CFD 2004-3 Mello Roos Petition Approval

8/13/2019 CFD 2004-3 Mello Roos Petition Approval

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ITEM NO. 7

CITY 01:

INDIO

SUBM ITTAL TO THE CITY COUNCILCITY OF INDIO CALIFORNIA

October 16 2013

FROM: City Attorney

SUBJECT: Determination of the fee for the proceedings related to the petition filed by voters in theTerra Lago community to amend the rate and method of apportionment of the special tax for CFD2004-3 as required by Government Code Section 53332(b)

RECOMMENDED MOTION: Determine that the fee for the change proceedings be set at $77,500to reimburse the City for its costs; request that the petitioners submit a deposit in the same amountto continue the proceedings; and authorize the City Manager to execute a reimbursementagreement in the form approved by the City Attorney with the petitioners.

SUMMARY: The proposed action of determining the fee is required by the Mello Roos Act toundertake change proceedings in an already established community facilities district at the requestof those who filed a petition with the City.

(continued on next page)

Cost associated with this action: /A

FINANCIAL Current F.Y. general fund cost: /A

DATA uture FY. general fund cost: /A

In current year budget: /A

Budget adjustment: /A

For fiscal year: /A

Source of funds:

Account number:

Current account balance: /A

Balance remaining if approved: /A

Legal Revi Department Review: inancial Review:

11 1 1 1r 41 re . . -

Rox az Dan M artinezCity Manager

Rob RockwellFinance Directority Attorney

CITY MANAGER S RECOMMENDATION:Approve f

Y MANAGER S

y.

SIGNATURE:

,..,

Q e p aZ tt -4 .P ed By: Roxan az


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Determination of Fee for Change Petition for CFD 2004-3 (Terra Lago)October 16, 2013Page 2

BACKGROUND:

History of Community Facilities District 2004-3

The Mello-Roos Community Facilities Act of 1982 ( Mello-Roos Act ) is a financing tool that

provides an alternative means of financing certain public capital facilities. In general, itprovides for the formation of a community facilities district, which in turn serves as the vehicleto levy and collect a special tax and use that revenue to finance specified facilities and/orservices, and to borrow money (by issuing bonds or incurring other debt) to assist withfinancing of public facilities. The formation process of a community facilities district ( CFD )involves numerous proceedings undertaken by the City with the assistance of bond counseland financial consultants. They can however be summarized generally as (i) proceedings toform the CFD and authorize the special tax; and (ii) proceedings to authorize bondedindebtedness for the CFD, commonly over a 30-year period.

Often CFD's are formed at the beginning of a large residential project typically by theDeveloper who chooses to request a city to form a CFD in order to provide for up-front capitalto pay for major public infrastructure required as conditions to development. The debt is thenrepaid by subsequent property owners through the levy of a special tax on the properties in theCFD.

In 2005, the City undertook proceedings under the Mello-Roos Act to form a communityfacilities district, at the request of the former master developer, Indio Land Ventures, LLC, forall the properties within the community known as Terra [ago. At the time, the masterdeveloper was the owner of all the property within the proposed community facilities district.This district is known as the City of Indio Community Facilities District No. 2004-3 (Terra Lago)( CFD 2004-3 ). When CFD 2004-3 was formed, two improvement areas were designatedwithin the District, to match the two phases of development contemplated by the former master

developer (Improvement Area 1 and Improvement Area 2) and a list of facilities applicable toboth improvement areas was authorized by the formation documents and the subsequentrelated agreements.

On September 15, 2005, Series 2005 Bonds were issued in the principal amount of$26,330,000 (the Bonds ) for the purpose of financing facilities constructed with certaindevelopment fees payable to the City and others, and to further pay the cost of public facilitiesrequired as a condition of development of the Terra Lago project. In Improvement Area No. 1,approximately 85% of the master plan was completed. Due to the economic downtowncommencing in 2008, the former master developer was not able to complete the privatedevelopment within Improvement Area No. 1. However, all of the public infrastructure intendedto be constructed with proceeds of the Series 2005 Bonds was accomplished. It should alsobe noted that in March 2009, three million dollars ($3,000,000) that was originally placed in aspecial escrow fund was used to call the same amount in bonds. This essentially prepaidcertain bonds in the amount of $3,000,000 to extinguish that debt lowering the overalloutstanding debt and property owner annual special tax assessments.


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At present, there is approximately $700,000 in surplus proceeds of the Series 2005 Bondsremains on hand and those funds will be used to prepay and redeem a portion of the Series2005 Bonds.

