HomeMy WebLinkAboutAgenda Packet 1991/10/17
"I declare undar penalty of perjury that I am
employed by the City of Chula Vista in the
Office of the City Clerk and that I posted
this Agenda/Notice on the Bulletin Board at .
Thursday, October 17, 1991 the Public Services Building and at City, Hall onCouncll Conference Room
4:00 p.m. > DATED"",!;", Z,V SIGNED &-uI...:...- ~1'Administration Building
. l .
Special Meetins: of the City of Chula Vista City Council
CAll. TO ORDER
1. ROil. CAll.: Councilmembers Grasser Horton ~ Malcolm ~ Moore ~ Rindone ~ and
Mayor Nader _'
2. APPROVAL OF MINlITES: None submitted.
CONSENT CALENDAR
The sti1ff recommendations regarding the following items listed under the Consent Cakndar will be e1UJCted by the
Council by one motion without discussion unless a Councilmember, a member of the publiJ: or City sti1ff requests
thtu the item be puJkd for discussion. If you wish to speak on one of these items, please fiJI out a "Request to
Speak Form" available in the lobby and submiJ it to the City Clerk prior to the tneetin[? (Complete the green form
to speak in favor of the staff recommendation; complete the pink form to speak in opposition to the sti1ff
recommendation.) Items pulled from the Consent Calendar will be discussed after PubIiJ: Hearin&, and Oral
ComnumiJ;ations. Items puJkd by the publiJ: will be the first items of business.
3. WRITfEN COMMUMCATIONS: None.
> > END OF CONSENT CALENDAR> >
PUBIJC HEARINGS AND RELATED RESOLUTIONS AND ORDINANCES
The following items have been advertised and/or posted as publiJ: hearin&, as required by law. If you wish to speak
to any item, please fiJI out the "Request to Speak Form" available in the lobby and submiJ it to the City Clerk prior
to the meetin[? (Complete the green form to speak in favor of the staff recommendation; complete the pink form
to speak in opposition to the staff recommendation.) CommeJUs are limited to five minutes per individual.
None scheduled.
ORAL COMMUMCATIONS
This is an opportuniLy for the general publiJ: to address the City Council on any subject 1I'Ultter within the Council's
jurisdU:tion thtu is not an item on this agenda. (State law, however, generally prohibits the City Council from
taking action on any issues not included on the posted agenda.) If you wish to address the Council on such a
subject, please complete the yellow "Request to Speak Under Oral Comnwnications Form" available in the lobby
and submiJ it to the City Clerk prior to the tneetin[? Those who wish to speak, please give your name and address
for record purposes and follow up action. Your time is limited to three minutes per speaker.
>Immediately following the Redevelopment Agency Meeting
Agenda
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October 17, 1991
ACTION ITEMS
The items 1isted in this section of the agenda are apected to eliJ;it substantial discussions and deliberations by the
Council, staff, or members of the general public. The items will be considered individual1y by the Council and staff
recommendations may in certain cases be presenred in the altemative. Those woo wish to speak, please fill out
a 'Request to Speak" form available in the lobby and submit it to the City Clerk prior to the meeting. PubliJ;
comments are limited to five mimltes.
4.
REPORT
POUCY OF USE OF ASSESSMENT DlSTRIcrs FINANaNG . At the 8/6/91
Council meeting, Council requested a report on the continued use of
assessment district fmancing for the provision of infrastructure
improvements required of development. This report discusses the issues
involved in using assessment district financing as they relate to City,
developers, and buyers, and recommends Council Policy measures the
Council may wish to implement. Staff recommends Council approve the
resolution. (Director of Public Works)
BOARD AND COMMISSION RECOMMENDATIONS
This is the time the City Council will considn items w/w;h have been forwarded to them for considnation by one
of the City's Boards, Commissions and/or Committees.
None submitted.
ITEMS PULLED FROM THE CONSENT CALENDAR
This is the time the City Council will discuss items which have been removed from the Consent Calendar. Agenda
items pulkd at the request of the publiJ; will be considered prior to tlwse pulled by Cowu:ilmembers. PubliJ;
comments are limited to five minutes per individual
OTHER BUSINESS
5. CI1Y MANAGER'S REPORTCS)
a. Scheduling of meetings.
6. MAYOR'S REPORTCS)
7. COUNCIL COMMENTS
ADJOURNMENT
The meeting will adjourn to the Regular City Council Meeting on October 22, 1991 at 6:00 p.m. in the City
Council Chambers.
