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~ Financing Plan ~


Section 11.3



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11.3 FINANCING PLAN

Section 11.1 outlined the capital improvements required to support the projected growth to 4,000 SFRs in the Specific Planning Area. This section describes the financing mechanisms available for public facilities, and how they might be structured to pay for the necessary infrastructure capacity. Given the long time horizon for constructing the improvements, it should be recognized that the financing scenario presented here is formulated primarily for illustrative purposes. The actual financing structure that is eventually implemented will be determined by the rate of growth and other factors unforeseeable at this time. As the Specific Plan undergoes periodic updates, recommended at five-year intervals, the financing plan should be similarly updated.

After an introduction, this section reviews available funding sources. Selected methods of funding are structured into a proposed financing plan, which is then used to estimate fees and assessments based on the infrastructure costs presented above. Two alternative scenarios are advanced for the financing plan to illustrate different ways in which Brooktrails Township might seek funding for the anticipated public facilities. The first scenario utilizes both bonded indebtedness and development fees. The second scenario relies entirely on fees paid at the time of development to fund new development's share of the capital costs. Property tax impacts of the Specific Plan are considered at the end of this chapter.

Introduction
The scale of public improvements needed to serve the projected growth in Brooktrails will require an expanded financing program from what exists today. At present, the District's capital needs are implemented through the District's five-year Capital Improvement Program (CIP) and are paid through charges for service, connection fees, and standby charges. The projects in the CIP are also small enough that they can be financed on a "pay-as-you-go" basis without seeking outside sources of capital. The projects needed for growth, however, exceed what can be supported by the existing fee structures. Further, the capacity expansions for new development will require several large one-time expenditures, such that a financing plan oriented toward the

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demands of growth will require some measure of bond financing to spread the one-time costs over several years.

The terms funding and financing are used throughout this section. For the purposes of this analysis, funding refers to how money is collected, and who is responsible for paying. (Funding can take the form of fees, assessments, or taxes.) In California, it is common practice to assign the costs of infrastructure needed for growth to new development. It is assumed that this practice will apply in Brooktrails, and that presently undeveloped lots will be responsible for the appropriate shares of costs to expand the water, sewer, circulation, and fire capacity they will require.

Financing, as used here, applies to how the timing of the payments is matched to the timing of the infrastructure needs. Pay-as-you-go is the simplest way to finance improvements. Current projects in Brooktrails Township's CIP are financed in this manner. Revenues accumulate over time and improvements are completed as funding is available. Some capital improvements can be expanded incrementally, such as water storage tanks, fire vehicles, or Brooktrails' contribution to the Willits sewer plant expansion. These would be financed on a pay-as-you-go basis from ongoing revenues, most likely using some form of development fee as the source for funds. Major projects, such as the dam, however, are too large to be completely financed through fees paid as lots develop. In this case, the District would seek some form of indebtedness, probably through the sale of bonds, to allow the costs to be spread over time. Here, too, the debt could be serviced under any of the funding sources, though the levies would likely be in the form of assessments or special taxes spread over a number of years after the bonds were sold.

For the purposes of the Specific Plan, Brooktrails Township is taken to be the primary agency sponsoring the financing program. Depending upon the specific funding sources or projects, it may be necessary to involve Mendocino County to obtain the necessary legal authority for certain financing instruments, or to construct certain improvements, such as roads, that fall under the County's purview. From the standpoint of estimating costs, however, the sponsoring


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agency is a secondary issue. Costs and the method of allocation would be the same, regardless of which jurisdiction served as the lead agency.

Funding Sources
Several methods of funding are available to provide capital facilities to serve growth. Selection of an appropriate source or sources would depend on a number of factors, including flexibility, ease of implementation, certainty of payment, local preferences, and suitability for use with debt financing. Some sources, namely water and sewer connection fees, are already being used by the District to fund the ongoing five-year CIP. In this case, the current programs could be expanded through appropriate action by the Brooktrails Township Board of Directors. Assessments and special taxes would require additional formation proceedings. Funding sources appropriate for providing capital facilities associated with growth are described below.

Impact Fees
California law (Government Code 66000 et seq.) allows local jurisdictions to charge impact fees to new development to cover the cost of capital facilities needed to serve growth. These statutes and related case law require that jurisdictions levying fees demonstrate a reasonable relationship between the new development that pays fees and the facilities that the fees will fund. The fees charged must not exceed the cost of the planned facilities and must be used solely for that purpose. In addition, fees may be used to fund new facilities or to reimburse the local jurisdiction for facilities already constructed. In the case of Brooktrails, this implies that if the District were to advance construction costs from other District funds, the fees could be used as reimbursements.

Impact fees are usually collected when building permits are issued. Typically, fee revenues are accumulated until sufficient funds are available to build a project on a pay-as-you-go basis, though proceeds must be appropriated within five years. It is possible to structure fees in conjunction with an assessment or Mello-Roos community facilities district, though the sponsoring agency must be willing to fund debt service with general revenues if fees


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are insufficient. Fees can be adopted by a majority vote of the governing board, and can fund almost any type of public facility including land, buildings, equipment, or infrastructure.

Impact fees offer a number of advantages. They are relatively easy to implement and collect; no vote is required and collection can be done as part of the building permit process. They equitably assign costs according to facilities impacts, and can be adjusted periodically to reflect construction cost inflation, revised cost estimates, or changes in level of service. The principal disadvantage is that fees alone are limited to projects constructed in the short-term, and financed on a pay-as-you-go basis. Tied to the rate of development, they make an unpredictable revenue stream to service debt financing.

Special Assessments
The special assessment district is the traditional means of financing public facilities used to serve a particular area. A number of assessment acts, including the 1913 and 1915 Acts, and the 1972 Landscaping and Lighting Act, enable local agencies to construct or acquire public improvements, apportion the cost through assessments on benefiting properties in a designated area, and finance the improvements with bond issues. The use of special assessments is limited to facilities that directly benefit the properties in the district. Facilities that provide only general public benefits cannot be financed through special assessments. Where both general and "localized" benefits will result from an improvement, however, the courts generally have upheld the validity of special assessments, although local agency contributions may be required to compensate the district for the general public's share of improvement costs.

