99-0817_CAPISTRANO UNIFIED SCHOOL DISTRICT_H1a_Agenda Report0 0
AGENDA ITEM August 17, 1999
TO: George Scarborough, City Manager
FROM: Cynthia L. Russell, Administrative Services Director
SUBJECT: Consideration of Joint Community Facilities District between City of San
Juan Capistrano, Capistrano Valley Water District and Capistrano Unified
School District on behalf of the Pacific Point Project (SunCal Companies)
RECOMMENDATION:
By motion, approve a Joint Community Facilities District between the City of San Juan
Capistrano, Capistrano Valley Water District and Capistrano Unified School District with
an anticipated tax rate not to exceed 1.7%.
SITUATION:
Summary and Recommendation
The Capistrano Unified School District (CUSD) has requested that the City and Water
District enter into a Community Facilities District with CUSD. This Community Facilities
District (CFD) would be formed under the Mello -Roos Act and would use public financing
for the acquisition of the school site on Camino Las Ramblas and the construction of the
Kinoshita Elementary School. The CFD would also assist in the funding of the
construction of certain major City and Water District facilities required for the Pacific Point
development.
At present, the proposed CFD reflects an anticipated tax rate of 1.63% generating a
$11,765,000 bond based on the estimated property values. However, Joseph Janczyk,
of Empire Economics, is evaluating the estimated property values. If Mr. Janczyk
determines the estimated property values are unrealistically high than the size of the bond
issue, it may need to be reduced to retain the anticipated tax rate below 1.7%.
City staff will provide an updated staff report based on Mr. Janczyk's evaluation prior to
the August 17 City Council meeting.
FOR CIN COUNCIL AGE
AGENDA ITEM -2- August 17, 1999
Background
During the later part of 1997, CUSD advised the City Council that the owner of the Pacific
Point Project (SunCal Companies) had been in discussions with them regarding the
formation of a Community Facilities District. This CFD would be formed under the Mello -
Roos Act. The proposed District would utilize public financing for the acquisition of a
school site on Camino Las Rambles and it would fund construction of school facilities at
the Kinoshita Farm Site.
As part of these discussions, SunCal Companies had notified CUSD that they would not
participate in the Community Facilities District unless the City and Water District entered
into a Joint Community Facilities Agreement to fund certain major City and Water District
facilities that SunCal was required to construct for the Pacific Point Project. The
Community Facilities District would provide SunCal with a means of financing the required
City and Water District facilities with tax-exempt public financing by passing that cost to
the future property owners through tax assessments. In addition, by combining the City
and Water District improvements with the CUSD financing, the project could realize a
savings on its public financing of approximately $275,000.
Facing severely overcrowded conditions without viable alternatives to finance the school
facility at Kinoshita Farm or acquire the future school site on Camino Las Rambles, CUSD
requested the City and Water District enter into a Joint Community Facilities Agreement
as requested by SunCal.
Following lengthy review and consideration of the Community Facilities District proposal,
the City Council declined to enter into a Joint Community Facilities Agreement. Instead,
in February of 1998, the City Council adopted an Urgency Ordinance, which required that
no new development be allowed unless a Mello -Roos Community Facility District for the
construction of permanent classroom facilities was established. This Urgency Ordinance
insured that a developer would provide Mello -Roos funding for new school facilities even
if the City chose not participate in any proposed joint facilities agreements.
At the end of last year, the California State Legislature acting at the behest of the
development industry included in SB50 a provision which prohibited California cities from
requiring developers to insure adequate school facilities are provided to meet the needs
of the children generated from their developments. This legislation rendered invalid the
City's Urgency Ordinance or any other City effort to require developers to address school
overcrowding caused by their development.
AGENDA ITEM -3- August 17, 1999
Continuing to face severe overcrowded conditions and without viable alternatives to
finance the school facilities, CUSD has again requested the City and Water District enter
into a Joint Community Facilities Agreement with CUSD as stipulated by SunCal.
In addition to funding the construction of the Kinoshita School and acquisition of the school
site at Camino Las Ramblas, the Joint Community Facilities Agreement would assist the
developer in funding the construction of the following City and Water District facilities:
1. The water reservoir and appurtenances required for the development of Pacific
Point Project.