COUNCIL AGENDA STATEMENT
Item
Meeting Date 10/17/91
ITEM TITLE:
Report on Policy of use of Assessment Districts Financing
SUBMITTED BY: Director of Public Works ;JJt/
REVIEWED BY: City Manager f
(4/5ths Vote: Yes _ No X)
BACKGROUND: At the August 6, 1991 Council meeting, Council requested a report on the
continued use of assessment district financing for the provision of infrastructure improvements
required of development. This report discusses the issues involved in using assessment district
financing as they relate to the City, developers, and buyers, and recommends Council Policy
measures the Council may wish to implement.
RECOMMENDATION: That Council accept the report.
BOARDS/COMMISSIONS RECOMMENDATION: Not applicable.
DISCUSSION: The use of Tax Exempt Debt (Special Assessments and Mello-Roos) has been
characteristic of major development in Southern California for the last five to ten years.
Examples are the cities of San Diego, Carlsbad, Escondido, Vista and San Marcos. The county
of San Diego is reported to be processing five such projects at this time. Similar experience is
to be found in the counties of Orange, Riverside, and San Bernardino and the cities within these
counties.
Within the city of Chula Vista, the use of assessment district financing for new development
infrastructure began in 1985 with the Eastlake development. The construction of a water
reservoir, pipelines and a pumping station, sewers, collector streets and storm drains serving the
initial development phases of the project were financed through two assessment districts.
Subsequently, the early portion of Otay Lakes Road and the Telegraph Canyon Drainage
channel, and infrastructure to serve the "Greens" area of the Eastlake development were financed
through the establishment of two assessment districts. During this period, the construction of
portions of East "R" Street and Otay Lakes Road to their ultimate width and with full
improvements, together with sewer and water improvements to serve the Rancho Del Rey
development, was financed utilizing two assessment districts.
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Page 2, Item _
Date 10/17/91
It should be noted that there are currently two assessment districts pending; one for the
improvement of East "H" Street and other infrastructure improvements associated with the Salt
Creek I project, and the second for the improvement of the westerly portion of Telegraph
Canyon Road to be assessed to the Eastlake development.
The following table summarized the above assessment districts:
Assessment Develover Infrastructure Financed Amount (Millions)
District
85-2 Eastlake Otay Lakes Road (DIP), water,
reclaimed water, sewer $ 7.68
86-1 Eastlake East "H" Street, collector streets, water, sewer $ 5.28
87-1 Rancho Del East "H" Street (DIP), water,
Rey sewer, dry utilities $ 7.75
88-1 Eastlake Otay Lakes Road (DIF), Telegraph
Canyon Drainage Channel $ 7.35
88-2 Rancho Del Otay Lakes Road (DIF) $ 7.98
Rey
90-3 Eastlake Eastlake Parkway, Hunt Parkway,
collector streets, water, sewer,
reclaimed water, storm drains, dry
utilities, landscaping $22.35
90-1 Salt Creek I East "H" Street, collector streets,
(Pending) water, sewer, storm drains, reclaimed
water, dry utilities, landscaping $ 5.39
91-1 Eastlake Telegraph Canyon Road, water, sewer,
(pending) dry utilities $14.14
---
TOTAL $77.92
Note: The circulation element streets indicated above by a following "(DIP)"
include median and sidewalk landscaping and storm drain systems.
Other public agencies are also utilizing debt financing within the City to provide infrastructure
on a timely basis. The Chula Vista Elementary School District and the Sweetwater Union High
School District have established Mello- Roos Community Facilities Districts to construct school
facilities and the Otay Municipal Water District has established Improvement Districts for major
water system facilities.
In 1988, following the expressions of concern from several homeowners in the Eastlake area
relative to paying a special tax for school facilities, Council explored the policy issues involved
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Page 3, Item _
Date 10/17/91
in public finance. Analyzing the past experience of other Southern California agencies and
addressing the problem of assuring that buyers are aware of additional taxes and assessment
before they buy, the Council established a number of rules and policies for the use of tax exempt
debt which have proven successful and have deserved as an example for other agencies. The
City's policies and practices are summarized below:
. Improvements. Only "backbone" infrastructure shall be included in assessment
districts. Local intrasubdivision facilities are not included.
. Lien Ration. Value of property must equal at least three times the amount of
bonds.
. Maximum Tax. All County taxes, special taxes and improvement assessment
payments may not exceed 2 % of property value.
