Report to Mayor and City Council
Tuesday, April 02, 2019
Discussion
SUBJECT:
Title
CONSIDER ADOPTING RESOLUTION NO. 19-009, A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARSON ACTING IN ITS CAPACITY AS THE LEGISLATIVE BODY OF THE CITY OF CARSON COMMUNITY FACILITIES DISTRICT NO. 2018-01 (MAINTENANCE AND SERVICES) APPROVING ADMINISTRATIVE ANNEXATION PROCEDURES FOR FUTURE PROPERTIES WITHIN THE FUTURE ANNEXATION AREA BY UNANIMOUS APPROVAL AND ADOPTING THE CITY-WIDE TAX RATES)
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I. SUMMARY
On November 7, 2018, the City adopted Resolution No. 18-119 (the “Resolution of Formation”) to form CFD No. 2018-01 (“CFD”) for maintenance and services. This CFD also included a City-wide future voluntary annexation area. Certain projects that impose negative fiscal impacts on recurring City services now have the option to annex into the CFD with the approval of their property owner.
Staff is recommending adoption of Resolution No. 19-009 (“Resolution”) (“Exhibit No. 1 which has two primary purposes: (1) to adopt a uniform procedure for annexing future properties into the CFD administratively at City Staff level, and (2) to adopt uniform tax rates based on land use categories and zones established under the Fiscal Impact Analysis, dated March 2019 (the “FIA”), prepared by NBS Government Finance Group (“NBS”) for the CFD:
(1) Uniform Annexation Procedures: This component of the Resolution approves the use of the “Unanimous Approval Letter” to allow property owners of new projects to annex their property into the CFD with City Staff approval so long as conditions specified in the Resolution are met. To be eligible for administrative annexation, properties must meet qualifying criteria (“Qualifying Projects”), which includes new construction, and/ or significant demolition (in relationship to project site) and redevelopment of industrial projects and residential projects that are five (5) units or more. Industrial projects involving building additions that increase on-site square footage by 100% or more also qualify. In order to annex the property into the CFD, the property owner must submit a signed Unanimous Approval Letter and agree to the City-wide tax rates established under the FIA prior to issuance of any building permits.
(2) FIA City-wide Tax Rates: The City-wide special tax rates proposed is based on the FIA report. Projects opting to annex into the CFD may be annexed administratively at staff level under the established City-wide tax rates or alternatively can opt for a different rate subject to City Council approval. The City-wide tax rates are as follows for the 1st year, Exhibit No. 3:
On each July 1, commencing on July 1, 2020 through and including July 1, 2024, the Maximum Special Tax Rate for Tax Zone No. 4 shall be increased by 7%. On each July 1, commencing on July 1, 2025 and thereafter, the Maximum Special Tax Rate for Tax Zone No. 4 shall be increased by the percentage change in the November annualized Consumer Price Index for Los Angeles-Long Beach-Anaheim for all Urban Consumers, the Tax Escalation Factor for Tax Zone No. 4.
II. RECOMMENDATION
Recommendation
TAKE the following action:
WAIVE further reading and ADOPT Resolution No. 19-009, “A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARSON ACTING IN ITS CAPACITY AS THE LEGISLATIVE BODY OF THE CITY OF CARSON COMMUNITY FACILITIES DISTRICT NO. 2018-01 (MAINTENANCE AND SERVICES) APPROVING ADMINISTRATIVE ANNEXATION PROCEDURES FOR FUTURE PROPERTIES WITHIN THE FUTURE ANNEXATION AREA BY UNANIMOUS APPROVAL AND ADOPTING THE CITY-WIDE TAX RATES”
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III. ALTERNATIVES
TAKE any other action the City Council deems appropriate.
IV. BACKGROUND
The CFD was formed to mitigate the negative fiscal impacts on municipal services associated with new projects. Unlike Development Impact Fees which provide initial infrastructure costs only, CFD fees are intended to pay for supplemental municipal services provided to the new developments. As permitted by the Act, CFD may provide one or more of the following eligible services to new projects:
§ Law enforcement services;
§ Street sweeping / Sidewalk cleaning and maintenance;
§ Maintenance of parks, parkways and open space;
§ Maintenance of roadways;
§ Flood and storm protection services; and
§ Other eligible services permitted by the Act.
