HomeMy WebLinkAboutCouncil Presentation 04-23-2019 CFD Policy Considerations FinalCOMMUNITY FACILITIES DISTRICT (CFD) POLICY CHANGESSTUDY SESSION MEETINGApril 23, 20191
BRIEF RECAP OF PREVIOUS STUDY SESSIONS• Described a CFD• Reasons why a CFD might be created• Discussed the importance of a sound CFD policy• Covered required and optional policy changes• Direction previously received was incorporated into draft amendments to the CFD policy2
PURPOSE OF TONIGHT’S ITEM• To provide Council with an updated and amended CFD policy document• After discussion, Council may:– Move to approve the resolution and amendments to the CFD policy; or,– Direct staff to incorporate additional changes and bring back the item at a future Council meeting3
EDUCATION, DISCLOSURE AND RECORD KEEPING• Existing policy previously required the use of a CFD disclosure• The draft amendments maintain this key provision and includes thefollowing enhancements:– Section 2.11(a) - A detailed description of the proposed marketing plan– Section 2.11(b) - The Applicant’s description of the signing and record-keepingprocesses to be used for retaining all signed homebuyer disclosure forms4
GENERAL OBLIGATION TAX RATE AND PROTECTIONS• The current policy included limited information on revenue shortfalls intax collections• The draft amendments enhance this key provision and includes thefollowing enhancements in Section 4.5(f):– Applicant required to pay difference between tax collections and debt service– Security required at three times Maximum Annual Debt Service (3xMADS)• Security release provision – released when assessed value of real property in theCFD generates ad valorem taxes at the pre-established CFD target tax rate sufficientto pay the annual CFD debt service, when due, for a period of three consecutiveyears beginning the year immediately following the last bond issuance• Once released, the only remedy is to adjust the secondary tax rate to a level requiredto pay debt5
ROUTINE AND EXTRAORDINARY INFRASTRUCTURE REQUIREMENTS• Incorporates Council feedback previously received regarding CFD’s which have extraordinary infrastructure requirements from CFD’s which only require routine infrastructure.• The draft amendments include the following:– Section 5.5(a) - Routine Public InfrastructureRequirements. General obligation bonds shall be thepreferred financing mechanism– Section 5.5(b) - Extraordinary Public InfrastructureRequirements. General obligation bonds and/orspecial assessment bonds may be used for anyportion of extraordinary public infrastructure requiredfor the CFD6PreferredTypeRoutine Infrastructure Only(Tier 1)ExtraordinaryInfrastructure (Tier 2)GOSA
OTHER AMENDMENTS• Section 1.5 – CFD formed after 2018 will be governed by a board of directorscomprised of the members of the Town Council, ex officio, with two additionalmembers• Section 1.8 - A key tenet of these CFD Policy Guidelines is the financial protection ofhomeowners within a CFD• Section 2.8(a) – An analysis of how the proposed debt financing, operation andmaintenance costs, user charges and other CFD costs will be allocated and what willbe the impact to the ultimate end users of the property• Section 2.9 – Insurance. The Completed Application shall provide an explanation ofhow insurance coverage shall be provided• Section 2.10 – Indemnification. The Completed Application shall indicate howindemnification as required by the Development Agreement will be providedbytheApplicant to the Town and the CFD7
OTHER AMENDMENTS• Section 2.11(e) - The District Development and Financing ParticipationAgreementbetween the Town and the Applicant (the “Development Agreement”) in substantiallyfinal form• Section 3.2 – Limits application fee to not more than $15,000• Section 3.3 – Provides for the arrangement of a pre-application conference prior tosubmission of a completed application• Section 3.6 – A public hearing shall be set within 60 days of a completed application.• Section 4.7(g)(i) and (ii) – For special assessments, the value-to-lien(debt ratio) forpublicly offered bonds shall be at least 6 to 1 prior to debt issuance. The appraisalshall value the property at its bulk wholesale value prior to any private orpublicimprovements being installed8
OTHER AMENDMENTS• Section 5.4 – A general obligation bond authorization for a CFD shall expire no laterthan the earlier of the 15th anniversary of the first bond issuance or 75% ofdevelopment lots. Under extenuating circumstances the CFD Board may, in its soleand absolute discretion, extend this period• Section 5.7 – The Applicant shall obtain and pay the cost of a directors andofficers(D&O) insurance policy to cover all actions and activities taken by the CFDBoard andofficers of the CFD relating to the CFD9
TARGET GO TAX RATE• The attached amended CFD policy does not specifically set a target secondary taxrate for general obligation bonds• Not having a specific target secondary tax rate provides greater flexibility in settingthe secondary tax rate at a level which reflects the overall value of publicinfrastructure• Ultimately, target tax rates will be set and approved by the Council as partoftheCFDDevelopment Agreement10
TARGET ANNUAL PROPERTY OWNER PAYMENT OBLIGATION• The amended CFD policy also does not specifically set a target annual propertyowner payment obligation• It was determined that setting an absolute, maximum annual payment obligation,even for the lowest estimated home price point within a development, wouldbeimpractical• Again, not setting a specific target annual payment obligation providesgreaterflexibility in setting the overall obligation a level which reflects the overall value ofpublic infrastructure in those developments11
Council’s pleasure12
COMPARISON OF ROUTINE AND EXTRAORDINARY INFRASTRUCTURE• Illustrative example– GO’s issued for routine infrastructure• Same target tax rate (parity)• Protections placed to maintain target• There is no legal maximum rate– SA’s issued for “special” infrastructure• Lesser of:• ─ Fixed amount per lot or• ─ Value to Lien• Obligation may be passed to ultimate home owner13L 1 Estimated Fair Value 260,000$ L 2 LAV/$100 182$ AnnualRoutine "Special" DifferenceL 3 Tax Rate/$100 (debt only) 2.85$ 2.85$ -$ L 4 Annual GO Payments 519 519 -$ L 5 Special Assessment per Lot -$ 6,000$ 6,000$ L 6 Annual SA Payments -$ 450$ 450$ L 7 Effective Tax Rate 2.85$ 5.32$ 2.47$ L 8 Estimated Annual Payments 519$ 969$ 450$ L 9 Estimated Monthly Amount 43$ 81$ 38$ L 10 Estimated Daily Amount 1.43$ 2.70$ 1.27$
DIRECTION REGARDING POLICY CHANGESCurrent Common Ranges Ideas for discussionGO Target Tax Rate for Debt Service – Special Circumstances$2.50 per $100 of valuationPer $100 of valuation: $2.00 to $3.50Tier 1 - $2.85/$100Tier 2 - $2.85/$100SpecialAssessment Bonds(Tier II)• No cap other than Value to Lien (see below)• Obligation cannot pass to ultimate home owner$2,000 to $3,500 per lot for routine infrastructure;Passes to home ownerLesser of:─ Fixed per lot for extraordinary or─ Value to Lien (see below)Obligation may be passed to ultimate home ownerValue to Lien Ratio (Special Assessment Bonds)• 6:1 Public• 4:1 Private Placement• Excludes value of improvements4:1 Public3:1 Private PlacementIncludes value of improvements• 4:1 Public• 3:1 Private Placement• Includes value of improvementsGO Authorization7 yearsThe earlier of 15 years or 75% of development14