On February 17, the Davis City Council by a 3-2 vote directed staff to move forward with the next steps of CFD formation. In the weeks since, the issue has resurfaced as a controversy within the community. Council will now be asked to finalize the CFD.
The Cannery project consists of 547 residential units, and 463 of the 547 would be eligible for CFD special taxes. The total public infrastructure costs for The Cannery project are approximately $21 million. The developer, The New Home Company, has submitted a formal proposal to fund a portion of these costs through bonds issued by a community facilities district (CFD) formed under California’s Mello-Roos law, and directly by special taxes levied on homeowners within the CFD.
The CFD would authorize a levy of “of a maximum annual tax on taxable residential units ranging from $904 per unit to $3,223 per unit depending on the size of the actual home (not the lot). The maximum annual tax for non-residential development will be $0.26 per square foot. This maximum tax on all taxable property will escalate at 2% per year, each year.”
The Cannery originally proposed a 40-year term, however, council has reduced that to 30 years. Staff writes, “The combined ad valorem, assessment and CFD tax burden for homes in The Cannery, including the DJUSD CFD’s represent an overall effective tax rate of 1.75% of estimated market value for homes in The Cannery.”
While the total cost of the public infrastructure is around $21 million, the city believes, based on current market conditions, that between $11.8 to $13 million could be financed by a serious of bonds.
Staff notes, “The Development Agreement specifically requires parks and greenbelts to be installed concurrent with home construction on adjacent residential parcels. If the project approvals were strictly adhered to, the parks and greenbelts could be developed in a more piecemeal fashion, with the southern park that features the amphitheater, bocce courts, and play area coming on towards the end of the project.”
They write, “The central park that includes the practice field could also be delayed until the first small builder homes were built across the street from where the park is to be constructed.”
“Instead of phasing park and greenbelt amenities, New Home plans to continuously construct the comprehensive park improvements and greenbelt system to ensure these amenities are enjoyed by the larger community and Cannery residents. With the assumption of CFD proceeds, New Home plans to substantially complete all greenbelts and the entire park spine from the private Clubhouse at the north to the mixed use area at the south, by summer 2015,” staff reports.
$750,000 in bond proceeds will be set aside for the city use. In addition, “The New Home Company has agreed that this amount will be increased if net proceeds of the CFD bond issue exceed $11.8 million, at a rate of 50% of all such excess proceeds being allocated to the community benefit improvement.”
Staff adds, “After consultation with our consultant team, legal counsel and the applicant, it was determined that the costs of all improvements for The Cannery Farm will be funded directly by the New Home Company without reimbursement from CFD bond proceeds.”
The CFD has triggered an increasing amount of community discussion in Davis.
Former Mayor Ken Wagstaff recently wrote, “I am concerned about your plan for a (CFD) for the Cannery development.” He stated, “New Home’s own financing and business plan, especially in a strong housing market, should be able to fund the infrastructure schedule in the development agreement”
He noted, “I’ve met residents in Mace Ranch who feel their tax bills are unfair. They are reluctant to renew tax levies. In Mace precincts a recent school tax election failed the necessary 2/3 vote to pass. It took a higher vote in the rest of the school district for the tax to carry.”
He noted with concern that higher tax bills may lead to resistance to renewal of school taxes. “In a close election, Cannery votes could defeat school measures,” he said.
The school district confirmed with the Vanguard that general benefit property taxes are tax deductible. All DJUSD assessments have been and still are deductible for IRS purposes and FTB purposes.
This week, Councilmember Lucas Frerichs, in an interview with the local paper, said that “refusing a CFD would come at a price, such as amenities and infrastructure not being built for years, as the developer waits for money from future home sales.”
Moreover, he reiterated that “a CFD was part of the talk throughout the discussion of The Cannery’s development agreement.”
He told the paper, “What I don’t want to see is what happened when Mace Ranch was built.”
He also said that “the CFD money doesn’t come from the city general fund, would not be paid by the entire community and would be paid for by future Cannery residents one way or another — either through higher-priced homes or through a CFD.”
However, Councilmember Brett Lee, in a recent op-ed that appeared in the Vanguard, stated, “There is no free lunch. The future residents of the development are the ones who bear the burden of the assessment.”
“Personally, I have to wonder why the city is being asked to be inserted into this transaction, which I believe fundamentally is a transaction between two private parties,” the councilmember writes. “If The Cannery developers need to charge a premium for the homes they build due to the amenities and infrastructure they have agreed to provide in the development agreement, so be it. Let the purchase price of the home reflect and fund these items.”
He continues, “I am uncomfortable having the city create a vastly unequal taxation patchwork where some residents are paying in excess of $2,000 more in taxes/fees a year than their nearby neighbors with homes with the same assessed values.”
“In addition, I am not comfortable with the city issuing nearly $12 million in bonds and becoming financially liable for the repayment of them,” Councilmember Lee concludes.
Mayor Pro Tem Robb Davis noted that this is “a highly inelastic demand function” where “TNHC is essentially a price setter in this market.” He argues, “In such a market they very well may be able to set a home price and not have to reduce it if a CFD is included. In other words, unlike in a competitive market, they will not have to reduce the price by the full amount of the CFD.”
He argues, “Given the foregoing, I believe that home buyers moving into the Cannery face the risk of overpaying for the infrastructure there.”
A hearing for adoption of a Resolution of Formation will be conducted on May 5, 2015.
“After the hearing, the Council will be presented with resolutions, which form CFD 2015-1 and then call a landowner vote, as there are no registered voters within CFD 2015-1. The election will be regarding the question of the levy of the special tax, the issuance of the bonds and the establishment of an appropriations limit for CFD 2015-1.”
If the landowners approve the levy of the special tax and the issuance of the bonds, then the council will be asked to consider the first reading of an ordinance levying the special tax.
Staff notes, “It is also expected that the Council will be presented on May 5th with a funding and acquisition agreement between the City and the developer. The purpose of the agreement is to provide for the terms of the construction and manner of payment for the public facilities expected to be financed with the proceeds of the bonds of CFD 2015-1.”
The expectation is that the bonds would then be issued by September 2015.
—David M. Greenwald reporting