2. Off-site storm drain facilities.
3. Off-site roadway improvements as required under the Pacific Point Project
phasing plan. The off-site roadway improvements include the following:
• Improvement and signalization of Camino Las RamblasNia California;
• Improvements along Valle Road from San Juan Creek Road to 1-5 off
ramp;
• Improvements at Camino Capistrano/San Juan Creek Road and 1-5
Intersection.
Consideration of the creation of a Community Facilities District raises a number of
questions. Some commonly asked questions and their corresponding answers are
identified below:
What is the estimated property tax rate anticipated from this CFD?
The actual tax rate will be set based on actual property values in the market place. The
following schedule shows a detail of the bond proceeds, current tax and special tax by unit.
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AGENDA ITEM
El
PACIFIC POINT
COMMUNITY FACILITIES DISTRICT
PROJECTED PROPERTY TAX COMPARISONS
Current Proposal
July 13, 1999
August 17, 1999
Description
1999-00
Estimated
Property
Value
Current
Property
Tax
Special Tax
Proposed by
Developer
Revised
Total Tax
Proposed
by
Developer
Maximum Tax Rate
1.10%
.53%
1.63%
Construction Proceeds
Generated
$11,765,000
$11,765,000
(_> 5,500 SF)
$1,100,000
$12,100
$5,830
$17,930
(4,500 - 5,499 SF)
$900,000
$9,900
$4,770
$14,670
(3,500 - 4,499 SF)
$700,000
$7,700
$3,710
$11,410
(2,500 - 3,499 SF)
$500,000
$5,500
$2,650
$8,150
(<2,500SF)
$360,000
$3,960
$1,900
$5,860
What is the total special tax paid by the homeowner owner over the life of the bond issue?
Unit Type
(_> 5,000 SF)
(4,500 - 5,499 SF)
(3,500 - 4,499 SF)
(2,500 - 3,499 SF)
(< 2,500 SF)
Current Proposal
185,476
150,745
117,245
84,133
60,376
In order to generate sufficient tax to support the debt service for a $11,765,000 Bond
Issue, a total tax rate of 1.63% would need to be established based on the estimated
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AGENDA ITEM -5- August 17, 1999
property values. However, if property values are actually lower than estimates, then the
tax rate will increase. Conversely, if actual property values are higher than estimated, then
the tax rate will decrease.
The estimated property values identified in the current proposal have been initially
reviewed by Joseph Janczk, of Empire Economics. Mr. Janczyk has expressed concerns
that the estimated property values are too high and he is developing refined property value
estimates. City staff believes that the total tax should remain below 1.7%. If Mr. Janczk's
revised property values increase, City staff will be recommending a reduction of the size
of the bond issuance to keep the anticipated tax rate below 1.7%.
Mr. Janczk is completing his refinement of the property value estimates. City staff will
provide a revised staff report based on Mr. Janczk's refined estimates prior to the
August 17 City Council meeting.
How are properties assessed in a CFD?
Basically, a formula is set when forming the CFD that provides for the maximum dollar
amount to be paid by developed properties and the maximum amount to be paid by
undeveloped properties. The assessment can never exceed the maximum amount. For
example, should the developer go bankrupt during development, the assessments
allocated to the undeveloped properties are not shifted to developed properties. This has
occurred outside the State of California, but our statutes prohibit this from happening?
What happens if the developer goes bankrupt with parcels still undeveloped?
The tax is still assessed as indicated above. The tax levy from any undeveloped property
that may exist is not shifted to developed property.
Are there financial risks to the City or Water District?
Public district financing has no contingent liability on the issuer; in this case CUSD or the
City/Water District would not have any liability toward the future repayment of the bonds.
Additionally, the issuer's ability to issue other debt is not impacted.
AGENDA ITEM -6- August 17, 1999
How does CUSD determine whether or not a project is viable prior to issuing debt
within a CFD?
CUSD follows the California Debt Advisory Commission disclosure guidelines for land-
based securities. In summary, CUSD reviews projects for the following:
Evaluate economic viability of the project including profit margins, marketability, proposed
sales prices and available funding sources, proposed public facilities costs, debt to lien
ratio, etc. to determine whether developer assumptions are accurate and in fact still correct
prior to bond issuance.
