Community Facilities Assessment 2 Series A
Abbreviation : CFD # 2A
Fund No. : 68-2807
Area : Rancho San Jacintos
About this District
Community Facilities District # 2 (CFD # 2) was formed in 1989 by Resolution 1797 by the City Council for the purpose of providing infrastructure financing in the Rancho San Jacinto planned community development area. The CFD is authorized under Mello-Roos Community Facilities Act of 1982, as amended, constituting Sections 53311 et.seq. of the California Government Code. The California Legislature enacted the Mello-Roos Community Laws to provide an alternative method of financing certain essential public capital facilities (streets, lights, recreational facilities, utility lines, et.) and services, especially in developing areas of California. The district is a legal entity that can issue debt and levy special taxes to pay the debt service on bonded indebtedness, construction and maintenance costs of any services (such as police and fire protection and recreational or cultural programs) or facilities provided to the property owners in the district. CFD # 2 property owners in Rancho San Jacinto are repaying bondholders for infrastructure costs as well as the ongoing maintenance and operations costs assessed through LL Park District # 1 (LLPD # 1).
To understand the need for an infrastructure CFD is to understand what one pays for when buying a home. The home buyer not only pays for the residential structure (walls, roof, etc.), and a lot, but also:
- a share of the new roads, improvement of access roads,
- a share of curbs, sidewalks, gutters,
- a share of utility lines, sewer capacity, water capacity, a multitude of mitigation
- fees including additional capital facilities costs for fire and police as a result additional residents,
- a share of installation of landscaping open areas,
- school capital expansion costs,
- permit fees, environmental fees,
- recreational facilities,
- storm drains and drainage systems,
- other facility improvements etc.
The general theory behind an infrastructure CFD is that:
- All the infrastructure (streets, lights, recreational facilities, utility lines, et.) can be built now, rather than piecemeal as development occurs.
- The development that creates the need for the additional facilities and services should pay for such facilities and services.
- It provides affordable homes. Unless there is an affordable way to finance infrastructure in undeveloped areas, no affordable homes could be built because the cost to provide infrastructure would be too great.
- Without the financing provided by the CFD, many of the facilities and services could not be provided.
Is the cost of a home in a Mello-Roos Community Facilities District more than a home that is not ?
- Generally no, but it depends on what the purchase price was in relation to a comparable house not in a Mello-Roos Community Facilities District.
- The cost of the home is entirely separate from the Mello Roos Special Tax. The tax is levied to pay for the services and facilities provided within the district.
- In the end, a home in a CFD may cost more, but the home owner is paying for the services and facilities which may not otherwise be provided for a home that is not in a CFD.
Bonds in the amount of $26,000,000 were issued by the CFD in 1989 to pay for infrastructure improvement costs in the Rancho San Jacinto development tracts. Roughly, the average cost for such infrastructure improvements, per anticipated home, was $17,333, however, the cost is actually apportioned by square footage. Parcels in CFD # 2 have special taxes levied on their annual property tax bill for 25 years ending in year 2014 to approximate the annual debt service requirements ($17,333 plus interest). The CFD # 2 special tax assessment may increase up to 2.0% per year. Unpaid special taxes remain a tax lien against the property and such property is subject to potential foreclosure by the district.
Property owners paying their special tax over the life of the bond issue may pay off the special tax in advance at any time. The payoff amount is calculated at the discounted present value of the annual payments over the life of the bonds.
The bond debt of Community Facilities District # 2 is not a debt of the City of San Jacinto, but is a debt of the district. A tax lien on the property owners in CFD # 2 is used as security for the bondholders. All special taxes paid by the property owners are used to pay interest to bondholders and redeem bonds as they mature.
In 1997, CFD # 2 went into default as the Special Taxes collected from the home owners in CFD # 2 was not enough to pay the scheduled interest and bonds that were maturing. This was a direct result of approximately 670 of the originally planned 1,500 homes not being built due to negative economic changes in the housing market. More specifically, the remaining planned homes did not get built and in addition, the property owners of the vacant lots (where the planned homes were to be built) stopped paying their special taxes and ad valorem taxes. The economic downturn hurt land prices in the early 90's and resulted in defaulted properties in CFD # 2 that owed more in special taxes and ad valorem tax (combined with penalties and interest) than the properties were worth. After 2 1/2 years, the City and the majority bondholder entered into a complex agreement to workout the property delinquencies and refinance the district that was completed in October 2002. Some of the agreed upon issues included:
- Protection for minority bondholders
- Decrease of 5% of Special Tax amount for CFD # 2A in tax lien year FY 2002-03
- Refinancing of the performing CFD Special Tax assessments of approximately $9.3 Million
- Elimination of CFD # 2 Public Safety Tax - 2B in tax lien year FY 2002-03
- Foreclosure and sale of 114 undeveloped, delinquent properties in CFD # 2 in a complex arrangement that included the tender of all bonds owned by the majority bondholder for all the bonds in a new CFD # 2002-01 that was created specifically for the 114 undeveloped, delinquent properties foreclosed and sold in CFD # 2
- Detachment of those 114 undeveloped, delinquent properties from CFD # 2 and formation of such properties into new CFD # 2002-1