede- cessors for the public streets that their predecessors installed, future developments like Avila Ranch do not compensate others for existing public streets. Similarly, Avila Ranch will not be compensated by others for the “use” of the facilities that it is installing, including local streets, collector streets, public parks, the interim fire station, storm drain lines, sewer lines, etc. by oth- ers. Developers are “compensated” for their improvements by the enhanced value of their prop- erties and lots, and by the granting of development permits that are of significant economic value. Q: Properties within Avila Ranch will not pay a City wide TIF? This seems to be inconsistent. Off- site properties should receive full credit for their assessment just as if they were part of the Tract, or at a minimum, their city wide TIF's be reduced by their "Avila Ranch assessment". A: Avila Ranch will most certainly pay all citywide TIF, water, wastewater, police and LOVR TIF fees. There is no exception for Avila Ranch on this matter, as provided in Section 5.04.2 of the DA. Avila Ranch will receive credit against its TIF fees for the TIF-funded improvements that it is building and financing. The road improvements contained in the reimbursement agreement are NOT TIF funded facilities and neither Benefitting Properties nor Avila can or will receive TIF cred- its for these improvements in the private reimbursement agreement. Avila Ranch is building its own internal collectors (Venture, Earthwood, Jesperson, Buckley) and local streets WITHOUT any reimbursement, just like other developments throughout the City have and will continue to do. Similarly, if any of the Benefitted Properties build improvements that are financed through the TIF program, they will receive the same sorts of credits. Q: If a property owner constructs some of these improvements, such as curb, gutter and sidewalk fronting their property, is no credit to be given to the "benefitting properties" from the Avila Ranch developer or for the use of these improvements by the general public? This seems to be unfair given the magnitude of the proposed reimbursement assessments, in addition to paying City wide TIF fees. A: The private reimbursement agreement clearly states in Section 6 a. that “costs and reimburse- ment amounts may be adjusted as a result of land or fee contributions or construction com- pleted prior to Avila Ranch phasing requirements, which may be contributed by or constructed by others.” That is, if for some reason a Benefitting Property constructs some or all of a road before Avila Ranch is required to do so, a credit will be provided. With regard to the “magnitude of the reimbursements”, Avila Ranch will be paying for 75% of the cost of Horizon and Earthwood, even though these roadways are 100% the responsibility of the adjacent property owners per City policy. For example, the owners of Tract 2943 have al- ready agreed, as part of their tract map, to construct and pay for 100 percent of the Earthwood Extension from Avila Ranch to the existing portion of Earthwood. This agreement would obligate Avila Ranch to construct and pay for 75 percent of those improvements, leaving the owner with a 25 percent responsibility. Similarly, the development of any of the Benefitting Properties on Page 3 of 4 Horizon would require any one of them to pay a 100% of the cost to improve Horizon Road south of Suburban, and improve the Suburban/Horizon intersection, with no reimbursement. Avila Ranch is committing to construct those improvements and be reimbursed for only 25 percent of the cost. Q: Is the developer constructing the off-site improvements with prevailing wage or private mon- ies?” A: Prevailing wage payments are required for any improvements that are funded directly or indi- rectly with public funds, including TIF credits or funds. The private reimbursement agreement projects will be not be funded with any public funds and are not subject to prevailing wages. The cost estimates are based on estimates from several local engineering companies and are consid- ered reliable and prudent for the purposes of the agreement. The actual assessments will be based on actual costs. Q: The reimbursement is to include construction cost and "actual" soft costs such as planning, engi- neering, legal and project management services. Given the significant costs for the very in- volved/processing of the Avila Ranch project, it would seem to be very hard to separate the planning/project management, legal and other services from the overall project soft costs to those attributable to the "offsite" improvements. Will there be a cap on the amount of reim- bursement attributable for these services? Will there be a third-party audit required to deter- mine the reasonableness of these costs and how they will be allocated to just the offsite im- provements subject to reimbursement? A: The City is the “third party”. Section 16.020.110 of the Municipal Code requires the Developer to “…submit evidence of the actual costs of the improvements described in the reimbursement agreement. Evidence shall be provided in the form of receipted bills, canceled checks, or con- tracts. Evidence shall be submitted within sixty days of the city’s acceptance of the improve- ments. Failure to timely submit evidence shall void the reimbursement agreement.” The City will therefore be the “third party” and is obligated to determine if costs are reasonable and that bids are competitive and non-collusive. Avila Ranch is obligated to provide adequate documentation to the City that any soft costs, planning/project management, legal, engineering, etc. in the form of separate contracts and job cost account for such work. However, we are also open to stipulat- ing fixed percentages for certain soft costs. Certainly, since Avila Ranch has a very large share of these improvements, it is motivated to be very cost sensitive. The comment also assumes that the Benefitting Properties will be charged for the general enti- tlement costs or costs not associated with the actual improvement. This is not correct. Section 4a of the Reimbursement Agreement states that ““Developer Costs” means the actual cost of designing, permitting and constructing each of the Transportation Improvements adopted in Ta- ble B-2 of the Development Agreement and listed in Exhibit A to this Agreement.” Therefore, the direct (“hard”) costs and soft costs associated with the improvements are the only costs eligible for reimbursement. Page 4 of 4 Q: Will no part of the CFD revenues assist with these costs? A: No. The CFD is for providing services to onsite residences and maintenance on onsite facilities only. Please see the public report and CFD formation documents from September, 2017 and Oc- tober, 2017. Q: The length of time to apply the potential assessment to off-site properties will be tied to 15 years after the expiration of the development agreement. Could that time period be as long as 40 to 45 years? That seems to be an excessively long period of time to place a recorded assess- ment against the off-site properties, and If that is the intent, that time period should be made very clear to all the property owners. Furthermore, the assessments are to be adjusted (most likely increased) every year by an inflation factor and could compound the assessment to be much higher than the actual costs. I suggest that the inflation factor be truncated to a more rea- sonable period of time. A: The reimbursement agreement recognizes the cost of financial of carrying these expenses, so that the “real” compensation provided to Avila Ranch is the same over time. Q: What will happen to the recorded assessments against the off-site properties if Avila Ranch does not complete the improvements called for in the Tract approval/Development Agreement? A: If Avila Ranch does not complete the improvements, they will not be eligible for reimbursement, and will not be able to develop a significant portion of its property. It is my understanding that there will not be any “recorded assessments” on the Benefitted Properties. Q: It appears that the City can add additional properties that benefit from Avila Ranch's off-site im- provements (and thus be assessed) as the City, itself, determines from time to time. If a prop- erty has paid their share of costs prior to other properties being added, will they be reimbursed due to the redistribution of the assessed costs? A: The Benefitting Properties were selected as being comprehensive and inclusive. It is not ex- pected that properties will be added which would reduce the respective shares, nor properties deleted that would increase other’s shares and assessments. Q: The City will review the costs incurred by the developer and proceed to place assessments against off-site properties accordingly. How can the "benefitting properties" challenge these costs if they feel they are excessive? A: The City is the sole party responsible for determining the appropriateness of the costs claimed for reimbursement.