Commentary: Hiding the Ball on CFD?

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Cannery-undercrossing

The Vanguard will have a more comprehensive commentary on Friday about the Cannery CFD (Community Facilities District) discussion. One of the issues that has been raised is whether there was some sort of mislead to the public or the council as to who would pay for the infrastructure.

Two members of the 2013 Davis City Council have told the Vanguard they were unaware of discussions of a CFD at the time that the vote was taken to approve Cannery. However, the city manager at the time told the Vanguard that he always believed there would be a CFD.

Councilmember Lucas Frerichs called the assertion that this was a bait and switch, at best, unfair as well as untrue. He said that there has certainly been a notion in the community that the CFD was not part of the conversation at all, that it was something that came after the fact.

“I take umbrage with that, it was something that was actually part and parcel to the entire process. It’s in the developer agreement,” Mr. Frerichs told his colleagues on Tuesday.

To buttress his perspective, it was noted that within the development agreement was the possibility that the developers could seek a CFD.

While the timing was probably inadvertent, one of the councilmembers noted on Wednesday that, at 10:41 pm on Tuesday, the council was emailed “CFD Policies” from city staff.

In May of 2007, a council comprised of Mayor Sue Greenwald, Mayor Pro Tem Ruth Asmundson, and Councilmembers Lamar Heystek, Stephen Souza and Don Saylor, unanimously passed resolution 07-079 which adopted “local goals and policies concerning the use of the Mello-Roos Community Facilities Act of 1982.”

“California Government Code requires that the City of Davis consider and adopt local goals and policies concerning the use of the Act, prior to the initiation of proceedings to establish a new community facilities district under the Act,” the resolution reads. “The City Council has determined that it is in the best interests of the City that its practices for establishment and administration of community facilities districts be updated and described by the adoption of a goals and policies document.”

Goals and Policies Concerning the Use of the Community Facilities Act of 1982:

Policy 1; It is the policy of the City of Davis that development pay for the infrastructure necessary to serve that development. The City may consider issuing Mello-Roos or assessment bonds on behalf of developers for backbone infrastructure. Backbone infrastructure is defined to include major arterials, sewer trunks, water mains and major drainage facilities. On site infrastructure includes such improvements as curb and gutter, and local service mains and collectors.

Policy 2; It is the policy of the City of Davis to require that the developer provide through a combination of an escrow deposit, a letter-of-credit (LOC) (or other security acceptable to the City) and/or a debt service reserve fund money sufficient to pay the maximum annual debt service on all undeveloped land within the proposed district for up to three years. It is anticipated that the debt service reserve fund normally funded in such a bond issue will provide coverage for at least one year of undeveloped land tax/assessment. The City, when appropriate, would consider a reduction in the level of security based on factors such as value-to-lien ratio of parcels within the district, age or maturity of the district and history of payments.

Policy 3: It is the policy of the City of Davis to require compensation in consideration of the benefit conferred through the tax exempt financing provided, and the risk to the City’s credit image in the event of a default. Such benefit may include developer participation in a tax or assessment on undeveloped land to support an improvement of benefit to the entire community.

Policy 4; It is the policy of the City of Davis to minimize and keep reasonable any special tax or assessment on single family residential property.

Policy 5: It is the policy of the City of Davis that the value of all property included within a community facilities district or assessment district exceed the par value of any bonds issued by an approximate ratio of 3:1, including any and all over-lapping debt, as required by Government Code Section 53345.8. Such value shall be determined by an MAI appraiser selected with the concurrence of the City, or the assessed value of the parcel.

In October, the presentation by staff in addition to conversations that the Vanguard had with staff and council suggested that, in light of the problems at Mace Ranch and public opinion surrounding the Mello-Roos, there was a general opposition to implementing a CFD.

Something changed so that, last Thursday, the staff recommendation clearly favored the CFD. Something changed and it is not clear what.

While nothing nefarious has occurred, we are also concerned that the conversation with the public did not occur in November 2013 prior to the approval of the Cannery project. Would it have changed anything? Hard to know. In general, we believe public discussion about the possibilities may have framed the discussion differently.

While the issue has gotten a lot of interest now, there were only a few speakers on Tuesday about the CFD, compared with dozens when Cannery was approved in 2013.

