TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Javier Carcamo, Finance Director
PREPARED BY: Javier Carcamo, Finance Director
SUBJECT:
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Resolutions of Intention for Formation of Community Facilities District No. 2025-1 (Safety Services) of the City of Murrieta, Community Facilities District No. 2025-2 (Maintenance Services) of the City of Murrieta, and Community Facilities District No. 2025-3 (Discovery Village) of the City of Murrieta
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RECOMMENDATION
recommendation
Adopt Resolution No. 25-4805 entitled: A Resolution of the City Council of the City of Murrieta Declaring its Intention to Establish Community Facilities District No. 2025-1 (Safety Services) of the City of Murrieta, to Authorize the Levy of a Special Tax on Property Within the District to Pay the Costs of Providing Public Safety Services;
Adopt Resolution No. 25-4806 entitled: A Resolution of the City Council of the City of Murrieta Declaring its Intention to Establish Community Facilities District No. 2025-2 (Maintenance Services) of the City of Murrieta, to Authorize the Levy of a Special Tax on Property Within the District to Pay the Costs of Providing Public Maintenance Services;
Adopt Resolution No. 25-4807 entitled: Resolution of Intention of the City Council of the City of Murrieta to Established Community Facilities District No. 2025-3 (Discovery Village) of the City of Murrieta, to Authorize the Levy of a Special Tax to Pay the Costs of Acquiring or Constructing Certain Facilities and to Pay Debt Service on Bonded Indebtedness;
Adopt Resolution No. 25-4808 entitled: Resolution of Intention of the City Council of the City of Murrieta To Incur Bonded Indebtedness in an Amount Not to Exceed $27,500,000 Within Proposed Community Facilities District No. 2025-3 (Discovery Village) Of The City Of Murrieta; and
Approve a Reimbursement Agreement regarding the Community Facilities District No 2025-3 (Discovery Village) and authorize the City Manager to execute the agreement.
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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 a Resolution 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 and directed staff to present the recommendations in a workshop (Vote 3-2)³.
On December 5, 2023, the City Council held a workshop on the proposed Amendment to the Community Facilities District Goals and Policies (Non-Action Item).
On December 5, 2023, the City Council Adopted Resolution No. 23-4717, amending and restating Community Facilities District Goals and Policies (Vote 5-0)⁴.
CITY COUNCIL GOAL
Maintain a high performing organization that values fiscal sustainability, transparency, accountability and organizational efficiency.
BACKGROUND
Community Facilities Districts (CFDs) are a widely used financing mechanism to fund infrastructure and services associated with new, significant, large development projects, pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (the “Mello-Roos Act”). The City has previously established sixteen (16) CFDs.
On December 5, 2023, the City Council amended the City’s CFD Goals and Policies. The amendments included adding the ability for developers to finance public safety services and maintenance services, adding an annual escalator to cover increases in the cost of providing services, changes to the list of eligible facilities that can be financed, allowing Development Impact Fees (DIF) to be financed, and increasing the maximum cap on the effective tax rate from 1.8% to 2.0% for CFD.
Historically, the City has conditioned new residential projects to pay for basic landscaping and lighting maintenance services pursuant to the Landscaping and Lighting Act of 1972 (“LLD”) of the Street & Highways Code. This funding mechanism includes limited services and requires the City to pay for the General Benefit portion of the assessment, typically up to 25% of the service costs. In addition, the City previously charged new development for the following services: 1) rooftop Fire tax, 2) Community Services District assessment, and 3) a Park and Recreation assessment. The combined assessments total $125 per residential unit.
The property owner for the proposed Discovery Village Project (Project), Discovery Village LLC (Property Owner), has requested that the City assist in forming three (3) CFDs to provide public safety services, maintenance services, and facilities financing. The property to be included in the proposed CFDs is located at the southwest corner of the intersection of Whitewood Road and Baxter Road, east of Interstate 215. The Project is proposed to include approximately 365 single-family homes at full buildout. The Project was not conditioned to form the services CFDs but was conditioned to form a Landscape and Lighting Maintenance District to provide landscaping and lighting services. Upon the formation of these CFDs, the Property Owner will cancel an existing CFD previously formed with the Eastern Municipal Water District (EMWD) which established a facilities CFD for approximately $18 million in bond proceeds for improvements, with a 2.0% overall effective tax rate, that included the $125 per Residential Unit (RU) for basic public services and a potential LLD of approximately $200 per RU for Project specific landscaping and lighting from the City.
Community Facilities Districts
CFDs are a widely used financing mechanism for infrastructure associated with new significant (large) development projects, such as water and sewer facilities, storm drain facilities, roads, landscaping, and parks and to finance the provision of certain municipal services.
Generally, the process to form and implement a CFD is as follows:
• A developer submits a petition to form the CFD to the City or Special District (water districts frequently form CFDs) 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 to be within the CFD.
