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HomeMy WebLinkAbout04/24/2007 Special Council Meeting Minutes MINUTES OF SPECIAL SESSION MEETING MARANA MUNICIPAL COMPLEX DATE: April 24, 2007 PLACE AND DATE Marana Municipal Complex A. CALL TO ORDER AND ROLL CALL By Mayor Honea at 7:00 p.m. COUNCIL Ed Honea Herb Kai Bob Allen Jim Blake Patti Comerford Tim Escobedo Carol McGorray Mayor Vice Mayor Council Member Council Member Council Member Council Member Council Member Present Excused Present Present Present Present Present STAFF Mike Reuwsaat Gilbert Davidson Jim DeGrood Frank Cassidy Jocelyn Bronson Town Manager Deputy Town Manager Assistant Town Manager Town Attorney Town Clerk Present Present Present Present Present B. PLEDGE OF ALLEGIANCE AND INVOCA TION/MOMENT OF SILENCE Led by Mayor Honea. C. APPROVAL OF AGENDA Upon motion by Council Member McGorray, seconded by Council Member Blake, the agenda was unanimously approved. D. CALL TO THE PUBLIC GENERAL ORDER OF BUSINESS E. CONSENT AGENDA 1. Resolution No. 2007-59: Relating to Public Works; authorizing the application for a CWSRF loan from the Water Infrastructure Finance Authority of Arizona (WIFA) to finance the Silverbell Road Wastewater Collector system. (Barbara Johnson) 1 MINUTES OF SPECIAL SESSION MEETING MARANA MUNICIPAL COMPLEX DATE: April 24, 2007 Mr. Reuwsaat addressed Council and stated they are asking to do an application for up to 18.2 million to have as a financing mechanism. Upon motion by Council Member Comerford, seconded by Council Member Escobedo, Resolution No. 2007-59 was unanimously approved. 2. Presentation: Marana Economic Blueprint. (Jim DeGrood) Mr. DeGrood addressed Council and stated that last month TREO (Tucson Regional Economic Opportunities) completed and released their economic blueprint for the region's future economic development activities. The economic blueprint was a six month project and reached over 3,000 individuals. There was a SW AT analysis, a regional economic analysis, a comparative market analysis, a comparative cost analysis, an industry cluster analysis, and a site locator review. Upon analyzing the results of these efforts they identified five strategic areas; high skilled highway jobs, educational excellence, urban renaissance, livable communities, and collaborative govern and stewardship. As part of the work plan that was developed, TREO is going to be helping Marana do the Marana economic blueprint. We will be working with the recently formed business and economic development advisory commission. They will serve as the steering committee on the Marana economic blueprint. We will have technical assistance and guidance from TREO along the way. They will have to identify what the existing conditions are in the community. Most of the work needs to be in surveying our community, making sure the beliefs and values that we have in the business and residential community are in alignment. Once we have the outcome from these surveys we will perform a SW AT analysis, a gap analysis and move on to an action plan, goals and strategies. Mr. Reuwsaat stated the Business and Economic Development Advisory Commission have agreed to meet twice a month instead of monthly so they can move this project along and make a successful plan. Mayor Honea stated he attended the TREO blueprint unveiling at the Fox Theater. One of the parts of their presentation was Marana would be one of the first places they would be working with. He stated he thought they would be an asset in Marana's future. 3. Discussion and direction on Town policy relating to community facilities districts, with special consideration of whether to allow the sale of assessment bonds in addition to or instead of general obligation bonds in appropriate circumstances, with specific discussion of the possible application of the policy to the Saguaro Springs and The Villages of Tortolita development projects. (Frank Cassidy) 2 MINUTES OF SPECIAL SESSION MEETING MARANA MUNICIPAL COMPLEX DATE: April 24, 2007 Council Member Escobedo declared a conflict of interest. Mr. Cassidy addressed Council and stated this item is a follow up from the series of study sessions in 2004 to the lead up of the Gladden Farms CFD creation. One of the conclusions at the time was the Council would support CFD bond sales of general obligation bonds at a rate of $2.50 per $100 of assessed valuation in principal plus .30 for operation and management. As the assessed values come up on these projects, larger amounts of bonds are able to be sold. Recently, there have been a couple of projects where during discussions they would like to revisit the concept of only using general obligation bonds. In particular, they are talking about Saguaro Springs and Villages of Tortolita. Both projects have very large up front regional public infrastructure associated with them where there is going to be