CFDs, SFIDs, and DEVELOPER FEES

CFDs, SFIDs, and DEVELOPER FEES Sandi Burgoyne, Director Poway Unified School District 13626 Twin Peaks Road Poway, CA 92064 AUGUST 23, 2013 Community Facilities Districts (CFDs) - Just What Are They» A CFD is a special taxing district formed by a public agency pursuant to the Mello-Roos CFD Act of 1982 as an alternative method of financing local infrastructure, including schools.» It is a mechanism that allows a developer/merchant builder to pay for the development s impact in various ways: Mitigation Agreement CFD Formation Establishes and levies a Special Tax that will support bonds equal to the established value Voter approval is required (either by landowner or registered voters if 12 or more reside within the potential CFD) Only property owners within the CFD itself are burdened by the Special Taxes.» CFDs eliminate up-front fees and reduces the developer s out-of-pocket expenses Page 1 1

Advantages and Disadvantages of CFDs Advantages School District General Fund and taxing capacity are not at risk Entices developers to mitigate at a negotiated rate more appropriate that the Statutory Fee rate Ability to construct schools prior to build-out of projects Lower interest rates for borrowing Disadvantages School District The Special Tax must be levied each year by the Issuer (school district) Page 2 Advantages and Disadvantages of CFDs Advantages Homeowner Potential lowering of purchase price since fees paid are not added into Developer s cost to build Priority attendance to facility funded by CFD Special Taxes The facilities within CFDs are often of higher quality than those that could be afforded without a CFD Disadavantages Homeowner Homeowners will be assessed an annual Special Tax on behalf of the CFD The annual Special Tax generally has an annual index escalator Page 3 2

Advantages and Disadvantages of CFDs Advantage Developer CFD financing reduces or eliminates upfront fees. Any administrative costs or cost of issuance associated with the formation of the CFD and bond issuance will be funded by the bond, further reducing upfront fees and a developer s out-of-pocket expenses. Potential for infrastructure bonds to be issued on behalf of the developer by district (tax exempt bonds; lower interest rates; lower costs) Disadavantages Developer The builder is required to disclose the existence of the Special Tax to homeowners prior to sale At bond issuance, the builder is required to disclose information about themselves and the project Page 4 CFD Timeline (rough estimates) Within 90 days of format request Publish 7 day prior to Public Hearing Within 30 60 days of ROI After Public Hearing Within 30 days Begin Process Resolution of Intention Publish Notices Resolution of Formation Second Reading, Approv./Pub Ordinance Notice of Special Tax Lien Adopt a CFD Finance Policy Negotiations with developer/merchant builder (petition to Form) Map of proposed boundaries Certification by Registrar of Voters Board meeting to consider adopting Resolution of Intention Approval of Mitigation Agreement, Supplemental Mitigation Agreement, etc. Publish notices of public hearing and intention Board meeting to adopt Resolution of Formation, Providing for Special Tax, Calling Special Election, Results of Election, 1 st Reading, Report Recorded on parcels Bonds can be issued after recordation Page 5 3

School Facilities Improvements Districts (SFIDs) - Just What Are They» Just another mechanism for issuing General Obligation bonds (GO Bonds)» A customized boundary is created to encompass those parcels you wish to tax.» In 2000, California voters approved Proposition 39 ("Prop. 39") that reduced the voter approval threshold for school district GO Bonds from two-thirds to 55%.» SFID Bonds can be authorized under either Prop 46 or Prop 39» Formation proceedings are similar to the formation of a Community Facilities District including the creation of a boundary map (approved by the Department of Equalization)» Bonds can only be issued based on assessed values of properties within the SFID (Prop 46 2.5% of assessed value; Prop 39 - $60/$100,000 assessed value for unified school districts; $30/$100,000 assessed value for elementary and/or high school districts» Facilities and equipment can only be authorized under Prop 39 Page 6 Proposition 46 vs. Proposition 39» General Obligation Bonds ("GO Bonds") are voter-approved long-term debt instruments secured by the legal obligation to levy and collect ad valorem taxes sufficient for bond repayment.» GO Bonds are considered to pose minimal risk to the investor and therefore provide the lowest borrowing cost to issuers.» In 2000, California voters approved Proposition 39 ("Prop. 39") that reduced the voter approval threshold for school district GO Bonds from two-thirds to 55%. PROP. 46 Simple majority board approval Two-thirds voter approval No statutory tax rate limit (often limited by political tax rate pledge) List of projects to fund at the Board's discretion Election date on any Tuesday Annual reports required PROP. 39 Super majority board approval 55% voter approval Annual tax rate limited to $60 per $100K for unified school districts Must specify project list in ballot measure Regularly scheduled election dates Citizens' oversight committee and annual reports Page 7 4

