TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Ivan Holler, Assistant City Manager
PREPARED BY: Javier Carcamo, Finance Director
SUBJECT: Community Facilities District Workshop
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RECOMMENDATION
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Receive and file.
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PRIOR ACTION/VOTE
On January 21, 2003, the City Council adopted the Land Secured Financing Policy for Special Assessment and Mello-Roos Community Facilities District Financing (Vote: 5-0).
On April 5, 2016, the City Council adopted Resolution No. 16-3536, amending the Land Secured Financing Policy (Vote 5-0).
On October 3, 2023, the City Council considered an Amendment to the Community Facilities District Goals and Policies (CFD) and directed staff to present the recommendations in a workshop (Vote 3-2).
CITY COUNCIL GOAL
Maintain a high performing organization that values fiscal sustainability, transparency, accountability and organizational efficiency.
BACKGROUND
On October 3, 2023, City staff delivered a report to the City Council to amend the Community Facilities District Goals and Policies. The City Council directed staff to bring the item back to a workshop for further discussion. Community Facility Districts are governed by the Mello-Roos Community Facilities Act of 1982, commencing with Section 53311 of the Government Code.
Community Facilities Districts
Community Facility Districts (CFDs) are a widely used financing mechanism, frequently used to fund infrastructure associated with new significant (large) development projects, such as water and sewer facilities, storm drain facilities, roads, and parks.
A simplified example of CFD implementation is as follows:
• A developer submits a petition to form the CFD to the City or Special District (water districts frequently form CFDs for water infrastructure) to start formation proceedings.
• In the City’s case, staff presents the petition to the City Council for approval.
• The District is formed by a vote of the property owners, which is typically the developer.
• Once approved, the City approves the issuance of bonds, which are sold to investors.
• Proceeds from the sale of the bonds are used to build the infrastructure associated with the project.
• The bonds are paid off over time (typically 30 years) through special taxes paid by the buyers of homes within the project as a part of their property tax bill.
The City adopted a Land Secured Financing Policy related to the use of CFDs back in 2003 and amended that policy in 2016. From time to time, the financing policy needs to be amended to comply with the Mello-Roos Act, the California Government Code, and, potentially, market conditions.
On October 3, 2023, staff presented proposed amendments to the CFD Goals and Policies. In addition to changes related to state law, other changes proposed in the amended policy include:
• A list of eligible facilities that can be financed
• Adding an escalator of up to 2% per year for facilities
• Adding an escalator for service or maintenance CFDs to cover increases in the cost of providing services
• Allowing Development Impact Fees (DIF) to be financed
• Increasing the maximum cap on the assessed value of a property from 1.8% to 2.0%
Having a list of facilities eligible for financing adds clarity to the policy for both the property owner and City staff. Adding escalators helps to ensure that the General Fund will not need to subsidize the cost of future services to a particular district.
The ability to finance DIF is beneficial because lenders in today’s market require more equity for a proposed project to move forward and obtain a loan for development. Including DIF in the project financing reduces the equity position for property owners/developers, whereas financing those fees through a CFD increases the equity position, which lenders view favorably. Thus, allowing DIF to be financed through a CFD improves the way a lender views a project.
Finally, increasing the maximum cap provides additional flexibility to allow additional elements or services to be included in a CFD.
These changes are consistent with several Land Use and Infrastructure policies in the adopted General Plan:
LU-1.7 Ensure necessary capital improvements are in place prior to new development or completed concurrently.
LU-1.8 Ensure fiscal impacts associated with growth and change are evaluated to ensure the City’s ability to provide vital services is not compromised.
LU-4.1 Provide for housing opportunities that address the needs of those who currently live or desire to live in Murrieta.
INF-1.20 When considering development and City annexations, include assessment of all impacts to public facilities, services, and infrastructure, and identify any necessary mitigation.
