The New Home Company Took Different Stance on CFD in Irvine

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Cannery-undercrossingOn a city council that has often lacked clearly defined lines of demarcation of key issues, the CFD (Community Facilities District) has been among the most divisive and polarizing issues with several strongly divided 3-2 votes. The final 3-2 vote a month ago set the stage for the Cannery to have a Community Facilities District where some of the promised amenities will be funded by the residents.

Now activists are up in arms over a press release from the New Home Company which announced no Mello Roos taxes at Lambert Ranch – an unusual move by the home building company who stated in the press release that the decision made “the development the only new home community in Irvine to offer no additional tax assessment.”

Lest we have any uncertainty, the company clearly defined its terms, “Mello Roos or ‘CFD’ fees refers to California’s Mello Roos Community Facilities District Act, which allows developers to borrow funds needed for major improvements and services (schools, roads, libraries, police and fire protection) through the sale of public bonds. The obligation to repay the bonds is then usually passed on to homebuyers by adding ‘special taxes’ on the homebuyers’ real property tax bills.”

The February 2012 announcement came directly from The New Home Company Partner and CEO Larry Webb. 
”The elimination of Mello Roos fees at Lambert Ranch is one of its many distinguishing advantages as it emerges as Orange County’s most anticipated 2012 residential development.”

This is a high-end, gated, master-planned community of 169 luxury residences in the hills above Irvine which apparently “offers inspiring views from many homes.”

“Families have a hard enough time paying normal real property taxes, let alone the special taxes imposed by Mello Roos,”says Mr. Webb. “We are making sure that Lambert Ranch, which looks over Orange County from the hills of Irvine, also surpasses all other new communities in Irvine by eliminating these special assessments. It is one more important way that The New Home Company offers homebuyers a better way to live.”

Except for one thing, we are not talking about average families if we are talking about a gated community and 169 luxury residences that offer “inspiring views from many homes.” We are not talking about $400,000 to $600,000 homes like at Cannery – we are talking about million dollar homes.

Mr. Webb continues, “Unlike general real property taxes, it has long been unclear whether Mello Roos taxes are deductible for income-tax purposes.”

Mr. Webb added, “Historically many homebuyers deducted Mello Roos taxes anyway, adding it to their general property taxes. But starting with 2012 tax returns, the State of California Franchise Tax Board instituted new software targeting homeowners who try to write-off Mello Roos payments. This is one more compelling reason for homeowners to avoid communities that charge them. Of course, under current law our buyers can continue to write-off all of their standard general property taxes.”

One of the biggest arguments put forward by the Davis pro-CFD councilmembers is that if the CFD wasn’t put in place, the developer would simply pass the costs on to the consumers in the form of higher home prices.

However, this press release “asks” Mr. Webb where “The New Home Company is simply replacing Mello Roos taxes with higher home prices at Lambert Ranch,” and Mr. Webb replied, “Some of the cost may be passed to the homebuyer. However, this does not significantly impact the cost of the home. In fact, our prices will be comparable per square foot with projects in Irvine that are subject to Mello Roos fees. And buyers in those communities will have to pay these fees every year.”

So the press release has now completely undercut the main arguments about why a CFD is needed here. The New Home Company was willing to bypass the CFD for the exclusive million dollar homes above Irvine, but not for the purported workforce homes at the Cannery three years later.

In early May, Mayor Pro Tem Robb Davis made the case, “I still don’t understand why the New Home Company needs this CFD to cover their costs. The infrastructure that we’re approving tonight, $6 million is already in place – they found a way to finance it. It’s already in place. $6 million of the $8 million is already in place according to Bob Clarke.”

And so, while some councilmembers like Lucas Frerichs and Rochelle Swanson argued it was about timing, the fact that the financing was already in place for the early amenities undermined that argument.

Larry Webb’s statements in 2012 undermine two other arguments. First he acknowledged that families would be burned by the special taxes imposed by a Mello Roos, all the more so because in this case we are talking about average families whereas in Irvine we were talking about extremely wealthy families.

Second, he acknowledged that, while some of the cost may be passed to the homebuyer, it will “not significantly impact the cost of the home.”

This brings up a point that the mayor pro tem made in March, because, as he put it, the demand for housing is so high that it will be a seller’s market and therefore the seller will be able to find buyers who will simply take their asking price.

