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Agenda Item
ASR
Control 23-000832 |
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MEETING
DATE: |
10/31/23 |
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legal entity taking action: |
Community
Facilities District No. 2023-1 |
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board of supervisors district(s): |
5 |
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SUBMITTING Agency/Department: |
County
Executive Office (Approved) |
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Department contact person(s): |
Louis
McClure (714) 834-5999 |
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Kim
Engelby (714) 834-3530 |
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Subject: Community Facilities District
2023-1 Rienda Financing Approval
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ceo CONCUR |
County Counsel Review |
Clerk of the Board |
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Concur |
Approved
Resolution to Form |
Discussion |
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3
Votes Board Majority |
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Budgeted: No |
Current Year
Cost: See Financial
Impact Section |
Annual Cost: See Financial Impact Section |
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Staffing Impact: |
No |
# of Positions: |
Sole Source: N/A |
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Current Fiscal Year Revenue: N/A
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Prior Board Action: 5/23/2023 #58, 4/11/2023 #29,
11/8/2004 #1 |
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RECOMMENDED
ACTION(S):
Adopt the Resolution of the Board
of Supervisors, acting in its capacity as the Legislative Body of Community
Facilities District No. 2023-1 of the County of Orange (Rienda Phase 2B),
authorizing the issuance of bonds in a principal amount not to exceed $75
million and the execution of documents and certain actions related thereto.
SUMMARY:
Approval of the Recommended Actions
will allow for financing of public infrastructure at the time of development.
BACKGROUND
INFORMATION:
On November 8, 2004, your Board of
Supervisors (Board) approved the Ranch Plan Development Agreement (Development
Agreement) between the County of Orange and Rancho Mission Viejo allowing up to
14,000 dwelling units, as well as retail, office and recreational uses within a
development area of approximately 7,700 acres with approximately 15,000 acres
retained in open space. Rancho Mission
Viejo has proposed the formation of one or more community facilities districts
(CFD) for the financing of public facilities and projects that are required
pursuant to the Development Agreement, to be completed in phases, as
development occurs. Pursuant to the
provisions of the Mello-Roos Community Facilities Act of 1982 (Act), as amended,
the County already formed three CFDs to finance improvements in Planning Area
2, known as Esencia.
Development has begun in Planning
Area 3, and the County previously formed CFD 2021-1 and issued bonds to finance
improvements for Phases 3.1 and 3.2a of Planning Area 3. Planning Area 3 is located on approximately
2,100 acres in an unincorporated area of South Orange County, east of the new
community of Esencia, and between the existing master planned community of Coto
de Caza and Ortega Highway. Upon build
out, Planning Area 3 is expected to contain approximately 7,000 residential
units, including market rate and affordable apartments, three million square
feet of commercial development, schools, daycare facilities, a civic center and
parks, trails and community recreation space.
The village name for the first five phases of Planning Area 3 is
Rienda. Rienda is planned to contain
approximately 2,914 residential units, a market rate and an affordable
apartment community, 475,000 square feet of commercial development, a K-8
school and a fire station.
In January 2022, the County
Executive Office received an Infrastructure Finance Program District
Application from Rancho Mission Viejo, on behalf of RMV PA3 Development, LLC
(Developer), for the proposed formation of the second CFD within Planning Area
3 (CFD 2023-1). On April 11, 2023, the
Board held a public hearing and adopted resolutions that established CFD
2023-1, authorized the levy of a special tax, determined the necessity to incur
bonded indebtedness and called an election within CFD 2023-1. On April 11, 2023, an election was held
within CFD 2023-1, at which the landowners eligible to vote approved the
issuance of bonds for CFD 2023-1 in an amount not to exceed $95 million. On May 23, 2023, the Board, acting as the
legislative body of CFD 2023-1, adopted an ordinance that authorizes the levy
of a special tax in accordance with the rate and method of apportionment
approved at the election within CFD 2023-1.
CFD 2023-1 consists of
approximately 49 acres, of which 26 acres are expected to be subject to the
special tax at build-out. Development
within CFD 2023-1 is expected to include 514 for-sale market-rate residential
units. The remainder of the property is anticipated to be used for recreational
facilities, parks, open space, public property and property owned by the owners
association. The backbone infrastructure
necessary to complete the development within CFD 2023-1, including major
infrastructure (sewer, water, storm drains, utilities, arterial roads) to be
installed by the Developer, has been substantially completed. All five merchant builders have commenced
construction of the model homes and the public grand openings for the homes are
scheduled to occur at various times between November 2023 and the first quarter
of 2024.
The estimated principal amount of
the proposed 2023 Series A Special Tax Bonds (Bonds) is $62.5 million. Due to municipal bond market conditions, the
Bonds are expected to be sold at a discount of approximately $1 million which
will generate proceeds of $61.5 million.
Of the $61.5 million, approximately $54.3 million will be deposited into
the project fund. Approximately $6
million will be deposited into the Bond reserve fund and the remaining funds
will be used for capitalized interest.
The true interest cost of the Bonds is estimated at 6.06 percent
(including a 25 basis point increase over current market rates) and the cost of
issuance including underwriter’s discount and all other fees and charges paid
to third parties is estimated at $628,700.
The not to exceed amount of $75 million in the resolution provides
flexibility in the event municipal bond market conditions change from the
estimated amounts above.
