Who Will Our Council Members Represent?

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Cannery-undercrossingby Michelle Millet

On Tuesday council will vote on whether or not to approve the formation of a Community Facilities District in the Cannery, the passage of which will allow the developer, The New Home Company, to fund a portion of the infrastructure costs associated with the development through special taxes levied on future homeowners within the Cannery Development.

Below is a table from the staff report showing the proposed maximum tax rates for each category of land use:

Table 1: Cannery CFD Rates for Fiscal Year 14/15

Housing Unit Size Estimated # of Units Proposed CFD Rates Per Unit Per Year
Greater than 3,025 sf 59 $2,145
2,575 to 3,024 sf 64 $1,790
2,125 to 2,574 sf 85 $1,473
1,675 to 2,124 sf 171 $838
Less than 1,674 sf 84 $465
Non-residential (per sf) 171,000 $0.25

When individual council members cast their vote on Tuesday on whether or not to approve the formation of the CFD, whose interest will they choose to represent – those of the community, or those of The New Home Company?

The Community Facilities Act was passed in 1982, in order to address the financial struggles some California communities faced after the passage of Prop. 13, which restricted the ability of local governments to raise property taxes, when attempting to generate the revenue necessary to maintain their basic infrastructure needs.

This act allowed communities to form “Community Facilities Districts”, and through special taxes that must be approved by 2/3rds of the voters within the district, finance major improvements and services, which could include schools, roads, libraries, police and fire protection services, or ambulance services. The taxes are secured by a continuing lien and are levied annually against property within the district.

It has since become common practice in California for land developers to request the formation Community Facilities Districts (CFD) in order to pay for the infrastructure costs associated with the construction of their developments. Because, there is usually only one landowner at the time the CFD is formed, in this case The New Home Company, there is only one entity casting a vote on whether or not to approve the special district.

While the formation of a CFD by developers may be financially justified in some communities in California, I don’t not believe that this is the case in ones that have the type of competitive housing market we see in Davis, where infrastructure cost can be covered by the higher prices home buyers are willing to pay in order to live here.

I understand that there is no free lunch, and that infrastructure cost associated with the development will be passed on to future Cannery homeowners, either through the formation of a CFD or an increase in the cost they pay for their home. But while the approval of a CFD has clear benefits for the developer, it has no clear benefit to future Cannery homeowners, or the Davis community at large, and instead has only potential negative impacts on both.

While I appreciate the amenities The New Home Company has included in the Cannery Development, and the time spent on meeting with community groups and commissions, and their efforts to address the needs of these various groups, I do not believe that these actions obligates the city council in any way to approve their request for the formation of a CFD, to suggest otherwise sets a scary precedent for how our council will negotiate deals with developers in the future, especially large scale ones like those being currently proposed for future Innovation Parks on our towns peripheries.

So who will our council represent on Tuesday? It is my hope that they fulfill their duty and the obligation as our elected representatives and vote, not in a way that protects the financial interests of The New Home Company, but instead in a way that protects the interests of the citizens and the community that they have been elected and entrusted to represent.

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22 thoughts on “Who Will Our Council Members Represent?”

  1. Alan Miller

    It is my hope that they fulfill their duty and the obligation as our elected representatives and vote, not in a way that protects the financial interests of the New Homes Company, but instead in way that protects the interests of the citizens and the community that they have been elected and entrusted to represent.

    Willshful thinking that someone changed their poe-sition?

      1. Barack Palin

        New Homes is going to recoup their money one way or another.  I bought a new home in Wildhorse 15 years ago and the way the sales office controlled the inventory and prices was astonishing.  They know how to play the game.

        1. Davis Progressive

          they’re going to make a buttload of money regardless of what happens with the cfd.  the market will dictate what they can get for a house and it won’t matter if they have a cfd or not.

        2. Adam Smith

          I disagree with the consensus.  Appraisers and lenders will no doubt reduce the value of the Cannery house for the series of payments due to the CFD.    I think their views and lending constraints will help shape how buyers view the value of houses in the Cannery.    It is unclear however, whether  the change in value for taxes will be  dollar for dollar for the amount of the CFD debt.

          Regardless, the CFD is no doubt a significant benefit to New Homes.  They don’t have to borrow more money or put up more equity in order to complete the project.  The borrowers are the new home owners.

           

           

        3. hpierce

          Adam S:  Aren’t the lenders/appraisers folk just determining if somebody ‘qualifies’ or what interest rates are charged?  Just don’t see how that would affect the purchase price, as I assume all they care about is protecting “their” investment?  I don’t recall my lender disclosing how good a deal I was getting.

    1. zaqzaq

      Higher home prices which will produce greater property tax revenue.  The city is cutting off it’s nose to spite it’s face with the CFD.  This opinion is based on the assumption that  no CFD will generate higher home prices because the developer can be trusted to reduce the price by the cost of the CFD which I do not believe.