As for the property within Improvement Area No. 2, it remained largely undeveloped also

because of the economic downturn in 2008. However, the property within Improvement AreaNo. 2 has been purchased and its development is being pursued by the new owner, TerraLago Indio. LLC. Amendments to Tentative Tract Maps 32287 and 32341 which comprise theproperty within Improvement Area 2 were recently approved by the City Council.

A significant aspect of any CFD is the special tax on the real property within the district. Aspreviously stated, the imposition and collection of the special tax provides the revenue bywhich to pay back the debt utilized for the improvements in the community facilities district.The Mello Roos Act, however, does not direct how the special tax is to be applied. However,the Mello Roos Act does require that the particular method of allocating the special tax bespecified and established during the formation process. If bonds are to be authorized, theiramount and maximum term must also be specified.

Special taxes levied within a CFD are levied pursuant to a document known as the RMA orthe rate and method of apportionment ( RMA ). The RMA sets forth the terms of the specialtax, the basis on which the tax will be levied, the various classes of property that may beaffected by the tax and the order in which the taxes will be levied or collected. The amount ofthe special tax may vary from year to year, but it cannot exceed the maximum amountspecified in the RMA when the CFD was created. The special tax stays in effect until theprincipal and interest on the bonds are paid off in addition to any authorized administrativeexpenses, but in no case shall it exceed 40 years.

Petition for Change Proceedings to amend the Rate and Method of Apportionment

As stated above, the Mello Roos Act provides the legal framework for formation of a CFDwhich involves a number of procedures beginning with formation and setting the rate of thespecial tax to ensure that notice of the special tax is provided by recordation of a Notice ofSpecial Tax Lien'. Typically bonds are subsequently issued and sold and after the bondclosing, the district has the continuing obligation to levy and administer the special tax until thebonds are retired. In addition to authority provided to a city to form a CFD, the Mello Roos Actalso contains procedures for amending certain acts that have already been undertaken by thelocal legislative body in forming the CFD. This is further discussed below.

Government Code Section 53332 provides 25 percent or more of the registered voters residingin a CFD may petition the legislative body and request that proceedings be commenced tochange the rate or method of apportionment of an existing special tax (among other things).In this case, on September 4, 2013, registered voters residing in the Terra Lago communityand within the boundaries of CFD 2004-3 and Improvement Area No. 1, submitted a petition toamend the RMA of the special tax for CFD 2004-3 ( Petition ). As provided in the Petition,which is attached as Attachment 1, the voters seek the following:


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Determination of Fee for Change Petition for CFD 2004-3 Terra Lago)October 16, 2013Page 4

Within Improvement Area 1, that the RMA be amended so that undeveloped propertypays into the special tax and that recalculation of the RMA take into account thepayment of the $3,000,000 from the special escrow account used to reduce the debtservice.

Within Improvement Area 2, that Improvement Area 2 either directly or indirectly pay anamount to compensate Improvement Area 1's special tax burden going forward. Thepetition lists a number of benefits . . . whose real intents were specific for ImprovementArea 2.

Upon receiving the Petition, the City Clerk worked with the County of Riverside Registrar ofVoters to verify the Petition signatures as well as determine the total number of registeredvoters residing in CDF 2004-3. On September 24, 2013 the Registrar of Voters certified thatthere are 526 registered voters in CFD 2004-3 and upon examination of the 280 signaturessubmitted and checked by the Registrar, 239 were deemed valid. Because the number ofvalid signatures, 239, exceeds 25% of the total number of registered voters (526) the Petitionmeets the statutory requirement under Government Code Section 53332. Accordingly, thePetition and the petitioners can move to the next step in the proceedings to amend the RM A.

Following the legal and statutory framework in the Mello Roos Act, once we have determinedthat the Petition is valid, the legislative body must determine the amount of the fee to processthe Petition in an amount that is sufficient to compensate the local agency for all costsincurred in conducting proceedings to change the district pursuant to this article. Cal. Govt.Code 53332(b).

Procedures for changes to a CFD is similar to formation proceedings in that advisors arebrought in to assist the local agency especially in a process that is as complex as the MelloRoos Act. In this case, the group of advisors are not as many as would be in a formation

proceeding and we believe in this case we would only need the assistance of bond counseland a special tax and financial consultant. As it relates to the Petition, the threshold issue isto determine whether the RMA can be amended taking into consideration, among other things,the various bond covenants and other obligations the district has in terms of preserving thesecurity for the bonds, ensuring that the bonds are paid and that the District is not violating anyterms of the agreements we have executed.

In terms of a tax/financial consultant, the City currently and has for many years utilized theservices of Willdan Financial Services ( Willdan ). ore importantly, Willdan currentlyadministers CFD 2004-3 (i.e. calculates each years' special tax requirement and levy on theparcels in the district) and thus is very familiar with the current special tax structure. The bondattorneys in the City Attorney's office have consulted with Willdan to determine the feesinvolved to undertake this proceeding.

