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HomeMy WebLinkAbout08-16-2016 Item 13 Public Infrastructure Financing Framework and Draft Policies Meeting Date: 8/16/2016 FROM: Michael Codron, Community Development Director Prepared By: Xzandrea Fowler, Community Development Deputy Director SUBJECT: PUBLIC INFRASTRUCTURE FINANCING FRAMEWORK AND DRAFT POLICIES: STUDY SESSION RECOMMENDATION Participate in a study session on public infrastructure financing and receive and file the background memorandum and reports (Attachments A, B, and C). DISCUSSION Background The Economic Development Strategic Plan (EDSP) set forth several strategies for addressing barriers to job creation, including key strategies that begin to address the challenges associated with infrastructure costs, fees, standards and financing strategies. Financing infrastructure in California is increasingly becoming more complex and several tools have been developed to assist local governments finance infrastructure associated with new development. Many jurisdictions throughout the state routinely utilize those tools, but they have rarely or infrequently been used in the City of San Luis Obispo. Implementation of these strategies must be considered in the context of State law governing how development impact fees and other tools may be imposed. Another consideration is the requirement for nexus studies and reports to support the calculation and imposition of such fees on new development to defray infrastructure costs. The governing statutes are commonly referred to as “AB 1600” or the “Mitigation Fee Act”. Following this study session staff will be requesting City Council authorization for the issuance of a RFP for consultant services to prepare the required nexus studies. In April 2013 the City Council authorized staff to hire a consultant to undertake an infrastructure financing analysis that included a series of study sessions with the Council. The intent of the study sessions was to educate the Council and the community. Those study sessions covered the following topics:  Study Session #1: Introduction and Background – current trends in municipal infrastructure financing, an overview of development impact fees and a review of the City’s existing fee programs. 13 Packet Pg. 301  Study Session #2: Economic and Policy Implications of Development Impact Fees – tools available to the City and the policy implications and trade-offs associated with the various options.  Study Session #3: Direction for updating the City’s Development Impact Fees – next steps and Council direction to staff based on the previous sessions. During those study sessions, staff informed the Council that following the adoption of the Land Use and Circulation Elements of the General Plan, an updated AB 1600 nexus study would be prepared in order to identify the portion of infrastructure that should be paid for by new development to support the physical build out of the General Plan based on adopted levels of services, quality of life and economic policy goals. In preparation for the updated AB 1600 nexus study, staff retained consultant services from EPS, who prepared the infrastructure financing analysis that was part of the EDSP Implementation. EPS assisted staff with the development of a Public Infrastructure Financing Framework (Framework) which describes a comprehensive approach to funding the City’s public facilities and infrastructure improvements, and recommendations regarding draft policies for Council consideration. On August 16, 2016 Council will hold study session to discuss the proposed Framework and draft policies. OVERVIEW OF ATTACHMENTS 1. Public Infrastructure Financing Framework and Draft Policies (EPS #161001): This memorandum, dated July 18, 2016, describes a framework for a comprehensive approach to funding the City’s public facilities and infrastructure improvements and recommends draft policies for the City’s consideration. The Framework provides a systematic way of considering funding and financing options so that the City is able to construct needed public facilities and infrastructure in a manner that funds facilities and infrastructure needed to maintain and enhance the City’s quality of life for current and future residents, employees and visitors, makes efficient use of available funding sources and financing mechanisms, implements General Plan policy, is fair and equitable with respect to incidence of burden (who pays), and is consistent with economic development objectives. 2. Infrastructure Financing Background, Components and Strategy (EPS #131044): This memorandum, dated April 10, 2014, summarizes and transmits the technical documents and presentations prepared by EPS as part of the Infrastructure Financing Analysis and City Council Study Sessions. The Analysis reviewed the City’s current infrastructure financing programs, including its development impact fees, in response to recommendations in the adopted EDSP. CONCURRENCES Community Development, Public Works, Finance and Administration all concur this session will provide the basis for decisions critical to the LUCE Implementation and FEE Program update. 13 Packet Pg. 302 ENVIRONMENTAL REVIEW This activity will not result in direct or indirect physical changes in the environment, and therefore is not a “Project” pursuant to as State CEQA Guidelines Section 15378(b) (5) and would not be subject to further environmental review pursuant to Section 15060(c) (3) of the State CEQA Guidelines. FISCAL IMPACT The Public Facilities Impact Fee Program is identified in the 2015-17 Financial Plan, under Significant Operating Program Change (SOPC) - LUCE Implementation and Fee Update, and $125,000 has been earmarked and allocated for this effort in the FY 2015/16 budget. A carryover request has been approved for the FY 2016/17 budget. The consultant services associated with the drafting of the Public Infrastructure Financing Framework are covered under that allocation. NEXT STEPS Staff will request City Council authorization for the issuance of a Request for Proposal (RFP) for the preparation of a Public/Capital Facilities Impact Fee Program Nexus Study. The preparation of a Nexus Study was identified in the 2015-17 Financial Plan as an objective that supports Major City Goals in Housing, Multi-Modal Transportation, as well as supports the other important objective of Downtown. It also continues implementation of the EDSP strategy to reduce barriers to job creation, which was part of the Major City Goal in Economic Development in the 2011-13 Financial Plan. Attachments: a - Public Infrastructure Financing Framework and Draft Policies b - SOPC LUCE Implementation and Fee Update c - Council Reading File: Compendium of Final Infrastructure Financing Analysis Documents 13 Packet Pg. 303 D RAFT M EMORANDUM To: Michael Codron, City of San Luis Obispo From: Walter Kieser and Ashleigh Kanat Subject: Public Infrastructure Financing Framework and Draft Policies; EPS #161001 Date: July 20, 2016 This Public Infrastructure Financing Framework (Framework) describes a comprehensive approach to funding the City’s public facilities and infrastructure improvements and recommends draft policies for the City’s consideration. The Framework provides a systematic way of considering funding and financing options so that the City is able to construct needed public facilities and infrastructure in a manner that funds facilities and infrastructure needed to maintain and enhance the City’s quality of life for current and future residents, employees, and visitors; makes efficient use of available funding sources and financing mechanisms; implements General Plan policy; is fair and equitable with respect to incidence of burden (who pays); and is consistent with economic development objectives. This Framework has been prepared through a collaborative effort engaging senior City staff by way of a series of independent efforts and working meetings. The work also reflects the results of the infrastructure financing analysis led by EPS in 2014 as part of the Economic Development Strategic Plan implementation. Framework Background and Context The public facility and infrastructure improvements, including those already identified in the City’s Capital Improvement Program (CIP), the General Plan Land Use and Circulation Element, and the Specific Plans, are key components of the City’s efforts to sustain and improve the quality of life for current (and future) residents and, simultaneously, enhance the City’s economic development potential. These public facilities and infrastructure improvements include water and sewer utilities, transportation infrastructure, streetscape improvements, parks and recreation facilities, and other civic facilities that collectively have been shown to induce private investment, facilitate real estate development, increase economic activity, and expand the City’s tax base when coupled with sufficient market demand and wise land use policies. 13.a Packet Pg. 304 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Public Infrastructure Financing Framework 7/20/2016 Draft Memorandum Page 2 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx However, these public facilities and infrastructure improvements, taken as a whole, are costly and thus will require a broad range and strategic application of existing and new funding sources and financing mechanisms. New development in the City, particularly in the City’s primary growth areas, will generate substantial real estate value that serves as a basis for funding infrastructure improvements. Land- and development-based funding sources based upon this new real estate value include development impact fees and “land secured” financing sources (e.g., Mello-Roos Community Facilities District special taxes), which have not previously been used by the City. While development impact fees paid by new development are used exclusively for capital improvements serving new development, special taxes and assessments may be used for capital improvements or ongoing maintenance and operations costs. The overall cost burden placed on new development affects development feasibility, particularly when all development costs are considered. The cumulative effect of fees, exactions, and requirements will need to be carefully considered to avoid discouraging desired economic development. It is likely that facility and infrastructure improvements will need to be prioritized and phased to match the City’s funding capacity and to improve feasibility of new development. Infrastructure improvements that relieve existing service deficiencies or fund improvements otherwise benefiting existing as well as new development in the City can tap a range of existing and new sources and financing mechanisms. Potential sources available to fund existing deficiencies may include a countywide sales tax increase (a transportation “self-help” measure), Citywide special taxes, grants, the City’s Infrastructure Investment Capital Fund, utility revenues and related revenue bonds, among others. Some of these mechanisms require voter approval while others simply require appropriation of existing or future City revenue. Sources of Funds and Types of Improvements There is a general correlation between types of improvements and categories of funding. Whether a particular funding source is appropriate for a given improvement will depend on a number of factors, such as the type of improvement, the geographic area of benefit, whether the improvement is needed to address existing deficiencies or serve new development, how the combined burden of fees and/or assessments and taxes affect development feasibility, and the timing of funding sources versus the need for improvements. If the City is considering City- based funding sources, additional factors become important, such as whether the improvement is a catalytic, economic development improvement and what the long-term fiscal implications of the improvement may be. Key questions influencing the ideal mix of infrastructure funding include: 1. Who benefits from the improvement? Will it serve existing or new development or both? 2. What is the geographic area of benefit? Is it regional, citywide, or area-specific? 3. Is the improvement a catalytic, economic development improvement that is worth City investment? 4. What are the long-term, annual fiscal implications? 5. Is there an established policy framework, such as a service standard? Or is the improvement in an adopted plan (e.g., General Plan, Master Plans, Specific Plans, CIP, and LUCE)? 6. What is the cost incidence of the financing mechanism (i.e., who pays) and is that appropriate? 