  2. Michelle Millet

    I think we need to look at how these 2 options impact the community. Given the fact that the New Homes Company is legally obligated to pay for the infrastructure cost laid out in the developer agreement I do not see how forming a CFD in the Caanery benefits the community in any way. But it has the potential to cause negative impacts. For this reason alone I don’t see how any council member can justify voting to approve it.

  3. Frankly

    Did we ever see a full accounting that justifies the CFD?  Davis developers should earn more profit per home because of Measure R and the artificial housing scarcity we cause.  However, it is also more expensive to do business in Davis than in other places.  Our development fees and codes tend to be higher.  Also, there is the upfront investment that developers must make in the political campaigns to get the development approved by votes.  In the case of the Cannery it was the need to garner enough support from the public so at least 3 CC members would vote yes.

    Until and unless we see the final pro-forma financials with assumptions, nobody can say that the CFD is either unwarranted or justified.

    1. Michelle Millet

      I’m not sure how any of  this is relevant at this point. The developer made the decision not to insist on the formation of a CFD in the developer agreement.  Granting it now does not benefit the community, or the future homeowners. These are whose interests are council members should be focusing on, not those of a multi-million dollars publically traded company.

  4. hpierce

    If this was a commercial development, potential buyers would base the price they were willing to pay based on both “sticker price”, and the ‘life-cycle costs’ of the CFD.  For those folk, at the end of the day, they’d pay the same with or without a CFD.  If the purchase loan (mortgage) they needed for the purchase was equal to the interest paid thru the CFD, it probably wouldn’t matter, unless they had specific cash-flow concerns.  If the interest payments contained in the CFD payments was at a rate higher than their other financing, they’d discount what they would be willing to pay for the purchase.  Perhaps Frankly or others can chime in as to the veracity of that.

    Think it would be silly to expect that over 1-2% of the SFR buyers will do that math/analysis.  The developer knows this, and will sell the house for whatever the market will bear, and so the CFD financing is a windfall.  A lock.  The developer will not sell the house for a “discount” reflecting the ‘savings’ they achieve due to the CFD monies.  They’re pretty much the ‘only game in town’.

    That wasn’t true when the Mace Ranch CFD was done.  Then, their competitive edge was to be able to sell homes at less $/SF than the competitors, and that’s when Covell Park Northstar, and several other significant developments were “in play”.  Then, most houses were selling for $125/SF, those in MR ~ $100/SF.  When we bought, I had a ‘finance guy’ friend “run the numbers” for me.  It as a bit better than a ‘push’.  There is no competition today.  Buyers (I’m convinced) will pay the same whether the CFD is in place or not.  I guess I don’t care, as I’ll not be buying there.

    As it stands today a SFR buyer will be paying ~20% more in interest (5% vs 4% [estimates]), under the CFD than they would, in their mortgage, without it, and even if they got a reduction in purchase price equal to the “bonded” amount, they’d lose money.  Will take years for them to figure that out, if they ever do.  This is a developer windfall, in my opinion.

    I predict it will be a 3-2 vote.  I believe the ONLY one who might vote differently is Lucas, and I can’t see him doing that, because it would be tantamount to admitting he erred the first time.  Don’t think he could handle that.

    So, anticipating DP’s comment, “so just give up?”, my response is, I’ve shared the facts as I know them, given the history and the arguments before, what the F more should I do?  Not my ox that’s about to be gored.  Am trending towards “acceptance” of what [unfortunately] I now see as inevitable.  If anyone wants to fight, and use my background, let me know.

  5. Miwok

    Wait til the homeowners realize they are paying for a tourist attraction of the “Urban Farm”, with the attendant traffic and trash problem. How about a casino next?

  6. davisite4

    Well said.  I hope our councilmembers (especially the three who have been in favor of this) are listening and are aware that many of us out here are watching closely.

    I do not believe that these actions obligates the city council in any way to approve their request for the formation of a CFD, to suggest otherwise sets a scary precedent for how our council will negotiate deals with developers in the future, especially large scale ones like those being currently proposed for future Innovation Parks on our towns peripheries.

    Indeed.

     

     

  7. zaqzaq

    Developer Dan Would, aka “Dan in a Bubble”, is only concerned about issues or making new friends that will get him elected to higher office.  Thus he will vote for the CFD.  He is bought and paid for and will get campaign donations from the developer for future races.  I wonder if he has already received campaign donations.

  8. hpierce

    Thinking of Adam Smith’s comment… perhaps the CC should require a “disclosure”, similar to what car dealers have to do, if you are buying on credit (mortgage and CFD), showing the ‘life cycle cost’ of the buyer’s investment/purchase.  And it should break out both the mortgage cost and the CFD cost [both projected, and MAX]

    As I’ve said before, there are risks to a CFD… if the project isn’t built out timely, the bondholders are still entitled to their money, and the rates will need to be raised to meet cash flow if that happens…

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