Community Facilities Districts vs. School Facilities Improvement District» Both Community Facilities District ("CFD") and School Facilities Improvement District ("SFID") are formed as a means of financing school facilities.» The School District currently contains 14 CFDs and two (2) SFIDs. CFDs Fixed Charges Board approval required Voter approval required Consist of a portion of the territory within a school district Fixed charges calculated based on established special tax classes Issuance of Special Tax Bonds SFIDs Ad Valorem Taxes Board approval required Voter approval required Consist of a portion of the territory within a school district Ad Valorem taxes calculated based on assessed valuations Issuance of SFID GO Bonds Page 8 Poway Unified School District CFDs/SFIDs Table of Contents 5

Community Facilities District No. 1 Page 10 Summary of CFD No. 1 Special Taxes CFD No. 1 (as of Fiscal Year 2011/2012 [1]) Special Number Lowest Highest Median Tax Class of Parcels Special Tax Special Tax Special Tax 1 3,658 $962 $1,156 $998 2 996 $876 $952 $909 3 913 $822 $893 $850 4 550 $767 $834 $776 5 82 $681 $732 $682 6 30 $655 $662 $662 7 509 $626 $725 $649 8 285 $596 $648 $618 9 181 $605 $684 $612 10 938 $506 $587 $523 11 128 $477 $477 $477 12 160 $446 $457 $446 13 [2] 339 $315 $110,713 $315 Overall [3] 8,769 $315 $110,713 $903 [1] The Initial Special Tax is escalated annually by the greater of 2% or the Building Cost Index. Special Tax escalation is not to exceed 2% annually thereafter. [2] Nine (9) APNs classified as Special Tax Class 13 consist of 2,343 Units with various Multi-Family Special Tax classifications. [3] Includes 15 parcels, approximately 60 acres, of Undeveloped Properties zoned or designated for future residential purposes. Page 11 6

Assessed Valuation History and Projection Millions $10,000 $8,000 Historical AV Growth: 4.20% Projected AV Growth: 2.94% $6,000 $4,000 $2,000 $0 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 *Source: California Municipal Statistics, Inc. for the historical assessed valuations. Page 12 Preliminary Financing Analyses Tax Rate Scenario B: $60 per $100,000 of AV Series A Series B Series C Series D Authorization $40 million $25 million $25 million $25 million $115 million Millions $150 $100 CFD Bond Payoff $82 Remaining Authorization $92 $117 $50 $0 $23 $23 $23 Scenario A Scenario B Scenario C *Assumed an underlying rate of ' Aa2 / AA- / ---' ; based on the municipal market data scale as of 5/3/2012. Page 13 7

Summary of Potential SFID Tax Rates (continued) Tax Rate Scenario B: $60 per $100,000 of AV Special Lowest Highest Median Units with Tax Class SFID Tax SFID Tax SFID Tax Greater SFID Tax 1 $58 $786 $275 0 2 $45 $432 $232 0 3 $51 $465 $222 0 4 $35 $356 $216 0 5 $67 $312 $213 0 6 $117 $268 $152 0 7 $36 $362 $210 0 8 $65 $265 $200 0 9 $37 $268 $180 0 10 $22 $255 $126 0 11 $44 $164 $105 0 12 $43 $101 $81 0 13 [1] $48 $33,150 $184 0 Overall $22 $33,150 $222 0 [1] Nine (9) APNs classified as Special Tax Class 13 consist of 2,343 Units with various Multi-Family Special Tax classifications. Page 14 SFID Timeline 45 to 120 Days 30 Days 14 Days 7 Days 88 Days Begin Process Resolution of Intention Publish Notices Resolution of Formation County Deadline Election Day Conduct bond measure feasibility survey Present survey results and findings Create boundary map Draft SFID formation documents Board meeting to consider adopting Resolution of Intention Develop project list Finalize measure language Publish notices of public hearing and intention Board meeting to consider adopting Resolution of Formation and Calling Election Deadline to submit paperwork to County Registrar of Voters Establish committee Seek endorsements Mobilize supporters to vote Page 15 8