—David M. Greenwald reporting

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About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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16 thoughts on “Commentary: Hiding the Ball on CFD?”

  1. hpierce

    “In October, the presentation by staff in addition to conversations that the Vanguard had with staff and council suggested that, in light of the problems at Mace Ranch and public opinion surrounding the Mello-Roos, there was a general opposition to implementing a CFD.
    Something changed so that, last Thursday, the staff recommendation clearly favored the CFD. Something changed and it is not clear what.
    While nothing nefarious has occurred, …”
    Not sure how I can reconcile the first two paragraphs, above, with your declarative statement, next. I could see if you said ‘there is no concrete indication that anything nefarious has occurred’, and I am pretty confident that there was no money nor threats involved.  However, there is enough to wonder “what changed”, and why.  Lucas’s behavior and words came across, to me at least, nervous and strange.  Look for the missing link, please…
    And weren’t Lucas and Robb both on the ‘subcomittee’ looking into the pros/cons of the CFD formation? Yet they appear to have come to opposite conclusions.

    1. David Greenwald Post author

      hpierce, Robb Davis sent the following to clarify, “Lucas and I were NOT on a CFD subcommittee. We were on a subcommittee to work towards an agreement on the southwest grade separated crossing challenges. Especially to move discussions with the Cranbrook owners forward related to the easement needed to accomplish the preferred option.”

      1. hpierce

        Acknowleged.. confused the two issue when I spoke to him (apologies, Robb).  We were talking about both at the same time, but on a moment’s reflection, I realize that I “conflated” the two.  Appreciate your setting me and the other readers straight on that.  That’s why I asked it as a question… thought I was 67% sure, when I had it 100% wrong.

  2. Frankly

    I continue to scratch my head in amazement that this is such a debate.   I live in a Davis neighborhood where I pay homeowners association dues.  What the heck is the difference?

    I posted the following in another post on the CFD debate…

    Looking at this from a bigger picture, what we are seeing is the passing of costs that used to be covered by government spending of our tax money.   But the government has instead used it to fund the early-age-to-end-of-life-highly-compensated-fully-paid vacation of an expanded number of government workers.  But damn it to hell we still want all those amenities and all those special services that make us all warm and fuzzy inside.   So guess what?… the end-user is going to have pay directly for them.

    The same type of thing is going on throughout the state and country… paying more for use of national and state parks… paying extra for kid’s education and extra curricular activities.  And this is on top of all the extra supplemental taxes we are paying to keep special programs going.

    You dislike a CFD as a solution?   Want to solve the root cause of the problem?   Then get behind demanding a ban to unionization of public sector employees.  Because CFDs are only the tip of the iceberg for a growing list of direct costs we will have to absorb because there isn’t any discretionary money left after paying for all those public sector employee fat early-retirement pensions.

    But again, what is the problem here?  This isn’t really anything new.

    1. Davis Progressive

      “I live in a Davis neighborhood where I pay homeowners association dues.  What the heck is the difference?”

      i thought i read that they will have hoa fees as well.

      “Looking at this from a bigger picture, what we are seeing is the passing of costs that used to be covered by government spending of our tax money.   But the government has instead used it to fund the early-age-to-end-of-life-highly-compensated-fully-paid vacation of an expanded number of government workers.  But damn it to hell we still want all those amenities and all those special services that make us all warm and fuzzy inside.   So guess what?… the end-user is going to have pay directly for them.”

      that’s an interesting point, although i don’t think it’s completely accurate.

      “You dislike a CFD as a solution?  ”

      i think the problem isn’t cfd, it’s this cfd.

      “But again, what is the problem here?  This isn’t really anything new.”

      lack of transparency, double dipping the fees, lack of public debate when cannery was on people’s radar.  i know you approve of the cfd so these things don’t bother you, but can’t you allow that they may bother others?

    2. hpierce

      OK, does your HOA assessment meet/exceed $1,500- 3,000 per year?  Even if yes, there are common area improvements within the Cannery project that are proposed.  So, the CFD will be on top of their HOA assessments.  Which, if you live in Stonegate  (oldest higher rate HOA’s that I can think of), include many improvements, including the “lake”, which are not available to the public.  The Stonegate HOA successfully shed (against knowledgeable staff recommendations to the contrary) some of those responsibilities to the City (but of course, frankly I’d expect you to point to this as another example of City largess).