a need for a large initial bond sale. A melt down scenario which involves a situation where with G.O. bonds, even though we set the rate, the truth is whatever it takes to payoff those bonds is going to be assessed against the assessable properties. They discussed avoiding the melt down scenario by going back to Council and talking about maybe doing assessment bonds in certain situations because with assessment bonds the amount of the assessment is set up front with respect to the parcels. Mr. Cassidy stated there are three outside consultants present. Mr. Cassidy stated Mike Le Valley has prepared a presentation concerning the Saguaro Springs CFD. Mr. Reuwsaat stated at the time they had the discussion about assessments versus G.O. bonds State statute precluded the Town from doing an assessment and having the County send it out with the tax bill. He stated the statute has now changed. Weare now able to have that assessment put on the property tax bill and the County would then collect it. Mark Reeder addressed Council and stated he will be talking about the purpose of the work study session and the characteristics of the CFD bonds that being general obligation and special assessment bonds. There is a unique opportunity relative to Saguaro Springs in terms of regional infrastructure that being Twin Peaks Road. The Twin Peaks Road component of this financing is why they have been discussing different options. The general obligation bonds are very common in municipal governments. The Town does not have a primary tax rate for maintenance and operation and does not have any general obligation bonds outstanding. The taxes are levied on all taxable property located within the boundaries of the CFD. When you sell bonds under the traditional G.O. bonds the bonds are repaid based on the taxable property within your town or district and the law requires you to set that rate at an amount sufficient to pay the bonds. The amount of secondary property taxes paid by each homeowner is based on the annual debt service in the secondary assessed value of the property. So each year as these different municipal jurisdictions establish their tax rates they look at several variables. They look at the tax rate, the aggregate assessed value within the boundaries of that municipal jurisdiction and they establish a tax rate on per $100 of assessed valuation basis. In a lot of cases in Arizona because of the 3 MINUTES OF SPECIAL SESSION MEETING MARANA MUNICIPAL COMPLEX DATE: April 24, 2007 expanding tax base you have a tax base that is expanding at a higher rate of your personal residence so they change every year based on the three variables. Property taxes are levied and collected by the County Treasurer and payable twice a year in October and May. They are generally impounded by the mortgage company. G.O. bond debt service and general property taxes are in a first lien position ahead of special assessment bonds. Land owners are not allowed to prepay their debt. This is a key provision with general obligation bonds. Voter approval to issue G.O. bonds is required by all land owners and residents within the CFD. In the case of CFDs where you have limited assessed value in the early stages of the development and as there is success and vertical development you will have a large tax base. The policy of the Town for G.O. bonds for CFDs has been $2.50 per $100 of assessed value. There is very limited dollars that you can secure on an up front basis on a present value basis by the issuance of general obligation bonds. The tax base is not there. On the CFD bonds on large G.O. bonds on an upfront basis is it boils down to a corporate credit analysis. It impacts the balance sheets of the homebuilders and developers. In the case of Saguaro Springs it creates some issues in terms of the appropriate letters of credit and corporate backing required to get upfront infrastructure dollars. Mr. Reuwsaat stated the voter approval to issue the G.O. bonds is required by the landowners. That is also the time at the beginning where the Council determines the amount of ultimate G.O. bond that can be issued. The developer wants two dollars and we ask for six so that there is some future debt capacity to do public infrastructure. A future CFD Board has the ability to issue G.O. bonds to pay for an appropriate fair share of those facilities because of the election. Mr. Reeder stated special Assessment bonds are similar to Tangerine. A special assessment bond is a bond that is issued on an up front basis, secured by the underlying land. There are strict requirements in terms of what the value of what the land is relative to the debt to be issued on the property. The debt service of the bonds is allocated back to each property owner. State law requires an engineer retained by the Town provide an assessment methodology that when allocated back to each property