Rainbow approves SCIP participation

The Rainbow Municipal Water District will be part of the Statewide Community Infrastructure Program.

A 4-0 Rainbow board vote, Tuesday, May 26, with Helene Brazier unable to participate in the meeting, authorized Rainbow general manager Tom Kennedy to proceed with all documentation and filings necessary to authorize Rainbow's membership in the SCIP.

“It’s a program which allows property owners to access the bond market to build public improvements,” Kennedy said.

The California Statewide Communities Development Authority was created to provide local governments, nonprofit public benefit corporations and private entities with access to low-cost, tax-exempt financing for projects which create jobs, help communities prosper and improve the quality of life for local residents. The CSCDA is a joint powers authority whose members consist of 540 cities, counties, special districts and other agencies. The CSCDA has the statutory authority to issue bonds, notes or other financing documents in order to promote economic development and has issued more than $60 billion of tax-exempt bonds since its inception in 1988.

In December 2016, Rainbow’s board voted 3-1, with Brazier in opposition and former member Rich Bigley absent, to join the CSCDA. That membership initially allowed the Horse Creek Ridge development to utilize a Community Facilities District to provide tax-exempt financing for the project’s water and wastewater infrastructure improvements, although the vote to authorize the Horse Creek Ridge CFD did not take place until February 2017. The CSCDA facilitates the creation of Community Facilities Districts where bonds for infrastructure are repaid through assessments on property – these are sometimes known as Mello-Roos taxes due to the state legislators who included the option for services on new development to be funded by an annual assessment. An assessment must be approved by a majority of property owners, although a developer who owns a project before it is subdivided can cast the sole vote in favor of a CFD.

The CSCDA created the Statewide Community Infrastructure Program to help finance development projects. The tax-exempt bond financing program pools the sale of bonds from different jurisdictions into a single issuance, so the CSCDA utilizes a larger bond issuance for multiple SCIP projects throughout the state.

“They bundle them together,” Kennedy said.

The bonds can finance not only public improvements but also capacity fees or other impact fees through the establishment of assessment districts which levy a tax on property owners within the area. Capacity fees are charged to developers to cover the new development’s share of existing infrastructure, and Rainbow also charges for the cost to connect a project to the district’s water and wastewater systems.

“Capacity fees and connection fees are allowed to be paid with SCIP,” Kennedy said.

Since 2002 the SCIP has financed approximately $600 million of bonds.

“This is another option of the CSCDA,” Kennedy said.

“It’s a way the property owners can assess themselves,” Kennedy said. “This would be the way you could finance it and pay it off.”

The use of CSCDA resources to issue the bonds and administer the assessment districts reduces the staff time requirement of the local agency, which must approve the project and the financing in order for the CSCDA to issue the financing mechanism. The local jurisdiction’s approval of the bonds does not make the jurisdiction liable for financial obligations. The CSCDA rather than the jurisdiction will issue the bonds, and the project developer is responsible for their repayment.

“These are really for smaller properties as opposed to standard CFDs,” Kennedy said. “It’s a more flexible way for small projects to get funded.”

A Community Facilities District is usually created for infrastructure costing $10 million or more.

“The SCIP is designed for much smaller projects,” Kennedy said.

The SCIP option can be feasible for projects with infrastructure costs of at least $500,000.

“Usually this will be used by the smaller developers,” Kennedy said.

Extensions of a sewer line to existing properties or upgrades of existing facilities can also be funded by SCIP bond issuance.

“There are other uses in our area,” Kennedy said.

Only property owners who choose to participate in the SCIP, including the sole owner of an undeveloped property, will be assessed.

“It will be up to the property owners,” Kennedy said.

The long-term financing frees up capital for other purposes. Because the SCIP involves a fixed lien the assessment payments will not escalate over time. The property owner can choose to pay off the assessments early, and the assessments may also be refinanced through refunding bonds.

“We want to have this available,” Kennedy said. “It becomes part of our portfolio of assets.”

Although the CSCDA will be responsible for administration, the approving district may charge an administrative fee to cover the staff time needed to review the application.

“It doesn’t impact any of the ratepayers. These are people choosing to pay for it themselves,” Kennedy said.

Joe Naiman can be reached by email at [email protected].