Based on the City’s status as a low-property-tax City, new development exacerbates the current strain on the City’s budget to provide municipal services. The CFD is one financing tool to bring in new revenue sources needed to fund the required additional and enhanced services. To provide a streamlined process to annex new properties into the CFD, a uniform annexation procedure is being recommended.
Due to an influx of new proposed development projects, including 1,470 multiple family dwelling units; 810,000 square feet of commercial; 68,360 square feet of office; 1,073,280 square feet of industrial/business park; 2,187 truck yard spaces; 247 hotel rooms; 599,000 square feet of recreational development and 300 dormitory rooms in the next few years, the City must consider strategies for maintaining and improving current services in response to incoming developments that reflect economic growth but also place demands on City services. Without a CFD, the City will not be able to sustain its existing level of services due to Carson being a very low property tax city, meaning it had no local property rate in the three years preceding the adoption of Prop. 13 in 1978, and therefore, has a permanently small share of the 1% property tax allowed by Prop. 13 compared to other cities (6.75%). In addition, the City’s assessed property values have not increased at the same rate as neighboring cities in part due to the heavy industrial presence in the City of petroleum and other industrial and manufacturing uses, resulting in slower property tax revenue growth. Carson also has one of, if not the lowest, utility user’s tax in the region, with a sunset clause. Prior to the 1950s the County of Los Angeles allowed cities to incorporate as full property tax cities; Carson incorporated in 1968 and was required to accept low property tax status in order for the County to agree to city formation. Although many cities use property and utility user’s taxes to fund City services, the low tax property tax and low utility user’s tax rates in Carson amplify the City’s fiscal challenges. While Carson was long able to rely on redevelopment revenues to fund capital costs in the City, the State’s decision in 2011 to terminate redevelopment agencies has stripped the City of those revenues.
Conditions of the Uniform Annexation Procedures
The Resolution (“Exhibit No. 1”) qualifies any projects that are likely to impose negative fiscal impacts to City services as eligible to be annexed into the CFD. Projects include but are not limited to the following: logistic facilities, industrial projects, and residential projects that are 5 units or more. Due to the economy of scale and the administrative burden of annexations, residential projects less than 5 units are not qualified for annexation under this Resolution. Commercial projects also do not qualify because the FIA demonstrates that these projects do not impose net negative fiscal impacts on the City budget.
The streamlined application process as provided by this Resolution for CFD annexation process is conceptually proposed to be as follows:
1. A developer submits a development application with the City and pays required application fees;
2. Upon City review, the proposed project is identified by staff as a Qualifying Project (as defined in the Resolution) which would require additional and enhanced services by the City;
3. Qualifying Project voluntarily selects the CFD process to fund additional City services and agrees to the FIA rates established under this Resolution;
4. Qualifying Project submits a Unanimous Approval Letter signed by the Property Owner prior to building permit issuance or by the timeline specified in the project’s conditions of approval along with any and all applicable fees to the City;
5. Within 15 days after step #4, staff and consultant prepare the supplemental map and amended notice of special tax lien for recordation against the Property; and
6. Each July, staff and consultant will submit to LA County Auditor Controller’s Office information on CFD annexed properties for taxes to be collected from the subsequent December and April property tax bills.
Projects likely to impose negative fiscal impacts to City services may elect to fund their required services using an alternative financing approach in lieu of annexing in the CFD. However, an alternative financing approach does not fall under the purview of this Resolution and would require the approval of the City Council.