So the council would ultimately reduce the size of the CFD after community outcry, but, at the end of the day, the press release from Irvine demonstrates that there was no real need for a CFD at Cannery at all.

—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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27 thoughts on “The New Home Company Took Different Stance on CFD in Irvine”

  1. hpierce

    “Unlike general real property taxes, it has long been unclear whether Mello Roos taxes are deductible for income-tax purposes.”

    “But starting with 2012 tax returns, the State of California Franchise Tax Board instituted new software targeting homeowners who try to write-off Mello Roos payments.”  

    So, New Homes knew that before they proposed the CFD in Davis.

    Gee, I wish SOMEONE had pointed the potential non-deductaibility issue before.  Perhaps, if the bonds have not yet been issued, a brave and/or honest member who voted to approve the Cannery CFD will move re-consideration.  But am not holding my breath that any one of the three fit the criteria.

     

  2. zaqzaq

    This will fall on “Developer” Dan’s deaf ears as he anticipates running for higher office secure that New Homes will make a hefty campaign donation and he can claim to be a trend setting mayor based on the soda ordinance that isn’t.  After all he does not know the difference between an MRAP and a tank.  I guess he drives to work every morning whistling the “Davis song” in ignorant bliss.

  3. Barack Palin

    To be deductible, a property tax must be a percentage of the home’s assessed value (known as an ad valorem tax). It also must be imposed uniformly throughout the community and benefit the general community or government.

    Any tax that is a flat fee per household or an itemized charge for services assessed against specific property or certain people is not deductible. Nondeductible charges might be identified as Mello-Roos or Community Facilities Districts, 1915 assessment district bonds, lighting and landscape, parcel taxes, school or college measures and bonds, water, sewer, flood, police, fire and libraries, the tax board says on its website.

    We’ve had this discussion before when school taxes were being pushed and represented as deductible on your tax return.  Not true.  Mello-Roos and school taxes aren’t deductible, so think about that next time the DJUSD tries to hit us up again.

    1. Davis Progressive

      “But starting with 2012 tax returns, the State of California Franchise Tax Board instituted new software targeting homeowners who try to write-off Mello Roos payments.”

      the change appears to have occurred in 2012 and the majority of the school campaigns were prior to 2012, so let’s not imply that the district was trying to pull one over.  but yes, going forward…

      1. Barack Palin

        First of all where did I say it was the school district who said the taxes were deductible?  There you go with that “imply” word again and putting your spin on what I said.

        School taxes aren’t deductible, even though most people do deduct them, but it sounds like the powers that be are going after those that do deduct those taxes with more vigor.

        1. Davis Progressive

          my purpose was to clarify the timing of the change versus the timing of recent elections. however, the bigger issue here is the misdirection of tnhc and the acquiescence of the council majority without due diligence.

          1. Matt Williams

            however, the bigger issue here is the misdirection of TNHC and the acquiescence of the council majority without due diligence.

            I agree DP. Your phrasing “without due diligence” I would change to “based on a political analysis rather than a professional analysis.” The reason I say that is that both Staff and the financial consultants (Mark and Susan) and the lawyers from Best, Best and Krieger had the due diligence information Robb Davis and Brett Lee had asked for at their fingertips, but because there was a very clearly three Council votes for approvng the CFD, that professional information was trumped by the political realities … and only presented within that political context. In fairness to Rochelle, she was very up front from the very beginning about her personal professional valuation of the impact on Davis’ “open for business” reputation in the Region. I personally don’t agree with that assessment, but she did make it very clear to the citizens how and why she was going to vote the way she did.

            The question that Davis needs to wrestle with going forward is whether it wants its City run as a professional organization or as a political organization … and whether it wants its elected leaders to do dud diligence based on professional factors or political ones.

        2. Davis Progressive

          i could agree with that, i just don’t believe the three ever delved deeply enough to get this kind of information prior to making the decision.

  4. Davis Progressive

    this is really the hallmark of hypocrisy.  so for the rich irvine district, tnhc says no cfd.  for the “workforce housing” cannery, sock it to them.  too bad this didn’t come out sooner.

    1. Michelle Millet

      I don’t blame the New Home Company for asking,  if I thought I could get 8 million dollars just by asking, I’d do it to. They had nothing to loss.  Instead they had a majority on council who felt that they were entitled to an $8 million dollar bonus check for doing business in Davis.