13.a Packet Pg. 305 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Public Infrastructure Financing Framework 7/20/2016 Draft Memorandum Page 3 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx 7. Is there other funding in-place or otherwise available (e.g., regional, state, federal funding or grant funding)? Certain types of improvements may fall into more than one improvement category. For example, the City’s proposed police headquarters building will contribute to the Department’s ability to serve new development while ensuring that current high service standards can be maintained, or possibly improved, for existing residents. Table 1 shows the general relationship between key public facilities and infrastructure improvement categories and funding sources. This array illustrates the need for a range of infrastructure funding and financing mechanisms as part of the larger strategy. Improvement Categories and Project Examples A key aspect of the present effort is to assure that the funding sources and financing mechanisms available to the City are used in a manner that maximizes public benefits while at the same time supporting ongoing economic development. 1. Project-Specific Improvements Project specific improvements include in-tract and frontage improvements that are related to a specific project or a specific site (e.g., sidewalks and some streetscape improvements). Developers are expected to fund improvements required by typical development standards or other entitlement exactions. In some cases, reimbursement agreements for oversizing may fall into this category. SLO examples: 1a. Specific Plan Area-frontage improvements (typically street improvements and related in- street utilities) 1b. Infrastructure oversizing (if subject to a reimbursement agreement) 2. Improvements that Increase Capacity for New Development New infrastructure or improvements that expand the capacity of an existing facility can serve both existing and/or new development, but whether the improvement serves existing or new development (or both) has implications for how the improvement should be funded. Improvements that support new development only (or if a new improvement serves both new and existing development, that portion which serves new development) are typically funded through development impact fees but could also be funded with a Community Facilities District (CFD) special tax. Impact fees cannot be used for routine maintenance, although periodic and comprehensive rehabilitation or reconstruction projects (i.e., major maintenance) may be an appropriate use of these fees.1 1 California Gov’t Code Sec. 66001(g) states: “A fee… may include the costs attributable to the increased demand for public facilities reasonably related to the development project in order to (1) refurbish existing facilities to maintain the existing level of service…” The code includes streets as a public facility. 13.a Packet Pg. 306 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Public Infrastructure Financing Framework 7/20/2016 Draft Memorandum Page 4 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx SLO examples: 2a. New development’s share of the following: — Specific Plan area parks — Fire Station #5 — Prado Road2 — Tank Farm Road3 3. Improvements that Address Existing Infrastructure Deficiencies or Improve Overall Levels of Service Improvements that alleviate existing infrastructure deficiencies and/or help existing development comply with new service standards cannot be funded through impact fee programs and may require the use of city-based funding sources, such as an Enhanced Infrastructure Financing District (EIFD), grants, Certificates of Participation (COP), the Infrastructure Investment Capital Fund, or general City funding. Those projects with regional benefit (in addition to capacity improvements needed to serve new development), such as street and highway improvements are often so costly that their inclusion in an impact fee program may result in development feasibility issues. In these circumstances an EIFD would be effective or a regional special tax measure could be appropriate. SLO examples: 3a. Mission Plaza Master Plan Project 3b. Portion of the following improvements that cannot be allocated to new development: — Police Headquarters (share that is not attributable to new development) — Fire Station #2 (share that is not attributable to new development) 4. New Infrastructure or Community Benefits, beyond Nexus New infrastructure, facilities or other community benefits that exceed nexus based-cost allocation to new development cannot be funded through development impact fee programs. Rather, such improvements typically require city-based funding sources, such as the Infrastructure Investment Capital Fund. For larger projects, assessment districts can be established, and the revenues can be used to leverage other funding sources. SLO examples: 4a. Portion of the following improvements that improves service for existing development and/or goes beyond current service standards: — Prado Road Interchange — Police Headquarters — Fire Station #2 — Broad Street Bicycle Boulevard 2 Currently 100% of the costs of Prado Road and Tank Farm Road are attributable to new development and are in area-specific fee programs. The Development Impact Fee Nexus Study will evaluate the appropriate allocation. 3 See Note #2. 13.a Packet Pg. 307 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Public Infrastructure Financing Framework 7/20/2016 Draft Memorandum Page 5 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx 5. Public Facility Operations and Maintenance Infrastructure and facility improvements typically will have annual maintenance costs associated with them. There are few funding sources available to fund maintenance activities, as most funding sources are intended to fund the one-time construction of the improvements or facilities. As such, maintenance costs typically are funded through City General Fund expenditures and utility rates and charges. The City may require a CFD special tax to fund ongoing operations in circumstances where a fiscal impact has been identified. SLO examples: 5a. Street and roadway maintenance 5b. Landscape and lighting maintenance 5c. Public safety operations (e.g., Avila Ranch – CFD for ongoing cost of fire services) Proposed Infrastructure Financing Framework and Policies The guidelines and policies below offer a strategic framework for funding investments in the City’s public facilities and infrastructure. In addition to such general guidelines it is common for jurisdictions to also adopt financing policies for specific debt and land-secured financing mechanisms (e.g., Mello Roos Community Facilities Bonds). 1. General Financing Guidelines and Policies Financing guidelines and policies provide a systematic way of selecting, implementing, and assembling the funding (and/or financing the money) needed to construct needed public facilities and infrastructure in a manner that is effective, efficient and equitable. Such guidelines could be adopted by resolution, and updated regularly, as may be appropriate. The categories and types of public facilities and infrastructure improvements contemplated in this Framework included water and sewer utilities, transportation infrastructure, streetscape improvements, parks and recreation facilities, and other public safety and civic facilities. Collectively, these public facilities and improvements induce private investment, facilitate real estate development, increase economic activity, and expand the City’s tax base when coupled with sufficient market demand and wise land use policies. 1a. New development should generally be expected to “pay its own way,” (i.e., provide funding through one mechanism or another that funds its “proportional share” of public improvement and infrastructure costs and ongoing operations and maintenance costs). 1b. The City will consider the use of city-based funding sources to fund public facility and infrastructure improvements that provide for the health, safety and welfare of existing and future residents and/or provide measurable economic development and fiscal benefits. In evaluating whether the City will use city-based funding sources, the following evaluation criteria should be considered:4 1. Significant public benefit, demonstrated by compliance with and furtherance of General Plan goals, policies, and programs 4 From Resolution No. 10603 (2015 Series) establishing the Infrastructure Investment Capital Fund. 13.a Packet Pg. 308 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Public Infrastructure Financing Framework 7/20/2016 Draft Memorandum Page 6 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx 2. Alignment with the Major City Goals and other important objectives in place at the time of the application 3. Head of Household Job Creation 4. Housing Creation 5. Circulation/Connectivity Improvements 6. Net General Fund fiscal impact 1c. The City generally will not fund or offer public financing for infrastructure improvements that confer only private benefit to individual property owners or development projects.5 1d. The City shall seek continuity (or improvements to) existing levels of municipal service by assuring adequate funding for the City’s operation, maintenance and infrastructure replacement costs. 2. Debt Financing Debt financing involves the creation of multi-year financial obligations (debt service) through the issuance of municipal bonds (or similar instruments). Such multi-year obligations generally require voter approval, with exceptions existing for enterprise revenue bonds, and special taxes applied to new development areas approved by landowners/developers. 2a. The City is required to keep cumulative outstanding debt within the limits prescribed by the State of California statutes and at levels consistent with creditworthiness objectives (the City is currently far below these limits). 2b. Debt financing for public facilities and capital improvement projects should be sought only when the project’s useful life will exceed the term of the financing and only when the pledged or available supporting revenues or funding sources will be sufficient to service the long-term debt. 3. Development Impact Fees Guidelines and Policies Development impact fees are one-time fees levied on new development, typically levied at the time building permits are issued, to fund a range of the City’s public facilities and infrastructure. Such fees are levied both on a citywide basis as well as for specific areas (e.g., the Specific Plan Areas). The levy of development impact fees is regulated by the State’s Mitigation Fee Act (Government Code Section 66000 et seq.). 3a. Development impact fees should be set, consistent with the statutory “nexus” analysis and findings, to fund new development’s proportional share of public facility and infrastructure costs. 3b. Improvements funded by development impact fees should be referenced generally in the appropriate planning documents (e.g., General Plan, Specific Plans, etc.) and reflected in the City’s Capital Improvement Program. 5 An exception to this policy may be created by a development agreement between the City and a private developer. In this case public investments are offset by measurable public benefits. 13.a Packet Pg. 309 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Public Infrastructure Financing Framework 7/20/2016 Draft Memorandum Page 7 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx 3c. The City’s development impact fees can be “leveraged” through the use of fee credit and reimbursement agreements with developers and landowners. 3d. The City’s aggregate fee levels should not render new development that is otherwise consistent with City plans and regulations economically infeasible. Aggregate fee levels should be evaluated in terms of a reasonable standard, but not a strict limit (e.g., aggregate fee levels should not exceed an average of approximately 10 to 12 percent of the market value of the new development, either on a per-unit or per-square foot basis). 3e. The City may consider reductions or waivers of its development impact fees in cases where a development project meets specific City planning or economic development policies such as affordable housing projects. In such cases the amount of funding foregone must be replaced with other funding sources available to the City. 4. Community Facilities District or Assessment District Guidelines and Policies Community Facilities Districts or Assessment Districts offer a way to fund infrastructure, maintenance, or municipal services through special taxes or assessments levied on property owners benefiting from the thus-funded improvements or services. It can be used for both capital improvements and ongoing facility maintenance or services. 4a. The City will consider the formation of financing districts using the State’s assessment law or the Mello-Roos Community Facilities Act for its newly developing areas on a case- by-case basis, consistent with technical analysis and City priorities (i.e., capital or ongoing funding). 4b. The City will consider the effect of the special tax on the City’s ability to issue General Obligation bonds or other property-based tax measures. 