For the City Council Meeting of September 10, 2024
TO: Honorable Mayor and City Council
FROM: G. Michael Milhiser, Interim City Manager
AUTHOR: Colby Cataldi, Director of Community Development
Title
Second Reading of Ordinance No. 1695 Ordinance Authorizing the Levy of a Special Tax within the Community Facilities District No. 2024-1 (Renaissance).
Body
RECOMMENDATION
Staff recommends that the City Council:
1) Second Reading of Ordinance No. 1695 Ordinance Authorizing the Levy of a Special Tax within the Community Facilities District No. 2024-1 (Renaissance).
BACKGROUND
The Project and the Development Agreement
In December 2016, the City entered into a Development Agreement (“Development Agreement”) with Lewis-Hillwood Rialto Company, LLC (“Lewis”) that provides for the development of the Renaissance master planned development in accordance with the objectives set forth in the General Plan and in the Specific Plan. The development consists of approximately 1,450 acres with planned land uses including, but not limited to 1,200 residential units, 17.5 million buildable square feet of industrial and commercial land uses, 2.5 acres of neighborhood parks, 2 acres of paseos and greenbelts, 3 acres of linear open space/recreation land, trails and walkways, public streets and other amenities that are of benefit to the development and the City.
Community Facilities Districts (CFDs) are established pursuant to the provisions of the California Government Code Section 53311 et seq. (commonly known as the “Mello-Roos Community Facilities Act of 1982”) (Act) and are a form of financing that can be used by cities, counties, school districts, and special districts. CFDs raise money through special taxes that must be approved by 2/3 of the voters within a CFD. The City Council is the legislative body of any CFD the City forms. Most often, CFDs are formed by the landowner prior to subdivision. A CFD can be formed to finance a wide list of improvements, which include roads, water facilities, sewers and schools. They are also used to finance ongoing maintenance services of the facilities or for services such as landscaping, streets, lighting and drainage facilities. The taxes are secured by a continuing lien and are levied against property within the CFD on an annual basis. The revenue stream is used to pay debt service on bonds, and to pay for services, or a combination thereof, including administrative costs of the CFD.
ANALYSIS/DISCUSSION
Lewis-Hillwood Rialto Company, LLC. (Master Developer) made a request to the City to explore the formation of a CFD to finance public infrastructure project costs, development impact fees and a special tax for mitigating the project’s impact on City services. The proposed City of Rialto Community Facilities District No. 2024-1 (Renaissance) (CFD No. 2024-1) is to provide a portion of the financing for the public improvements associated with the construction of 429 single-family residential units.
Lennar Homes (Developer) is making progress with construction of the new residential development at Renaissance.
On behalf of the City, Webb Municipal Finance, as special tax consultant, has prepared a CFD Report describing the proposed CFD No. 2024-1 (Attachment 1).
The boundaries of CFD No. 2024-1 will encompass approximately 41 acres. The proposed boundary map is provided as part of Attachment 1 (Appendix B).
The public capital improvements and fees related thereto which may be financed through CFD No. 2024-1 are public facilities with an estimated useful life of five years or longer, including storm control facilities (storm drains, revetments, channels, detention basins, headwalls, riprap pads, retention and/or catch basins and appurtenant facilities, including line B) and City development impact fees and other capital improvement, capacity or connection fees (open space, street median, general facilities, police facilities, fire facilities and fire protection, library facilities, park, storm drain, wastewater collection, wastewater treatment, water connection and capacity, water supply, fire flow, transportation facilities, traffic mitigation and regional traffic, including RSP traffic mitigation and Alder/210 Freeway, specific plan, capital facilities and other city or public agency fees and all capital facilities which are part of these fee programs and capital improvement programs), and related costs including design, inspection, professional fees, and acquisition costs (Facilities). The Facilities will be financed through the levy of a Special Tax A to pay debt service on one or more bond issues. Description and cost estimates for the Facilities are provided as part of Attachment 1.
The public services which may be financed through CFD No. 2024-1 include police protection services, fire protection and suppression services, ambulance and paramedic services, maintenance, operation and lighting of parks, parkways, streets, roads and open space, flood and storm protection services, including maintenance of storm drains, and maintenance and operation of any real property or other tangible property with an estimated useful life of five years or more that is owned by the City (Services). The Services will be financed through the levy of a Special Tax B in perpetuity. Description and cost estimates of the Services is provided as part of Attachment 1.
Proposed CFD No. 2024-1
For the proposed CFD No. 2024-1, the following is a general summary of the proposed financing structure.
1. Bond Term and Type of Bonds to be sold. The term of any bond issue will not exceed 30 years. It is expected the bond issues will be tax-exempt. In no case will the Special Tax A tax rate (described below) that is used to pay for the debt service on any bonds sold increase beyond what is allowed by CFD No. 2024-1 formation documents.
2. Special Tax A. This is the tax that will be assessed on properties to pay for the debt service on bonds issued and the revenues used for constructing public improvements and paying development impact fees. The Special Tax A varies in amount based on the size of the residential home. The annual tax rate ranges from $2,030 to $2,492 depending on the size of the home. A more complete list of Special Tax A rates can be found in the Rate and Method (RMA) (Attachment 1 (Appendix A)). Special Tax A will annually increase by 2%. Special Tax A is levied on developed property and will remain for so long as is needed to pay for all principal and interest on bonds, but not more than 50 years commencing with FY 2024-2025.
The RMA includes an assigned tax and a back-up tax for the Special Tax A for developed property in case the number of residential units built is less than estimated. Once developed property is taxed, undeveloped and contingent property will be taxed if needed.