Fiscal Impact Analysis Report
Additional Services - Net Impacts
To quantify the financial impacts of new projects onto City’s current financial resources, the City contracted NBS to prepare the FIA report (“Exhibit No. 2”). The FIA provides a comprehensive review of the net fiscal impact that would be placed upon the City based upon the potential future development or redevelopment throughout the City. The FIA examines the estimated increase in revenue and expenditures (“net impact”) on City services as a result of additional service demands from new projects that are proposed to be annexed into the CFD. This is accomplished by estimating the increase in revenues and expenditure to the City based on projected population growth using the Southern California Associations of Governments (SCAG) 2040 Local Profiles Report for Carson, dated May 2017. For revenues, the FIA report looked at all estimated permanent revenue sources such as property and sales tax from projected development and future growth over the next twenty years. For expenditures, estimates were then derived from the City’s adopted fiscal year 2018-2019 budget to cover all costs of providing City services. The net impact amounts (revenue minus expenditure) is then allocated on a per person basis and converted into the appropriate land use categories using industry standards. The net FIA impacts are as follows:
Table 2.0 shows the fiscal impact of future development by land use category per the FIA. As seen above, commercial and industrial projects overall generate positive impacts on the City budget. Residential projects impose negative fiscal impacts. These fiscal impacts figures show the net impacts of providing additional services for new development. The costs are additional services in that these services were never required because the development did not exist before. The additional level of service is comparable to current level of service provided to existing developments in the City.
Enhanced Services - Total Net Impacts
In addition to the studying net impacts, the FIA also examines the revenue required to enhance City service levels of certain functions, above and beyond standards currently in place, for the categories of roadway, sidewalks, and parks maintenance services. Enhanced Services are services that go above and beyond current City standards. The rates proposed under the Resolution, also shown in Table 1.0 above, incorporated the enhanced service costs. The total cost to enhance each service relied on estimates from applicable studies which includes the following: (1) January 2017 NCE Pavement Management Program Report for roadways, which concluded a $9 million annual shortfall in deferred road maintenance cost; (2) May 2017 NCE Citywide Sidewalk Assessment Report for sidewalks, which concluded a $11.5 million shortfall (3) and the LA County Parks Assessment Needs Study for Carson. The one-time maintenance cost for sidewalk and parks enhancements were amortized over a twenty-year period.
$9 Million Annual Deferred Road Maintenance Shortfall Discussion: It is important to note that new developments would not be paying for the City’s entire deferred road maintenance or enhanced roadway services annual cost of $9 million. New developments are only paying for their proportional share of the total $9 million enhanced roadway services costs. Of the $9 million annual roadway services costs, approximately $6.8 million of the roadway costs are allocated to the total City-wide future development. The remaining $2.2 million of the roadway costs are related to future industrial roadway impacts identified within zone specific areas of the City, described further in the subsequent industrial sections. These specific industrial costs are allocated to future industrial development only. The proposed CFD special tax rate attributable to enhanced roadway services is based upon the total future City population, and is not based upon the future population increase from the developments alone. The Enhanced Roadway Services within Section 7 of the FIA analysis provides specific details for the allocation and assignment of the enhanced roadway costs attributable to each of the land uses.
Each property will be subject to their proportional share of enhanced roadway costs when the property is annexed into the CFD. Upon annexation, the property will be subject to their proportional share of the enhanced roadway costs only. Existing development that does not annex to the CFD will not be subject to the special tax. Since the enhanced roadway costs are based upon the total future population of the City, future development is not bearing the full cost of the total $9 million enhanced roadway budget. Future development is only responsible for their allocated portion of the total $9 million enhanced roadway budget.
Exhibit No. 4 to the staff report provides the detailed breakdown of the $9 Million Annual Road Maintenance Methodology.
FIA Rates (without Administration or Discount Factor)
• Commercial ($0 per acre): Even when considering the costs to provide enhanced services to commercial projects, the net impact is positive on the City budget. The FIA found that commercial generate on annual $13,389 per acre to the City, and for that reason, the recommended CFD rate is zero. The primary reason is this positive impact is because commercial uses generate high revenue levels from sales tax.
• Residential: Residential projects impose net negative fiscal impacts due to low tax rates and high expenditures due to the demand for services. The FIA distinguishes two types of residential development: (1) Residential Projects Studio/apartment and (2) Residential Projects - All Other.
Residential Projects Studio / Apartment ($562.98 per unit) - Assumes a person per unit household size of 2.0. Projects under this category consist of 1 bedroom or less (studios).
Residential Projects All Other ($955.55 per unit) - Assumes a person per unit household of 3.6. Projects under this category are defined as 2 bedroom or more.