4c. Such districts should fund infrastructure or services serving or otherwise providing benefit to the area subject to the assessment or special tax. 4d. Such districts can fund public facilities or infrastructure otherwise funded with the City’s development impact fees or project-specific exactions. In such cases the area’s development impact fee obligations will be adjusted proportionately. 4e. Within any such districts, property value-to-lien ratio should, consistent with typical underwriting standards, be at least 4.0:1 after calculating the value of the financed public improvements to be installed and considering any prior or pending special taxes or improvement liens. 4f. Consistent with underwriting standards and market considerations, and as a matter of policy, the City will limit the maximum amount of special taxes to be levied on any parcel of property within a Community Facilities District, in any given fiscal year, together with the general property taxes, general obligation bonds, and other special taxes and assessments levied on such parcel, shall not exceed an amount equal to one and eight- tenths percent (1.8 percent) of the projected assessed value of the parcel (and improvements if applicable). How the special tax capacity is allocated between capital and ongoing expenditures will depend upon the City’s priorities. 4g. The City shall have discretion to allow a special tax in excess of the established limits for any lands within the CFD which are designated for commercial or industrial uses. 13.a Packet Pg. 310 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Public Infrastructure Financing Framework 7/20/2016 Draft Memorandum Page 8 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx 4h. As a part of such district formations, the City will retain a special tax consultant to prepare a report which recommends a special tax rate and method for the proposed CFD and 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. 5. Enhanced Infrastructure Financing District Guidelines and Policies The Enhanced Infrastructure Financing District (EIFD), established through SB 628 in 2014, offers a new form of “tax increment” financing in the wake of the loss of local redevelopment agency powers in California. Through the EIFD the City can pledge a portion of its “incremental” property tax proceeds (and other future revenues) to fund a wide range of public facilities and infrastructure and affordable housing. 5a. EIFD financing should be considered for public facilities or infrastructure improvements that confer Citywide and/or regional benefits. This may include the “City share” of infrastructure included in the City’s development impact fees. 5b. Unless there is a Development Agreement in place that provides otherwise, EIFDs should not be used to fund real estate projects’ proportional share of infrastructure costs otherwise included in the City’s development impact fees or charged as project-specific exactions (e.g., subdivision improvements). 5c. EIFDs produce maximum benefit when more than one local government jurisdiction is participating; there are opportunities to collaborate with the County of San Luis Obispo to improve infrastructure benefiting the region. 5d. The term of the EIFD may not be longer than 30 years, per SB 628. 5e. The establishment of an EIFD represents an opportunity cost to the City’s General Fund. As such, at the time of formation of the EIFD (or if changes to the EIFD are contemplated), the City should require a fiscal impact analysis to determine if an EIFD is fiscally prudent. 13.a Packet Pg. 311 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Ta b l e  1:  So u r c e s  an d  Us e s  Po l i c y  Fr a m e w o r k  Ma t r i x Pr o j e c t  Si t e ‐Sp e c i f i c ,  In ‐Tr a c t ,  an d  Fr o n t a g e   Im p r o v e m e n t s   Ca p a c i t y  Im p r o v e m e n t s  an d  Ne w  In f r a s t r u c t u r e   Ne e d e d  to  Su p p o r t  Ne w  De v e l o p m e n t  On l y Ca p a c i t y  Im p r o v e m e n t s  an d  Ne w  In f r a s t r u c t u r e   Ne e d e d  to  Al l e v i a t e  Ex i s t i n g  In f r a s t r u c t u r e   De f i c i e n c i e s   Ca p a c i t y  Im p r o v e m e n t s  and New Infrastructure  Ne e d e d  to Meet New Service StandardsNew Infrastructure, Facilities, or Other Community Benefits that Exceed Nexus‐Based Cost Allocation to New DevelopmentOperations and Maintenance Ty p i c a l  De v e l o p m e n t  St a n d a r d s ,  En t i t l e m e n t  Ex a c t i o n s   an d / o r  Re i m b u r s e m e n t  Ag r e e m e n t s  fo r  Ov e r s i z i n g       Ad d i t i o n a l  Pr o j e c t ‐Sp e c i f i c  De v e l o p m e n t  Ag r e e m e n t ,   Co m m u n i t y  Be n e f i t s  Ag r e e m e n t ,  et c .  De v e l o p m e n t  Im p a c t  Fe e s  an d  Co n n e c t i o n  Ch a r g e s  ‐   Mi t i g a t i o n  Fe e  Ac t  Co m p l i a n t  (e i t h e r  Pl a n n i n g  Ar e a  or   Ci t y w i d e )   (N e w  Development's Share) Sp e c i a l  Ta x  or  As s e s s m e n t  Di s t r i c t  (e . g . ,  CF D ,  19 1 3 / 1 5  Ac t   Bo n d s )        Re g i o n a l ,  St a t e  or  Fe d e r a l  Gr a n t  Fu n d i n g    En h a n c e d  In f r a s t r u c t u r e  Fi n a n c i n g  Di s t r i c t  ‐   SB  62 8  Ta x   In c r e m e n t  Fi n a n c i n g  (e i t h e r  Pl a n n i n g  Ar e a  or  Ci t y w i d e )  Ot h e r  Ci t y  Fu n d i n g  (S p e c i a l  Ta x  Me a s u r e s ,  Ce r t i f i c a t e  of   Pa r t i c i p a t i o n ,  et c . )  Ge n e r a l  Ci t y  Fu n d i n g  City‐Based Funding In f r a s t r u c t u r e  Im p r o v e m e n t  Ty p e  an d  Lo c a t i o n In f r a s t r u c t u r e  Fu n d i n g  Ty p e Developer‐Based Funding Land‐Secured  Tax Revenue Ec o n o m i c  & Pl a n n i n g  Sy s t e m s ,  In c .  7/ 2 0 / 2 0 1 6 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\Generalized Sources and Uses for SLO_simplified for memo.xlsx13.a Packet Pg. 312 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y S e s s i o n ) APPENDIX A: Definition of Funding Sources and Financing Mechanisms 13.a Packet Pg. 313 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx APPENDIX A: FUNDING SOURCES AND FINANCING MECHANISMS There are a range of funding sources and financing mechanisms that can fund the City’s public facility and infrastructure improvements and facility improvements. The City already makes use of some of these, while others represent options for future consideration. Following is a description of potential funding sources, organized by general categories of funding: Development-Based Funding, Land-Secured Revenue and Financing, and City Funding and Financing. Development-Based Funding Private Developer Financing, Agreements and Partnerships Developers commonly fund infrastructure requirements privately, for example virtually all “in- tract” improvements (infrastructure improvements within a subdivision) are privately financed. In some cases area-serving infrastructure (not fully the responsibility of a particular developer) can be privately financed. These cooperative arrangements are typically structured in development agreements or reimbursement agreements. This upfront infrastructure development may be fully or partially refunded, using subsequently collected development impact fees, special tax bond proceeds, or other city funding sources. These arrangements tend to be available during times of strong market performance. In weaker markets or locales it may be difficult to obtain such private financing. Project-Specific Conditions and Exactions Before the advent of ordinance-based development impact fees, it was common for infrastructure to be funded by the developer through project-specific exactions imposed by the local jurisdiction, including direct payments for or construction of infrastructure required as a condition of subdivision or project approval. While development impact fees have reduced the use of exactions, exactions remain an important part of development-based infrastructure financing as there are often infrastructure requirements of a new project that are not included in the applicable fee programs. Determination of the need for such additional infrastructure is based on “rough proportionality” (i.e., nexus) with the development itself and is often derived from CEQA-based mitigation measures. Development Agreements A development agreement (DA) is a legally binding agreement between a local government and developer authorized by State statute (Government Code Section 65864 et seq.). A DA is a means for a developer to secure a development entitlement for a particular development project for an agreed upon period (often long-term approvals) in exchange for special considerations by the city (or county), generally including infrastructure improvements, amenities, or other community benefits that cannot be obtained through the normal conditions applicable to the project. DAs are entirely discretionary on the part of local government (there is no nexus requirement) and must be individually adopted by local ordinance. Development agreements vary widely and cities often establish their own policies and procedures for considering development agreements. 13.a Packet Pg. 314 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Public Infrastructure Financing Framework 7/20/2016 Draft Memorandum Appendix A Page A-2 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx Incentive Zoning Land use regulations can be configured in a manner that can provide incentives for additional private investments in local infrastructure and community benefits beyond that obtainable through the normal regulatory procedures. Community Benefit Incentive Zoning (CBIZ) programs are founded on the concept of “value capture.” Public entities commonly create value with investments in public facilities and services (e.g., transit and utilities upgrades) as well as through changes to zoning code that increase the value of land. Typically, when the public sector creates value in these ways, landowners enjoy a financial gain. Value capture occurs when the public sector reclaims some of the value created by its activities. The State of California’s Affordable Housing Density Bonus Law is an example of a CBIZ value capture program. Under this law, developers are granted additional density (i.e., the right to build additional market rate units) in return for their development of affordable housing units. A key limitation of CBIZ is the requirement for a strong real estate market in which developers are seeking to take advantage and pay for the incentives offered. Development Impact Fees (authorized by Section 66000 et. seq. of the Government Code) Development impact fees are charged to new private development in the City of San Luis Obispo to fund a range of public infrastructure improvements. A development impact fee is an ordinance-based, one-time charge on new development designed to cover a “proportional-share” of the total capital cost of necessary public infrastructure and facilities. The creation and collection of impact fees are allowed under AB-1600 as codified in California Government Code Section 66000, known as the Mitigation Fee Act. This law allows a levy of one-time fees to be charged on new development to cover the cost of constructing the infrastructure needed to serve the demands created by the new development. To the extent that required improvements are needed to address both “existing deficiencies” as well as the projected impacts from growth, only the portion of costs attributable to new development can be included in the fee. Consequently, impact fees commonly are only one of many sources used to finance a city’s needed infrastructure improvements. Fees can be charged on a jurisdiction-wide basis or for a particular sub-area of the jurisdiction (such as a specific plan area). Establishment Development impact fees can be imposed through adoption of a local enabling ordinance supported by a technical analysis showing the “nexus” between the fee and the infrastructure demands generated by new development. Fees may be charged for a particular improvement (e.g., transportation improvement) or include multiple infrastructure improvement categories in a comprehensive program. Impact fee programs must be reviewed annually and updated periodically to assure adequate funding and proper allocation of fee revenues to the infrastructure for which the fees are collected. Cost Burden The burden incidence of development impact fees is upon the project developers and builders who pay the fees. Fees are a cost of development and are “internalized” into project costs in the same manner as all other development- and construction-related costs. There is no direct effect of fees on development pricing, because the markets set pricing independent of costs. However, when costs are too high for the market to bear, development may be deterred until such time as prices justify costs. All costs will influence land value, so it is often the case that landowners bear a portion of the cost of fees through lower land values (prices paid by developers or builders). So 13.a