Upon completion of the formation and election process for CFD No. 2024-1 and once development has progressed sufficiently as determined by the City (estimated to be sometime next year), the City anticipates that CFD No. 2024-1 will issue one or more series of Special Tax Bonds (Bonds), to acquire the Facilities built by the Developer and to pay or reimburse the Developer for the payment of certain impact fees related to Facilities as provided in a Funding and Acquisition Agreement (to be brought before the Council at a future meeting). The proposed bond authorization for the District is not to exceed $25,000,000. It is the intent of the proposed CFD No. 2024-1 to issue one or more series of Bonds with a 30-year maturity with escalating debt service of 2% per year.
Facilities, including fees, not financed by CFD No. 2024-1 are still required to be provided by the Developer.
3. Special Tax B. This tax will be levied on each residential property once it is developed in order to mitigate the impacts on City services created by the development. Proposed Special Tax B is $448 per single family unit for FY 2024-2025. Special Tax B increases on an annual basis by the lesser of CPI or 3%. This tax will remain on the property in perpetuity. Special Tax B takes the place of CFD No. 2016-1 or a maintenance district.
4. Effective Tax Rate. The maximum special taxes for the proposed CFD No. 2024-1 will bring properties within the District to an overall Effective Tax Rate of approximately 1.9%, below the City’s policy establishing a 2% maximum Effective Tax Rate.
The Effective Tax Rate expresses the relationship between a home’s value and all forms of property taxes (ad valorem and fixed rate) that are levied on a property, excluding charges for services such as sewer and trash. Common examples of property-based taxes (ad valorem) is the standard 1% property tax levy as well as taxes for school/college/water bonds. Common types of fixed rate levies include vector, lighting, landscape and City Services.
The Effective Tax Rate is calculated by taking the total amount of taxes and dividing it by the value of the home. As part of the requirements for the formation of CFD No. 2024-1, a consultant prepared a Price Point analysis to confirm the Effective Tax Rate is below 2% based on the estimated home sale prices. Once again prior to the sale of bonds, a consultant will prepare a new Price Point analysis to confirm the Effective Tax Rate remains below 2% based on the home sale prices. If the Effective Tax Rate exceeds 2% at the time bonds are ready to be sold, special taxes will be reduced to the amount needed to achieve a 2% Effective Tax Rate.
Formation Process
A petition to form CFD No. 2024-1 was received from the Master Developer. The formal Council approval process to create a new CFD takes approximately sixty (60) to seventy-five (75) days.
Step One: On July 23, 2024, the City Council declared its intention to form the CFD and issue bonds and called a public hearing for September 10, 2024 on all matters relating to the CFD including the special tax formula or the Rate and Method of Apportionment (“RMA”). All parties have reviewed the parameters of the RMA, which includes the assigned and maximum special taxes for the Facilities and Services. The Special Taxes will be levied each year according to the RMA and placed on the County property tax rolls.
Step Two (tonight): City Council holds a public hearing. Provided there is no majority protest, CFD No. 2024-1 can be established by adoption of the Resolution Determining the Validity of Prior Proceedings and Establishing CFD No. 2024-1 (Resolution of Formation - Attachment 2).
Step Three (tonight): City Council, acting as the legislative body of CFD No. 2024-1, adopts a Resolution Determining the Necessity to Incur Bonded Indebtedness within CFD No. 2024-1 and Calling a Special Election (Attachment 3); conducts a special mailed ballot election, adopts a Resolution Canvassing the Results of the Election held within CFD No. 2024-1 (Attachment 4). The property owner has waived election timelines, so an election may be held tonight, to authorize the levy of the Special Tax A and Special Tax B on such property, authorize bonded debt in an amount not to exceed $25,000,000 for CFD No. 2024-1 and establish an appropriations limit. Should the proposition pass with a two-thirds vote from the qualified voters (the property owner), the City may introduce and waive first reading of an Ordinance Authorizing the Levy of a Special Tax within CFD No. 2024-1 (Attachment 5).
Step Four (at City Council meeting of September 24): City Council, acting as the legislative body of CFD No. 2024-1 adopts the ordinance.
Step Five: At a later date, CFD No. 2024-1 in its sole discretion will determine the final amount of Bonds issued. The proposed maximum bond authorization is $25,000,000. The “not to exceed” bond amount for CFD No. 2024-1 is based on Facilities costs and available Special Tax A. At such time documents relating to the issuance and sale of the Bonds will be brought to the City Council for its approval.
All parties have reviewed the parameters of the special tax formula contained in the RMA, which includes the assigned and maximum special taxes for the Facilities and the Services. The Special Taxes will be levied each year according to the RMA and placed on the County property tax rolls.
The Master Developer has made a deposit of $84,000 to the City toward the costs of forming CFD No. 2024-1, including the costs of staff and consultant time. The costs of forming CFD No. 2024-1 are the responsibility of the Developer. If bonds are issued, the Developer will be reimbursed from the proceeds of the bonds.
ENVIRONMENTAL IMPACT
The proposed action does not constitute a “project” as defined by the California Environmental Quality Act (CEQA). Pursuant to Section 15378(b) of the State CEQA Guidelines, a project does not include organizational or administrative activities of governments that will not result in direct or indirect physical changes in the environment.
GENERAL PLAN CONSISTENCY
The City 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:
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 has reviewed and recommends approval of this staff report, resolutions, and agreements.
FINANCIAL IMPACT
Operating Budget Impact
No impact.
Capital Improvement Budget Impact
No impact.
Licensing
The proposed action will require the payment of a business license tax from the two vendors, who are currently licensed to operate in Rialto.