Assessment district funding can be used for a variety of public facilities including water and sewer, transportation, parking, libraries, fire stations, storm drainage, landscaping and lighting, and parks, among others. Assessments were used to fund much of the existing infrastructure in Brooktrails. Proposition 218, passed in November 1996, changed the rules under which assessments can be levied. Whereas formerly assessments could be created by the governing board, it appears that a property owner vote now would be required to levy the assessments considered in the Specific Plan.


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Bonds can be sold to fund large projects which are secured by assessments levied against real property in the district, with annual assessments on the benefitting property used to fund principal and interest payments on outstanding debt. Security for assessment bonds is the value of real property in the district and not the full faith and credit of the sponsoring local jurisdiction. As a result, the interest rates on assessment bonds are higher than general obligation debt supported by the taxing power of a local jurisdiction.

Assessments continue to be a popular mechanism due to a number of advantages. They provide a secure, reliable source of revenue, including recovery of annual administration costs. The ability to issue bonds allows timely provision of facilities (relative to impact fees and other pay as-you-go funding) where large infrastructure projects are concerned. Assessment bonds can be used to fund existing deficiencies, and often in these cases are levied against existing developed properties. The primary disadvantage of assessments is the difficulty in gaining sufficient voter support under the restrictions placed by Proposition 218, given the practical and procedural uncertainties created by Proposition 218.

Special Taxes
Special taxes have been defined by Proposition 13 and subsequent court decisions as taxes dedicated for a specific purpose. Special taxes can fund all types of facilities or public activities. Examples include parcel taxes to fund fire services or a utility tax apportionment to fund public safety programs. They are particularly appropriate for facilities with general benefit such as open space, recreational, or administrative facilities. Proposition 13 requires that new special taxes or increases in existing special taxes be approved by a two-thirds majority vote of the electorate. Although the voting requirement makes special taxes more difficult to implement than fees, it also offers broader application with regard to the activities or facilities that can be funded.

Special taxes can be used to service a range of debt instruments such as limited obligation bonds and certificates of participation. Special taxes cannot service general obligation debt because

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such debt can only be funded by property taxes. In cases where an existing tax is levied, no voter approval is necessary if the existing special tax revenues are used for facility provision.

The Brooktrails Township annually levies a fire tax which is currently used for fire services. This source could be used to fund new fire facilities. The tax rate is fixed at $45 per year for single-family residences. If the full amount were pledged to debt service, the maximum amount that could be financed would be roughly $1.8 million if levied on 4,000 SFRs. This would more than fund the cost of the fire stations, vehicles, and equipment. The special fire tax is presently used for operations. If the District chooses to use the tax for capital expenditures instead, it may wish to establish an additional fire assessment so as to maintain adequate revenues for operations.

Mello-Roos Community Facilities Districts
Mello-Roos special taxes are levied on land within a Mello-Roos Community Facilities District. The tax can fund the capital costs of most types of public facilities, or operating costs for a more limited group of services including facility operation and maintenance expenses.

Given that the Mello-Roos taxes are voter-approved, there is greater flexibility in the items that can be financed and the manner of apportionment relative to other mechanisms such as assessments or fees. The tax can be levied on the basis of physical property characteristics (e.g., lot size, acreage, building size) or other criteria that do not necessarily have to relate the tax levy to benefits received from the facilities to be funded. In practice, however, tax levies are related to impacts or benefits. The tax may not be directly based on assessed property value or directly related to property income or retail sales. Almost all facilities that a local agency is authorized to construct and own can be paid for by Mello-Roos special taxes. In this respect, Mello-Roos special taxes are similar to special assessments, though they are more flexible because they can finance facilities that have more general area of benefit. Special assessments are limited to facilities that impart direct benefits to the properties assessed.


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The method of allocation can be tailored to local circumstances. For example, vacant land can be taxed at a lower rate than developed land where the tax would create an undue burden on undeveloped parcels. This feature of Mello-Roos financing may be attractive to developers and property owners who would otherwise have to pay impact fees or incur the full cost of exactions in order to develop their property. In essence, the Mello-Roos special tax can be used as a means to finance impact fees at tax-exempt interest rates.

If a Mello-Roos district has 12 or fewer voters, then the landowners may approve the special tax levy by a two-thirds vote based on acreage. If the district has more than 12 voters, then the levy must be approved by a two-thirds majority of those voting. The voter approval requirement greatly inhibits the ability of local government to use Mello-Roos in existing developed areas. The ability to have a landowner vote, on the other hand, makes Mello-Roos districts attractive in areas composed of a few cooperative landowners. Boundaries of Mello-Roos districts also need not be contiguous. This is of interest to Brooktrails where the District may wish to establish a financing district including only undeveloped parcels which may or may not be next to each other. Given the long build-out period, Brooktrails might consider taxing undeveloped parcels at a lower rate.

Facilities can be financed by the sale of Mello-Roos special tax bonds, and serviced by annual special taxes levied against real estate in the District. Mello-Roos special taxes provide a reliable source of revenue which can be adjusted annually to within the maximum tax established at the time of district formation. The two-thirds vote requirement may be an obstacle for district formation when there are many residents or property owners. Aggressive use of Mello-Roos financing in some parts of the state have led buyers to be wary of properties encumbered by special taxes. For this reason, developers and public officials often prefer to use assessment districts instead, since they seem to be more acceptable to home buyers.

Mello-Roos districts also may be used to finance impact fees, whereby special taxes are paid over time in lieu of a lump sum fee at the time of development. This approach can be used in much the same way as a formula taxing undeveloped parcels at a lower rate. Development

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triggers the impact fees which, in turn, initiates the special tax. This enables the creation of expandable districts where benefit areas extend beyond the parcels initially included in a District. An expandable Mello-Roos district may delay issuance of bonds until the pool of property owners grows large enough to generate a sufficient cash flow to service debt.