Packet Pg. 315 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Public Infrastructure Financing Framework 7/20/2016 Draft Memorandum Appendix A Page A-3 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx long as total development costs fall within a reasonable level, potential negative effects on development feasibility effects are manageable. Economic Considerations There are a number of specific economic considerations of development impact fees including:  The effects of fees on the financial feasibility of new development and potential to deter otherwise desirable development (due to excessive costs); and  The competitiveness effects of higher development costs (compared to neighboring jurisdictions) leading to dislocation of desired development. A benefit of impact fees is that they provide a comprehensive and programmatic framework for identifying and allocating infrastructure costs to new development based on a demonstrated nexus between the new development and infrastructure need. In addition, there is no discretion on the part of developers subject to the fees nor is voter approval required. The key limitation of development impact fees (in addition to the nexus requirement) is the timing of funding. Infrastructure often is needed “up-front” while fees are paid over time as development occurs. This means that other funding or financing methods are needed to close the timing gap. Fees also are irregular, as they depend on development activity that varies with economic conditions. During the 2008-09 recession, when development around the State and in the Bay Area slowed dramatically and prices fell precipitously in many locations, fee program revenues fell proportionately. Fees also require ongoing management including annual review, fund accounting, and updating to assure the efficacy and transparency of the fee program. Related to the economic concerns discussed above, it is important to recognize that there are methods for moderating or deferring fees. Though individual development impact fee ordinances must be consistently applied and coordinated, they may contain features that can reduce potential negative economic effects and to avoid unnecessarily inhibiting otherwise desirable development. Also, there can be features of development impact fees that address economic concerns generally or on a case-by-case basis.  Fee Deferrals: While the statute allows a levy of fees at issuance of building permit, many development impact fee ordinances allow a deferral until the “certificate of occupancy” is issued.  Fee Waivers: Fee waivers provide the local government the ability to waive the fee for a particular project when it is determined that without such reduced costs a project that has substantial public benefit may otherwise not occur. Lacking such community benefits, waivers may be regarded as a “gift of public funds.” Examples of such partial or total waivers include projects with the potential to generate substantial municipal revenue or community amenities, affordable housing projects, and employment-generating uses. Fee waivers reduce funding in a fee program proportional to the aggregate amount of waivers or exemptions granted. Such revenue reductions must be “made up” by the city from other funding sources, or risk falling short on funding for infrastructure in the fee program.  Credits and Reimbursements: Credits and reimbursements are mechanisms that allow developers subject to an impact fee to build infrastructure in-lieu of paying the fee. Credits provide proportional fee forgiveness for the value of that construction against the fee obligation. Reimbursements occur in the case where construction value exceeds the particular developer’s fee obligation. 13.a Packet Pg. 316 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Public Infrastructure Financing Framework 7/20/2016 Draft Memorandum Appendix A Page A-4 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx  Short-Term Fee Financing (interest bearing installment payments): Ordinances can provide for a developer to pay fee obligations over a period of time subject to an interest bearing and secured note. Parkland (Quimby) Fees In addition to park impact fees, park and recreation improvements are funded through the Quimby Act requirements (for parkland acquisition) through the residential subdivision process. Utility Fees and Connection Charges Utility connection charges from new development can fund utility infrastructure improvements. Revenue bonds may be issued secured by a utility rate charge base (water and sewer) and may be used for expansion to serve future development, or for reimbursement to the Developer for initial funding of utility facilities. The City currently charges water and wastewater connection fees from new development. Land-Secured Revenue and Financing There is a long history in California and elsewhere in the United States of using land-secured financing methods to fund local infrastructure or provide services that benefit a particular area (ranging from an entire jurisdiction to sub-areas of all sizes). Traditionally, special assessment bonds as authorized by the Improvement Bond Act of 1915 and other related legislation were issued and funded by annual property tax assessments from benefitting properties. Increased voting requirements created by Proposition 218 largely eliminated the use of Special Benefit Districts in the mid-1990s. However, since the mid-1980s the Mello-Roos Community Facilities District (CFD) has been a well-used infrastructure finance tool, though it is not well suited for most infill applications due to voting requirements. Special Benefit Assessment Districts Special benefit assessment districts are a way of creating a property-based assessment upon properties that benefit from a specific public improvement. The formation of assessment districts requires majority approval of the affected property owners. Benefit assessments can fund a wide range of infrastructure improvements so long as a direct and measurable benefit can be identified for the benefitting properties. There are numerous forms of special benefit assessments in the California statutes, including the Municipal Improvement Act of 1913, Lighting and Landscape Maintenance Districts, and others. However, in 1996, Proposition 218 effectively curtailed the use of Assessment Districts in California by limiting the methods by which local governments may exact revenue from taxpayers without their consent. In addition, recent court rulings (Silicon Valley Taxpayers’ Assn., Inc. v. Santa Clara County Open Space Authority, 44 Cal. 4th 431 (Cal. 2008)) have further tightened the requirements for demonstration of “special benefit” thus further reducing the flexibility and utility of assessment districts. Community Facilities District Act The Mello-Roos Community Facilities Act of 1982 (authorized by Section 53311 et. seq. of the Government Code) enables the formation of a CFD by local agencies, with two-thirds voter approval (or landowner approval when there are fewer than 12 registered voters in the proposed district), for the purpose of imposing special taxes on property owners. The resulting special tax revenue can be used to fund capital costs or operations and maintenance expenses directly, or they may be used to secure a bond issuance, the proceeds of which are used to fund capital 13.a Packet Pg. 317 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Public Infrastructure Financing Framework 7/20/2016 Draft Memorandum Appendix A Page A-5 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx costs. Because the levy is a tax rather than an assessment, the standard for demonstrating the benefit received is lower, thus creating more flexibility. Despite limited use in populated infill areas, CFDs have become the most common form of land-secured financing in California. Establishment California’s land-secured funding districts can fund a wide range of infrastructure improvements that generate direct and measurable benefits to specific properties. The districts require (resident) voter or landowner approval. In the case of assessment districts, majority landowner approval is typically required. In the case of a CFD, a two-thirds voter approval is needed in areas that have more than 12 residents (landowners can approve special taxes in areas with 12 or fewer residents). Cost Burden The owners or users of real estate pay assessments or special taxes. By adding to the cost of ownership, the assessment or tax may affect the price a buyer is willing to pay for a home or commercial property, in which case the cost incidence is shared with the builder, land developer, or landowner. Experience suggests that less than 100 percent of the financing burden is recognized by buyers. Economic Considerations Land-secured financing provides a well-established method of securing relatively low-cost tax exempt, long-term, fixed rate, fully-assumable debt financing. However, there can be challenges associated with establishing measurable and specific benefits to particular properties. In addition, land-secured financing adds financing costs (e.g., cost of issuance and program administration). Further, the financing capacity of a district may be limited in early phases of development and it may be necessary to rely on other sources of infrastructure funding during initial years. Finally, while land-secured financing has been widely used in greenfield development where landowner approval is the norm, achieving a two-thirds voter approval in infill areas typically is a barrier to use of the tool. City Funding and Financing Cities have a number of ways in which they can raise money for capital projects and/or finance capital improvements, including seeking voter approval of general obligation bonds or special tax bonds, use of enterprise revenues (i.e., revenue-generating services) for enterprise investments (e.g., water and sewer utilities), and through “capitalizing leases” funded with General Fund revenue sources. Cities also have discretion over the use of various State and federal grant program funds that continue to be available and can avail itself of State financing programs (e.g., IBank and SCIP). The City of San Luis Obispo also established an Infrastructure Investment Capital Fund and deposited funds that can be used to leverage grant funding, as loans or for direct City participation in infrastructure projects that will enhance quality of life and improve economic development. Grants Grants provide external funding from regional, state, and federal sources but reflect local priorities. Many grants require local matches. Apart from local match requirements, there are significant staff costs associated with grant funding, including staff time during the application 13.a Packet Pg. 318 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Public Infrastructure Financing Framework 7/20/2016 Draft Memorandum Appendix A Page A-6 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx process and during the project. Grant funding is often limited to capital improvements with maintenance responsibilities falling to the local jurisdiction. Regional, State, Federal Transportation Funding The San Luis Obispo Council of Governments (SLOCOG) administers transportation funding from a variety of sources that includes federal, state and local assistance. Current federal programs include the Surface Transportation Program (STP), the Congestion Mitigation and Air Quality (CMAQ) Program, and the Transportation Alternatives Program (TAP). State programs include the Active Transportation Program (ATP) administered by Caltrans, and the State and Regional Transportation Improvement programs (STIP and RTIP), While it depends on the program, it may be possible to fund portions of certain regional-serving transportation facilities and improvements (e.g., the Los Osos Valley Road interchange or the Prado Road interchange). The availability of transportation-related grant funding has been declining in the past decade, making the funds more competitive and therefore more challenging to secure. Infrastructure Investment Capital Fund (authorized by SLO Resolution No. 10603, 2015 Series) The Infrastructure Investment Capital Fund was created to help the City realize the benefits of growth that is well-planned, and that would not occur in a timely manner without City participation in the financing of supporting infrastructure. The funds can be used to leverage additional grant funding, as loans or for direct City participation in priority infrastructure that will enhance the quality of life and improve economic development. The resolution language includes guidelines for the use of the funds and stipulates evaluation criteria. Guidelines 1. The use of City funds shall not offset any cost that would be legally required to be paid to meet the fair share obligation of the developer requesting City investment in an infrastructure project. 