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HomeMy WebLinkAbout09-22-2005 City Council MinutesMINUTES CITY COUNCIL STUDY SESSION CITY OF LAKE ELSINORE 183 NORTH MAIN STREET LAKE ELSINORE, CALIFORNIA THURSDAY, SEPTEMBER 22, 2005 ~~*x*:~*:~~r**:~~:~~x~*~:~*:~:~~r:~*:~:~x*~**~*:~~~*:~*~:~:~x**~~r*:~~e:~~~*~~*~:~x CALL TO ORDER Mayor Magee called the Study Session to order at 4:04 p.m. ROLL CALL PRESENT: COUNCILMEMBERS: HICKMAN, KELLEY, MAGEE ABSENT: COUNCILMEMBERS: BUCKLEY, SCHIFFNER (Councilman Buckley arrived at 4:05 p.m., Mayor Pro Tem Schiffner arrived at 4:26 p.m.) Also present were: City Manager Brady, City Attorney Mann, Administrative Services Director Pressey, Information/Communications Manager Dennis, Community Services Director Sapp, Planning Manager Preisendanz, Public Works Manager Payne, City Treasurer Weber and Office Specialist I Soto. DISCUSSION ITEMS a. CFD Policy Mayor Magee deferred to City Manager Brady who ga~e an overview and deferred to Administrative Services Director Pressey. Mr. Pressey gave an in-depth overview of the presentation and the policies that are followed when considering a Community Facilities District. Agenda Item No. Page Of PAGE TWO STUDY SESSION MINUTES - SEPTEMBER 22, 2005 Joe Janczyk, Empire Economics, stated that his firm performed the Market Absorption Study underlying the CFD financing. He gave further detail of the study and proceeded to give an overview of his firm's background as well as his own. He noted the findings of the study and gave his firm's conclusion. Jim Harris, Harris Realty Appraisal, noted that his firm was the appraiser on recent CFD issuances. He noted the process for real estate development. Berri Cannon, Harris Realty Appraisal, ga~e an overview of a proposed master planned community and provided brief descriptions of Raw Un-entitled Land, Raw land with Vesting Tentative Tract Map and Raw land with Recorded Final Tract Map. She further noted the development steps taken by merchant builders and the costs affiliated with each step. Dennis Anderson, Harris & Associates, gave a brief history on the past CFDs in the City. He stated that the current policy for the tax structure was 2% of the total value of the home at the time the district was formed. He noted that the 2% would include the total property tax value from the County and other tax and assessments from EVMWD, Lake Elsinore Unified School District, the County of Riverside and other entities. He further noted that the policy allowed for a 2% annual escalator that was allowed for the Mello-Roos code. He noted that for residential properties the tax rate could not increase more than 2% per year. He further stated the range of special taxes currently in districts. Mr. Pressey noted that one of the proposed changes in the policy was to consider changing the 2% escalator to 0%, which would be driven by the bond debt structure. He further noted the impact that it would have on the homeowner. Anthony Wetherbee, Southwest Securities - City's underwriter, noted that the rationale for the proposed change was due to the state of the economy. Rod Gunn, Rod Gunn Associates, stated that under the State's Mello-Roos statutes the City Council adopts a level of special tax. Agenda Item No. Page Of PAGE THREE STUDY SESSION MINUTES - SEPTEMBER 22, 2005 Mr. Anderson gave an overview of DAG fees and what they would be used to finance. He stated that improvements to public facilities would be covered under the Mello-Roos code which would allow for financing of the construction of any public or capital facilities. He noted the advantages of financing impact fees. He further noted the City's current fees. Mr. Pressey commented that at a previous study session the issue of whether or not to finance DAG fees was addressed. He noted the advantages and disadvantages of DAG fees. Mr. Gunn gave an overview of the credit quality of financing noting absorption, credit quality of developer and feasibility of project. Mr. Wetherbee stated that when he was looking at a Mello-Roos project or land secured financing he would use the acronym FAST. He noted that it stood for feasibility, appraisal, structure and time of financing. He then gave a brief description of each item. Margie Armstrong, EVMWD, stated that the district, to date, has done 8 CFDs. She noted that their structure was very similar; however, a little mare restrictive. She stated that their financing policy specified that they have a level debt service. She noted that they do allow for the 2% escalator on a case-by-case basis, and must have special approval. She noted that their value-to-lien ratio was 4-l, and for that reason developers tend to go to the City or school district. Councilwoman Kelley inquired on the school district fees per home. Mr. Pressey noted that he did not have that information available, but would look into the matter. Mr. Anderson indicated that the fees were