For City Council Meeting [July 25, 2017]
TO: Honorable Mayor and City Council
APPROVAL: Michael Story, City Administrator
FROM: Robb Steel, Assistant CA/Director of Development Services
Title
Request City Council to (1) Approve and Order the Execution of a Deposit and Reimbursement Agreement with Lytle Development Company; (2) Approve Professional Services Agreement for Financial Advisory Services by Fieldman, Rolapp and Associates, Inc. related to formation of a Community Facilities District within the Lytle Creek Specific Plan; (3) Authorize the Engagement of Aleshire & Wynder for Bond Counsel Services; (4) Approve Professional Services Agreement for Special Tax Consulting Services by Willdan, Inc.; and (5) Adopt Budget Resolution No. 7173 Increasing Revenues and Appropriating Expenditures in an Amount Not to Exceed $80,000.
(ACTION)
Body
BACKGROUND:
Law Establishing Community Facilities District
In 1982, the California Legislature enacted the Mello-Roos Community Facilities Act of 1982 (Government Code §53311-53368.3) which allows cities to form community facilities districts (“CFD”) within their boundaries to finance infrastructure and certain services.
A CFD has the power to levy special taxes on properties within its boundaries. The City Council has the discretion to set the rate of the special tax; provided that the tax is not an ad valorem property tax. A CFD can issue long-term tax-exempt bonds to fund public improvements, which are repaid through the levy of special taxes collected on the property tax bills of property owners residing within its boundaries. Services and improvements eligible for CFD financing include streets, sewer systems and other basic infrastructure, police protection, fire protection, ambulance services, schools, parks, libraries, museums and other cultural facilities. By law, the City is also entitled to recover formation expenses and administer the annual special taxes and bonded debt.
Development Agreement
On August 14, 2012, the City Council adopted Ordinance No. 1511 approving a Development Agreement by and between the City of Rialto and Lytle Development Company, among others (“Lytle”). Section 7.2 of the Development Agreement obligates the City and Developer to cooperate in good faith to form a CFD for the purposes of financing infrastructure and public services. The maximum allowable tax rate cannot exceed 2% of the value of the burdened parcel.
Residential Subdivision
On May 8, 2017, Lytle filed a Vesting Tentative Tract Map to create 20 lots from a 188-acre site for the purposes of financing. The site is located within a portion of Neighborhood 3 of Lytle Creek Ranch Specific Plan. The Vesting Map will facilitate development of 637 residential lots (“Development”).
ANALYSIS/DISCUSSION:
To finance the cost of infrastructure and services necessary to support the Development, the applicant, Lytle Development Company (“Lytle”), approached the City to consider formation of a CFD as referenced in the Development Agreement.
In June 2017, staff met with Lytle to discuss the formation of a CFD within the Development. Lytle requested the preparation of a Deposit and Reimbursement Agreement to cover legal and financial advisory costs associated with the formation process. The Deposit and Reimbursement Agreement between the City of Rialto and Lytle Creek Development is attached hereto as Exhibit A.
CFD Formation Process
Under State law, the City must take certain extensive, prescribed actions before establishing a CFD. A Developer that has an interest in the property can petition the local governing body to establish a CFD. The governing body must then act within 90 days of receiving a CFD petition, adopt a Resolution of Intention (“ROI”) to form the CFD and levy a special tax. The ROI serves the following functions:
1. Accepts the landowner’s petition, if any, to form the CFD;
2. Designates a name for the CFD;
3. Establishes the CFD’s boundaries;
4. Identifies what public assets or services are to be funded by the CFD financing;
5. Declares the intention to conduct proceedings, form the CFD, levy taxes and issue debt;
6. Sets the date of the public hearing; and
7. Describes the voting procedure.
The City Council must hold a public hearing no less than 30-60 days after adopting the ROI pursuant to Section 53321(e). Adoption of the ROI is not an action that binds the governing body to ultimately establish and form a CFD nor does it bind the City to levy special taxes. The public hearing shall be completed within 30 days; however, due to complexity, the public hearing may be continued for a period of 30 days or up to 6 months pursuant to Section 53325.
The City must hold the public hearing to: consider formation of the CFD; declare if the CFD is in the Public’s interest, convenience and necessity; consider the levy of taxes; approve the Rate & Method of Apportionment study that identifies the specific tax rate on affected parcels; and, establishes the specific tax formula to be applied to each parcel in the CFD. At the conclusion of the public hearing, the City Council has the ultimate discretion and may either approve or disapprove the formation of the CFD. The legislative body has complete discretion to form or abandon the proceedings after the public hearing.
In order to be prepared for Lytle’s likely submittal of a Petition to Form a CFD, and to comply with State mandated timelines for conducting proceedings, it is recommended that the City engage a financing team that will provide information necessary for an informed discussion by the City Council at the public hearing. There are a few key components that make up the information needed, including a Rate & Method of Apportionment Study conducted by a special tax consultant, and a price-point study conducted by a real estate consultant. If the City forms the CFD, additional work will be required including a formal property appraisal, a market absorption study and a myriad of required financing documents.