• 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 development project.
• The bonds are paid off over time (typically 30 years) by the buyers of homes within the district as a part of their property tax bill.
On December 5, 2023, the City Council adopted amendments to the Community Facilities District Goals and Policies. In addition to changes related to State law, other changes contained 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 and 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%.
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).
The Discovery Village Project and Community Facilities District No. 2025-3
The Property Owner has submitted a petition requesting that the City form Community Facilities District No. 2025-3 (Discovery Village) of the City of Murrieta (CFD No. 2025-3). The Property Owner has requested that the City form CFD No. 2025-3 to encompass the Property in accordance with the Mello-Roos Act in order to finance the costs of certain public improvements through the levy of a special tax and the issuance of bonds. The maximum amount of bonded indebtedness proposed is $27.5 million. The proceeds of bonds issued by CFD No. 2025-3 are expected to be used to finance public facilities to be owned and operated by the City and by Eastern Municipal Water District, as well as financing the payment of DIF owed by the Property Owner to the City and Eastern Municipal Water District.
The Property Owner has requested that the boundaries of CFD No. 2025-3 include the area described in Attachment A of the Resolution of Intention to Establish CFD No. 2025-3 and that special taxes be levied within the boundaries of CFD No. 2025-3 in accordance with the Rate and Method of Apportionment for CFD No. 2025-3 (the “CFD No. 2025-3 RMA”) described in Attachment C to the Resolution of Intention. The proposed rates of the special tax range from $3,086.76 per unit for single-family homes less than 1,350 square feet to $4,772 per unit for single-family homes greater than 2,400 square feet and also include tax rates of $69,954 per acre of multi-family property and non-residential property. The special tax rates within CFD No. 2025-3 will increase two percent (2.00%) annually on July 1 of each year, commencing July 1, 2026.
The CFD No. 2025-3 Resolution of Intention is the first step in the process of forming CFD No. 2025-3. The attached resolutions declare the City’s intention to establish CFD No. 2025-3, its intention to incur bonded indebtedness by CFD No. 2025-3, and call for a public hearing. A public hearing on the matter of the formation of CFD No. 2025-3 will take place on April 1, 2025, and at that time the City Council will formally consider the establishment of CFD No. 2025-3 and hold elections on the approval of the special taxes and the need to incur bonded indebtedness within CFD No. 2025-3. It is expected that there are no registered voters residing within the boundaries of the proposed CFD No. 2025-3, and accordingly, the election will be a landowner voting election.
The Property Owner is requesting the City be the lead Agency for forming a Facilities CFD to finance City DIF, City Facilities, and EMWD Fees and Facilities up to the same effective tax rate of 2.0% and include the 2% escalator on the Facility CFD tax rate. The CFD 2025-3 allows the developer to finance additional improvements and offset the reduction in the overall effective tax rate for facility financing by including the increased services costs covered by the formation of the following Public Safety CFD and a Maintenance Services CFD.
CFD No. 2025-1 (Safety Services) and CFD No. 2025-2 (Maintenance Services)
The Property Owner also requested the formation of a Public Safety Services CFD and a Maintenance Services CFD, in accordance with the current City’s Community Facilities District Goals and Policies. Accordingly, the Property Owner has submitted separate petitions requesting the formation of Community Facilities District No. 2025-1 (Safety Services) of the City of Murrieta (“CFD No. 2025-1”) and Community Facilities District No. 2025-2 (Maintenance Services) of the City of Murrieta (“CFD No. 2025-2”).
Each of CFD No. 2025-1 and CFD No. 2025-2 will initially consist only of the Property (i.e. the Discovery Village Project); however, the remainder of the City will be designated as a “Potential Annexation Area” and new development projects meeting certain design criteria will be required to annex to CFD No. 2025-1 and/or CFD No. 2025-2.
CFD No. 2025-1 would levy a special tax in accordance with the Mello-Roos Act on parcels of residential property to finance public safety services. Services eligible to be financed by CFD No. 2025-1 include police protection services (including but not limited to criminal justice services), fire protection and suppression services, and paramedic services. The special taxes within CFD No. 2025-1 are $250 per unit of affordable housing residential property, $468 per unit of multi-family residential property, and $580 per unit of single-family property and will increase annually each July 1 by four percent (4.0%), commencing July 1, 2026.
Although the Project was not conditioned to form CFD 2025-1, the request to form the Public Safety Services CFD will allow the project to mitigate its cost of public safety services brought on by the new residential units within the Project. The Property Owner has agreed to include these additional service costs reducing the ability to finance additional facilities originally included in the EMWD CFD previously formed.