charged per square foot. Mrs. Kelley inquired if the school district had been approached to work with the City in regard to the matter. Agenda Item No. Page Of PAGE FOUR STUDY SESSION MINUTES - SEPTEMBER 22, 2005 Mr. Pressey noted that he had made contact with the school district. Councilman Hickman requested clarification on the definition of level debt service. Mr. Anderson noted that the Mello Roos code allowed an additional 10% coverage to cover delinquencies. Councilman Hickman stated that the Bond Council did an outstanding job. He further inquired about the total amount of outstanding bonds. Mr. Pressey indicated that he believed there was $50 -$60 million worth of outstanding CFD bonds. Councilman Hickman inquired if people would be able to pay off their Mello Roos if level debt servicing was decided upon. Mr. Anderson indicated that the prepayment clause would need to be looked at; however, it would be as simple enough as multiplying out the payoff cost. City Treasurer Weber indicated he felt the best interests of the City were being met. He stated that it was the City's responsibility to manage the funds correctly. He noted that he thought the 0% escalator was a good thing. He further inquired how the City handled and met the demands of delinquencies. Mr. Anderson stated that the tax would need to be increased in the subsequent year to cover what was paid for delinquencies in the prior year. He noted that the rate and method of taxation did have a maximum tax. He further noted that the tax was only able to increase by 2% annually. Mr. Weber inquired on the City's process to foreclose on a home that has not paid their property taxes. Mr. Anderson gave an overview of the process of how to check on payments for property tax and the steps that would be taken if the payment on the property tax had not been made. Agenda Item No. Page Of PAGE FIVE STUDY SESSION MINUTES - SEPTEMBER 22, 2005 Mr. Pressey noted that it had been a number of years since the City had to foreclose on a property. He further noted that they have not yet had to bill for delinquencies. Mr. Weber stated he thought the Council should be informed on the delinquencies. He further inquired how fees were organized to ensure they were spent on the appropriate item and not unrelated issues. Mr. Pressey indicated that there were government laws that addressed impact fees. He noted that there were separate funds for each of the impact fees; he further noted that they were incorporated into the CIP budget. Mr. Weber suggested that he would like to track the money amounts for the fees collected for the year. Mr. Pressey indicated that once bonds were issued and the City received the fees, they would then be placed in the appropriate account for a specific designated use. He noted that the fees collected were not always tied to the development, but to a specific designated use. Mr. Pressey indicated that all funds of the City were reported in financial statements on a yearly basis. Mr. Weber stated that he would like to see updates on the activity of the construction fund. Mr. Pressey noted that Harris & Associates issued an annual CFD report, as well as NBS Government Services which included an update of the balances. Weber suggested that the construction fund be audited by an independent auditor. Councilman Hickman inquired if the builders sent Harris & Associates the invoice to allocate the money. Agenda Item No. Page Of PAGE SIX STUDY SESSION MINUTES - SEPTEMBER 22, 2005 Mr. Anderson stated that theyxequire the developer to send them the invoice and proof of payment, all executed contracts and proof that they did receive 3 competitive bids which showed they awarded to the lowest responsible bidder. Mr. Hunt stated that all construction funds for all of the CFDs were held by a trustee. Councilman Buckley inquired if it was cheaper for a homeowner to ha~e a CFD or to pay the money up front as part of the mortgage. Mr. Janczyk stated that the rates on a tax-exempt bond were at a 5% range and rates on mortgages would depend upon whether someone was looking at fixed-rate mortgage or adjustable-rate mortgage. He noted that mortgage rates were similar to rates on the tax exempt bonds presently, and would appear that they were very close in regard to the homeowner's total out of pocket expense. Councilman Buckley inquired about the informal notification process to Council on their willingness to approve a CFD Bond. Mr. Gunn stated that the Bond Council did not have their first meeting on a CFD until Council approved the Tentative Map. He also stated that whether or not a CFD would be affiliated with a Tentative Map could be apart of the developer's Tentative Map application. Mr. Buckley inquired on the prospect of having a 1.8% cap in place of not having an escalator. Mr. Gunn noted that the numbers might come out differently; but if that was the direction the City wanted to go in, the