Redevelopment
Redevelopment project areas are designated in blighted areas to concentrate public investments and cause an increase in economic activity that otherwise would not have occurred. Formation of a project area results in the ability of the sponsoring jurisdiction (in the case of Brooktrails, Mendocino County would be the sponsoring agency) to capture increases in property tax revenue to fund capital improvements and other costs within the project area. Redevelopment tax increments can be used for most public facilities located in the project area to help ameliorate the blighted conditions. Tax increments can be used to service bonds as well. It is particularly useful where improvements are of benefit to existing developed areas. For example, it is conceivable that redevelopment could be used to fund the Sherwood Road improvements, and perhaps even the additional access routes, insofar as lack of access constitutes a public safety issue.

Tax increment financing represents a diversion from otherwise general fund revenues of one or more taxing agencies. Under the present fiscal climate, it is questionable whether Mendocino County, or other taxing agencies, would be willing to forego future tax revenues from Brooktrails to fund local improvements. The redevelopment law also restricts the amount of vacant land that can be included in a redevelopment area. Given recent scrutiny of the criteria used to establish redevelopment areas, and the amount of vacant land in Brooktrails, creation of a redevelopment area to fund improvements could be problematic.

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Infrastructure Financing District
A comparatively new funding source that may be of interest to Brooktrails is the infrastructure financing districts (IFD). The IFD was added in 1990 and commences with Government Code Section 53395. Resembling redevelopment, IFDs allow property tax increments to be used to fund public works of community-wide benefit. Revenues can be used directly on a pay-as-you go basis, or be used for debt service on bonds. Unlike redevelopment, IFDs are limited in their revenue diversion from only the sponsoring jurisdiction. Thus, if Brooktrails were to form an IFD, only the District's share of the property tax increment would need to be pledged. The intent of the legislation is for IFDs to be formed in substantially undeveloped areas, giving rise to large increases in property taxes as development takes place. Areas need not be contiguous, such that an IFD could be formed to include some or all undeveloped parcels in the Township.

The principal advantage of an IFD is that it does not impose a financial burden on the property owners. To take best advantage of assessed value increases, an IFD should be formed sooner rather than later. The formation process is somewhat involved, requiring public hearings and a vote both for formation and bond issue. Brooktrails' water, sewer, circulation improvements, and possibly fire stations could be financed in this manner. The primary disadvantage is that the IFD represents a diversion of revenue from the jurisdiction's general fund. If some of Brooktrails' property tax revenue were used to fund infrastructure under an IFD, it would want to make sure it had other revenue sufficient to fund ongoing services and operations.

State and Federal Grants
State and federal grants are made available through a wide variety of programs. Brooktrails may be able to secure a Federal Clean Water grant which it could use to fund some of the cost of the water treatment expansion needed for growth. Some grant programs are competitive while others are based on population or some other measure of need. The amount of discretion afforded the local agency over use of the grant also varies widely among programs.

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The applicable state or federal agency awards the grant according to established criteria to fund a particular type of facility. In addition, the legislative body of the local agency receiving the grant must agree to the terms of the grant. Grants are not appropriate for long-term financing because they are one-time and do not generate a recurring cash flow. Given the time line for development at Brooktrails, however, the District may have success in obtaining future grants, thus reducing the amount of funding for improvements generated locally through fees, assessments, and/or taxes.

User Charges
User charges are paid by the beneficiaries of a service to fund capital and/or operations and maintenance costs. Presently, Brooktrails Township relies on water, sewer, golf course, and other service charges for roughly one-third of the District's budget. These can be used to fund capital improvements, including debt service on revenue bonds and lease payments on certificates of participation. The governing agency authority sets rates and charges which are sufficient to pay both operating expenses and service the debt for capital expenditures. Increases in user charges can generally be made on an "as-needed" basis by the Township Board of Directors. No voter approval is necessary, though the Board members have an interest in maintaining rates within a range acceptable to their constituency.

As noted, user charges could be used to fund debt service on revenue bonds for large capital expenditures. The District could seek to raise user charges as an alternative to assessments. From an economics standpoint, however, there would be little difference in the cost to the rate payers. Regardless of the method used, the ongoing charges to fund a particular level of capital improvements would be the same.

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Standby Charges, Connection Fees, and Capacity Charges
Conceptually, standby charges, connection fees, and capacity charges are similar to development impact fees (discussed above) because they charge new development for the cost of facilities it requires. These charges are separated out here because they are most often used in association with utility systems (e.g., sewer, water, and electricity) and subject to somewhat different standards and calculation methodologies.

Whereas impact fees are often used to fund new facilities, standby charges, connection fees, and capacity charges are often used to reimburse the local jurisdiction for existing capacity available for new development. These charges are fees based on new development's fair share of the net cost of existing facilities. Consequently, the fees must be net of depreciation and any subsidies, grants, and other intergovernmental transfers.

Standby charges are typically assessed on undeveloped property. The utility has sufficient capacity to serve the property so the property should participate in the cost of capital improvements necessary to make that service available. Standby charges typically are assessed on an acreage, or a parcel basis for those parcels less than an acre. They need not be precisely related to the use of the service. Brooktrails currently levies a water standby charge on undeveloped property to reflect the cost of existing facilities. The charges could be revised accordingly as the Township continues to expand capacity.

Connection fees and capacity charges recover costs of the capacity required for new service. These types of fees are similar to impact fees in that a benefit must be demonstrated. Such charges are typically used to reimburse the local jurisdiction for the construction cost of the facilities. Brooktrails levies connection charges at the time water service is established. The level of the charges would be revised according to the cost of the improvements funded in this manner.

