ITEM NO.

7
SUBMITTAL TO THE CITY COUNCIL CITY OF INDIO, CALIFORNIA October 16, 2013
City Attorney

CITY 01:

INDIO FROM:

SUBJECT: Determination of the fee for the proceedings related to the petition filed by voters in the Terra Lago community to amend the rate and method of apportionment of the special tax for CFD 2004-3 as required by Government Code Section 53332(b) RECOMMENDED MOTION: Determine that the fee for the change proceedings be set at $77,500 to reimburse the City for its costs; request that the petitioners submit a deposit in the same amount to continue the proceedings; and authorize the City Manager to execute a reimbursement agreement 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 to undertake change proceedings in an already established community facilities district at the request of those who filed a petition with the City. (continued on next page)

6Z,tt-4. Qepa P red By: Roxan

iaz

Cost associated with this action:

N/A In current year budget: N/A Budget adjustment: N/A For fiscal year: Current account balance: Balance remaining if approved: N/A N/A

N/A N/A N/A

FINANCIAL DATA
Source of funds: Account number: Legal Revi

Current F.Y. general fund cost: Future FY. general fund cost:

Department Review: -

Financial Review:

...-

I ' 410ren' 4110.1 01 111ri

e iaz Rox City Attorney

Dan Martinez City Manager

Rob Rockwell Finance Director

CITY MANAGER'S RECOMMENDATION: Approve

___CITY MANAGER'S SIGNATURE: f l ay. ,..,

Determination of Fee for Change Petition for CFD 2004-3 (Terra Lago) October 16, 2013 Page 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, it provides for the formation of a community facilities district, which in turn serves as the vehicle to levy and collect a special tax and use that revenue to finance specified facilities and/or services, and to borrow money (by issuing bonds or incurring other debt) to assist with financing of public facilities. The formation process of a community facilities district ("CFD") involves numerous proceedings undertaken by the City with the assistance of bond counsel and financial consultants. They can however be summarized generally as (i) proceedings to form the CFD and authorize the special tax; and (ii) proceedings to authorize bonded indebtedness for the CFD, commonly over a 30-year period. Often CFD's are formed at the beginning of a large residential project typically by the Developer who chooses to request a city to form a CFD in order to provide for up-front capital to pay for major public infrastructure required as conditions to development. The debt is then repaid by subsequent property owners through the levy of a special tax on the properties in the CFD. In 2005, the City undertook proceedings under the Mello-Roos Act to form a community facilities district, at the request of the former master developer, Indio Land Ventures, LLC, for all the properties within the community known as Terra [ago. At the time, the master developer 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 designated within 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 to both improvement areas was authorized by the formation documents and the subsequent related 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 certain development fees payable to the City and others, and to further pay the cost of public facilities required 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 downtown commencing in 2008, the former master developer was not able to complete the private development within Improvement Area No. 1. However, all of the public infrastructure intended to be constructed with proceeds of the Series 2005 Bonds was accomplished. It should also be noted that in March 2009, three million dollars ($3,000,000) that was originally placed in a special escrow fund was used to call the same amount in bonds. This essentially prepaid certain bonds in the amount of $3,000,000 to extinguish that debt lowering the overall outstanding debt and property owner annual special tax assessments.

Determination of Fee for Change Petition for CFD 2004-3 (Terra Lago) October 16, 2013 Page 3 At present, there is approximately $700,000 in surplus proceeds of the Series 2005 Bonds remains on hand and those funds will be used to prepay and redeem a portion of the Series 2005 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 Area No. 2 has been purchased and its development is being pursued by the new owner, Terra Lago Indio. LLC. Amendments to Tentative Tract Maps 32287 and 32341 which comprise the property 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. As previously stated, the imposition and collection of the special tax provides the revenue by which 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 be specified and established during the formation process. If bonds are to be authorized, their amount and maximum term must also be specified. Special taxes levied within a CFD are levied pursuant to a document known as the "RMA" or the rate and method of apportionment ("RMA"). The RMA sets forth the terms of the special tax, the basis on which the tax will be levied, the various classes of property that may be affected by the tax and the order in which the taxes will be levied or collected. The amount of the special tax may vary from year to year, but it cannot exceed the maximum amount specified in the RMA when the CFD was created. The special tax stays in effect until the principal and interest on the bonds are paid off in addition to any authorized administrative expenses, 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 CFD which involves a number of procedures beginning with formation and setting the rate of the special tax to ensure that notice of the special tax is provided by recordation of a "Notice of Special Tax Lien'. Typically bonds are subsequently issued and sold and after the bond closing, the district has the continuing obligation to levy and administer the special tax until the bonds are retired. In addition to authority provided to a city to form a CFD, the Mello Roos Act also contains procedures for amending certain acts that have already been undertaken by the local legislative body in forming the CFD. This is further discussed below. Government Code Section 53332 provides 25 percent or more of the registered voters residing in a CFD may petition the legislative body and request that proceedings be commenced to change 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 community and within the boundaries of CFD 2004-3 and Improvement Area No. 1, submitted a petition to amend 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:

Determination of Fee for Change Petition for CFD 2004-3 (Terra Lago) October 16, 2013 Page 4 Within Improvement Area 1, that the RMA be amended so that undeveloped property pays into the special tax and that recalculation of the RMA take into account the payment of the $3,000,000 from the special escrow account used to reduce the debt service. Within Improvement Area 2, that Improvement Area 2 either directly or indirectly pay an amount to compensate Improvement Area 1's special tax burden going forward. The petition lists a number of "benefits . . . whose real intents were specific for Improvement Area 2."