numbers should be fairly comparable. Mr. Anderson noted that if an escalator was added in, the nutnbers would increase over time and the level debt would be lower over the fu1130 years in terms of total taxes paid. Agenda Item No. Page Of PAGE SEVEN STUDY SESSION MINUTES - SEPTEMBER 22, 2005 Mr. Gunn noted that it would be easier for a developer to sell a home advertising a 1.8% cap in the market place. Mr. Wetherbee stated that the CFD debt was not the debt of the City in terms of someone analyzing the City's financial statements. He noted that the City had the responsibility of the administration of the debt. Mr. Buckley inquired if various independent audits were taken out of CFD funds. Mr. Anderson noted that fees for audits were taken out of the CFD funds. Mr. Buckley inquired if the CFD reserve was used to cover delinquencies. Mr. Anderson noted that the reserve must be replenished and kept at a certain leveL He noted the steps taken to replenish the reserve in order to keep it at a certain level. Mr. Wetherbee noted that the size of the reserve fund was limited by federal tax laws. He noted the maximum size of reserve funds established by the federal tax law. Mr. Wetherbee noted that in a more normalized economy the City could invest the reserve funds at a 4% or 5% rate of return so the reserve fund earnings could cover the delinquencies. Mr. Buckley noted that an annual delinquency report to Council was a good idea. Mr. Buckley inquired if the City had ever completed payments on any of their CFDs. Mr. Pressey indicated that the earliest a CFD would be paid off would be in the year 2020. Mr. Buckley inquired if there was a time limit to spend funds for CFDs. Agenda Item No. Page Of PAGE EIGHT STUDY SESSION MINUTES - SEPTEMBER 22, 2005 Mr. Hunt commented that the federal tax law indicated that all the proceeds would be spent within 36 months. Mayor Pro Tem Schiffner inquired if there was an advantage to Mello Ross and if a home was found more valuable if it had Mello Roos. Mr. Janczyk stated that he recently dealt with a similar scenario, a home with a special tax and one without, he stated that there was a price differential. Mrs. Cannon indicated that when they value a home, they consider many factors along with taxes. She believed that in the scenario Mr. Schiffner was referring to, the homes would not appraise for the same value. Mr. Harris noted that his firm did not appraise individual houses. Mr. Schiffner indicated that with his personal experience the appraisers indicated that Mello Roos did not make a difference with the property value. Mrs. Cannon noted that there were all different kinds of appraisers and that the value of the home may vary with various appraisers. Mr. Weber noted that it would be helpful to have an overview of the items discussed among the finance team to help inform the Council and himself with what was going on and what was going forward in regard to developments. Mr. Gunn stated that he maintained a master calendar that he provided to Mr. Pressey that could be formalized and distributed. Mr. Buckley suggested that the City create a pamphlet explaining a CFD to provide to homeowners. Mr. Hunt stated that law required the developer to be responsible to provide specific disclosure to every homeowner in a Mello Roos district and advised the City to consider liability issues before taking on the responsibility. Agenda Item No. Page Of PAGE NINE STUDY SESSION MINTJTES - SEPTEMBER 22, 2005 Mayor Magee noted how staff was looking for direction on policy changes and inquired about asking staff to send out letters to the school district, water district and the BIA encouraging their comments on the changes that Council was considering on the existing CFD policy. Mr. Magee gave an overview of the items that had been addressed up to that point. Mr. Magee inquired when they would like to see the policy back. Mrs. Kelley stated that she would like to see staff write letters to the districts and get a response before meeting again. Mr. Magee directed staff to send a letter that noted that Council was considering changes to the CFD policy. Mr. Buckley inquired if there would be an MOU between the 3 agencies, or 3 independent Ordinances that stood alone on the changes to the CFD policy. Mr. Pressey stated that he and the Bond Council had discussed having the agencies add it into their policy. Mr. Magee questioned City Manager Brady if staff had adequate direction on the item. Mr. Brady indicated that he felt staff had adequate direction. ADJOURNMENT THE CITY COiTNCIL STUDY SESSION WAS ADJOURNED AT 6:35 P.M. ~~ ROBERT E. MAG E, MAYOR CTTY OF LAKE ELSINORE Agenda Item No. Page Of PAGE TEN STUDY SESSION MINUTES - SEPTEMBER 22, 2005 ,\ / ~ ~ ~_ . __ ~'~ DARYL HICKMAN, CHAII2MAN REDEVELOPMENT AGENCY Res ctfully submitted `---~/~ ~~ U~7'v MICHELLE SOTO, OFFICE SPECIALIST I ATTEST: F ~C Y, DEPUTY CITY CLERK Agenda Item No. Page Of