The types of facilities typically financed with these types of fees include capital improvements for sewer, water, and electricity services. Standby charges, connection fees, and

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capacity charges are approved by the governing board of the service provider which, in this case, is the Brooktrails Township Board of Directors. Similar to impact fees, connection fees and capacity charges are usually collected when building permits are issued. Standby charges may be levied annually on undeveloped land. Fees may be used in conjunction with other mechanisms permitting debt financing to fund large projects, though the District must be prepared to fund debt service with other revenues if fees are insufficient. The ongoing capital items could be funded in part through standby charges as a complement to connection or development fees. Particularly under circumstances where development fees may not be sufficient to fund short term projects, standby charges could be employed.

Capital Cost Allocation
Before proceeding with the financing scenarios, capital costs are allocated to various groups of parcels in the township on the basis of facilities demand and suitability to the financing methods under consideration. Table 11.3-1 shows the capital expenditures described in Section 11.1 and their costs in 1995 dollars. The expenditures are placed into pay-as-you-go and debt financed categories in anticipation of the calculations in scenario 1, below. Scenario 2 relies on fees to fund all of the improvements, such that the distinction between pay-as-you-go and debt financed categories is immaterial. Still, the costs, timing and allocations in the table apply to scenario 2.

The financing scenarios presented assume that funding responsibility would be divided appropriately between existing and new development. Specifically, Sherwood Road improvements, and access routes will serve all development, existing and new, providing convenience and emergency access above what exists today. The remaining improvements, such as the expanded water supply, sewer, intersection improvements, fire and other district capital, will be needed to serve growth; therefore, new development is assigned the entire cost of these improvements.

A further distinction is drawn between new development occurring from the present 1,350 SFR level until the 2,000 SFR limit on the capacity of the existing water and sewer infrastructure is reached, and new development occurring after 2,000 SFRs. Except for roads, the existing

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Table 11.3-1

Cost Allocations and Methods of Financing

Brooktrails Specific Plan Economic Analysis

SFR Applied to
Level of SFRs of New Existing
Growth Percent to Growth Develop- Develop-
Needed Growth Starting at ment Share ment Share Total Cost

PAY-AS-YOU-GO
Sherwood Road
Improvements
1,500 66% 1,350 $331,000 $169,000 $500,000
Sewer Mains Stage 1 2,000 100% 2,000 600,000 0 600,000
Additional Station # 1 2,000 100% 2,000 94,000 0 94,000
Fire Vehicles #1 2,000 100% 2,000 233,000 0 233,000
Maintenance Shop 2,000 100% 2,000 150,000 0 150,000

Intersection
Improvements
Stage 1
2,500 100% 1,350 250,000 0 250,000
Fire Vehicles #2 2,500 100% 2,000 82,000 0 82,000
Sewer Mains Stage 2 3,000 100% 2,000 500,000 0 500,000
Water Treatment Stage 2 3,000 100% 2,000 374,000 0 374,000
Fire Vehicles #3 3,500 100% 2,000 167,000 0 167,000

Intersection
Improvements
Stage 2
4,000 100% 1,350 375,000 0 375,000
Additional Station #2 4,000 100% 2,000 74,000 0 74,000
Fire Vehicles #4 4,000 100% 2,000 232,000 0 232,000
Treated Storage
Tanks
Ongoing 100% 1,350 1,497,000 0 1,497,000
Sewer Treatment
Capacity
Ongoing 100% 1,350 3,900,000 0 3,900,000
Other District Capital Ongoing 100% 1,350 6,625,000 0 6,625,000
Subtotal $15,484,000 $169,000 $15,653,000

DEBT FINANCED
2nd Access 1,500 66% 1,350 $1,866,000 $950,000 $2,816,000
Wells 2,000 100% 2,000 249,000 0 249,000
Dam Work Preliminary 2,000 100% 2,000 1,656,000 0 1,656,000
Dam Construction 2,500 100% 2,000 6,625,000 0 6,625,000
Water Treatment
Stage 1
2,500 100% 2,000 299,000 0 299,000
3rd Access 3,500 66% 1,350 2,488,000 1,267,000 3,755,000
Subtotal $13,183,000 $2,217,000 $15,400,000

TOTAL $28,667,000 $2,386,000 $31,053,000
Source: Brooktrails Township CSD; Fehr & Peers; Brooks & Vogel; Town Hall Services

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facilities with minor additions can accommodate growth up to 2,000 SFRs. Accordingly, the circulation improvements and ongoing items are assigned to all development above the present 1,350 SFR level. Water supply is the most pressing constraint, though sewer and fire facilities are scheduled for expansion as development passes 2,000 SFRs as well. Since these expansions are needed to serve growth above the 2,000 SFR level, the corresponding new development is assigned responsibility for their cost.

The financing plan presented here is also premised on developing parcels paying the full amount of their share of the costs. The District could choose to cover some costs from sources other than levies on undeveloped lots. Financing sources listed above, use charges, redevelopment, and the infrastructure financing district, as well as general District resources, could supplement the funding derived from new development. If these were used to any measure, the actual levies on new development would be lower than the calculations show in the scenarios below.

Financing Scenario 1
As noted above, the infrastructure required to serve growth falls into two categories with respect to timing and funding of the costs. First are the items that are suitable to finance on a pay-as you-go basis, typically through development fees; these are shown in the first portion of Table 11.3-1, above. These items can either be expanded incrementally, such as water storage tanks, or are of comparatively low cost such that it would be unnecessary to issue debt. The second category of facilities will require large one-time expenditures. For example, the dam construction will require roughly $6.6 million expended over only a few years. Large capital items, such as the access routes or the dam, are typically financed through debt issuance. Where the improvements are for the purpose of upgrading infrastructure or accommodating growth, the debt is typically secured through assessments or special taxes levied on the benefitting parcels. Pay-as-you-go and debt financed components of scenario 1 are discussed below.