Willdan estimates that the cost to assist the City in reviewing the various CFD and bonddocuments in this new and proposed context, as well as undertake the work to formulatevarious RMA scenarios (i.e. running various tax spread calculations) will be at a minimum$17,500. If additional calculations are necessary, the work is estimated at $7,500 for thoseestimations. Jim McGuire, a senior project manager that specializes in this area, along withNadia Benali, will be leading this process should the Petition move forward. In terms of bond


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counsel, legal assistance is required in reviewing the bond and formation documents, workingwith Willdan in reviewing the RMA scenarios, drafting the Resolution of Consideration andother resolutions, drafting notices, drafting the election documents (the ballot, variousresolutions, impartial analysis, etc.), drafting the required financial certifications, attendance atcouncil hearings, providing legal advice throughout the process and researching legal issues

as necessary. Given the nature of these proceedings in terms of potential complexity inrevising the RMA and our initial review, we estimate approximately 175 hours. This estimate isjust an approximation and it is possible that there could be less or more time. The hourly ratewill be the same discounted hourly rated provided to the City, which is $250 per hour and is asignificant discount from our standard hourly rates. Accordingly we estimate $45,000, whichincludes a small amount for expenses if needed.

In addition, there are other costs such as the costs for the County Registrar of Voters to assistwith the verification of the registered voters and other election items, the time spent by the CityClerk and other staff members. For this, we estimate $15,000.

Accordingly, we estimate that the fees to be deposited be $77,500. We would alsorecommend that a reimbursement agreement be entered into by the City and the petitioners toensure that each party's time is kept and charged against the deposit. This would also providea process to return any monies to the Petitioners or request additional monies if required.

Next Steps in the Change ProceedingsOnce the City Council has determined the fee as required by Government Code Section53332(b), the petitioners are required to deposit the fee for the City's costs. Once suchmonies are deposited with the City, the next step in the process is for the City Council toconsider adoption of a Resolution of Consideration. A Resolution of Consideration is requiredto alter the rate or method of apportionment of an existing special tax. This Resolution ofConsideration, however, can only be considered by the City Council within 40 days of the

paymen t of the fee determined under subd ivision (b) . . .

FINANCIAL ANALYSIS:The Mello Roos Act provides that the petitioner who requests the change in the rate andmethod of apportionment is to bear the cost of the proceeding; therefore other than the costsalready incurred by the City (verification of the signatures of the Petition with the county andinitial legal review), there is no further impact to the General Fund as the City is to be paid itscosts to undertake the proceedings to change CFD 2004-3.

ALTERNATIVES:1. None. The City is statutorily mandated to set the fee for the costs of the change

proceeding.

ATTACHMENTS:1. Petition submitted by registered voters in CFD 2004-32. Certificate of Registrar of Voters


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ATTACHMENT I


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Age_ZWe.A.C CAL..Ma

/ 40 3PETITION TO AMEND THE RATE AND METHOD OF APPORTIONMENT OF THE

SPECIAL TAX FOR THE COMM UNITY FACILITIES DEVEOPMEN T (CFD) 2004-3.

The Registered Voters residing in the Indio Sponsored Community Facilities

Development ( CFD ) 2004-3 District ( District ), hereby, petition the City to amend the

Rate and Method of Apportionment of Special Tax ( RMA ) of the CFD 2004-3. The

Registrar of Voters in Riverside, California has provided a list that includes 505

Registered Voters in the District. We have enough votes to have the City institution

formal resolution and ame ndments to the 2004-3 CF D R MA.

The 2004-3 District includes Improvement Area 1, which proffered a $26.3 million

offering, and Improvement Area 2, which is approved for over a $30 million bondoffering. Improvement Area 1 bond monies include backbone structures which

Improvement Area 2 has received benefit.

California Government Code Section 53332 (a) describes the method by which a

petition signed by 25% or more of the registered voters residing in the district may

petition the City for a resolution to change the RMA. That a minimum of 126 registered

voters signatures are necessary for the present 2004-3 CFD amendment. This petition

far exceeds that number. Therefore the City must undertake the process ofamendment. The Petitioners request that any fees be waived or presented within 45

days.

