County adopts goals and policies for Community Facilities Districts

The County of San Diego has approved a set of goals and policies for future Community Facilities Districts, or developments which utilize bond financing backed by a property tax levy to finance large infrastructure needs, in the county’s unincorporated area.

A February 28 Board of Supervisors vote approved the goals and policies and also authorized the county’s Chief Administrative Officer or his designee to negotiate deposit and reimbursement agreements with potential developers to allow for full cost recovery for services not covered under current county ordinances.

“Mostly it’s going to be used by new development,” said Donna Turbyfill, the deputy director of the county’s Department of Public Works. “They would be able to finance large infrastructure, backbone infrastructure items.”

Community Facilities Districts were authorized by state law in 1982. Jurisdictions may form Community Facilities Districts in order to finance infrastructure and improvements for new development as well as to provide services for special public benefit. The facilities must have a useful life of at least five years and can include schools, libraries, parks, and sanitary sewer systems. Such districts can also provide funding for services such as fire protection, public safety, and schools. Existing communities which seek rehabilitation of existing infrastructure may also form Community Facilities Districts to finance such needs.

“It’s a financing mechanism for larger infrastructure,” Turbyfill said.

The financing involves a tax levy on property owners within a district. The payment by future tax obligations allows developers to create neighborhoods with additional amenities. “You can have the park built before you get the houses,” Turbyfill said.

Approval of at least two-thirds of the voters in a district is necessary to establish a Community Facilities District, although if the district has fewer than twelve registered voters a vote of current landowners can form the district. A Community Facilities District has all legal privileges of a legally-sanctioned governing body.

The set of goals and policies will protect the property owners who will be responsible for paying the tax. In addition to requiring full disclosure to buyers in the subdivision, the policy requires that developers provide copies of every signed disclosure within 90 days of the close of escrow. The policy also establishes lien-to-value and tax-to-value ratios to minimize the risk to the county, bond investors, and new buyers. A 4:1 lien-to-value ratio is required before issuance of the bonds so that a decrease in property values does not create too high a tax burden compared to the home value. The value-to-tax ratio, or the regular property tax plus the special tax, is capped at 1.86 percent of the home value. Applicants for a Community Facilities District will also be required to make a deposit from which the county’s expenses will be paid.

“It kind of protects any future taxpayers,” Turbyfill said of the goals and policies.

“It’s something that the county needs to do,” said Cindy Eldred, who represented Borrego Investors, LLC. “It needs to give itself as many tools as possible.”

Adoption of a set of goals and policies is a prerequisite before a jurisdiction can establish a Community Facilities District.

While the establishment of Community Facilities Districts will enable more amenities at the time of development, Campo’s Michael Thometz feared that the option of a CFD will encourage more large development. “This is a developer-only item,” he said. “To me the whole purpose of this is to help developers.”

Homebuyers will pay for the facilities and services through property tax rather than up-front home purchase costs. “They’ll still pay it, but the price of your house is down,” Thometz said.

Ironically, the lower purchase price will result in lower assessed home value for property tax obligations, thus possibly decreasing the county’s general revenue.

“I’m against things that will grease the skids for more development in the back country and building big subdivisions in rural areas,” Thometz said. “This aids and abets that happening.”

Thometz also lamented the lack of community planning group input or a Planning Commission hearing and noted that the proposal originated from the county’s Department of Planning and Land Use. “This is not something that came from the Board of Supervisors in response from requests from the public,” Thometz said.

“It just appeared out of nowhere,” Thometz said. “You could have done this in 1982.”

Turbyfill said that she was not aware of any requests to form Community Facilities Districts but that she expected to receive petitions after the goals and policies were approved and such districts were authorized.

Any Community Facilities District would be proposed on a case-by-case basis, including whether or not the county would be using the services of the California Statewide Communities Development Authority, which is sponsored by the California State Association of Counties and the League of California Cities and pools resources and expertise to improve local efforts, for financing and other financial services for the new district.