Pay-as-you-go financing
Fees paid at the time of development are envisioned as the principal method of funding the pay as-you-go items shown above in Table 11.3-1. The specific fee levied could be in any of several

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different forms, including connection charges, impact fees, as well as one-time assessments or special taxes. The specific method, however, is secondary in that project costs and the resulting charges to new development will be the same regardless of the particular authority used as the basis for the levy.

For the purposes of this analysis, a single fee amount is calculated to fund the pay-as-you-go items. Though shown in 1995 dollars, the actual fee would increase annually according construction cost inflation. Projecting forward the historical rate of development of roughly 40 SFRs per year results in a 67-year growth period during which the improvements would be added. It should be noted that spreading the fee revenues over years does not require that infrastructure construction take place precisely at the same pace. As a general rule, a jurisdiction can delay allocating fee revenues up to five years from the time of collection. Once allocated, however, expenditures may be delayed for a longer period of time to allow balances to accumulate. Interest on the earnings can also be used to fund the improvements. Similarly, to the extent that the fee fund balance is insufficient to fund capital requirements in a given year, the District could advance construction funding from other funds, engage in short term borrowing or issue debt, such as certificates of participation, to be paid from subsequent years' fee revenues. In fact, some borrowing will be necessary to match Brooktrails' fee revenue stream with the capital schedule. In particular, the improvements needed at 2,000 SFRS will require the Township to carry a balance for several years until fee revenues can accrue for full reimbursement.

Table 11.3-2 summarizes the fee calculations for new development, envisioning a two tier fee structure. Categories are shown for all new development from 1,350 SFRs on, and for new development occurring after 2,000 SFRs. The costs and fees for new development beyond 2,000 SFRs are inclusive of the costs to serve all growth. Fee-funded costs to serve all growth beyond 1,350 SFRs totals $12.98 million, and is spread across the remaining 2,650 SFRs that can be developed to reach the 4,000 SFR growth maximum. These costs amount to $4,897 per SFR. Additional fee-funded improvements totaling $2.5 million will be required to serve growth

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Table 11.3-2

Capital Facilities Fee, Financing Scenario 1

Brooktrails Specific Plan Economic Analysis

Fee Total
All New Development New Development
CAPITAL COST PER SFR Development 2,000-4,000 SFRs 2,000-4-000 SFRs
Fee Funded Costs $12,978,000 $2,506,000
New Development SFRs 2,650 2,000
Cost per SFR $4,897 $1,253 $6,150
FEE PER SFR
Capital Cost per SFR $4,897 $1,253
Interest Cost per SFR $43 $392
Fee pe r SFR $4,941 $1,645 $6,586
Source: Town Hall Services


beyond 2,000 SFRs, adding costs of $1,253. Development beyond 2,000 SFRs would still be responsible for funding their share of the costs allocated to all growth, such that the total costs allocated to the later group of development would total $6,150. The cost allocation is shown in the first half of the table.

As noted above, some measure of borrowing will still be required to match the fee revenue stream to the timing of improvements. In particular, the capital items needed at 2,000 SFRs will certainly require some form of borrowing. Accordingly, interest is included in the calculations. The calculations also take into account any interest that would accumulate during any years when the fee fund has a positive balance. The difference between the cost per SFR and the facilities fee is a result of borrowing required for timely provision of the larger capital projects funded through fees.

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All new development above 1,350 SFRs would pay a fee of $4,941. Development occurring after 2,000 SFRs would pay an additional $1,645, bringing the total for the later development to $6,586.

The fee calculations shown here are intended to provide an estimate of the additional costs the District may levy on undeveloped parcels at the time development takes place to provide the infrastructure envisioned under the Specific Plan. At such time as the District is prepared to impose additional fees, it will prepare any additional documentation required by the legal authority under which any such fees are levied. The District should review the costs underlying the existing fee structure to insure that they do not overlap with the costs of growth identified in the Specific Plan. In the event that there is overlap between the existing and proposed fees, and appropriate adjustment would be necessary.

Debt Financing
Some of the infrastructure projects will require sufficiently large one-time expenditures that it would be difficult to finance them on a pay-as-you-go basis. Specifically, the access routes and the dam will require outlays of several million dollars. Accordingly, it is anticipated that construction of these items will be financed through the sale of long-term bonds.

A number of financing techniques can be used to issue debt. For the purposes of this analysis, it is assumed that assessment districts would be formed to fund the improvements needed for growth in Brooktrails. Assessments are appropriate for the types of improvements to be financed in a setting with a large number of property owners. Even if other methods, such as Mello-Roos or revenue bonds, were employed, the costs to the owners of undeveloped property would be essentially the same, since the underlying financial parameters would be much the same.

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Table 11.3-3

Bond Financing Assumptions

Brooktrails Specific Plan Economic Analysis

SFR Level of Development 1,500 2,000 2,500 3,500

Dam
Wells Construction
Preliminary Water Treatment
Items Financed 2nd Access Dam Work Stage I 2nd Access
Year Issued 1 1998 2011 2023 2048
Bond Term, Years 30 30 40 30
Project Cost, 1995 Dollars $2,816,000 $1,905,000 $6,924,000 $3,755,000
Project Cost, Future Year Dollars 2 $3,168,000 $3,568,000 $20,763,000 $30,018,000
Bond Amount 3 $3,326,000 $3,746,000 $21,801,000 $31,519,000
Annual Debt Cost,
Future Year Dollars 4
$296,000 $333,000 $1,818,000 $2,802,000

1 Assumes 40 SFRs developed annually.
2 Based on projected annual cost inflation of 4.0%.
3 Includes issuance cost of 5.0% of project amount.
4 Assumes interest rate of 7.5% and includes administration cost of 5.0% of debt service.