owner it is a fair assessment based on the benefit derived from the infrastructure. For some reason someone was unable to make their special assessment payment the debt service is not allocated to other property owners. Those property owners have the option of paying off the assessment in cash and if they do not do it before the bonds are issued they can pay the assessment over time. The Pima County Treasurer has expressed an interest to collect special assessments within a CFD to the extent that the Town moves forward. They would use the model that was recently approved by the Maricopa County Assessor's Office on a recent CFD in Buckeye. No election is required to levy special assessments. Landowners have the right to protest and object the assessment. Mr. Le Valley addressed Council and talked about the appraisal requirements of a special assessment bond. The Town's CFD policy requires a four to one value to lien. There will be an appraiser hired to appraise the value of the land. They will 4 MINUTES OF SPECIAL SESSION MEETING MARANA MUNICIPAL COMPLEX DATE: April 24, 2007 do it on a wholesale bulk value. For assessment bonds they typically have a debt service reserve fund which is usually ten percent of the size of the transaction. That reserve fund is placed with a trustee for the benefit of the investors. Capitalized interest means that the bonds would fund the first year interest payments. There would be no interest payments owed by the landowners for the first year. In Saguaro Springs there would be 5.9 million dollars reimbursed to the developer for projects that they have completed and the Town would receive roughly two million dollars in the first bond sale. The developer made application for a CFD. In return the Town had asked for roughly 7.8 million from the developer to help fund the Twin Peaks expansion. Their objective was to design bond issues to meet the Town's objectives, i.e.; funding Twin Peaks Road expansion and the developer's objectives which are to recuperate public infrastructure costs. The Town had requested because of the real estate market a third party absorption and market analysis from the Sullivan Group. That Sullivan Group report provided a more realistic and conservative absorption analysis as to when units might be built in the current real estate market. Originally, a couple of years ago, it was going to be one bond issue for about twenty million dollars. With the real estate market it made sense to split that up into two sales. With Twin Peaks Road expansion the Town needs roughly two million from the first sale. With any bond sale you have to reasonably expect to spend the money within three years by federal tax code. The Twin Peaks Road expansion was probably going to last a little longer than that so the Town was going to get some advance money of two million in the first sale and then the balance 5.8 million in the second sale. Mr. Reuwsaat stated the two million is for the development of the construction documents, the right of way acquisition, the drainage, as well as the additional road right of way. They are looking at roughly 30 acres of right of way that they will have to acquire through negotiated purchase or possibly condemnation. They did not think they would be beginning construction for at least two years, but by doing what we need so when we are ready we get the second issuance for construction. Mr. Le Valley stated he will compare two scenarios, one with G.O. bonds and the other with assessment bond and then a G.O. bond. If you have two G.O. bond sales, one being in 2007 and the other in 2009, the first year bond size to met both the Town and developer's objectives would be about 11.9 million. Net funding $10 million, 8 million to the developer and 2 million to the Town. The second sale in 2009 would be an $8.4 million transaction, net funding $8 million with $5.8 million to the Town and $2.2 million to the developer. There would be capitalized interest needed in the first sale until homes started to hit the tax rolls. The interest would then be funded by the sale itself. A reserve fund is not contemplated in this transaction because with general obligation bonds the Town asked for money up front for the developer to contribute. Typically with these kinds of deals you extract a certain amount of money up front that keeps their hearts and minds in the game so they won't be likely to leave the project until it is 5 MINUTES OF SPECIAL SESSION MEETING MARANA MUNICIPAL COMPLEX DATE: April 24, 2007 completed. The amount of money needed up front for two general obligation sales would be roughly 3.6 million from the developer to do two bond sales totaling roughly $18 million dollars. Also, there would be a shortage amount. The $2.50 tax rate would not generate enough monies initially to cover the debt service. The total amount estimated would be about $5.2 