Staff requests that Council authorize the engagement of Fieldman, Rolapp & Associates, Inc. (financial advisor) to provide financial advisory services related to the formation of the CFD as well as the anticipated issuance of one or more series of CFD bonds, Willdan Financial Services (special tax consultant) to develop the rate & method of apportionment and provide special tax consultant services, and Aleshire & Wynder LLP for bond counsel services. In addition, the City will incur costs for City staff and City Attorney time and for real estate consultant services. In accordance with the City’s adopted Fiscal Policy for New Development and Annexations, a CFD proponent must pay all costs incurred by the City in preparing for, establishing, and administering a CFD. In order to fulfill this requirement, the City must enter into a Deposit and Reimbursement Agreement that commits the proponent to pay all costs, and requires an up-front deposit to eliminate the risk of loss for the City. The combined total for the contracts equals $95,000. Since each contract provides services on a not to exceed basis and the anticipated dollar amount for services is $80,000 the applicant submitted a deposit in the amount of $80,000 on July 17, 2017.
The recommended members of the Financing Team include:
• Financial Advisor. Fieldman Rolapp and Associates (FRA) served as the former Redevelopment Agency’s financial advisor on bonds and on refunding procedures. Fieldman, Rolapp & Associates, Inc. submitted a proposal and scope of work, with formation costs and expenses to be billed hourly in an amount not to exceed $30,000. The proposal from Fieldman, Rolapp & Associates, Inc. is attached to this report as Exhibit B. A Disclosure Statement document (Exhibit ’C’) demonstrates that Fieldman, Rolapp & Associates, Inc. is registered as a Municipal Advisor and provides basic terms of work, including a statement of the project, the form and basis of compensation and any conflicts which could ensue as result of the relationship.
• Legal Counsel. Aleshire & Wynder LLP shall prepare all legal proceedings, ballots, etc., reviewing special tax formulas, drafting and negotiating a joint community facilities agreement and acquisition agreement related to proposed facilities to be financed at its hourly rate for public finance services of $350 per hour with an estimated amount not to exceed $30,000. The hourly rates for bond counsel services by Aleshire & Wynder LLP are outlined in Exhibit D.
• Special Tax Services. Willdan Financial Services provided a proposal (Exhibit E) for special tax services billed hourly in an amount not to exceed $35,000.
The Developer will pay all costs to prepare the CFD via a deposit submitted to the City. The City Attorney, Development Services Department, and Finance Division have reviewed the Deposit and Reimbursement Agreement and will oversee the preparation of the CFD along with the Financing Team. All of these services reflect professional services and do not require competitive solicitation.
This action does not select an underwriter for the sale of CFD Bonds. At the appropriate time, the City will prepare a Request for Qualifications for Underwriting Services.
GENERAL PLAN CONSISTENCY:
The City of Rialto has identified several goals and objectives within the City’s recently adopted General Plan through which the City looks to improve the community. The proposed action is consistent with the following goals and objectives contained in the General Plan:
Goal 3-1: Strengthen and diversify the economic base and employment opportunities, and maintain a positive business climate.
Policy 3-1.2: Encourage a variety of businesses to locate in Rialto, including retail, high technology, professional services, clean industries, logistics-based businesses, and restaurants/entertainment uses to promote the development of a diversified local economy.
Goal 3-3: Attract, expand, and retain commercial and industrial businesses to reduce blighted conditions and encourage job growth.
Goal 3-6: Require that all developed areas within Rialto are adequately served with essential public services and infrastructure.
Policy 3-6.1: Coordinate all development proposals with other affected public entities to ensure the provision of adequate public facilities and infrastructure services.
Goal 3-7: Upgrade public infrastructure as an inducement to promote private investment.
LEGAL REVIEW:
The City Attorney reviewed and approved the staff report.
ENVIRONMENTAL IMPACT:
The proposed Agreement is exempt from California Environmental Quality Act (CEQA) pursuant to Section 15378(b) (4) and (5) of the CEQA Guidelines. The proposed Agreement is an administrative or organizational activity of a government entity that does not involve any commitment to a specific project, which may result in a potentially significant environmental impact.
FINANCIAL IMPACT:
The Deposit and Reimbursement Agreement requires Lytle to reimburse the City for the cost of forming a CFD. Funds related to the costs for the CFD will be deposited into General Fund Account No. 010-400-4255-7598 and invoices will be paid from General Fund Account No. 010-500-4255-3001. Staff recommends increasing estimated revenues by $80,000 and appropriating expenditures of $80,000 in General Fund Account No. 010-400-4255-7598 and 010-500-4255-3001, respectively. The Budget Resolution is attached to this report as Exhibit F.
RECOMMENDATION:
Staff recommends that the City Council:
1. Approve the Resolution Approving and Ordering the Execution of Deposit and Reimbursement Agreement with Lytle Development Company and Making Certain Findings and Determinations in Connection Therewith.
2. Approve a Professional Services Agreement with Fieldman, Rolapp and Associates, Inc. for Financial Advisory Services related to the formation of a Community Facilities District in an amount not to exceed $30,000.
3. Authorize engagement of the City Attorney (Aleshire & Wynder) for Legal Consulting Services related to the formation of a Community Facilities District in an amount not to exceed $30,000.
4. Approve a Professional Services Agreement with Willdan, Inc. for Special Tax Consulting Services related to the formation of a Community Facilities District in an amount not to exceed $35,000.
5. Approve Budget Resolution increasing estimated revenues and appropriating expenditures in the amount of $80,000 from General Fund Account No. 010-400-4255-7598 and 010-500-4255-3001, respectively.