. Disclosure. The City of Chula Vista has pioneered the area of disclosure. In
addition to the maximum payment each year, the purchaser must be given the
opportunity to payoff all debt at the time of escrow close*. This requirement for
a decision guarantees that the purchaser's attention is drawn to the cash equivalent
of the annual payments (the prices being added to the property). To date, only
eight assessments and one Mello-Roos obligation have been prepaid.
. City Costs. In addition to direct City costs, developers must pay the City an
origination charge equal to 1 % of the proposed bonds. This last payment may
not be included in the bond issue and has generated over $320,000 for the City's
general fund since its adoption in October 1990.
* Debt may also be paid off at any time after the close of escrow.
ISSUES
The following issues and concerns have been raised relative to public financing policies:
.L. Should public financins: be utilized for private develoument?
Over the past ten to fifteen years, there has been an increased emphasis on maintaining
or improving the quality of life aspects of development. This objective has been
translated into growth management goals and requirements for increased open space,
landscaping, and having quality facilities in place at the time of need. Coupled with the
improvements in development quality is the requirement that a new development pay its
own way and not place any financial burden on the City.
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Date 10/17/91
These two factors have resulted in the need for major infrastructure to be constructed
very early in the development process with little development available to recover costs
from. With the availability of assessment district financing, which provides long term
financing and the ability to spread the cost to larger areas on an equitable basis, the
development community has been willing to construct major facilities up front rather than
phasing the facilities as development takes place. An example of this is the construction
of the full six lanes of Telegraph Canyon Road, rather than an initial four-lane road with
future widening to six lanes when needed. To date, the public-private cooperation has
resulted in the kind of quality development the City is seeking, at the lost cost to the
developer and consumer, and should be continued.
2... Are the total of taxes and Special Assessments too hit>:h?
The 2 % limit on the aggregate total of property taxes, special taxes, and improvement
special assessment payments is a common limit used by many agencies in Southern
California for residential development. For a home which sold for $200,000, the limit
would be $4,000 in taxes and assessments. Utilizing this home as a typical example, the
$4,000 would consist of the following components:
Annual Monthly
Tax Cost Cost
Property Taxes $2,100 $166.67
Water Related Taxes 118 9.83
Elementary School (Mello Roos) 206 17.17
High School (Mello Roos) 500 41.66
--- ----
----
$2,824 $235.33
Balance-Assessment District $1,176 $ 98.00
--- ----
----
Total $4,000 $333.33
% of Value
1.00%
.06%
.10%
.25%
---
1.41%
.59%
---
2.00%
The annual amount of $1,776 would represent the debt service payment on an assessment of
$13,000 at current interest rates. Assuming the homebuyer made the normal 20% down
payment of $40,000, their monthly mortgage payment on $160,000 at 9% interest would be
$1,288 for 30 years. The total monthly cost would be $1,621 (1,288 + $333). Open Space
maintenance districts have not been used in the past as part of the 2 % limit because some major
developments (i.e. Eastlake) have homeowners fees that maintain open space. Maintenance
districts fees would not treating all developers consistently.
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Date 10/17/91
The City's disclosure ordinance assures that prospective homebuyers are aware of these costs
and have the option of paying them off or adding them to their mortgage if they so desire. Thus
buyers are equipped to make informed decisions when selecting a home.
Lending institutions are also aware of these costs when homebuyers apply for a mortgage and
take them into consideration when determining if the homebuyer qualifies for the purchase.
With respect to assessments for non-residential development, it has been our practice to utilize
Transportation Development Impact Fees (DIF) as assessments for circulation element streets.
This results in assessments in excess of $1.50 and $3.20 per square foot of land for industrial
and commercial development, respectively, plus proportionate shares of water, sewer, facilities,
etc.
;l,. What are the impacts of Assessment District Financin~?
The impacts of tax exempt financing should be considered from four aspects: the homeowner,
the commercial/industrial property purchaser, the developer, and the City.
The Homeowner
The homeowner may either elect to have debt paid off at the time of the close of escrow, or else
assume debt repayment. If the homeowner elects to payoff the tax exempt debt, either with
cash or by adding it to the mortgage, no impact would be projected.
If the homeowner does not elect to prepay the debt, two impacts will occur:
. Lower Total Down Payment. A down payment is not required on the tax exempt
debt portion of the obligation.
. Lower Interest Cost. The tax exempt debt has been sold at interest rates
averaging less then 8 %. Fixed rates mortgages have been from 1 to 2 1/2
percentage points higher than these rates.
The new homeowner also benefits from the early construction of infrastructure without having
to go through "interim" phased construction.