Upon receiving the Petition, the City Clerk worked with the County of Riverside Registrar of Voters to verify the Petition signatures as well as determine the total number of registered voters residing in CDF 2004-3. On September 24, 2013 the Registrar of Voters certified that there are 526 registered voters in CFD 2004-3 and upon examination of the 280 signatures submitted and checked by the Registrar, 239 were deemed valid. Because the number of valid signatures, 239, exceeds 25% of the total number of registered voters (526) the Petition meets the statutory requirement under Government Code Section 53332. Accordingly, the Petition and the petitioners can move to the next step in the proceedings to amend the RMA. Following the legal and statutory framework in the Mello Roos Act, once we have determined that the Petition is valid, the legislative body must determine the amount of the fee to process the Petition in an amount that is sufficient to compensate the local agency "for all costs incurred 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 are brought in to assist the local agency especially in a process that is as complex as the Mello Roos 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 counsel and a special tax and financial consultant. As it relates to the Petition, the threshold issue is to 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 the security for the bonds, ensuring that the bonds are paid and that the District is not violating any terms of the agreements we have executed. In terms of a tax/financial consultant, the City currently and has for many years utilized the services of Willdan Financial Services ("Willdan"). More importantly, Willdan currently administers CFD 2004-3 (i.e. calculates each years' special tax requirement and levy on the parcels in the district) and thus is very familiar with the current special tax structure. The bond attorneys in the City Attorney's office have consulted with Willdan to determine the fees involved to undertake this proceeding. Willdan estimates that the cost to assist the City in reviewing the various CFD and bond documents in this new and proposed context, as well as undertake the work to formulate various 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 those estimations. Jim McGuire, a senior project manager that specializes in this area, along with Nadia Benali, will be leading this process should the Petition move forward. In terms of bond

Determination of Fee for Change Petition for CFD 2004-3 (Terra Lago) October 16, 2013 Page 5 counsel, legal assistance is required in reviewing the bond and formation documents, working with Willdan in reviewing the RMA scenarios, drafting the Resolution of Consideration and other resolutions, drafting notices, drafting the election documents (the ballot, various resolutions, impartial analysis, etc.), drafting the required financial certifications, attendance at council hearings, providing legal advice throughout the process and researching legal issues as necessary. Given the nature of these proceedings in terms of potential complexity in revising the RMA and our initial review, we estimate approximately 175 hours. This estimate is just an approximation and it is possible that there could be less or more time. The hourly rate will be the same discounted hourly rated provided to the City, which is $250 per hour and is a significant discount from our standard hourly rates. Accordingly we estimate $45,000, which includes a small amount for expenses if needed. In addition, there are other costs such as the costs for the County Registrar of Voters to assist with the verification of the registered voters and other election items, the time spent by the City Clerk and other staff members. For this, we estimate $15,000. Accordingly, we estimate that the fees to be deposited be $77,500. We would also recommend that a reimbursement agreement be entered into by the City and the petitioners to ensure that each party's time is kept and charged against the deposit. This would also provide a process to return any monies to the Petitioners or request additional monies if required. Next Steps in the Change Proceedings Once the City Council has determined the fee as required by Government Code Section 53332(b), the petitioners are required to deposit the fee for the City's costs. Once such monies are deposited with the City, the next step in the process is for the City Council to consider adoption of a Resolution of Consideration. A Resolution of Consideration is required to alter the rate or method of apportionment of an existing special tax. This Resolution of Consideration, however, can only be considered by the City Council within "40 days of the payment of the fee determined under subdivision (b) . . . " FINANCIAL ANALYSIS: The Mello Roos Act provides that the petitioner who requests the change in the rate and method of apportionment is to bear the cost of the proceeding; therefore other than the costs already incurred by the City (verification of the signatures of the Petition with the county and initial legal review), there is no further impact to the General Fund as the City is to be paid its costs 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 2004-3 2. Certificate of Registrar of Voters

Determination of Fee for Change Petition for CFD 2004-3 (Terra Lago) October 16, 2013 Page 6

ATTACHMENT 'I

"Age_ZWe.A. C-CAL..Ma

40,3

PETITION TO AMEND THE RATE AND METHOD OF APPORTIONMENT OF THE SPECIAL TAX FOR THE COMMUNITY FACILITIES DEVEOPMENT (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 amendments to the 2004-3 CFD RMA. 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 bond offering. 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 of amendment. 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 an existing 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

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 $400,000.1

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

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

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 and those 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

(exhibit 2) , Petition with signatures (exhibit 3) hereby attached and presented to the City of Indio via the City Clerk, Cynthia Hernandez.

Determination of Fee for Change Petition for CFD 2004-3 (Terra Lago) October 16, 2013 Page 7

ATTACHMENT 2

Kari Verjii Registrar of Voters

Rebecca Spencer Assistant Registrar of Voters

REGISTRAR OF VOTERS
COUNTY OF RIVERSIDE CERTIFICATE OF REGISTRAR OF VOTERS ) ) ss. County of Riverside ) State of California KARI VERJIL, Registrar of Voters of the County of Riverside, State of California, do hereby certify that on September 4, 2013 the petition to Amend the Rate and Method of Apportionment of the Special Tax for the Community Facilities Development (CFD) 2004-3 was delivered to our office for the purpose of verifying 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 100% verification process, and that the results of said examination are as follows: That the total number of signatures submitted for said petition was The total number of signatures checked was The total number of sufficient signatures on said petition is The total number of insufficient signatures on said petition is 280 280 239 41

I further certify that the number of valid signatures, 239, exceeds 25% of 526, which is the total number of registered voters residing within the defined area according to current registration figures on record in our office. Dated: September 24, 2013 KARI VERJIL Registrar of Voters

Melissa Eickman Chief Deputy

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