      Frankly, while I believe your opinion is valid, your facts and comparisons may not be.  After all, it will not be your ox being gored.

      1. Frankly

        hpierce- fair enough.  My point was just more simplistic.  It is not unusual to have HOA fees in excess of the amounts we are talking about here.  There is a bit of a bait and switch going on… the city demanded the developer include a number of amenities in the development that are a direct benefit to the buyers of the properties in the development.  And so the developer is unwilling or unable to fund other infrastructure costs and so the CDF.

        If you point is one of the difference of exclusive use, I think that is certainly something but there are a lot of people living in Stonegate that do not use the shared facilities but still have to pay the dues.

        I would be interested to know the trend line for Mello Roos in California.  I think it is upward.  I know many new developments in Southern CA have them.

        Are developers just demanded a greater profit margin?  I think not.  I think the main driver for my suspected increase in the use of Mello Roos are:

        1. More fees and taxes on the developer have reduced the profit margin that would otherwise be negotiated for adding amenities.

        2. Demands for more developer-funded amenities have reduced the developer’s profit margin that would otherwise be negotiated for infrastructure.

        3. Reduced discretionary enterprise development funds for cities, counties and the state because a larger percentage of the budget has been going to cover government employee costs… namely pensions.

  3. excaliburr

    I’m very confused. I’ve been considering moving back to Davis after an 8-year absence, and The Cannery project appeals to me because it will offer smaller housing options for older residents. I made a point when I lived in Davis before to avoid buying in Mace Ranch with its unlimited Mello Roos. But does the creation of a CFD mean Mello-Roos taxes? Can someone give me a quick explanation of the possible long-term financial impacts to Cannery buyers if the CFD is put in place? Thanks in advance for cluing in this non-resident who isn’t “up” on the details.

    1. Anon

      If a CFD is formed, a prospective homeowner can either prepay their share of costs of the infrastructure for the Cannery, or choose to pay for the infrastructure through a yearly Mello-Roos tax.  So a prospective homeowner can avoid a Mello-Roos tax be the mechanism of prepayment.

        1. Anon

          Yes, and apparently with mortgage rates so low, it is currently cheaper in the long run to prepay the infrastructure costs.  This was noted at the City Council meeting by the city’s financial expert.

      1. hpierce

        Ok, but if they do, it would have to be a very conservative “buy-out”.  Say the issue is approved for $12 million.  They’d have to buy out based on their share of that.  If the final costs were $10 million, they would have left money on the table (sorry, no refunds).  And it would have to be at the “max-tax rate”, assuming that subsequent properties never developed (more $).  Unsure how mortgage lenders would let them do that and wrap it in their mortgage, as the values the mortgage company would use might well not include the MR assessment value.  If you were a buyer who had a lot of cash, coming into the transaction, for both the down-payment of the mortgage and the buy-out of the CFD, given current interest rates, it would make a LOT of sense.

    2. hpierce

      “I made a point when I lived in Davis before to avoid buying in Mace Ranch with its unlimited Mello Roos. But does the creation of a CFD mean Mello-Roos taxes? Can someone give me a quick explanation of the possible long-term financial impacts to Cannery buyers if the CFD is put in place?” 

      Mace Ranch did not have an unlimited tax.  Simply, not true.  It did have a maximum tax rate, but it isn’t near there now, and is very unlikely to reach that level.  Mace Ranch had a City-wide Mello, a developer’s Mello, and two DJUSD Mellos.  The main issue in this thread is the developer’s Mello

      CFD’s, under the Mello-Roos legislation that enabled them, does mean “MR” taxes (actually they are assessments, not taxes, despite being billed with the property tax bills).

      Hope that helps.

  4. SODA

    Thank you David for this follow up. I look forward to tomorrow’s as well.

    Have you talked with Joe K for his recollections?

    the policy does nothing for me to explain this issue. If it was a for certain then why not have made the language proactive in the development agreement. I continue to be perplexed.

    I am surprised we have not heard from Sue Greenwald. She was a proponent of maximizing city’s return on development.

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