2. The use of City funds shall not offset a private project’s specific mitigation cost identified through the environmental review process or under existing regulations or policies. 3. The use of City funds shall support a project that would not otherwise be feasible in a timely manner due to the economic environment, the timing of the project, or other constraints outside the control of the project proponents or the City. 4. The project proponents shall demonstrate a significant public benefit associated with construction of the project that merits City participation. 5. Approved projects will have a measurable outcome that will be monitored and reported to the Council and the public. Evaluation Criteria 1. Significant public benefit, demonstrated by compliance with and furtherance of General Plan goals, policies, and programs; and 2. Alignment with the Major City Goals and other important objectives in place at the time of the application; and 3. Head of Household Job Creation; and 4. Housing Creation; and 5. Circulation/Connectivity Improvements; and 13.a Packet Pg. 319 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Public Infrastructure Financing Framework 7/20/2016 Draft Memorandum Appendix A Page A-7 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx 6. Net General Fund fiscal impact. Enhanced Infrastructure Financing Districts (authorized by the Infrastructure Financing District Act, Government Code §53395, et seq.; expanded by SB 628.) Infrastructure Financing Districts (IFDs) and Enhanced Infrastructure Financing Districts (EIFDs) are forms of Tax Increment Financing (TIF) that currently are available to local public entities in California. Local agencies may establish an IFD or EIFD for a given project or geographic area in order to capture incremental increases in property tax revenue from future development. In the absence of the IFD or EIFD, this revenue would accrue to the city’s General Fund (or other property-taxing entity revenue fund). EIFD funds can be used for project-related infrastructure, including roads and utilities, as well as parks and housing. Unlike prior TIF/Redevelopment law in California, IFDs and EIFDs do not provide access to property tax revenue beyond the local jurisdiction’s share (AB-8 tax allocation). Largely because IFDs can be difficult to enact, Senate Bill 628 created a similar but more flexible tool, the EIFD. The EIFD bill expands the scope of eligible projects considerably, and lowers the voter/landowner threshold to pass a bond from two-thirds to 55 percent. In addition, EIFDs can be formed and gain access to unlevered (debt free) revenue without a vote. SB 628, the new EIFD legislation, allows for the following:6 Reduce vote requirements: While current law requires a two-thirds vote to form an Infrastructure Financing District, the new EIFDs could be formed—and could use a range of existing financial tools—without going to voters. Only issuing tax increment bonds would require a vote, with a vote threshold of 55 percent. Expand financing authority: The new EIFDs would allow local leaders to support infrastructure projects through multiple funding streams, including a full complement of existing public mechanisms (tax increment authority, benefit assessments, and fees), as well as private investment and procurement. Increase investment in different types of infrastructure: The enhanced districts would be able to build every type of infrastructure: transportation, water, flood control and storm water quality management, transportation, energy, public facilities, energy, and environmental mitigation—so long as a direct connection can be established between the needed infrastructure and its users. Allow more flexible institutional collaborations: SB 628 also gives communities more flexibility to accommodate regional growth by making infrastructure investments across jurisdictions through Joint Power Authorities. Unlike former redevelopment tax increment funding, IFD’s can only utilize the City’s share of property tax increment (and any other agencies who agree to forego their share of tax increment). While any tax increment, no matter how small, could benefit a marginally financially feasible project, it is important that in most cases the local property tax available is very limited (California cities typically get between $0.10 and $0.20 of a property tax dollar). Moreover, the use of local property tax to support infrastructure financing has fiscal implications for California 6 www.caeconomy.org (“How New EIFDs Can Improve Local Infrastructure Development”). 13.a Packet Pg. 320 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Public Infrastructure Financing Framework 7/20/2016 Draft Memorandum Appendix A Page A-8 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx cities. Dedicating tax revenue to infrastructure limits funding for new public services costs associated with development. Establishment The establishment of an IFD or EIFD requires approval by every local taxing entity that will contribute its property tax increment. The IFD also requires two-thirds voter approval (within the specific geographic area) to form the IFD. EIFDs only require a vote when debt issuance is sought. Cost Burden The incidence of burden of an infrastructure financing district is local taxing jurisdiction that foregoes property tax revenue for services and dedicates these funds to infrastructure or other eligible investments. Economic Considerations IFDs and EIFDs, a form of TIF, redirect property taxes otherwise accruing to the city General Fund. The value created by the project is captured and invested in a manner that helps realize the project. However, only specific types of public investments of community-wide significance may be financed through IFDs and EIFDs. IFDs and EIFDs cannot be used to finance operations and maintenance expenses. Unlike former Redevelopment TIF, IFDs only can utilize local government’s share of property tax (along with other agencies who agree to forego their share of tax increment). State Financing Programs State Infrastructure Bank (IBank) (authorized by Section 63000 et. seq. of the Government Code) The IBank was created in 1994 to finance public infrastructure and private development that promote a healthy climate for jobs, contribute to a strong economy and improve the quality of life in California communities. The IBank operates pursuant to the Bergeson-Peace Infrastructure and Economic Development Bank Act (Government Code Sections 63000 et seq.). The IBank is administered by the Governor's Office of Business and Economic Development and is governed by a five-member Board of Directors. Since its inception, the IBank has financed more than $37 billion in infrastructure and economic development projects around the State. The IBank has broad authority to issue tax-exempt and taxable revenue bonds, provide financing to public agencies, provide credit enhancements, acquire or lease facilities, and leverage state and federal funds. The IBank's current programs include the Infrastructure State Revolving Fund (ISRF) Program, 501(c)(3) Revenue Bond Program, Industrial Development Revenue Bond Program, Exempt Facility Revenue Bond Program and Governmental Bond Program. The ISRF Program provides very low-interest rate loans up to $25 million (per applicant) to municipal governments for a wide variety of municipal infrastructure, including infrastructure needed to serve new development. An application is required for these loans, and loans require a stable and reliable source of repayment. If approved, loan repayment can be funded through a commitment of city general fund revenues or a pledge of a particular revenue source, including a citywide tax, land secured assessment, or special tax levied on a particular area. Common criticisms of the IBank ISRF Program have included its cumbersome program application process, its strict credit standards and related risk aversion, and limited financial incentive to participate. However, recent changes to the program may increase IBank lending to 13.a Packet Pg. 321 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Public Infrastructure Financing Framework 7/20/2016 Draft Memorandum Appendix A Page A-9 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx cities without other credit options. Pursuing further opportunities to modify or expand the Program, or to create an entirely new program, could make State-sponsored lending a useful tool for assisting and incentivizing infill development.7 Statewide Community Infrastructure Program (SCIP) The Statewide Community Infrastructure Program (SCIP) is a program of the California Statewide Communities Development Authority (CSCDA) that makes use of a local government’s ability to create land-secured financing districts. The Program “pools” debt obligations to gain a comparatively lower interest rate and issuance costs (particularly if the issue is less than $5 million). SCIP can benefit developers because it provides low-cost, long-term financing of fees and improvements, which can otherwise entail substantial upfront cash outlays. Local agencies benefit from SCIP when fee funds are made available upfront or infrastructure is financed with attractive terms. Typically, most public improvements required as conditions of project approval are eligible, including roads, street lights, landscaping, storm drains, water and sewer facilities, and parks. Further, the availability of low-cost, long-term financing also can soften the burden of rising fees and improvement costs, which benefits developers and local agencies. According to CSCDA, the SCIP program has assisted communities and developers throughout California to finance over $150.2 million in impact fees since 2003. CSCDA is a Joint Powers Authority sponsored by the League of California Cities and the California State Association of Counties. Membership in the Authority is open to every California city and county, and most are members. SCIP financing is available for development projects situated within cities or counties (local agencies) which have elected to become SCIP participants. Eligibility to become a local agency requires only (a) membership in the League of Cities or California State Association of Counties, (b) membership in the Authority, and (c) adoption of a resolution making the election (the “SCIP Resolution”). Participation in SCIP entails the submission of an application by the property owner of the project for which development entitlements either have been obtained or are being obtained from a local agency. For projects determined to be qualified, SCIP provides non-recourse8 financing of either (a) eligible development impact fees payable to the local agency or (b) eligible public capital improvements (or both). Under certain circumstances, determined on a case-by-case basis, development impact fees payable to local agencies also may be used as repayment for upfront SCIP funding. SCIP funding awards are aggregated for inclusion in a round of financing authorization. Periodically, as warranted by the accumulation of approved funding applications, the California Statewide Communities Development Authority issues tax-exempt revenue bonds. For projects involving a sufficient amount of financing (generally $5 million or more), a special series of bonds may be issued to fund the project separately if the timing of issuance of a pooled financing does not suit the project. Revenues to pay debt service on the SCIP bonds are derived from special assessments pursuant to the Municipal Improvement Act or through the levy of special taxes by establishing a CFD pursuant to the Mello-Roos Community Facilities Act. 7 Find more information concerning California Infrastructure and Economic Development Bank programs available here: http://www.ibank.ca.gov/programs_overview.htm. 8 Non-recourse financing is a loan structure in which the lending bank is only entitled to repayment from the proceeds of the project, not from other assets of the borrower. 