Legislative History of Developer Fees Mitigation Fee Act Limited ability of public agencies to levy the maximum fees unless (i) there was a need for the revenues due to impacts and (ii) a nexus was established between the need for revenues and type of development project Tightened nexus requirements to levy commercial/industrial fees Suspended Mira-Hart-Murrieta decisions until 2006 Created current School Facilities Program Established that Alternative Fees and the fees of AB 2926 were full and complete mitigation Allowed school districts to levy Level II/III Fees 1986 1987 1988 / 1991 1989 1998 2006 2013 Assembly Bill 2926 Assembly Bill 1600 Mira-Hart- Murrieta Decisions Assembly Bill 181 Senate Bill 50 Assembly Bill 127 Senate Bill 1016 Allowed levy of impact fees by school districts on new residential and commercial/industrial construction Fees updated every two (2) years School districts could stop development projects if impacts were not adequately mitigated Suspended Mira- Hart-Murrieta decisions until 2012 No Level 3 Fees allowed Poway Unified School District Page Potential 16 SFID Overlay on CFD No. 1 The Basics» Purpose of Fees To fund the construction and reconstruction of school facilities necessitated by growth in enrollment attributable to new residential and commercial/industrial development» Types of Fees Level 1 (Statutory) Residential Commercial /Industrial Level 2/3 (Alternative) Residential only» Use of Fees Construction and Reconstruction of School Facilities Administration/Collection of Fees (3 percent) Preparation of Impact Studies The 3 "Nos " (Education Code Section 17620(a)(3): Regular Maintenance and Routine Repair Asbestos Abatement/Removal Deferred Maintenance Poway Unified School District Page Potential 17 SFID Overlay on CFD No. 1 9

Imposing Fees Level 1 Maximum Rates increased in even numbered years Fee Justification Studies create basis for the amount of the fee to be charged (i.e. maximum or less?) Public review period/notification (10 days) Public Hearing/Board Adoption Fees take effect 60 days later Fee Justification Studies should be updated periodically Level 2/3» Fees will vary by school district» Must satisfy certain statutory requirements to be eligible» Preparation of School Facilities Needs Analysis to calculate and justify fees» Public review period/notification (30 days)» Public hearing/board Adoption» Fees take effect immediately» School Facilities Needs Analysis must be updated annually Poway Unified School District Page Potential 18 SFID Overlay on CFD No. 1 Imposing Fees Application of Fees to Different Kinds of Development Who collects the fees» School District» City/County When are they collected» Building permit vs. certificate of occupancy How are fees applied to development New Residential Remodels/Additions Replacement structures Disaster Voluntary Commercial/Industrial Mobile/Manufactured Homes Exempt Religious Facilities Government owned and occupied Private full-time day school Page 19 10

Current Issues in Developer Fees Level 3 Fees Intended to represent 100 percent of cost to construct school facilities Occurs when State Allocation Board no longer apportioning funds for New Construction Notification from State Allocation Board to Legislature School districts charging Level 2 Fees would be authorized to go to Level 3 Fees Projection that apportionments could exceed bond authority by July 2010 Developer Reimbursement Once State funds are received reimburse supplemental portion less costs for interim housing. AB 1716 (Torlakson) would add interest 2 + 2 3 What Districts are Facing Market Pressures Accurate Assumptions Declining Enrollment Voluntary Tear-Downs and Rebuilds Short Presentation Tyree Dorward BB&K Cresta Bella vs. PUSD Court of Appeals Decision Poway Unified School District Page Potential 21 SFID Overlay on CFD No. 1 11

Questions Poway Unified School District Page Potential 22 SFID Overlay on CFD No. 1 12