      1. zaqzaq

        I wish I could turn an $8,600 investment (campaign contributions to “Developer Dan) into 8 million (CFD).  It would be really nice if someone called him on it in a very public forum.  It looks like he was bought and paid for.

    2. Doby Fleeman

      DP –
      Fiscally, as a city, Irvine has been very disciplined and consistent.  As example, the City of Irvine has zero OPEB “Other Post Employment Benefits” liability (whereas Davis currently has a $68MM unfunded liability).  The reason – Irvine never offered/promised a benefit program they couldn’t plausibly figure out how they would fund in their current budgets.

      Their requirement, as a city, that the developer and the subsequent buyers should shoulder 100% of the infrastructure improvement costs shouldn’t come as any surprise.

      Davis seems to have a different tradition – with respect to both issues.  Looking across the state, the Davis model seems to be more the norm than the exception.
       

  5. Michelle Millet

    At the end of the day, the press release from Irvine demonstrates that there was no real need for a CFD at Cannery at all.

    That, and the fact that The New Home Company signed a developer agreement without one on place. If they “needed” it, they would have made sure, legally, that they were going to get it.  They didn’t.  Then, after the fact,  3 council members voted to basically write the New Home Company a bonus check for $8 million dollars on the backs of future Cannery Homeowners, (and in the process put at risk the passage of future parcel taxes that provide vital services to our community and schools).

    I appreciate Mayor Pro-Tem Davis and Council Member Brett Lee’s willingness to put the best interest of the community over the finical interests of this multi-million dollar publicly traded company by consistently voting against the New Home Company’s $8 million dollar request.

  6. Tia Will

    we are not talking about average families if we are talking about a gated community and 169 luxury residences that offer “inspiring views from many homes.” We are not talking about $400,000 to $600,000 homes like at Cannery – we are talking about million dollar homes”

    so for the rich irvine district, tnhc says no cfd.  for the “workforce housing” cannery, sock it to them.  too bad this didn’t come out sooner.”

    I doubt that it would have made any difference if this had come out sooner. This should be no surprise at all as it is how we operate business in our society. We come to the aide of the already successful and find our hands tied when it comes to providing help for those who actually need it.  On the local level, we can attempt to provide “assistance” to Mori Seiki an already hugely successful business, but cannot find a way to help a small struggling business such as a laundromat.

    On the national level, we subsidize corn and crops such as soy to the tune of  $4.9 billion dollars annually ( Scientific American 2008) as continuation of a farm bill that was initially intended to protect small farmers against fluctuations in the market, but which has turned into a huge windfall for the already wealthy who need no protection.

    So would we really be shocked to hear that a company will be more accommodating to multimillionaires than it will be to those only capable of purchasing a $400,000- $600,000 dollar house ( which by the way are still probably folks who are not in much need of assistance).

    1. Barack Palin

      those only capable of purchasing a $400,000- $600,000 dollar house ( which by the way are still probably folks who are not in much need of assistance)

      Bingo!

  7. Tia Will

    Michelle

    I don’t blame the New Home Company for asking,  if I thought I could get 8 million dollars just by asking, I’d do it to”

    Would you really ?  Would you do it knowing that it would come out of the pockets of people much less well off than yourself ?  I have known you long enough to suspect that this is not the case. I would not blame them if this 8 million dollars was coming out of thin air. Unfortunately it will be coming out of the pockets of those who are far less able to afford it as demonstrated by the fact that they have no problem doing this for those who are far wealthier.

    1. Michelle Millet

      You have caught me being a little snarky;-). (I hadn’t finished my first cup of coffee yet)

      My point, stated more directly is that The New Home Company was not elected to represent this community or the pocket books of the citizens who live here. That is the job of our city council members, and in this case 3 out of 5 of them failed to do so.

      1. Matt Williams

        My point, stated more directly is that The New Home Company was not elected to represent this community or the pocket books of the citizens who live here. That is the job of our city council members, and in this case 3 out of 5 of them failed to do so.

        Michelle, in fairness to Rochelle, she was very up front from the very beginning about her personal professional valuation of what she saw as the impact of denying the CFD on Davis’ “open for business” reputation in the Region. She also was up front about her belief that the City’s ongoing fiscal stability rested in large part on expanding the City’s business base, and that fiscal stability was in the best interests of the community and the pocket books of the citizens who live here.