The proceeds of the Bonds will be
used to pay the costs and expense of the acquisition and construction of
facilities and improvements, fund the reserve account and pay the costs of
issuing the Bonds. The facilities authorized to be constructed and acquired
consist of roadway improvements, tunnels, regional hiking and biking trails,
storm drains and basins, water and wastewater facilities, wet and dry
utilities, bridges and pedestrian bridges, parks, traffic signals, school
sites, school facilities and equipment, facilities and equipment relating to
fire protection and suppression, sheriff substations and equipment, library
facilities and equipment, and related infrastructure improvements,
appurtenances and appurtenant work in connection with the facilities.
The tax rate within CFD 2023-1 is
approximately 2.0 percent of the estimated market value of the units at the
time of sale. This estimated tax burden
includes the overlapping debt of the Capistrano Unified School District and the
Metropolitan Water District, as well as the base property tax rate of 1 percent. With the estimated tax burden being 2 percent
or less of the estimated market value, CFD 2023-1 is in compliance with the
County’s policy.
The Act provides that the
legislative body of a CFD may sell bonds only if it determines, prior to the
award of the sale of bonds, that the value of the real property that would be
subject to the special tax to pay debt service on the bonds will be at least
three times the principal amount of the bonds to be sold and the principal
amount of all other bonds outstanding that are secured by a special tax or
assessment levied on property within the CFD.
This is referred to as the value-to-lien test. However, the Act and County policies also
allow for the Bonds to be issued even if the value-to-lien test is not met so
long as the issuance of the Bonds do not present unusual credit risk due to
proper credit enhancement. The deposit
of a portion of the proceeds of the Bonds into an escrow fund until the
value-to-lien test is met, as described below, is intended to provide such
credit enhancement.
The market value of the land and
improvements in CFD 2023-1 was appraised at $191.4 million, as of August 31,
2023, by Integra Realty Resources (Attachment D). In accordance with industry practice, the
County’s special tax consultant has calculated the direct and overlapping debt
of the Capistrano Unified School District and the Metropolitan Water District
allocable to CFD 2023-1 including the proposed Bonds. Depending on interest rates at the time of
sale, the principal amount of the proposed bonds may result in a value-to-lien
ratio of less than 3 to 1. If the
value-to-lien ratio is determined to be less than 3 to 1, a portion of the
proceeds of the Bonds will be deposited into an escrow account held with the
Bond trustee and would not be released until the value of the land and
improvements is sufficient to meet the 3 to 1 test. If for any reason, the value does not meet
the 3 to 1 test by July 15, 2026, those funds will be used to redeem a portion
of the bonds on August 15, 2026 (such portion of the Bonds are referred to in
the attached documents as the “Escrow Term Bonds”). The value of the land and improvements in CFD
2023-1 is expected to increase with the continued development of the project
and the 3 to 1 test is expected to be met before July 15, 2026.
The Market
Absorption Study (Attachment E) prepared by Empire Economics, Inc. (Empire)
estimates the rate of absorption for the projects within CFD 2023-1. Empire estimates the calendar year absorption
schedules for the residential projects as follows: 110 units in 2024, 219 units
in 2025, 160 units in 2026, and 25 units in 2027. Empire’s conclusions are based on market
conditions and a statistical comparison of the currently active comparable
projects.
The Policy Compliance Report
(Attachment H) prepared by the Municipal Advisor, Fieldman, Rolapp &
Associates, Inc., concludes that the County policies have been met and the
economics of the project are sound. The
project serves a community need, the special taxes have been apportioned to the
property owners on a reasonable basis and relate to the cost of the financed
facilities. An independent market
economist and real estate appraiser were used, and the value of the property is
at least three times the principal amount of the proposed bonds (excluding the
amount deposited in the escrow account) and other overlapping debt. In addition, the developer has a history of
success in Orange County and has not defaulted on any special tax, assessment,
loan or line of credit.
Consistent with the County’s practices
regarding CFD financings, on May 25, 2023, the County filed a complaint in the
Superior Court of the State of California (Court) for the County of Orange
seeking judicial validation of the formation of CFD 2023-1. On September 26, 2023, the Court entered a
default judgment that validated the actions taken with respect to the formation
of CFD 2023-1, the incurrence of bonded indebtedness and levy of the special
tax. The last day of the appeal period
for the validation action was October 26, 2023.
The County Executive Office (CEO)
recommends the issuance of the Bonds since the proposed Bonds are in compliance
with County policies, the Act and other applicable statutes. In addition, the value of CFD 2023-1 is expected
to increase with the continued development of the project. The analysis by Empire indicates a favorable
project absorption period. The developer
has a history of success and experience in Orange County and CFD 2023-1 is
consistent with the County’s formation and financing of previous CFDs and the
County’s commitment to construct public improvements as development occurs.
The Public Financing Advisory
Committee considered this item at a special meeting on October 19, 2023. CEO provided a written summary of the results
of the meeting to the Board.
FINANCIAL
IMPACT:
There is no financial impact to the County
as repayment of the bonds will be paid by the special taxes levied within CFD
2023-1. CFD 2023-1 RMV (Rienda Ph 2B)
Construction Fund 567 and CFD 2023-1 RMV (Rienda Ph 2B) Debt Service Fund 568
were established in FY 2023-24. These
funds were added after the adoption of the FY 2023-24 Budget. Appropriations and revenues will be
established through the Mid-Year Budget Report and will accurately reflect the
details of the bond issuance as determined at pricing.
STAFFING
IMPACT:
N/A
ATTACHMENT(S):
Attachment
A - Resolution
Attachment B - Bond Indenture
Attachment C - Preliminary Official Statement (POS)
Attachment D - Appraisal Report
Attachment E - Market Absorption Study
Attachment F - Acquisition Funding and Disclosure Agreement
Attachment G - Bond Purchase Agreement
Attachment H - Policy Compliance Report
Attachment I - Continuing Disclosure Certificate