million in shortfalls. That is a sum of about ten years. The number of units needed to cover the debt service would be roughly the total project, 2400 units. The second scenario contemplates two sales again. The first one being special assessments and the second being the G.O. bonds. He gave an example of funding $8 million to the developer and $2 million to the Town. There would be capitalized interest. That is funded interest out of the bonds to make the first year's payment. They would extract a reserve fund funded out of the bonds which is more typically of assessment bonds. Because these are not general obligation bonds there would be no deposit agreement, no standby contribution agreement. The developer wouldn't have any shortfalls. It is a fixed amount per unit eventually. Then there would be a general obligation bond 2009 similar to the last scenario. If we are looking at extracting a certain amount from the developer up front it would be a lot less mainly because they didn't issue two general obligation bond sales they've only issued one and they're not issuing it until 2009 and by that time assessed values in that district have built up. The amount we would extract up front would be roughly $1.5 million. The shortage amount is about $788,000 over about three or four years. The fiscal year in which the $2.50 tax rate supports the debt service is 2011 and 2012, not the ten plus years. The number of units needed to be built for the $2.50 tax rate can cover it based on absorptions from Sullivan Group is about 900 units versus the 2400 units in the previous scenario. Mr. Reuwsaat stated that once we are past the first two years and have 900 units the likelihood of getting any further assessment bonds is pretty nil and you would have to rely on the G.O. authority that you have. From an assessment standpoint it is only viable on the onset where the property owners are the votes to make it happen. The further down the line the more property owners they all have an equal right to make the assessment viable. Mr. Le Valley stated you could do smaller special assessments based on overlays within the boundary of the district. You can do it by phase, but then you have the shortfall of funding both the Town and the developer's objectives up front. In Gladden Farms if you live in that CFD you're paying $17.90 combined tax rate. Tortolita Ranch as contemplated would be $19.52. Quail Creek in Sahuarita which is a CFD project in Arizona because of their overlapping taxes and they go to a $3.00 tax rate versus $2.50 their overlapping rate is $20.00. Vanderbilt Farms as contemplated which they are requesting special assessment bonds and that tax rate is about $17.00. In Saguaro Springs, scenario one, what was done in Gladden Farms the total tax rate burden would be about $17.90. The scenario two is if you do general obligation bonds and have the assessment bond up front it would be roughly $19.52. Every unit has a fixed assessment. As the home value increases and the payment stays level the net effective tax equivalent will go down. 6 MINUTES OF SPECIAL SESSION MEETING MARANA MUNICIPAL COMPLEX DATE: April 24, 2007 Mr. Reuwsaat stated that when we met with Saguaro Springs it was always our intention for the rest of the community to build Twin Peaks Road from the Safeway to past the project at a level that is much more than what we would require of any other developer. We couldn't generate as much money through the impact fee. We wouldn't generate enough funds upfront to do the road project through an impact fee because that is by household over time. The impact fee didn't provide the funding that we could use to move forward with this project on the front end. It is a regional road and the financing we're asking for from the developer is to build that regional road on the front end. We're faced with the same situation with the Villages of Tortolita. One of the requirements before we issue a certificate of occupancy for any of the buildings there is that they build the Tortolita interchange and that could be $35-40 million up front costs. He stated there are other alternatives, but they do not get us the kind of money that we need or in the time to build this kind of infrastructure on the front side. Mayor Honea stated he understands that we are trying to get funds through assessments up front to do infrastructure, but we're going from $2.50 to $4.10. Mr. Le Valley stated that $1.63 over time will decrease as the home value increases unlike the G.O. bond tax which will always stay $2.50. The assessment bond will be a fixed amount every year on your tax bill, but as your value increases the net effective tax rate will decrease over time. Mayor Honea stated we have a four to one value of property to debt service and asked if these are added together will it still maintain a four to one or will that go down. Mr. Le Valley