Projects that have a blend of the above two project types would be responsible for mitigating their respective share of impacts. For example, if a project comprise of 100 units, 50 units of which are
“2 bedrooms or more” and the other 50 units which are “1 bedroom or less”, the property owner would be responsible for paying 50% at the “Residential Projects All Other” Rate and the remaining 50% at the Residential Projects Studio / Apartment rate.
Industrial: In general, industrial projects have positive fiscal impacts. However, after factoring in the cost of enhanced service levels, the total net impacts of industrial projects are negative. A pro-rata cost of enhanced road conditions are passed thru to industrial projects because these projects have a great impact on the roads. The FIA distinguishes three categories of industrial developments: (1) General (2) Zone #1, and (3) Zone #2. These categories are created to better capture true impacts of projects based on location, Exhibit No. 3.
The City’s Traffic Engineer calculated the total number of trips generated at buildout of the City. He used industry standards to calculate the total number of trips generated at year 2040 (City build out) and also determined that 5% of total trip generated from commercial development are from trucks and 20% of total trip generated from industrial development are from trucks. Therefore, the total number of truck trips generated in the City at buildout is estimated to be 10,700. Research indicates that a single truck trip is equivalent to 10,000 automobile trips with regard to pavement wear-and-tear and damage (for a truck that weighs 80,000 pounds). Therefore, the 10,700 truck trips per day that are generated in Carson could potentially be equivalent to 107,000,000 automobile trips per day (if the trucks were fully loaded). As some of the trucks are not fully loaded and some are empty, an equivalency table has been prepared with the assumption that a truck trip is equivalent to 2,500 automobile trips (assuming that some trucks are fully loaded, some are partially loaded, some are smaller trucks, and some are empty). Using these assumptions, the responsibility for wear-and-tear of the pavement would be allocated as follows:
Commercial 43%
Industrial 57%
Zone #1 Truck Oriented / Local Truck Routes ($2,843.59 per acre) - This rate is based on the additional costs to enhance the “local truck routes” depicted in green, Exhibit No. 3. There are 2,884 acres of industrial properties within this zone and 49.69 lane miles of roads to maintain. Areas undergoing redevelopment within Zone #1 would pay for maintaining roadways within Zone #1. As such, the rate is developed based on the assumption that 20% of the areas within this Zone will redevelop and pay into the zone specific CFD over the next twenty years.
Zone #2 Truck Oriented / Local Truck Routes ($5,812.83 per acre) - This rate is based on the additional costs to enhance the designated overweight truck corridor depicted in red under Appendix A - Industrial Zone Map. As designed in the Carson Municipal Code (C.M.C. 3262.3), overweight truck routes allow the use of vehicles with a total weight of greater than 80,000 pounds, up to 95,000 pounds. Since the truck trips generated from or to the properties in this zone are heavier, the damage on the roads are more than other roads in the network. As such, they pay the higher rate to maintain these roads. There are 786.6 acres of industrial properties in this area and 8.55 lane miles. The estimated acreage to be redeveloped is also at 20%.
• Industrial - The rate for remainder of the industrial areas in the City is $488.37 per acre.
Figure 1.0 - Zone 1 and 2 Acreage Rate Formula:
$ Total Cost of Enhance Zone Roadway Services for Zone 1 or 2
Zone 1 or 2 Acreage Estimated to be Redeveloped over 20 Year
The following table provides a summary of all components that need to be considered to arrive at the final zone rate:
Qualifying Projects vs. Exempt Projects
Future projects subject to City approval that are likely to impose negative fiscal impacts to City services are anticipated to be annexed into the CFD unless they provide a separate financing mechanism to fund their negative fiscal impacts. These projects are anticipated to consist primarily of future industrial projects and residential projects (5 units or more). As defined by the Resolution, Qualifying Projects subject to CFD Annexation include:
• New construction;
• Building additions exceeding 100% increase in foot-print;
• Significant demolition (in relationship to project site) and redevelopment; and
• New business operations resulting in intensification of land-use.
Figure 2.0 provides the general threshold guidelines to help prospective developers to determine if their project is required to mitigate their negative fiscal impacts.