        So I’m not sure that it is fair to say that she failed in her duty.

        I personally don’t agree with Rochelle’s assessment, but she did make it very clear to the citizens how and why she was going to vote the way she did.

      2. Tia Will

        Michelle

        And I agree with your point stated this way. However, I think that it is good to call a spade a spade. I am currently in a little spat on another thread about the term “class envy”. I would also say that we should call out greed wherever it exists. Just because The New Home Company has the legal right to ask for these additional millions of dollars, does not mean that they have to exercise this right. What I would like to see is a “public – private partnership” in which the public half of the partnership does not end up getting fleeced just because it is legal to sheer.

  8. Michelle Millet

    Those who support expanding the City’s business base, especially through a process that requires a Measure R vote, should have been some of the staunchest opponents of the formation of this particular CFD.

    When our city council votes to pass an unnecessary $8 million payout to a developer, funded by homeowners, it does very little to instill faith in an already growth wary community that this same council will be looking out for the interests of its citizens when negotiating large scale commercial developments on the periphery.

     

  9. aaahirsch8

    Two Kudos are in order

    Kudos  to the Vanguard that flagged the Mello-Roos trap door in the developer agreement when it was signed…..but no one really thought that the Council would activate this Trojan horse give back to the developer. (this is Davis, right?)

    Kudos for the Mello Roos Tax proponents Swanson and Wolk for their Machievellian timing -Delay voting the give CFD backs to the Developers until after the election.

    It is also time to ask a question — one even those who advocate for a  “Innovation Park” for industrial growth of Davis should ask:

    After the Cannery CFD tax-giveback— can we trust the current council majority not to put trap doors in a development agreement when it is put to a public vote– Trojan horse clauses that they or a future council can invoke to give things back to the developer or future leases/land owners?

  10. aaahirsch8

    We should also recall development agreements, like those that will be put to the voters for the Innovation Park can be changed.

    Case and point: the Target Development agreement –which was put to a vote of residents…was modified later my council to allow more big-box stores in.

    It is about trust which the council broke with the Cannery CFD — a cost-shifting to residents- done not up front, but after the election. No doubt this could be done with the Innovation Parks too.
    That a council person who voted for this seems to have received campaign contributions from the cannery developer, as alleged by some above, is almost secondary.

     

     

    1. Don Shor

      Officially what was changed at 2nd Street Crossing (Target site) was the sizes and types of other stores that could be on the nearby pads, not more big-box stores. The original development agreement had been carefully negotiated with the city with input from downtown business interests. The types of stores that would be allowed (or not) were detailed so as to minimize competition with current businesses. Then the owners of 2nd Street Crossing had difficulty filling the pads. So they came back and wanted to modify the agreement. There was a last-minute deal of some sort with Davis Downtown, and the change went forward.

      Bottom line: a development agreement is only as good as the council will to hold to it, and that can change with the composition of the council. And it is just the sort of thing that flies under the radar in most communities. The reality is that city staff are generally not good gatekeepers when it comes to any development agreement, and council members may have other ambitions or priorities that cloud their judgments.

    2. SODA

      Along the lines of Target and apologize for being (slightly) off topic, didn’t the Target agreement limit the sq footage or shelf space they would use for food?  It seems they are a regular grocery store now.  Anyway to check on that David?

      1. Don Shor

        Yes, the development agreement limited the square footage they could devote to groceries. I can’t remember — 10%? I’d have to look it up. It was unenforceable.

  11. Tia Will

    Bottom line: a development agreement is only as good as the council will to hold to it, and that can change with the composition of the council. And it is just the sort of thing that flies under the radar in most communities.”

    I think that Don has this just right. It is critical that we elect to the city council individuals who we believe will best serve the interests of the entire community not come in with fine sounding phrases about growth and prosperity that are little more than catch phrases to promote their favorite businesses, industries or developers. If we truly want Davis to be “business friendly”, maybe we could start by being friendly to small businesses as well as large. Maybe we could admit that being “business friendly” is not synonymous with “grow as fast as we can”. While this may fly beneath the radar of many communities, I can guarantee that it will not be ignored if and when the Measure R comes up for a vote. These kinds of after the fact adjustments have another name. Its called “bait and switch” and its not ethical no matter who is doing it.

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