Analysis of the financial wherewithal of the Developer and other property owners
responsible for 20% or more the special tax payments to support the bond issue should
the development not proceed as anticipated. This analysis also examines the Developer's
debt repayment history and commitments for conventional financing to support all expected
project cash flow needs.
Assure that maximum special tax rates, proper disclosure and other protections are
provided for as required by CUSD.
CUSD has established eight CFDs and sold seven CFD bond issues to finance over $125
million in school facilities over the past ten years. During this period of time, CUSD's CFD
special tax delinquency rate has averaged below 3%, despite a major economic recession,
and no draws have ever been made against any of the CFDs' reserve funds.
Why a Joint Community Facilities District as opposed to two separate districts?
By requesting a Joint Community Facilities District, the developer can avoid duplicating
costs associated with separate issues such as bond counsel, financial advisors, sales
costs, etc. Additionally, with a consolidated larger issue there would be a likely reduction
in the underwriter's discount and percentage of cost of issuance to issue amount would be
reduced. Staff estimates these cost savings to be approximately $275,000.
AGENDA ITEM -7- August 17, 1999
By entering into a Joint Community Facilities District, CUSD would be the issuer.
Therefore, the School District's name would be on the bonds. Additionally, all issues
regarding the bonds including public information, public relations and annual rate setting
would be the School District's responsibility.
What is the cost of the facilities proposed for construction?
Current
Facilities Proposal
School Facilities:
Kinoshita School Site $2,100,000
Las Ramblas School Site 4,800,000
Subtotal - School Facilities 6,900,000
Non -School Facilities:
Water Facilities $2,671,000
Roadway & Storm Drain Improvements 2,194,000
Subtotal - Non -School Facilities 4,865.000
TOTAL $11,765,000
What is the number of units being built?
Current Proposal — 350
What is the proposed life of the bond issue and the terms?
Term of Bonds Interest Rate Issuance Costs
Current Proposal 30 year 7.00% 23.87%
AGENDA ITEM -8- August 17, 1999
What is the City's current property tax rate?
Currently, the City's tax rate is approximately 1.10%.
What is the cost of the developers undeveloped land tax (ULT) as compared to the
School Fees to be paid?
Proposal
Current Proposal
# of Unit
t:cb7�]
School Fees
$2,259,837
ULT
$1,838,632
Difference
($421,205)
As you can see, the developer will pay less in undeveloped land tax than school fees.
Additionally, if the CFD is approved, the developer would not incur the costs of the
required public improvements totaling approximately $4.1 million. The developer
represents that the sales price of their product is reduced because the property is
encumbered by a CFD. They represent that by implementing a CFD, the net cost to the
developer is higher than without the CFD. Their position is that they are requesting this
financing strategy from a cash flow point of view. Since it is impossible to determine what
the loss in sales price might be, if any, this cost to the developer has not been calculated.
COMMISSION/BOARD REVIEW AND RECOMMENDATIONS:
Not Applicable
FINANCIAL CONSIDERATIONS:
The City and Water District would incur minimal costs associated with review and approval
of the appropriate documents. As previously indicated, the bonds would be in the name
of the School District, therefore the City and Water District would have no costs associated
with the cost of debt issuance.
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AGENDA ITEM -9- August 17, 1999
NOTIFICATION:
SunCal Companies, Inc.
550 W. Orangethorpe
Placentia, California 92870
Attn: Marc L. Magstadt
ALTERNATE ACTIONS:
Capistrano Unified School District
32972 Calle Perfecto
San Juan Capistrano, California 92675
Attn: Dave Doomey
1. By motion, approve a Joint Community Facilities District between the City of San
Juan Capistrano, Capistrano Valley Water District and Capistrano Unified School
District with an anticipated tax rate not to exceed 1.7%.
2. Do not approve the Joint Community Facilities Agreement
3. Request additional information.
RECOMMENDATION:
By motion, approve a Joint Community Facilities District between the City of San Juan
Capistrano, Capistrano Valley Water District and Capistrano Unified School District with
an anticipated tax rate not to exceed 1.7%.
Respectfully Submitted,
C thia L. Russell
Administrative Services Director
A:WIELLOR-2.DOC