13.a Packet Pg. 322 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Public Infrastructure Financing Framework 7/20/2016 Draft Memorandum Appendix A Page A-10 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx Other City Funding and Financing Increases in Local Taxes Subject to a vote, cities and counties can use a variety existing or new funding sources to fund infrastructure directly or provide interim financing for development-based obligations. For example, local sales tax increases, transient occupancy taxes, utility user taxes, development taxes, and (local option) real estate transfer taxes (charter cities only) all can be created or increased for this purpose. By enhancing General Fund revenues, the City gains the ability to divert some funds to infrastructure projects. A commitment to fund specific types of projects can be made in the ordinances that create new taxes or can be made as a matter of city policy. City funding can be used to fund infrastructure using a “pay-as-you-go” approach, as a source of reimbursement, or to support a municipal bond issue (e.g., to fill an initial funding gap associated with development impact fee programs or land secured financing programs). Establishment Creation of new general or special taxes and any related issuance of bonds supported by such revenues are limited by State constitutional requirements and statutes that require voter approval of greater than 50 percent for general taxes and two-thirds approval for special taxes (i.e., those earmarked for particular uses). Cost Burden The incidence of burden falls to those paying the taxes or rates. For example, sales taxes are paid by residents, businesses, employees, and visitors, while transient occupancy taxes are paid by visitors. The rationale for this payer burden is that these residents, businesses, employees, and visitors will benefit from the investments made in infrastructure and development. Economic Considerations Use of various general fund sources to support infrastructure investments including repair and replacement of existing infrastructure, as well infrastructure that serves new development, requires little additional administrative effort and is typically secure given the broad range of revenue sources pledged to the financing. However, the use of existing General Fund revenue is limited by current demands to support municipal operations. Certificates of Participation Capitalizing leases, most commonly Certificates of Participation (COPs), are typically used by government agencies for construction or improvement of public facilities. Through the use of a lease-type repayment structure, the monies needed to fund these building projects do not (by California State law) constitute public debt and do not require voter approval. Usually, a public entity enters into a tax-exempt lease-purchase with a lessor and the lessor provides the agreed- upon the public facility. In this way, government agencies may use their leasing powers to provide more expedient access to the capital markets than the more restricted powers to incur debt. Agencies typically use tax-exempt leases to finance non-enterprise projects, such as schools, courthouses, jails, and administration buildings.9 Establishment The COP is a lease obligation of the City and thus does not require voter approval. There is a prescribed process for creating and administering COPs that the City must follow. 9 California Debt Advisory Commission 1993. 13.a Packet Pg. 323 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Public Infrastructure Financing Framework 7/20/2016 Draft Memorandum Appendix A Page A-11 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx Cost Burden Lease payments for COPs are generally derived from appropriations of the City’s General Fund; they are secured with a pledge of specific City assets and underwritten by the full faith and credit of the City Economic Considerations COPs typically have very competitive financing rates and thus are commonly used for financing municipal facilities and infrastructure where Citywide benefit is conferred. General Obligation Bonds A general obligation bond is a type of municipal bond that is secured by a state or local government's pledge to use legally available resources, most typically including property tax revenues, to repay bond holders. General obligation bonds are restricted to defined capital improvements. Credit rating agencies often consider a general obligation pledge to have very strong credit quality and frequently assign them investment grade ratings. In California, cities must secure a two-thirds voter approval to issue general obligation bonds. Establishment Creation of general obligation bonds requires two-thirds voter approval if the issuance is for non- educational purposes. Cost Burden The incidence of burden of general obligation bonds is upon all property owners in the issuing jurisdiction proportional to the value of their property. It is this very broad base of funding that provides excellent security for general obligation bonds, thus typically garnering the lowest interest rate of any municipal debt instrument. Economic Considerations General obligation bonds allow public entities to finance at a low fixed rate over the useful life of the asset. However, general obligation bonds are limited to capital improvement expenditures and also are limited in their use to the precise purposes outlined in the authorizing ballot measure. General obligation bonds are commonly restricted to particular capital uses (e.g., street improvements, drainage improvements, parks and recreation). Enterprise Revenues and Revenue Bond Financing Cities and other local governments typically issue revenue bonds when they have access to a stable source of revenue such as municipal utility rates. Commonly, revenue bonds fund improvements to water and sewer facilities. Utility rates that fund revenue bonds can vary within a given jurisdiction if there are substantial differences in the costs of providing services. There also can be rate surcharges if unique improvements are needed to serve the area. Establishment Revenue bonds are issued by the municipal enterprise and require no voter approval. Revenue bonds may provide improvements for an entire jurisdiction or a sub-area. Cost Burden The incidence of burden of revenue bonds is upon rate payers. 13.a Packet Pg. 324 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y Public Infrastructure Financing Framework 7/20/2016 Draft Memorandum Appendix A Page A-12 P:\161000s\161001SLO_PubFinAdvisory Services\Financing Framework\161001_Financing Framework_2016_07_20.docx Economic Considerations Revenue bonds typically have a good risk profile and therefore garner comparatively low interest rates. Because they are secured exclusively by enterprise revenue, they are not general obligations of the city and do not require ballot approval. The ability to adjust rates to cover debt service costs and the ability to charge such rates differentially (given differing costs and benefits in service sub-areas) creates flexibility and appropriate cost allocation. 13.a Packet Pg. 325 At t a c h m e n t : a - P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k a n d D r a f t P o l i c i e s ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y SIGNIFICANT OPERATING PROGRAM CHANGE (COMMUNITY DEVELOPMENT) LUCE IMPLEMENTATION AND FEE UPDATE SUMMARY OF CHANGE: Implementing the update to Land Use and Circulation Elements (LUCE) to ensure internal consistency of the City’s implementing ordinances and fees will cost approximately $410,000 in FY 2015-16 and $325,000 in FY 2016-17 for consultant and contract services. FISCAL IMPACT: One time cost of $410,000 in FY 2015-16 and $325,000 in FY 2016-17. SERVICE LEVEL IMPACT: The objective of this request is to complete the LUCE update by implementing key strategies that were developed as part of the update process. This effort is necessary to maintain internal consistency of the General Plan and its implementing documents. This effort will involve form-based codes/updated guidelines for the downtown that will provide an updated graphic Downtown Concept Plan (as called for in the Land Use Element) along with other changes to the Zoning Code; and a nexus study and impact fee program update to address changed infrastructure needs and evaluate facilities and service needs not previously captured, in order to update the City’s impact fee program. KEY OBJECTIVES 1. Leverages initial fiscal analysis conducted as part of the LUCE update. 2. Provides internal consistency between the General Plan and implementing ordinances as required by Government Code. 3. Develops fee and impact information needed for Economic Development Strategic Plan implementation. 4. Implements recommendations of the Community Development Organizational Assessment where Zoning Code changes may impact process changes. 5. Conducts the required AB1600 evaluation of the fee program and fair share cost allocation resulting from changes to public infrastructure and service needs defined in the LUCE update. 6. Complies with State law requirement to complete routine updates to fee programs. EXISTING SITUATION: FACTORS DRIVING THE NEED FOR CHANGE Due to an $880,000 grant from the Strategic Growth Council (SGC) the City was able to initiate an update to the Land Use and Circulation Elements (LUCE) during the 2011-13 Financial Plan period. The Council added $367,500 to this budget in order to complete the environmental review of the project (which was not covered by the grant). The draft LUCE was submitted to the Strategic Growth Council by the grant deadline of September 26, 2014 and hearings and review of the Environmental Impact Report proceeded through the fall with final approval by the Council on December 9, 2014. Subsequent work efforts are now needed to implement the updated General Plan. Changes to the Zoning Code and other implementing documents are called for as part of the LUCE update. The updated General Plan will benefit from implementing ordinances and standards that are more graphical in nature and more easily understood by the public. This request includes a desire to see updated graphics and re-organization of the Zoning Code and other implementing codes. Also, infrastructure changes identified and endorsed by the City Council through the LUCE update and associated EIR require a more detailed evaluation to determine how the infrastructure will be funded and how the current impact fee programs will need to be adjusted. While the LUCE update process involved a financial analysis, it did not provide the level of detail required to develop infrastructure costs and distribution through appropriate mechanisms, such as impact fees. This evaluation (also referred to as an AB 1600 study) must be done to establish the nexus between the infrastructure desired and the development that will pay the impact fees. AB 1600 sets the legal and procedural parameters for the charging of development impact fees. 13.b Packet Pg. 326 At t a c h m e n t : b - S O P C L U C E I m p l e m e n t a t i o n a n d F e e U p d a t e ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y S e s s i o n ) SIGNIFICANT OPERATING PROGRAM CHANGE (COMMUNITY DEVELOPMENT) LUCE IMPLEMENTATION AND FEE UPDATE The City’s traffic impact fee program was originally established in 1995 and last updated in 2006. The purpose of the fee is to fund the transportation improvements required to accommodate new development in the City. Since the last update, new transportation improvements have been identified that are not currently included in the traffic impact fee program and a multi-modal approach has been endorsed. Additionally, the equity of some specific plan area fees has been questioned. These circumstances are best to be addressed as part of a multi-modal circulation impact fee update now that the General Plan has been updated. Augmenting contract services for transportation consultant assistance is essential for providing services to internal City customers such as the Police & Fire Departments. Other stakeholders, such as Cal Poly, Cal Trans, SLO County, San Luis Obispo Council of Governments are affected by this resource. Previously traffic impact updates have been completed by the Finance and IT Department. Given the department’s current resources, staff recommends consultant services be utilized to accomplish this task. GOAL AND POLICY CRITERIA This request meets all of the SOPC criteria as follows: 1. Supports Major City Goals: This request supports Major City Goals, including Housing and Multi-Modal Transportation as well as supports an other important objective of Downtown. It also continues implementation of goals from the 2013-15 Financial Plan of Infrastructure and Fiscal Health, Bike and Pedestrian Paths, and implementing the Economic Development Strategic Plan (EDSP) by updating the fee program to achieve community objectives of affordable housing and circulation infrastructure. 2. Needed to address health, safety or legal concern: Updating the Zoning Code will provide internal consistency between the recently-adopted General Plan and implementing ordinances as required by Government Code. Providing a nexus study and update to the fee program is required to reflect new and changed infrastructure identified in the LUCE update. This includes conducting the required AB1600 evaluation of the fee program and fair share cost allocation for affordable housing, public art, open space, parks, and changes to public infrastructure and service needs defined in the LUCE update. 3. Needed to provide a priority level of service: Updating the impact fees to fairly distribute responsibility and cost of needed infrastructure is a priority for the development community. In addition, updating the Zoning Code and implementing bike paths and affordable housing projects is a broader community priority. 