Source: Town Hall Services

Bond Issues

Financing parameters are shown in Table 11.3-3 for each of the development thresholds at which bonds are projected to be issued. At 1,500 SFRs, or about year 1998 at current rates of growth, financing for the second access route would be needed. Wells and preliminary dam work are projected to be financed at 2,000 SFRs, or around year 2011. Dam construction plus water treatment facilities would be financed at 2,500 SFRs, or around year 2023. The third access route is scheduled for construction at 3,500 SFRs, which may not be until around year 2048.

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To determine the debt costs, the 1995 capital costs are inflated to future year dollars for the years in which the infrastructure projects would be constructed. This analysis assumes a 4.0 percent inflation rate. The bond amounts shown in Table 11.3-3, also in future year dollars for the year in which bonds are issued, includes a 5 percent allowance for bond issuance costs. Debt service is calculated assuming 7.5 percent interest, currently typical for assessment or Mello-Roos bonds issued to fund capital improvements. Amortization periods are for 30 years, except for the third bond, issued at 2,500 SFRs, which is scheduled for a 40-year term. The sponsoring agency will also incur some costs relating to ongoing administration of the assessments. An administration allowance of 5.0 percent of debt service is added to the debt service to arrive at the total annual debt cost. Again, the debt costs are in future year dollars, reflecting infrastructure cost levels at the time each of the bonds are issued.

Cost per SFR
Table 11.3-4 summarizes the annual debt cost and cost per SFR for the four bond issues. As noted above, all residents of the Specific Plan area will benefit from the additional access routes, whereas the water improvements are related to capacity for growth above 2,000 SFRs. Accordingly, the costs of the access routes will be allocated districtwide, and shared by all parcels in the Specific Plan area. The water-related improvements, on the other hand, are allocated only to parcels developing after the 2,000 SFR existing water capacity is reached.

pg-11.3-20

Table 11.3-4

Debt Cost per SFR

Brooktrails Specific Plan Economic Analysis

SFR Level of Developement 1,500 2,000 2,500 3,500

Water Water Circulation
Circulation New
Development
New
Development
Improvement
Method of Allocation
District
Wide
Over
2,000 SFRs
Over
2,000 SFRs
District
Wide

First Year of Debt Service 1999 2012 2024 2049
Debt Cost in First Year $296,000 $333,000 $1,818,000 $2,802,000
SFRs Sharing in Debt Service 5,880 3,490 3,130 4,380
Cost per SFR, Future Year Dollars $50 $95 $581 $640
Cost per SFR, 1995 Dollars $43 $49 $186 $77

Source: Town Hall Services

The table shows the first years of debt service, assuming the historical rates of growth, and the dollar amount of the debt cost in that year. Also shown are the number of SFRs sharing in the annual assessments in the years in which each of the bonds are issued. The per-SFR allocation is calculated in light of the development reduction required to achieve the maximum level of growth of 4,000 SFRs considered in the Specific Plan. Assuming that development continues at the historical rate of 40 SFRs per year, it will be necessary to reduce the number of outstanding development rights by a corresponding average of 30 SFRs per year. This includes reduction through voluntary measures, or attrition, as discussed in Section 11.2. The SFRs shown sharing in the circulation costs represent all parcels in the Specific Plan area (currently 6,000 SFRs), less development reduction. Water improvements will be shared by new development SFRs above 2,000 only, less future development reduction. For both the circulation and water improvements bonds, the number of SFRs sharing in the annual costs will decline over time as a result of development reduction activities.

pg-11.3-21

Costs per SFR are shown in Table 11.3-4 in terms of future year and constant 1995 dollars in the first year of debt service. The constant dollar circulation debt costs allocated to both new and existing parcels amount to $43 for the bonds issued at 1,500 SFRs, and $77 for the bonds issued at 3,500 SFRs in the years in which each bond is issued. Costs of the water improvements debt, issued at 2,000 and 2,500 SFRs, will be $49 for the preliminary dam work and wells, and $186 for the dam construction and first phase of water treatment.

There will be some overlap in the payment streams for the bonds. Thus, the actual annual assessments in a particular year will depend upon the actual timing of the bond amortization schedules. Figure 11.3-1 illustrates the annual per-SFR costs for the debt costs allocated district wide and to new development only. The lower (dashed) line shows the annual debt costs for the circulation improvements, which will be spread across existing and new development parcels and levied in two stages corresponding to the two access routes. The upper (solid) line shows the per-SFR costs applied to new development parcels over 2,000 SFRs, being the sum of the circulation costs levied districtwide and the water costs levied to new development over 2,000 SFRs only. Debt service would rise and fall in subsequent years as new debt is issued and old debt is retired. Under the scenario advanced here, all debt would be retired by year 2080.

Costs in Figure 11.3-1 are in constant dollars to permit comparison with today's price and income levels. Note that after each bond issue the costs per parcel decline. Debt service is a fixed dollar amount whereas incomes generally increase with inflation. Although there will be fewer parcels sharing in the costs over time due to the development reduction program, the net effect from general inflation will be a declining constant dollar annual cost.


pg-11.3-22 figure 11-3-1 Cost per SFR

Financing Capacity

A final issue concerning debt issues is financing capacity. If special tax or assessment bonds are used, buyers of bonds will require that the property against which debt is issued be of sufficient value to provide security in the event of nonpayment of annual levies. Typically, a value-to-lien ratio of roughly three- or four-to-one is used as a rule-of-thumb when measuring financing capacity; this means that land value should be at least three times the amount of the debt outstanding.

The average undeveloped lot value in Brooktrails is presently around $21,000. For the purposes of estimating financing capacity, the value is reduced by the amount of the outstanding or pending liens or fees against the land. Development fees associated with the pay-as-you-go items are projected to be about $6,600 for development beyond 2,000 SFRs. Average lot value net of additional fees anticipated under the Specific Plan is roughly $14,400.

pg-11.3-23

Financing capacity is calculated for the year in which the debt burden is the heaviest. This will occur in the years following construction of the dam in roughly year 2023. At this time, debt of roughly $8.0 million (in 1995 dollars) associated with new development parcels will be outstanding. This estimate excludes the first bond issue which will be nearly retired, but does consider the second and third bonds issued for the dam construction and allocated to growth above 2,000 SFRs. Under the development reduction assumptions, there would be around 3,150 new development parcels under private ownership subject to the second and third bond assessments around the time the dam is built. Allocating the debt among new development parcels sharing in the assessment results in a debt principal per parcel of around $2,500 per SFR. Comparing the outstanding principal per SFR with the land value net of fees of $14,400 indicates a debt ratio of over 5:1. This indicates more than adequate capacity to finance the needed improvements, even when the debt requirements are the highest.

