Cannery is proposing, and staff recommending, the formation of a Community Facilities District (CFD) to fund certain components of public infrastructure for the CFD. Under the law, “Developers and City may form a Community Facilities District… for the purpose of financing the construction and/or acquisition of public infrastructure and facilities within the Project area or for the provision of services.”
Back on October 22, 2014, the New Home Company, which is the developer building the Cannery project, formally submitted a request to the city, “that the Council institute proceedings pursuant to the Act to establish a CFD over the Land to be designated as ‘City of Davis Community Facilities District No. 2014-01.’”
The Cannery developers are seeking that a special election be held which would authorize the issuance of the bonds, establishing that appropriations limited to the CFD “be consolidated into single elections and that the elections be conducted by the city and its officials…”
Staff writes, “The amount proposed is not to exceed $17,000,000. Project infrastructure proposed for CFD financing includes backbone infrastructure the project is obligated to provide, including, but not limited to, public roadways, storm drainage, sanitary sewer, water, parks and open space, and electrical/lighting, as well as certain off-site improvements required of the project.”
The city has the discretion of consenting to the formation of a CFD. Staff notes that provisions in the Cannery Developer Agreement allow such a request.
Staff notes, “CFD’s are a typical means to finance public infrastructure in major projects, such as public roads and backbone utility infrastructure, parks, and greenbelts. CFD’s may not be utilized for the development of private improvements, such as homes or homeowners association facilities.”
The New Home Company estimates that the infrastructure and park development costs for the CFD would be $18.1 million, plus another $3.2 million for the development of the Urban Farm feature, another $750,000 for an improvement of community benefit to be determined by the City, for a total of about $22 million.
The total amount of the potential infrastructure that could be funded by a CFD exceeds the actual amount requested and the balance would be borne directly by the developer.
Staff writes that they and consultants “believe that this is a prudent approach as the proposal does not seek to ‘overreach’ to fund 100% of the public infrastructure.”
Back in November, the city’s Financial Advisor, Mark Northcross, in his presentation noted that there were taxpayer concerns that led to changes in 1999 as to how the city handles CFDs. At that time, $44 million in bonds were originally authorized, but only $16.855 million of that were actually issued.
Council would terminate the remaining authorized bonds with the 1999 bond issue infrastructure funding, and they also terminated the two percent inflator.
“[Forty four] million [dollars] in bonds were originally authorized for the MPFP [Major Projects Financing Plan] CFD Program back in 1990, only $17 million were actually issued, the remaining authorization was terminated,” Mr. Northcross stated. “That was done because of taxpayer concerns. That was the factor behind that, it was all people coming to the podium talking about their taxes.”
A typical Mello-Roos district has an inflator that allows assessment to go up by two percent a year, and “that piece was eliminated in 1999 by previous council in response to taxpayers and homeowners.”
The result is that the actual percent of taxes being levied is a fraction of what was authorized “and that was by intent.” Mr. Northcross continued, “Not the original plan, we were supposed to be levying $44 million in improvements in Davis, we didn’t do that. We instead did things to lower the taxes on homeowners.”
Mr. Northcross posed two critical policy questions that council should consider for a Cannery CFD – should the council wish to proceed with a CFD. First, should the taxes in the Cannery be at the same level as other CFD taxes in Davis? Second, should there be a two percent inflator for taxes at the Cannery?
Mark Northcross noted that at Mace Ranch the CFD was about $700 per house. In the Cannery, “my guess is, it’s going to be a minimum $1500 per house, that’s twice as high as any other tax in Davis. By any standards of other cities in California that’s very reasonable, BUT, it’s going to be a lot more than any other house in Davis that’s paying a CFD.”
“If we’re going to cross that bridge, we need to be conscious that we’re doing it,” he stated.
Later, Mr. Northcross noted that the other fairness question “came down to why are we who bought homes in the newer parts of Davis going to be paying for $44 million in public improvements and not the rest of the community. Why is it landing on us?”
“The MPFP had reasons for that, but the reasons did not carry weight on the fairness question with the residents of all the new CFD areas,” he added. The past council, he said, “split the baby” by reducing the amount to $17 million and eliminating the inflator, thus finding other ways to finance improvements.
Harriet Steiner noted that originally the CFDs were to finance new infrastructure – for example the Mace overpass, as well as the fire station (that was never built). She said, “I think after those improvements there was a fair amount of disgruntlement on the part of the (residents)… because this is all new development.”
Harriet Steiner would add that, when the council approved the Cannery project, the developers wanted this financing mechanism and would make the request. She added, “It was probably equally clear that it wasn’t something that the staff… was necessarily in favor of.”
However, staff seems to believe the situation is different from what occurred at Mace Ranch and led to changes in city policy. Staff writes that Mace Ranch was a major extension of services outside the existing urban area of Davis and the CFD was “intended to provide funding for these needed services on a timely basis. However, while basic infrastructure was funded on a timely basis, some of the other amenities, particularly in the view of Mace Ranch residents, were not funded on a timely basis. Consequently, many residents felt they were paying taxes for facilities that were not in place.”
Staff argues that the situation is different with the Cannery, as this is an infill project with the facilities required to be constructed prior to the occupation of the first units.
They write, “In addition, the City and the developer can negotiate a prioritization of funding with CFD bond proceeds for all facilities that will help ensure the timely development of all amenities for The Cannery.”
Therefore, staff believes “that the CFD proposal, in the context of a high amenity infill project like Cannery, is a reasonable means of financing such infrastructure and can be readily distinguished from the circumstances found in the Mace CFD. The CFD also provides an opportunity to provide greater assurances of early infrastructure timing.”
On Tuesday night, the council has the opportunity to weigh in on the CFD and any concerns they may have. They have the ultimate say over whether to implement the CFD.
—David M. Greenwald reporting