4. Supports revenue generation and/or cost savings: Both efforts may indirectly result in either revenue generation or cost savings. Updating the impact fees will more accurately represent the cost of infrastructure needs in the community and will distribute the costs to pay for those needs. The resulting infrastructure will support new development which will generate revenue. Updating the Zoning Code will provide more clarity and reflect a range of uses that were not envisioned in 1994 – the last time the Land Use Element was significantly updated. 5. Represents reorganization within or across Departments: Implements recommendations of the Community Development Organizational Assessment where Zoning Code changes may impact process changes. 13.b Packet Pg. 327 At t a c h m e n t : b - S O P C L U C E I m p l e m e n t a t i o n a n d F e e U p d a t e ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y S e s s i o n ) SIGNIFICANT OPERATING PROGRAM CHANGE (COMMUNITY DEVELOPMENT) LUCE IMPLEMENTATION AND FEE UPDATE 6. Reallocation of Existing Resources: The staff resources previously assigned to the LUCE update will be available to coordinate this effort, but consultant services will still be required. Updating the Downtown Concept Plan will leverage the resources allocated for the Mission Plaza CIP project and visioning/outreach efforts can be coordinated for efficiency. In addition, the Public Art Master Plan effort will be completed by September 2015 and will inform the Downtown Concept Plan update effort. STAKEHOLDERS Implementation of the updated General Plan will engage many of the same community members who were interested and involved in the LUCE update itself: Residents for Quality Neighborhoods; Home Builders Association; Chamber of Commerce; Downtown Association; SLO Property and Business Owners’ Association; city residents, and owners of properties and businesses. IMPLEMENTATION Implementation is envisioned as follows: Task Date 1. Develop RFP for Downtown Concept Plan update Aug 2015 2. Interviews and consultant selection process Sept 2015 3. Visioning, interviews, charrette(s), review of Mission Plaza Assessment from CIP Oct-Dec 2015 4. Develop Draft Concept Plan Dec-Jan 2016 5. Advisory Body review (ARC, CHC, PC) and early Council feedback Feb-May 2016 6. Council review and approval July 2016 7. RFP for Infrastructure Fee Update Feb 2016 8. Consultant Selection for Infrastructure fee update April 2016 9. Work effort for Infrastructure update (costs, nexus, financing options, right- sizing) April – July 2016 10. Public outreach – infrastructure update Aug-Sept 2016 11. RFP for Zoning Code update August 2016 12. Consultant Selection for Zoning Code update September 2016 13. Commission and Council consideration of Infrastructure options Oct-Nov 2016 14. Consultant work on Zoning Code update Oct –Dec 2016 15. Council adoption of Public Facilities Fee program Dec 2016 16. Draft Zoning Code and CEQA evaluation Jan – Mar 2017 17. Referral of Draft Zoning Code and CEQA to ALUC April 2017 18. Planning Commission and Council review of draft Zoning Code update April – May 2017 19. Council approval of Zoning Code update June 2017 13.b Packet Pg. 328 At t a c h m e n t : b - S O P C L U C E I m p l e m e n t a t i o n a n d F e e U p d a t e ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y S e s s i o n ) SIGNIFICANT OPERATING PROGRAM CHANGE (COMMUNITY DEVELOPMENT) LUCE IMPLEMENTATION AND FEE UPDATE PROGRAM MANAGER AND TEAM SUPPORT Program Manager: The program manager for the Affordable Housing Nexus study and for LUCE implementation (Zoning code/Downtown Concept Plan) will be the Community Development Deputy Director. The Public Works Deputy Director and Transportation Operations Manager will take the lead on circulation element implementation and traffic impact fee update. Project Team: The project team will include a Transportation Planner, Community Development Senior and Associate Planners, the Finance and Information Technology Director, and support staff. Representatives from City Police, Fire, Utilities, Public Works, Finance and IT, and Parks and Recreation departments will be involved. ALTERNATIVES: 1. Continue the Status Quo. Once the Land Use and Circulation Elements are adopted, the City will need to ensure that implementing documents, information and processes are updated as well. Continuing the status quo implies that no changes will be required in response to the update. Regardless the traffic impact fee program will need to be updated to comply with State law and add facilities to support LUCE land uses and policies. If no other changes are needed, staff will recommend any identified funds be returned to the General Fund. This is an unlikely scenario. Infrastructure improvements and impact fees must be updated if the community will be able to achieve improvements identified in the updated General Plan. Other changes identified in the update will need to be implemented otherwise the policies and programs cease to provide direction for decision-makers and inconsistencies would exist between policies and implementation mechanisms. 2. Defer or Re-Phase the Request. The request could be phased to address the infrastructure financing or the implementing zoning code and standards to be changed in response to the update. This approach could result in the General Plan having no way to implement desired improvements or could result in a General Plan that has inconsistent standards if funding is not approved in the 2015-17 Financial Plan. Neither of these outcomes is desirable. The City’s traffic impact fee program needs to be updated whether or not there are changes to the General Plan. 3. Change the Scope of Request. The request could be re-scoped to include consultant assistance for the nexus study, traffic impact fee update and infrastructure fee development only. Existing staff would be required to complete the implementation of other changes resulting from the LUCE Update. Due to existing workload and resource commitments, this could mean that other work desired by the Council does not occur. Items that could lose momentum or be deferred include completion of the Housing Element update, implementation of Climate Action Plan strategies, and other initiatives assigned to the Community Development Department. 4. Implementation in a Different Way. City staff seeks grants to accomplish Council-directed work efforts and will continue to look for funding opportunities, funding partners, and any funding efficiencies possible to leverage City resources. Transportation Impact Fund fees (TIF) are not available for this update. There are limited TIF funds available for AB 1600 work or updates to this source which only covers City-wide infrastructure (Specific Plans are handled separately). A program amendment would be required to enable funds to be used for this purpose and would still only address city-wide fees. If grant funds are not available, 13.b Packet Pg. 329 At t a c h m e n t : b - S O P C L U C E I m p l e m e n t a t i o n a n d F e e U p d a t e ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y S e s s i o n ) SIGNIFICANT OPERATING PROGRAM CHANGE (COMMUNITY DEVELOPMENT) LUCE IMPLEMENTATION AND FEE UPDATE General Fund support will be required to accomplish this effort unless staff in the Finance and IT Department complete the consultant services components of this work effort. Given the current staffing resources in that department, this alternative is not recommended. 5. Existing Program Evaluation. The LUCE update will involve an evaluation of the City’s existing land use and circulation element policies and programs, their status and on-going fit with community values. This process will be completed with the adoption of the LUCE update (projected to occur by November 2014). OPERATING PROGRAM Long Range Planning Transportation Planning COST SUMMARY Completion of the updated Land Use and Circulation Elements (LUCE) to ensure internal consistency of the City’s implementing ordinances and fees will cost approximately $735,000 in Financial Plan 2015-17. Line Item Description Account No.2015-162016-17 Staffing 00 Contract Services410,000325,000 Engineering Firm to design and cost infrastructure 50500-7227 50,000 Traffic modeling and Nexus study 50500-7227 50,000 Financial Firm to develop PFFP 40400-7227 75,000 Financial Firm to update TIF program 50500-7227 50,000 Affordable Housing Nexus Study 40400-7227 35,000 Changes to EnerGov to accommodate updated fees 40400-7227 50,000 Downtown Concept Plan update 40400-7227 100,000 Update of Zoning Code 40400-7227 150,000 CEQA analysis and ALUC referral 40400-7227 75,000 Transportation Consultant 50500-7227 50,000 50,000 Total Operating Costs 410,000 325,000 TIF Funds (70,000) Affordable Housing Funds (35,000) Net Operating Costs 305,000 325,000 13.b Packet Pg. 330 At t a c h m e n t : b - S O P C L U C E I m p l e m e n t a t i o n a n d F e e U p d a t e ( 1 4 3 2 : P u b l i c I n f r a s t r u c t u r e F i n a n c i n g F r a m e w o r k S t u d y S e s s i o n ) Oakland Sacramento Denver Los Angeles August 16, 2016 Proposed Infrastructure Financing Framework presented to City of San Luis Obispo presented by Walter Kieser, Senior Principal Economic & Planning Systems, Inc. 1Financing Framework and Policies Agenda •Recommendation •Introduction/Background/Definitions (Key Terms) •Recap Development Impact Fee Review Study Sessions, Findings, and Council Direction •Identify Current Infrastructure Financing Efforts •Study Session Objectives •Presentation of Proposed Financing Framework –Financing Criteria –Infrastructure Types –Infrastructure Benefit Categories and Project Examples •Proposed Financing Guidelines and Policies •Council Direction •Next Steps 2Financing Framework and Policies RECOMMENDATION 3Financing Framework and Policies Recommendation •Participate in a study session on public infrastructure financing and receive and file the background memorandum and reports. •Authorize Request for Proposal for Capital Facilities Impact Fee Program Nexus Study. 4Financing Framework and Policies INTRODUCTION 5Financing Framework and Policies Background •The Economic Development Strategic Plan (2014) identified the need to update the City’s development impact fees and assure that fees, in aggregate, do not create a deterrent to desired economic development. •At the same time the General Plan LUCE, facility master plans, and the Specific Plans identify the need for substantial infrastructure improvements in the City. •These improvements are needed to meet demands created by new development, improve level of service standards, and to cure existing service deficiencies. •The Development Impact Fee Review provided an assessment of the City’s current impact fees and documented infrastructure funding and financing options. 6Financing Framework and Policies Definition of Key Financing Terms •General Tax A General Tax can be used for any general purpose (i.e., property tax used for General Fund expenditures); 50 percent voter approval, various statutory authorizations. •Special Tax A Special Tax is levied for a defined purpose (e.g., sales tax override, utility users tax); two-thirds voter approval, various statutory authorizations. •Mello-Roos Community Facilities District (CFD)Tax A CFD Tax is a special property-related tax applicable to a defined geographic area (Citywide or subarea) to fund services or infrastructure; requires 2/3 voter approval or landowner approval in uninhabited areas, enacted as Mello Roos Community Facilities Act in 1982. 7Financing Framework and Policies Definition of Key Terms, continued •Special Benefit Assessment A charge (assessment) paying for services or improvements that provide “special benefit” to the specific geographic area; requires landowner approval, Special Benefit Assessment Districts were codified in State Law by the 1913-1915 Act. CFDs have largely supplanted Assessment Districts. •Development Impact Fees:One-time fees charged to new development; adopted by ordinance requiring “nexus” findings, regulated by the Mitigation Fee Act, Government Code 66000 et seq. (sometimes referred to as AB 1600). •Fair Share Allocation:A concept described in the Mitigation Fee Act and applicable to Assessment Districts too, wherein technical analysis is used to allocate fees or charges based on benefit proportionality (i.e., between existing and new development). 8Financing Framework and Policies Development Impact Fee Review Study Sessions •Study Session #1: Current trends in municipal infrastructure financing; Review of development impact fees; and Review of the City’s existing fee programs. •Study Session #2: Funding sources and financing mechanisms available to the City and the policy implications and trade-offs associated with the various funding options. •Study Session #3: Council direction for updating the City’s Development Impact Fees setting infrastructure priorities and financing policies. 9Financing Framework and Policies Development Impact Fee Review Findings 1.Incremental evolution in the City’s existing development impact fee programs have resulted in a complex system of base fees, sub area fees, and geographic fee variation. 