The Commercial/Industrial Prorerty Purchaser
This sector of the market is generally seen as being devoid of the emotional factors that might
influence residential purchasers. From what we have been able to determine, price is the subject
of negotiation with both parties knowledgeable as to all of the costs associated with land
ownership as well as costs in competing areas.
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Date 10/17/91
As has been earlier discussed, there are financial advantages in tax exempt financing which the
seller (developer) could pass through to the purchaser.
If there were no tax exempt debt, it should be assumed that the asking price of land would
increase correspondingly.
The mix of base level value (no debt or fees), fee payment responsibility and debt responsibility
provide a mix of financing possibilities that are sorted through in the negotiating process to find
the best solution for buyer and seller. One of the unique opportunities that tax exempt financing
offers to the purchaser if "off book" financing - debt that does not appear on the purchaser's
balance statement.
As tax exempt financing provided benefits to both the buyer and seller of commercial and
industrial land, its availability in Chula Vista is important in the City's ability to compete with
other markets. For instance, in the city of San Diego, Otay Mesa, over 75% of the lots in
industrial parks are subject to tax exempt debts.
To the extent that such financing is seen to encourage development, competition is created,
which is market force to contain price.
In summary, the importance of tax exempt financing to commercial/industrial development in
Chula Vista includes:
. Lower interest costs to buyer and seller.
. "Off Book" fmancing potential.
. Meeting the competition of other cities and the County.
The Developer
Typically, in Chula Vista, the developer provides construction financing and bond proceeds that
are used to retire the short term debt. The availability of this "take out" makes it easier for the
developer to get necessary financing. This has become an extremely important consideration
recently as many lenders (banks, savings and loans, and insurance companies) are out of the
market.
Typically tax exempt debt is used to finance infrastructure facilities benefiting substantial areas.
For example, in Assessment District 90-3, assessments were spread to all of the undeveloped
property in Eastlake. The developer will be responsible for some portion of due assessment debt
payments virtually until the last lot is sold.
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Page 7, Item _
Date 10/17/91
The interest rate for tax exempt bonds has averaged less than 8 % . A typical bank loan rate is
prime plus 2%, which in today's market would be 10 1/2%.
In summary, tax exempt financing assists the developer through:
. Providing funding where none might be otherwise easily available.
. Lowering the cost of borrowing.
The City
The impacts to the city resulting from the issuance of tax exempt debt are minimal. The direct
cost of establishing the district and the on-going administration of them after establishment are
paid by the developers or the districts themselves. The issuance of tax exempt debt has no
impact on the City's own bond rating unless there was a series of defaults by the City on
assessment district bonds. The City policies stated previously and established administrative
procedure are specifically designed to minimize the possibility of such defaults.
Recommended Policy Items
Based on a staff analysis of assessment district financing considerations, it is recommended that
the following policies be adopted:
.L. Lien Ratio. Adopt a formal policy requiring a minimum 3.5: 1 lien to ratio. While it has
been the City's practice to required a minimum 3: I lien to ratio, the higher minimum
ratio provides enhanced security for the City and is reflective of the direction other
Southern California agencies are heading in the current economic climate.
2. Maximum Tax Rate. Adopt a formal policy limiting the amount assessed to residential
dwelling units such that the aggregate total of all property taxes, special taxes, and
annual debt service for improvement special assessments does not exceed two percent
(2 %) of the sale price. As demonstrated previously in this report, the 2 % limit allows
less than 0.6% for debt service on an assessment. Since it is the debt service amount
that is limited, the total assessment amount will vary depending on the interest rate on
the debt. It is also of note that assessment debt is a relatively fixed annual amount and
will not increase annually as most of the remaining 1.4% will.
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Date 10/17/91
;h Infrastructure Revise existing policy to reduce the allowable improvements for
assessment district financing. Under current policy, all costs associated with major
streets in the DlF program are allowable. Also costs for landscaping and walls along
DIF streets (but not DlF eligible) have been allowed. Staff recommends that landscaping
of open space slopes adjacent to DIF streets be allowed because the landscaping is
erosion protection to protect the street. However, we recommend that walls that
delineate backyards not be allowed unless the walls are required by an EIR for sound
walls for SR-125 or a DIP street. Collector streets that have no or limited single family
driveway access will be allowed as well as transmission utilities. Distribution type
utilities (sewer, water) and in tract drainage facilities will not be allowed.
FISCAL IMPACT: None.
IPL:SBlA.l13S/ASSEDIST .POL
101191
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