CFD No. 2025-2 would levy a separate special tax in accordance with the Mello-Roos Act on parcels of residential property to finance public maintenance services. Services eligible to be financed by CFD No. 2025-2 include maintenance and lighting of parks, parkways, streets, roads, and open space, maintenance and operation of water quality improvements, including storm draining and flood protection facilities, landscaping, and public street sweeping. The special taxes within CFD No. 2025-2 are $274 per unit of single-family residential property and increase each July 1 by the greater of two percent (2.0%) or the year-over-year percentage increase for the month of March in the Consumer Price Index, commencing July 1, 2026.
The Maintenance Services CFD will provide funding for enhanced public maintenance services to include landscape maintenance, lighting, street sweeping and pavement management, park and trails maintenance, drainage and storm water maintenance, and graffiti abatement. The ability to finance these Project-specific costs will alleviate the general fund from subsidizing those services created by the new development of the Project and eliminate the additional costs incurred from the general benefit portion of those costs identified with each LLD formed. The Property Owner has agreed to include these additional Maintenance Service costs which reduces the amount available to finance additional facilities originally included in the EMWD CFD previously formed.
The Resolutions of Intention for both CFD No. 2025-1 and 2025-2 are the first step in the process of forming those CFDs respectively. The attached resolutions declare the City’s intention to establish CFD No. 2025-1 and CFD No. 2025-2 and call for Public Hearings. Public Hearings on the matter of the formation of CFD No. 2025-1 and CFD No. 2025-2 will take place on April 1, 2025, and at that time the City Council will formally consider the establishment of the CFDs and hold elections on the approval of the special taxes within CFD No. 2025-1 and CFD No. 2025-2. It is expected that there are no registered voters residing within the boundaries of the proposed CFD No. 2025-1 and CFD No. 2025-2, and accordingly, the election will be a landowner voting election.
Reimbursement Agreement regarding Community Facilities District No. 2025-3
The Reimbursement Agreement is a mechanism by which the Property Owner may advance certain costs related to the costs of formation of the Districts and provide that such Districts, if formed, will reimburse the Owner for the amounts advanced.
Future Actions
Based on the proposed CFD formation schedule, the following CFD formation legal actions are scheduled as follows:
Resolution of Formation - The Resolution of Formation Public Hearing will be held on April 1, 2025. The formation of the CFD 2025-1 (Safety Services), CFD 2025-2 (Maintenance Services), and CFD 2025-3 (Discovery Village) may occur after the public hearing. At that hearing, the City Council will be presented with information regarding the aforementioned CFDs, the special taxes, and public services. The public will also have the opportunity to comment. After the conclusion of the April 1, 2025, public hearing the City Council may take the following actions:
1. Adopt resolutions establishing CFD 2025-1 (Safety Services), CFD 2025-2 (Maintenance Services), and CFD 2025-3 (Discovery Village).
2. Call a special election.
3. Conduct the election.
4. Adopt a resolution declaring the results of the election.
5. Introduce for first reading an ordinance authorizing the levy of special taxes.
Following the April 1, 2025, public hearing and landowner election, the proposed schedule to complete the formation of CFDs is a Second Reading of Ordinance authorizing special tax levy scheduled for the April 15, 2025, City Council meeting.
FISCAL IMPACT
There is no fiscal impact on the City. The Property Owner has made a deposit of $65,000 to pay for the costs of the formation proceedings which may be reimbursed to the Property Owner from proceeds of a future bond issuance in accordance with the reimbursement agreement with the Property Owner. If established and subject to necessary Council and voter approvals, each of the CFDs will annually levy special taxes on all taxable property within the applicable District in accordance with the applicable RMA (as attached to the Resolutions of Intention). Such special taxes will be used to pay for the costs of services or facilities, administration of the CFDs, and, in the case of CFD No. 2025-3, debt service on bonds. Any bonds issued by CFD No. 2025-3 are not obligations of the City and will be secured solely by the Special Taxes levied within CFD No. 2025-3. The levying of special taxes for services is expected to alleviate some of the financial impact of the new development on the costs of providing such services to the Property by the City’s General Fund.
ATTACHMENTS
1. Landowner Petition to Form Community Facilities District No. 2025-1 (Safety Services)
2. Resolution No. 25-4805 [Resolution of Intention to Form Community Facilities District No. 2025-1 (Safety Services)]
3. Landowner Petition to Form Community Facilities District No. 2025-2 (Maintenance Services)
4. Resolution No. 25-4806 [Resolution of Intention to Form Community Facilities District No. 2025-2 (Maintenance Services)]
5. Landowner Petition to Form Community Facilities District No. 2025-3 (Discovery Village)
6. Resolution No. 25-4807 [Resolution of Intention to Form Community Facilities District No. 2025-3 (Discovery Village)]
7. Resolution No. 25-4808 [Resolution of Intention to Incur Bonded Indebtedness by Community Facilities District No. 2025-3 (Discovery Village)]
8. Reimbursement Agreement regarding Community Facilities District No. 2025-3 (Discovery Village)