Special Project Exemptions
Certain projects that provide a greater public benefit are proposed to be exempt from paying the CFD rates, therefore, are not qualified to annex into the CFD despite their negative fiscal impacts. Examples of these projects include affordable housing, senior housing, and/or public projects. Developments with some combination of exempt and non-exempt project types would have a reduced calculated FIA rate. This helps incentivize the development of affordable housing and senior housing to help Carson meet its housing needs and goals.
Mixed-use Projects and Other Credits
Some future projects may comprise of mixed use projects, commonly consisting of some combination of commercial and residential uses. For mixed-use projects with a significant commercial component, the City could consider adjusting the residential rate as the positive fiscal impacts of the commercial portion to partially offset the negative fiscal impacts of the residential on a case-by-case basis. Approval of the CFD rates from these types of projects will accomplished through approval of a Development Agreement.
CFD No. 2018-01 Progression Timeline
Prior to tonight’s proposed FIA rates, projects have been evaluated on an individual case by case basis. Engineering estimates were prepared for each of these projects and are reflective of the actual cost of providing City services specific to the projects. A CFD-DIF agreement with the Developer memorializes the agreed upon rate. Projects utilizing these estimates will not qualify for annexation under the proposed Resolution. Instead, these projects will need to be approved by the City Council individually and in accordance to their approved CFD-DIF agreement. Under these engineering estimates, the average CFD special tax rates resulted in approximately $1,900 an acre for industrial and $630 a unit per residential not including CFD administration cost.
Moving forward, Qualifying Projects will annex into the CFD under the rates proposed in the Resolution. If future project applicant desires to utilize special tax rates other than those established by the Resolution, Staff can recommend to City Council’s consideration an alternative special tax rates calculation on a project specific basis based on FIA prepared by a consultant retained by the City (“Alternative Rate(s)”). The cost to obtain the Alternative Rate is at Applicant’s own expense. This may make sense for certain projects with unique type of improvements and/or operations that require different level of City services required for the specific project. It is important to note that if the calculated Alternative Rate(s) show a higher cost of providing services, then the Developer must pay the higher annual Alternative Rate(s) and not the Fiscal Impact Analysis rate.
Figure 3.0 - CFD No. 2018-01 Progression Timeline
V. FISCAL IMPACT
CFD Annexation Costs
The costs to annex properties into CFD are to be paid by developers through the deposit fees collected from their development application submittal. Staff time, materials, and/or contracted professional services that are spent on CFD annexations are charged against the proposed deposit amount. The CFD annexation costs under the procedures of this Resolution are estimated to be $5,000 per annexation.
Developers choosing the Alternative Rate annexation approach would pay a significantly higher CFD annexation cost that may include cost of services from a third-party engineering firm, a project specific FIA study, and higher pass-thru City labor costs associated with a lengthier annexation process.
Uses of Revenues and Projected Revenues
Increased revenues will be accounted for in a separate restricted fund and will ultimately be used for the same purpose. These revenues can be used to fund any services permitted under the CFD. Revenues generated to pay for enhanced service levels for residential and industrial projects must be spent for specifically for the services identified. Figure 4.0 shows the proposed breakdown of CFD revenues collected for the first year. As seen, residential projects pay a high allocation towards general services while industrial pay a high allocation towards roadway services and/or enhanced industrial zones under the proposed recommended rates.
A CFD annual report will be posted to the City’s website for public viewing.
VI. EXHIBITS
1. Resolution No. 19-009 - “A Resolution of the City Council Of the City of Carson Acting in Its Capacity as the Legislative Body of the City of Carson Community Facilities District No. 2018-01 (Maintenance & Services) Approving Administrative Annexation Procedures for Future Properties Within the Future Annexation Area by Unanimous Approval and Adopting the City-wide Tax Rates Established by the Fiscal Impact Analysis” (pgs. 13-88)
2. Fiscal Impact Analysis Report, dated March 2019, prepared by NBS Government Finance Group. (pgs. 89-121)
3. Industrial Zone Map (pg. 122)
4. Allocation of $9,000,000 of Shortfall Explanation (pgs. 123-129)
Prepared by: James Nguyen, Project Manager