2006 ANNUAL CONFERENCE CALIFORNIA SOCIETY OF MUNICIPAL FINANCE OFFICERS

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2006 ANNUAL CONFERENCECALIFORNIA SOCIETY OF
MUNICIPAL FINANCE OFFICERS

• COMMUNITY FACILITIES DISTRICT
• FINANCING FOR SERVICES AND INFRASTRUCTURE

Sam Sperry, AttorneyOrrick, Herrington
Sutcliffe LLPSan Francisco, CA
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Quick Intro to Community Facilities Districts
(CFDs)

• the Mello-Roos Community Facilities Act of 1982
  (Sections 53311 and following, Government Code)
  (the Mello-Roos Act)
• adopted in 1982 in the wake of Prop. 13 (June,
  1978) to provide for property tax-supported
  financing of "community facilities" and some
  public services
• requires 2/3 voter approval

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CFD procedure entails 5 fairly distinct phases

• settling the preliminaries
• district formation (concluding with the protest
  hearing)
• the election
• bond issuance/project implementation
• on-going special tax and bond administration

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The "Qualified Electors" for CFD Election

• 2/3 voter approval is required, with either
  landowners or registered voters as the qualified
  electors
• two VERY different categories of CFDs, depending
  on which category of voters
• 12 or more registered voters within the proposed
  CFD for the prescribed 90 day period - registered
  voters
• 11 or fewer registered voters landowners, with
  one vote per acre or portion of an acre

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The CFD Special Tax

• CFDs involve the calculation of an annual
  special tax for each taxable parcel based upon
  the special tax formula
• the Special Tax Formula is the most important
  legal document of the CFD formation process!!
• the Mello-Roos Act anticipates tax roll
  collection of the special tax, although it also
  permits direct billing as an alternative

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Adoption of Local Goals and Policies

• local agency must consider and adopt "local
  goals and policies" PRIOR TO start of CFD
  formation proceedings
• Section 53312.7 of Mello-Roos Act prescribes
  minimum contents, and they have little to do with
  services
• clear focus on bond financing

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Basic List of Eligible Services

• police protection
• fire protection and suppression, including
  ambulance and paramedic services
• maintenance of parks, parkways, and open space
• flood, storm protection, drainage and sandstorm
  protection systems
• cleanup of hazardous substances
• recreation, library, maintenance of elementary
  and secondary schools, and O/M for museums and
  cultural facilities

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Two Categories of Restrictions on Eligible
Services for Landowner CFDs

• first, special tax proceeds may NOT be used for
  recreation, library, or maintenance of schools,
  museums or cultural facilities IF any residential
  property will be taxed
• second, use of special tax proceeds must be
  restricted to services that are in addition to
  the services being provided within the CFD prior
  to formation, and the additional services may not
  supplant services already available within the
  CFD when it was formed.

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Charter City Ordinance Provisions to Authorize
Additional Servicesor Remove Restrictions

• focus on making up negative fiscal impact of new
  residential development
• some, particularly in the development community,
  question legality, arguing that this is NOT a
  legitimate use of the charter city powers over
  "municipal affairs"
• road repair and maintenance - the most common

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Exactions to Fund Services

• "exaction" meaning a forced payment imposed by
  government action (as opposed to a voluntary
  payment)
• examples for this discussion
• CFD special taxes
• parcel taxes
• special assessments
• fees and charges (edging toward voluntary)

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Special Tax Formula Ingredients

• determining the revenue needs
• estimated cost of services being financed
• estimated administrative expense
• gauging the taxable property base
• limitations on the maximum special tax
• if a developer-oriented CFD, determining the
  competitive tax level
• if a registered-voter CFD, determining the
  tolerance of the registered voters for differing
  levels of taxation

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Basic Formula Structuring Concepts

• special taxes NOT required to be allocated based
  on benefit
• special tax categories may be based on lot size,
  home size, density, land use type, development
  status or other criteria
• usually, there are categories of developed
  property and undeveloped property, with
  various trigger events for moving a parcel from
  undeveloped to developed
• developed property special tax limited by
  marketing and public policy
• special tax on developed property should be
  stable and unaffected by rate of development

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Other Structuring Considerations

• special tax escalator Mello-Roos Act does NOT
  limit escalator for special taxes funding only
  services
• sunset NOT required when funding only services
• in multi-landowner, developer-oriented CFDs,
  must decide whether to allow cross-collateralizat
  ion among landowners

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Formation and Election

• formation milestones
• local goals and policies
• boundary map
• resolution of intention
• conduct hearing
• resolution of formation
• call and conduct election
• same day as hearing if 100 consent
• authorize levy of special tax

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Special Tax Administration

• who's responsible staff or consultant
• annual tax levy procedure
• determine budget
• update taxable parcel base
• calculate special tax for each taxable parcel
• coordination with County Auditor for posting
• disclosure to prospective purchasers
• various annual report requirements