This brief analysis of debt capacity should be regarded as highly conservative. First, it makes no accounting for real appreciation of property values which have historically risen faster than inflation. More significantly, the debt was compared to vacant lot value. Given historical rates of growth, by year 2023, around 1,120 of the presently unbuilt lots will have been developed, thus, adding considerably to the aggregate real value property, and corresponding debt capacity, in Brooktrails.

Financing Scenario 2
A second financing scenario is presented here to model the implementation of the Specific Plan if the improvements are financed entirely on a pay-as-you go basis using development fees paid at the time of development. This scenario is presented in light of the recent passage of Proposition 218 on the November 1996 ballot, which placed certain restrictions on the use of assessments as a means of financing public infrastructure. Since Proposition 218 does not place the same restrictions on fees, the fee-only scenario is included to address the possibility that Township might have to rely exclusively on impact fees to fund the projects under the Specific Plan.

pg-11.3-24

The assumpt ions and structure of the fee-on ly approac h are essentially the same as discussed under the pay-as-you-go section of Scenario 1. Referring back to Table 11.3-1, the projects shown under the debt-financed portion of the table are now included in the pay-as-you-go category. Table 11.3-5 summarizes the development fees under the fee-only scenario. As above, the projects are divided between those associated with all development above 1,350 SFRs and development above 2,000 SFRs. New development from 1,350 to 2,000 SFRs would be subject to a development fee $6,883 to fund the projects identified in the Specific Plan. Development beyond 2,000 SFRs would pay $15,183 at the time of development if only one-time fees were used to fund the infrastructure.

Table 11.3-5

Capital Facilities Fee, Financing Scenario 2

Brooktrails Specific Plan Economic Analysis

Fee Total
All New New New Development
CAPITAL COST PER SFR Development 2,000-4,000 SFRs 2,000-4,000 SFRs

Fee Funded Costs $17,332,000 $11,335,000
New Development SFRs 2,650 2,000
Cost per SFR $6,540 $5,668 $12,208
FEE PER SFR
Capital Cost per SFR $6,540 $5,668
Interest Cost per SFR $343 $2,632
Fee per SFR $6,883 $8,300 $15,183

Source: Town Hall Services

It is of particular interest to note the interest component of the fee charged to new development beyond 2,000 SFRs. The size and timing of the infrastructure expenditures at 2,000 and 2,500 SFRs, particularly the dam costing $6.6 million, will require that the Township obtain construction financing from other resources, since fee revenues will have not accumulated in

pg-11.3-25

sufficient amount to fund the dam by the time it is needed. Impact fee revenues would then reimburse the Township as they accrued.

As indicated by the interest component of the fee calculation, the amount of borrowing needed to finance the dam will be substantial. In fact, calculations in the financing model showed the fee fund running a deficit in nearly all years, with full payback taking place only as the Township approaches buildout. The fee fund deficit reaches a peak of about $5.8 million in 1995 dollars around the time the dam construction takes place. Given the level of fee fund deficit it is questionable whether development fees are a viable exclusive basis to finance the major improvements.

Development to 5,000 SFRs
The Specific Plan has focused on a preferred growth alternative of 4,000 SFRs. In the event that new development exceeded 4,000 SFRs, the financing cost projections would change accordingly. As was discussed in the Capital Improvements section, some additional infrastructure would be needed if growth were to approach 5,000 SFRs. The added infrastructure, however, would be in the form of a larger capacity of the improvements already needed at 4,000 SFRS; no additional major projects would be constructed. Accordingly, the structure of the financing program applied to 5,000 SFRs would be substantially the same as described in this chapter for 4,000 SFRs.

As was also noted in the Capital Improvement chapter, the added growth from 4,000 SFRs to 5,000 SFRs would result in a lower cost per SFR due to economics in construction and capacity utilization. Under the 4,000 SFR scenario, the capital cost per SFR is estimated at $10,819. At 5,000 SFRs of development the per SFR cost is $9,732, or 90 percent of the cost under the 4,000 SFR scenario. This relationship would apply to the financing plan as well, resulting in a corresponding reduction of fees plus debt service allocated to new development.


pg-11.3-26

Brooktrails Property Tax
The level and value of development in Brooktrails will have a bearing on the assessed value in the Township, and will ultimately affect the taxing agencies that rely on property tax to provide public services. A brief analysis of property tax revenue potential in the Township is provided to indicate the revenue impacts of the 4,000 SFR scenario contained in the Specific Plan as compared with an unrestricted development scenario of 5,000 SFRs.

Table 11.3-6 shows the calculation of the average assessed value per SFR for the 4,000 SFR scenario studied in the Specific Plan, and a scenario assuming maximum development of 5,000 SFRs. Lot value is calculated in the first section of the table. Value of developable lots represents the average of lots that could be developed under either scenario. For the 4,000 SFR scenario, the $25,000 per SFR value reflects that lots in the lower range of districtwide values would be merged or restricted through conservation easements. The $20,700 value for the 5,000 SFR scenario is the average value of recent undeveloped lot sales. Infrastructure costs to support growth are subtracted from both scenarios . The net values, after deducting costs of development are about $14,200 and $11,000 for the respective alternatives.