stated we will have to wait to see what the appraisal says. It would probably be on a combined G.O., assessment bond basis and it would still probably be four to one. Mr. Cassidy stated their second recommendation is for the total effective CFD assessment rate not to create an excessively disproportionate burden for homeowners in the CFD with assessment bond debt. He stated they wouldn't necessarily have to pay the second bond back at a $2.50 rate. It could be a lesser amount. However, the problem is though for the second bond issuance the developer would have to come out of pocket a much larger amount of money so they can cover the fact that something less than $2.50 is going to generate less money to pay the second bond issuance and it would be several more years before the bond rate would start paying back. He stated one of the things they could do is with a mixed assessment, G.O. bond approach is each year they could take a look at what the effective rate is and determine what the amount of the G.O. assessment would be to make it end up being the $17.89 that Gladden Farms pays. They would have to come up with a median value to try to figure out what the net assessment is. 7 MINUTES OF SPECIAL SESSION MEETING MARANA MUNICIPAL COMPLEX DATE: April 24, 2007 Mr. Reuwsaat stated what we need to do is have the CFD work because if the CFD doesn't work, if it's too burdensome and the developer takes it on then we have to go back to the impact fee process and the net revenues to the Town to do this project are less. Mayor Honea stated at this current rate we would be almost fifty percent higher than the fire district tax rate. Mr. Le Valley stated it is not uncommon in a municipal jurisdiction for there to be tax rates that are different in certain parts of town. In this particular case to the extent assessment bonds are issued it is going to be utilized for enhanced infrastructure. If you have a scenario where the assessment bond infrastructure can be used to be more beneficial for those that live in that development then often times those people are willing to pay an additional burden. Mr. Reuwsaat stated they talked about doing a small G.O. issuance with the assessment bonds. The reason to do that is so that anyone buying into the neighborhood is going to start out with the same tax rate that it is going to be throughout. In this case what they proposed is for the first couple years there will be the assessment and then they pick up the G.O. bonds when they are ready to begin construction. Council Member Comerford asked what the County's obligation was concerning Twin Peaks Road. Mr. Reuwsaat stated they had discussions with the County. Right now they have not been able to secure any obligation from them for right of way or for the road construction. Their position is it is a developer created project and road and let them pay for the whole thing. Mr. Cassidy stated it would be helpful if they were to say let's make sure that the effective tax rate for the median house cost house in Saguaro Springs does not exceed a certain number. Council Member Blake asked how large the road is going to be. Mr. Reuwsaat stated it is four lanes from the Safeway across the mountain past the main entrance to Saguaro Springs and then two lanes by the cement crossing and where the county is. It will tie into Airline Road. Mr. Davidson stated it will contain the sidewalks, as well as critter crossings and the drainage control system. Mr. Cassidy asked what happens if the developer just proceeds on their zoning approval and in that scenario they build two lanes fronting their property for Twin Peaks which is a significantly smaller project. 8 MINUTES OF SPECIAL SESSION MEETING MARAN A MUNICIPAL COMPLEX DATE: April 24, 2007 Mr. Reuwsaat stated they are trying to put a cap of$7.8 million. Upon motion by Council Member Comerford, seconded by Council Member McGorray, staff recommendation of Council give consideration to allowing CFDs to consider the use of assessment bonds in appropriate circumstances provided that one semi-annual assessment is included in property tax statements from the County Treasurer and that the total CFD assessment rate does not create an excessively disproportionate burden for homeowners in the CFD with assessment bond debt was approved 5-0. F. ADJOURNMENT Upon motion by Council Member Blake, seconded by Council Member McGorray, Council voted unanimously to adjourn. CERTIFICATION I hereby certify that the foregoing are the true and correct minutes of the Marana Town Council meeting held on April 24, 2007. I further certify that a quorum was present. ~..~\,'nr'"/~ "OFM..ct ~ ~ ~\\,'m'",,, ~ -, ~ to... ..... ~ ~'17-t- ~ :: .a! cGI'.PORATE \. j1' ~ &:";01 r-::: oc:;:tC:) :: .. .. ..... - - :: ~,'Q,EAI.,;: - ~_ ~..u ~;: .....~. ~ S f~. ''''.,~J."I'Jim''\\~ ~ #.I.:,"1!2. ,\<dl'~ ~J""'\~ll'l.\\~ lr.1l"IlIlI'l\Jo 9