California Government Code Section 53333 requests the petition to direct the legislative

body to make specified changes to the CFD 2004-3. California Government Code

Section 53334 Requests that the resolution of consideration to alter the types of public

facilities and services financed by an established community facilities district, or to levy

a new special tax or special taxes, or to alter the rate or method of apportionment of anexisting special tax, shall do all of the following: (a) State the name of the Area. (b)

Generally describe the territory included in the area. (d) Specify any new special taxes

which would be levied to pay for new or existing facilities and services and any


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proposed alteration to the rate or method of apportionment of an existing special tax. (e)

Fix a time and place for a hearing upon the resolution which shall not be less than 30 or

more than 60 days after the adoption of the resolution of consideration.

Improvement Area 1 Specific Requests

This petition requests that the RMA within Improvement Area 1 of the District be

amended so that undeveloped property pays into the tax. The present RMA has

benefited the undeveloped property unequally. In fact the 100 lot undeveloped property

owner RB Terra Lego has paid no special taxes for the last 2 years despite owning

properties that should make up 25% of the debt service. The debt service is now

approximately $1.6 million per year. 25% is $400,000.

Improvement Area 2 Specific Requests

This petition further requests that Improvement Area 2 of the CFD 2004-3 District [which

has benefited from numerous structures and development] either directly or indirectly

pay an amount, [including the time value of money and interest], to compensate the

Improvement Area 1 special tax burden going forward. 2

1 The special tax, debt service for Improvement Area 1 was reduced by $220,000 per

year for the remaining 24 years left on the bond by the City defeasing the $3.0 million

Special Escrow 2036 -$3 million bond. This reduction was possible as the

requirements to use the special escrow money, including two appraisals of the property

fell short, and it was used to defease such bond. The petition requests that such

inequity be considered in the re calculation of the new RMA.

The Improvement Area 2 property is part of the CFD 2004-1 District, and CFD 2004-3

District. This area has an approved bond amount of $30-33 million for the 831 home

sites. There is an approved RMA for the properties. It appears as though the


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responsible landowners wish to simply ignore such tax responsibility and simply pretend

that they are not aware of such burden required by law.

Such benefits include upsizing of water, sewer, roads, traffic signals, landscape, dry

conduit, payments for the fire station, engineering, sidewalks, fees, and other eligible

payments made directly [or indirectly by payment methods through a variety of

accounts], whose real intents were specific for improvement Area 2. A simple approach

is to note when the improvements were completed and when monies were procured

from the construction fund.

This petition further requests a Special Tax Consultant , Webb and Associates,

( WEB ) who understands the complicated nature of this unusual [and expedited] CFD

2004-3 Special Tax take the lead. Allow Webb and Associates to determine the parties,

they feel are necessary to proceed with the amendment.

California Government Code Section 53333 (e) That the City make the resolution to

amend the RMA, and set the Vote for no later than 90 days from the date of said

resolution.

Wherefore the undersigned representative voter within the CFO 2004-3 District andthose registered voters attached hereby petition the City to Amend the RMA for the

2004-3 District including Area 1 and Area 2. That the City institute the proceedings and

waive any associated fees or notify Petitioners of the amount to be paid.

August 14, 2013

Grade Nilson, along with over 125 concerned Terra Lago Registered Voters hereby

submit this Petition (exhibit 1) to City of Indio. CFD 2004-3 Voter Registration list

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(exhibit 2) , Petition with signatures (exhibit 3) hereby attached and presented to the

City of Indio via the City Clerk, Cyn thia Hernandez .


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ATTACHMENT 2


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Kari VerjiiRegistrar of Voters

Rebecca SpencerAssistant Registrar of Voters

REGISTRAR OF VOTERSCOUNTY OF RIVERSIDE

CERTIFICATE OF REGISTRAR OF VOTERS

State of California) ss.

County of Riverside )

KARI VERJILRegistrar of Voters of the County of Riverside, State of California, do hereby certify thaton September 4, 2013 the petition to Amend the Rate and Method of Apportionment of the Special Tax forthe Community Fac ilities Development (CFD ) 2004-3 was delivered to our office for the purpose ofverifying that the signatures thereon were registered within the defined area.

I further certify that the signatures on said petition were counted and examined by means of a 1 00%verification process, and that the results of said examination are as follows:

That the total number of signatures submitted for said petition was 80The total number of signatures checked was 80The total number of sufficient signatures on said petition is 39

The total number of insufficient signatures on said petition is 1

I further certify that the number of valid signatures, 239, exceeds 25% of 526, which is the total number ofregistered voters residing within the defined area according to current reg istration figures on record in ouroffice.

Dated: September 24, 2013

KARI VERJILRegistrar of Voters

Melissa EickmanChief Deputy

2724 Gateway Drive, Riverside, CA 92507-0918 951) 486-7200 - FAX 951) 4863272 - TTY 951) 697-8966www.voteinfo.net

CFD 2004-3 Mello Roos Petition Approval

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