Under the Specific Plan it is projected that development would rely largely on lot mergers or conservation easements to reduce the number of outstanding development rights. Although development rights on the merged or restricted lots would be retired, the lots would still have a residual value as private open space. A total of 1,730 lots are projected for merger or restriction under conservation easements. Residual value is assumed at $3,000, resulting in a $5.2 million residual value districtwide for lots falling under the development reduction program. Compared with the 2,650 SFRs developed under the Specific Plan, this amounts to a residual value of $1,958 per developing SFR districtwide. This calculation is presented in the second part of Table 11.3-6.

The third section of Table 11.3-6 combines all components of developed lot value. Undeveloped lot value net of capital costs and development reduction residual value are calculated above. The building value used here, $96,950, is the average assessed value for structures from the assessor's rolls for developed lots sold in the past three years. Accounting for all factors,

pg-11.3-27

developed values are projected at $113,100 and $107,900 for the 4,000 and 5,000 SFR scenarios, respectively.

Initially, assess sed value equals market value. Over time, inflation-adjusted assessed values tend to diminish as inflation has historically exceeded the annual 2% reassessment allowed by Proposition 13. The values shown in the table, therefore, represent values at the time of development or resale. Both the Specific Plan and 5,000 SFR scenarios would be subject to the same reassessment limitations, however, such that this would not affect their comparability.


pg-11.3-28

Table 11.3-7 shows the calculation of property tax per SFR, both in total and the share allocated to Mendocino County. Total property tax is multiplied by the maximum allowable one percent tax rate to arrive at the total assessment per SFR, which is further allocated among taxing agencies. Mendocino County receives the largest share of the property taxes generated in Brooktrails, about 28 percent. The county's allocation would be $316 and $302, respectively under the Specific Plan and 5,000 SFR scenarios, respectively, indicating a fiscal similarity per SFR between the 4,000 and 5,000 SFR levels of development under the assumptions of this analysis.


Table 11.3-7

Annual Property Tax Revenue per SFR

Brooktrails Specific Plan Economic Analysis
Specific Plan Scenario Development to
TOTAL ANNUAL PROPERTY TAX 4,000 SFRs 5,000 SFRs
Assessed Value per SFR $113,098 $107,918
Total Tax rate 1.0% 1.0%
Annual Property Tax Revenue $1,131 $1,079

COUNTY SHARE
Annual Property Tax Revenue $1,131 $1,079
County Share 28% 28%
County Revenue per SFR $316 $302

Source: Town Hall Services

Conclusion
The financing scenarios presented here are designed for illustrative purposes for the Specific Plan. Though a number of assumptions have been presented, the details should be regarded as preliminary at this time, particularly given the time horizon extending well into the next century. A number of issues must be addressed by the Brooktrails Township Board of Directors and the community before such a financing plan can be implemented. In practice, the financing plan

pg-11.3-29

will be implemented in stages, responding to level of growth and other circumstances at such time as the capital improvements are needed. At each stage, Brooktrails Township will make the appropriate adjustments to the facilities planned and financing arrangements in response to the needs at the time. Still, the new development can expect to pay for its share of the facilities required for growth, with charges taking the form of both fees and annual debt service assessments, in the order of magnitude outlined in this analysis (see also Chapter 7, Community Facilities and Services for implementing information regarding infrastructure).

This section has reviewed various sources of funding that the Brooktrails Township may consider to provide the capital improvements and equipment needed to serve growth. These have been structured into two financing scenarios designed to match the timing of the demand for capacity to a stream of revenues. In so doing, a number of assumptions have been advanced.

New development will be responsible for funding capital expansions needed to serve growth.

Existing development will pay a share of the circulation improvements.Capital expansions are separated into those financed on a pay-as-you-go basis and those financed through the sale of bonds.

Capital financed on a pay-as-you-go basis would be funded through development fees, whether in the form of impact fees, connection charges, or other appropriate one-time payments.

Bonds would be issued for major circulation and water projects when the level of development requires capacity additions.

Debt service would be paid through special taxes or assessments.

Development above 5,000 would reduce the per-SFR costs slightly, but would not change the structure of the financing plan.

The first scenario used a combination of fees paid at the time of fees paid at the time of development and assessment bonds issued at the time of construction of major capital projects. Development fees are estimated at $5,000 and $6,600 for development occurring before and after 2,000 SFRs.

pg-11.3-30

Assessments would peak at about $240 per year for new development above 2,000 SFRs for a few years after the dam is built. Over the buildout horizon, however, assessments would be considerably lower in most years. This scenario appears to be within the Township's financial capacity.

The second scenario relied entirely on impact fees to finance all of the improvements on a pay-as-you-go basis. If funded in this manner, fees for development over 2,000 SFRs would be around $15,200, including a substantial allowance for interest. Given the financial demands of the large capital outlays, it is questionable whether it is possible to finance the infrastructure entirely in this manner. Some borrowing will be required, and without assessments the District must find alternative sources for construction funding for the dam and other improvements. This raises the subsequent question of Brooktrails' Township CSD's capacity to support such a debt burden secured from its revenue base alone.

The recommendation of the Specific Plan is that Brooktrails pursue a financing plan modeled after Scenario 1, utilizing assessment bond financing to fund the major infrastructure improvements and fees to fund the smaller and ongoing items. However, the actual method of infrastructure financing is best determined closer to the point when funding is necessary for a specific project, and will depend upon specific project authority(County or CSD), overall project costs, laws in effect at the time of project financing initiation and preference of voters. The Specific Plan infrastructure shall not be financed in accordance with Scenario 2 as presented in this Chapter. Scenario 2 relies entirely on Development Fees to fund the Specific Plan infrastructure and estimates that Development and Connection Fees under that Scenario will amount to $15,200. Development Fees shall not be charged for those improvements that will be debt financed, as identified in Table 11.3-1, nor shall Development Fees be assessed for "Other District Capital"(which consist primarily of maintenance, administration, and "contingency" expenses) as indicated in Table 11.3-1. This does not prohibit specific improvements from being financed by specific fees.

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