2.Geographic “overlaps” in the City’s fees cause a significant difference in fee levels in various parts of the City. 3.Citywide, aggregate fee levels are consistent with fees levied by other cities, though some specific area fees appear to be high by industry standards. –In particular, aggregate fees in the MASP may deter certain types of new development. 9 10Financing Framework and Policies Development Impact Review Findings, continued 4.There is a lack of consistency between land use categories used to compute fees between fee programs (e.g., business park). 5.Fees do not contain a cost component for administration and updating. 6.Fees are increased by CPI rather than CCI, or other more appropriate indices. 7.The City does not charge fees for all municipal infrastructure categories, such as general government or public safety. 8.Fee-funded infrastructure items not integrated into City’s CIP. 10 11Financing Framework and Policies Council Direction (March 2014) At the conclusion of the three Study Sessions the Council provided the following direction: •Proceed with the update of the City’s development impact fees •Develop infrastructure prioritization framework –Establishment of the Infrastructure Investment Capital Fund and accompanying prioritization white paper. •Explore new infrastructure funding strategies to support the objectives of the EDSP. Three different funding priorities were discussed: –Funding infrastructure of broad community benefit –Funding infrastructure that is likely to have an economic development outcome that justifies the public investment –Using land secured financing to fund infrastructure required to serve new development 12Financing Framework and Policies Current Infrastructure Financing Efforts •Update of the Airport Area Specific Plan Financing Plan and Impact Fee is underway. •Ongoing discussions with San Luis Obispo County regarding use of Enhanced Infrastructure Financing District (EIFD) to fund key “regional” transportation improvements •Processing applications and conducting fiscal analysis for the proposed Avila Ranch and San Luis Ranch Specific Plans to identify potential revenue generation and cost to provide services •Update of the Traffic Model is underway •Prioritization efforts for CIPs consistent with white paper identifying the prioritization evaluation criteria 13Financing Framework and Policies STUDY SESSION OBJECTIVES 14Financing Framework and Policies Objectives 1.Review and respond to questions related to Development Impact Fee Review (2014). 2.Update Council regarding ongoing infrastructure financing efforts. 3.Establish a new framework for infrastructure financing that responds to previous and current Council direction. 4.Identify linkages to the pending update of the City’s Development Impact Fee Program. 5.Initiate implementing actions for desired infrastructure financing mechanisms. 15Financing Framework and Policies FINANCING FRAMEWORK 16Financing Framework and Policies Components of Financing Framework 1.Criteria for Financing Framework 2.Types Infrastructure Improvements 3.Benefit Categories for Infrastructure Improvement and Project Examples 4.Guiding Policies for Establishing Financing Mechanisms 17Financing Framework and Policies Financing Framework Criteria The Infrastructure Financing Framework should fund needed public facility and infrastructure improvements in a manner that is: 1.Effective (needed facilities/infrastructure are developed) 2.Fair (from one project to the next) 3.Equitable (i.e., between existing and new development) 4.Efficient (aligns improvements with the most appropriate source of funding) 5.Consistent (with economic development and other city objectives) 18Financing Framework and Policies Types of Facility and Infrastructure Improvements •Public facility and infrastructure improvements can induce private investment, increase economic activity and expand the City’s tax base –when paired with wise land use policies. 1.Civic facilities (e.g., fire stations, police headquarters) 2.Transportation infrastructure 3.Streetscape improvements 4.Parks and recreation facilities 5.Water and sewer utility improvements 19Financing Framework and Policies Improvement Benefit Categories •Improvement benefit categories identify “who benefits” from an infrastructure improvement, a key consideration in selecting the appropriate funding and financing. •Improvement benefit categories include: 1.Project-specific improvements 2.Improvements that increase capacity for new development 3.Improvements that address existing infrastructure deficiencies or improve overall levels of service 4.New infrastructure or community benefits 5.Public facility operations and maintenance 20Financing Framework and Policies 1. Project-Specific Improvements •SLO examples: a. Specific Plan Area-frontage improvements (typically street improvements and related in-street utilities) b. Infrastructure oversizing (if subject to a reimbursement agreement) •Funding/financing strategy: a.Developer-based funding Typical subdivision conditions of approval, entitlement-related exactions, or reimbursement agreements (for oversizing) b.CFD or Assessment District 21Financing Framework and Policies 2. Improvements that Increase Capacity for New Development •SLO examples: a. New development’s share of the following: Specific Plan area parks Fire Station #5 Prado Road Tank Farm Road •Funding/financing strategy: a. Developer-based funding Typical subdivision conditions of approval, entitlement-related exactions, or reimbursement agreements (for oversizing) Development impact fees and connection charges b. CFD or Assessment District c. Grant funding 22Financing Framework and Policies 3. Improvements that Address Existing Deficiencies •SLO examples: a. Portion of the following improvements that cannot be allocated to new development: Police Headquarters (share that is not attributable to new development) •Funding/financing strategy: a. CFD or Assessment District b. Grant funding c. Enhanced Infrastructure Financing District d.Other City funding (water/sewer enterprise revenue, General Fund, voter-approved special taxes) 23Financing Framework and Policies 4. New Infrastructure or Community Benefits •SLO examples: a. Portion of the following improvements that improves service for existing development and/or meets existing General Plan policies/goals for service standards: Prado Road Interchange/Overpass Police Headquarters Broad Street Bicycle Boulevard Mission Plaza Master Plan Project •Funding/financing strategy: a. Developer-based funding (Development Agreement) b.CFD or Assessment District c. Grant funding d. Enhanced Infrastructure Financing District e.Other City funding (water/sewer enterprise revenue, General Fund, voter-approved special taxes) 24Financing Framework and Policies 5. Public Facility Operations and Maintenance •SLO examples: a. Street and roadway maintenance b. Landscape and lighting maintenance c. Public safety operations (e.g., Avila Ranch –CFD for ongoing cost of fire services) •Funding/financing strategy: a. CFD or Assessment District b. Enhanced Infrastructure Financing District c. Other City funding (water/sewer enterprise revenue, General Fund, voter-approved special taxes) 25Financing Framework and Policies PROPOSED GUIDING POLICIES 26Financing Framework and Policies Proposed Financing Policy Topics 1.General Financing 2.Debt Financing 3.Development Impact Fees 4.Community Facilities District or Assessment Districts 5.Enhanced Infrastructure Financing Districts 27Financing Framework and Policies Guidelines and Policies 1.General Financing Guidelines and Policies a.New development should generally be expected to “pay its own way”. b.City-based funding sources for public facility and infrastructure improvements that provide for the health, safety and welfare and provide measurable economic development and fiscal benefits. c.No City-based funding or public financing for infrastructure improvements that confer only private benefit to individual property owners or development projects. d.Seek continuity with (or improvements to) existing municipal service levels by assuring adequate funding for the City’s operation, maintenance and infrastructure replacement costs. 28Financing Framework and Policies Guidelines and Policies 2.Municipal Debt Financing a.Stay well below cumulative debt limit established by the State of California. b.Debt financing should be sought only when the project’s useful life will exceed the term of the pledged or available supporting revenues or term of debt service. 29Financing Framework and Policies Guidelines and Policies 3.Development Impact Fees Guidelines and Policies a.Development impact fees should be set, consistent with the statutory “nexus” analysis and findings, to fund proportional share of public facility and infrastructure costs. b.Improvements funded by development impact fees should be referenced generally in the appropriate planning documents. c.City’s development impact fees can be “leveraged” through the use of fee credit and reimbursement agreements with developers and landowners. d.City’s aggregate fee levels should not render new development that is otherwise consistent with City plans and regulations economically infeasible. e.Consider reductions or waivers of its development impact fees in cases where a development project meets specific City planning or economic development policies such as affordable housing projects. 30Financing Framework and Policies Guidelines and Policies 4.Community Facilities District or Assessment District Guidelines and Policies a.City will consider the formation of financing districts for newly developing areas on a case-by-case basis, consistent with technical analysis and City infrastructure priorities. b.The City will consider the effect of the special tax on the City’s ability to issue General Obligation bonds or other property- based tax measures. c.Such districts should fund infrastructure or services serving or otherwise providing benefit to the area subject to the assessment or special tax. d.Within any such districts, property value-to-lien ratio should, consistent with typical underwriting standards, be at least 4:1 (25 percent). 31Financing Framework and Policies Guidelines and Policies 4. Community Facilities Districts, continued e.City will limit the maximum property-related taxes or assessments to one and eight-tenths percent (1.8 percent) of the projected assessed (base one percent plus with the general obligation bonds, existing assessments, etc. f.City shall have discretion to exceed the established limits for any lands within the CFD which are designated for commercial or industrial uses. g.City will retain a special tax consultant to prepare a report which recommends a special tax rate and method for the proposed CFD. 32Financing Framework and Policies Guidelines and Policies 5.Enhanced Infrastructure Financing District Guidelines and Policies a.EIFD financing should be considered for public facilities or infrastructure improvements that confer Citywide benefits. b.EIFDs should not be used to fund projects’ proportional share of infrastructure costs otherwise included in the City’s development impact fees or charged as project-specific exactions. c.Seek opportunities to collaborate with the County of San Luis Obispo to improve infrastructure benefiting the region. d.The term of the EIFD may not be longer than 30 years, per SB 628. e.City should apply a fiscal impact analysis to determine if an EIFD is fiscally prudent. 33Financing Framework and Policies DIRECTION 34Financing Framework and Policies Council Direction 1.Is there Council consensus to move forward with the proposed Financing Policies as outlined? 1)General Financing 2)Debt Financing 3)Development Impact Fees 4)Community Facilities District or Assessment District 5)Enhanced Infrastructure Financing District 2.Is there Council consensus for staff to proceed with the Development Impact Fee RFP based on the proposed Infrastructure Financing framework and policies? 35Financing Framework and Policies NEXT STEPS 36Financing Framework and Policies Next Steps Discovery •Series of Study Sessions Consideration •Financing Framework and Draft Policies Decision •Integrate into the FY 17-19 Financial Plan specifically for CIPs •Capital Facilities Fee Program Nexus Study 1.Consensus on Financing Framework and related policies 2.Authorize RFP for comprehensive Development Impact Fee Nexus Study 3.Integrate Financing Framework policies into the FY 17-19 Financial Plan that specifically addresses CIP financing and fair share and coordinate with ongoing infrastructure financing efforts (e.g., update of Airport Area Specific Plan Impact Fee) 37Financing Framework and Policies RECOMMENDATION 38Financing Framework and Policies Recommendation •Participate in a study session on public infrastructure financing and receive and file the background memorandum and reports. •Authorize Request for Proposal for Capital Facilities Impact Fee Program Nexus Study.