The General Plan also identifies mid-term and ongoing actions under the economic development element for fiscal impact analysis of development projects and conducts periodic reviews of the City’s fiscal policy, fiscal revenue and cost structure, and development impact and processing fees. One of the tools available to local governments to fund the provision of essential City services is the creation of a CFD.
The City has formed fifteen (15) CFDs primarily to fund infrastructure benefiting related housing developments. The City does not have any CFDs to mitigate the impact of new development on services.
Additional Authorized Services
The Mello-Roos Act also authorizes the City to establish a CFD to finance certain public services through the levy of a special tax. The services that can be funded include the following:
• Police protection services, including, but not limited to, criminal justice (limited to providing services for jails, detention facilities, and juvenile halls).
• Fire protection and suppression services, and ambulance and paramedic services.
• Recreation program services, library services, maintenance services for elementary and secondary school sites and structures, and the operation and maintenance of museums and cultural facilities
• Maintenance and lighting of parks, parkways, streets, roads, and open spaces.
• Flood and storm protection services, including, but not limited to, the operation and maintenance of storm drainage systems, plowing and removal of snow, and sandstorm protection systems.
• Maintenance and operation of any real property or other tangible property with an estimated useful life of five or more years that is owned by the local agency or by another local agency (by agreement).
Community Facilities District for Public Safety Services
The City of Murrieta has earned the reputation of being one of the safest cities in America. This is primarily due to three factors: our talented public safety personnel, adequate staffing levels, and an engaged citizenry.
However, over the last two years in particular, the city has experienced significant development activity, particularly with multi-family housing. In large part, this increased activity is due to several changes in state law, which has limited local control over these types of projects and made the approval process more administrative. In fact, the City currently has approximately between 10,000 - 13,000 new housing units in the entitlement or construction pipeline.
Seeing this increased activity, staff retained a consultant to help analyze the potential impacts of this new residential development on service delivery, and particular on public safety services.
The City’s current population is approximately 115,000. But, with the changes in state law and the number of projects currently in the pipeline, the new buildout population is estimated to be around 150,000 as the city moves closer to its maximum buildout condition. This higher population number will require a number of new public safety positions for both fire and police over the next several years to maintain appropriate staffing levels and response times.
For example, the Murrieta Police Department (MPD) currently has 106 sworn staff, which, using our current population, equates to approximately 0.9 officers per 1,000 residents. The goal is to maintain a ratio of 1 officer per 1,000 residents, which the City has achieved, but that number fluctuates. Based on a population of 150,000, MPD will need 150 sworn officers or 44 additional officers. Additionally, approximately 20 additional non-sworn positions will also be required to support Police operations. Similarly, Murrieta Fire and Rescue will need an additional 20 positions to serve the higher population. The General Fund and Measure T revenues together will not be adequate to fund these additional positions at or near the buildout population. Thus, staff, along with Spicer Consulting Group, have analyzed forming a CFD to fund the new public safety positions. According to the consultant’s fiscal impact analysis, the anticipated funding gap at buildout is approximately $6.8 million annually. Forming a Public Safety Community Facilities District (PSCFD) provides an equitable funding solution whereby “growth pays for growth.” In other words, only new residential development will provide funding for new public safety personnel that will be required by the new growth. There will be no additional cost or impact to existing homes anywhere in the City. Moreover, the formation of a PSCFD is consistent with the General Plan Policies described earlier in the Background section of this report.
The fiscal impact analysis identifies and estimates the cost associated with the growth and the estimated additional revenue to be generated through build-out. The analysis expects continuous growth in retail development, and it is expected that the generated revenue cannot fully mitigate, financially, the impacts on City service levels from new development. Therefore, to maintain the current service levels, if a PSCFD is not ultimately formed, it is likely that some other city services will need to be cut at some point in the future.
FISCAL IMPACT
There is no fiscal impact to receive and file this report.
ATTACHMENTS
1. Community Facility District Fiscal Impact Analysis