Rainbow approves CFD with Pardee Homes for Meadowood

A community facilities district will cover initial Rainbow Municipal Water District expenses for Pardee Homes’ Meadowood development.

Rainbow’s board voted 4-0, Tuesday, Oct. 27, with Helene Brazier unable to participate in the meeting, to authorize the California Statewide Communities Development Authority to form a Community Facilities District for the Meadowood area. The board action also approved a Joint Community Facilities Agreement with the terms and conditions for the CFD financing, authorized Rainbow staff to collaborate with the CSCDA and its consultants for matters involving the CFD and approved a form of annexation agreement between Pardee, Rainbow and the CSCDA.

“This will establish the Community Facilities District,” Tom Kennedy, general manager of Rainbow, said. “Those funds will be used to pay the capacity fees for the project.”

A community facilities district allows bonds for infrastructure to be repaid through assessments on property. These are sometimes known as mello-roos taxes due to the state legislators who created 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 bonds can finance not only public improvements but also capacity fees which are charged to developers to cover the new development's share of existing infrastructure or other impact fees, which in Rainbow’s case includes charges for the cost to connect a project to the district's water and wastewater systems. A CFD for Meadowood was previously formed to cover San Diego County, San Diego County Flood Control District – although the county supervisors serve as the board of the San Diego County Flood Control District and the flood control district is administered by the county's Department of Public Works, it is a separate legal district – and North County Fire Protection District services which will be needed to serve Meadowood.

In Jan. 2012, the board of supervisors approved the 384-acre Meadowood development. At the time, the land was within the San Luis Rey Municipal Water District, which is not part of the San Diego County Water Authority, but THE BOARD OF SUPERVISORS conditions included annexing the property into the SDCWA.

The original approved map included 397 single-family homes, 447 multi-family dwelling units, 13 acres for an elementary school which will be built by the Bonsall Unified School District, four acres of park land, 128 acres of biological open space, 47 acres of agricultural open space, 5.9 miles of trails and a wastewater treatment plant. In order to avoid impacts to sensitive environmental resources a public park was relocated and the residential component is now expected to consist of 473 single-family and 352 multi-family homes while the public park size has increased to 9.1 acres with the trail length reduced to 5.6 miles.

Pardee Homes had entered into a pre-annexation agreement with the Rainbow Municipal Water District in 2004, but in April 2005, the Rainbow board instructed the district’s legal counsel to work with Pardee on terminating the agreement, and in December 2008 Rainbow’s board voted to terminate that agreement. In January 2011, the Valley Center Municipal Water District board voted to support the annexation of Meadowood into that district, and county’s Local Agency Formation Commission approved the annexation in 2014. Meadowood is not adjacent to the rest of the Valley Center boundaries, and the plan when the property was annexed was for Pardee Homes to construct water and sewer lines to Meadowood at the developer’s expense.

The nearest Valley Center facility is across Couser Canyon and multiple miles away from Meadowood, but the project is immediately adjacent to Rainbow’s facilities and better served by Rainbow. Kennedy and Gary Arant, general manager of Valley Center, are their district’s representatives on the San Diego County Water Authority board. Pardee Homes division president, Jimmy Ayala, is one of the City of San Diego’s representatives on the SDCWA board. The three discussed having Rainbow rather than Valley Center serve Meadowood. The out-of-agency service agreement approved by the Valley Center district in March and the Rainbow district in April allows facilities to be constructed while the actual annexation and detachment application is being processed by LAFCO

A resolution approved at the April 1 Valley Center Municipal Water District board meeting provided support for Rainbow’s application to detach Meadowood from the Valley Center district and annex the property into Rainbow, and on May 26, Rainbow’s board voted 4-0, with Brazier not able to participate, to submit an application to annex the Meadowood area. Kennedy expects the LAFCO board to hear the annexation and detachment proposal in late 2020 or early 2021.

The out-of-area service agreement approved April 28 includes Pardee’s agreement to wastewater capacity fee payment terms. Pardee will pay all applicable water capacity fees which are charged to developers to cover the new development’s share of existing infrastructure while the agreement sets sewer capacity fees at $10.5 million. Rainbow expects the total capacity fee payments to be approximately $16.5 million. Bonds sold as part of the CFD process will pay for the capacity fees.

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 and special districts. The CSCDA has the statutory authority to issue bonds, notes, or other financing documents in order to promote economic development, including the provision and maintenance of multi-family housing. Since its inception in 1988 the CSCDA has issued more than $60 billion of tax-exempt bonds.

Pardee requested that the bond issuance to fund the payment of wastewater capacity fees be broken into two phases.

“There is one benefit to us,” Kennedy said. “This way we can get some money quicker.”

The value of the improvements to the bond amount must be at least a 4:1 ratio. Issuing only one phase of bonds would require Pardee to delay the bond issuance until a later stage of development. The two-phased approach allows both Pardee and Rainbow to obtain a portion of the bond funding sooner than if the entire bond funding was issued at the same time.

According to the agreement, Rainbow will receive 40% of the total amount or $5.25 million, whichever is greater, during the first phase. The original agreement did not anticipate bonds being issued in phases and thus had no language about the possibility that the second round of bonds would not be issued.

“That leaves us somewhat in limbo,” Kennedy said.

An amendment to the annexation agreement was part of the Oct. 27 approval. Pardee will be required to pay the full amount of capacity fees regardless of whether the second issuance of bonds occurs.

“By March 2024, all the money’s going to be here. It’s the drop dead date,” Kennedy said. “That’s just protecting the ratepayers.”

Rainbow and Pardee both expect the second group of bonds to be issued earlier.

“I think this is going to happen much sooner,” Kennedy said.

The current estimate is that the second series of bonds will be issued in spring 2023.

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