| AGENDA ITEM #: 11. DATE: 05/24/2021 AI #:295 |
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COMMUNITY FACILITIES DISTRICT REPORT
| SUBJECT: |
| STAFF PRESENTER(S): | Jared Askelson, Deputy Finance Director |
SUMMARY:
The Board will receive a presentation on recent legislation and the effects on Community Facilities District (CFD) debt service fund balances.
Recommendation:
This presentation is to receive feedback from the Board on the use of levy decreases and debt prepayments to reduce CFD fund balances to state required levels. (Jared Askelson, Deputy Finance Director)
FISCAL IMPACT:
Approximately $4,673,200 of current fund balance will need to be reduced in order to meet statute requirements. This will be done through the lowering of property tax levy rates, prepayment of debt, or a combination of both. Savings associated with prepayment of debt is estimated to be $600,000 in total, but varies from $400 to $388,000 in each CFD.
BACKGROUND AND PREVIOUS ACTIONS:
In March of this year, House Bill 2317 was approved by the State Legislature and signed into law by the Governor. As an emergency measure, it immediately went into effect. The bill changed various CFD related statutes including 48-719 pertaining to tax levies. The bill added language to effectively limit the debt service fund balance of each CFD to 10% of its debt service payments. Previous statute revisions had placed a similar fund balance threshold on municipal debt service funds, but included a two-year transition period to allow for a smoother implementation of the change. HB 2317 has no such provision, requiring immediate action to bring the CFDs in compliance with the law.
There have been no previous actions on this matter.
There have been no previous actions on this matter.
STAFF ANALYSIS
At this time, there are two tools readily available to reach immediate compliance. The first is the reduction of property tax levies within the CFDs. Reductions in FY22 levies will result in levy increases for FY23 to allow for the payment of outstanding debt. Property owners within the district will receive fluctuating levy amounts across the two years. In practice, attempts are made to smooth fluctuations such as this. Additionally, an agreement with the developers of Estrella Mountain Ranch fixes the property tax rate effectively eliminating the use of this tool in that district.
The second tool is the prepayment of debt within FY21. The prepayments will reduce the fund balances by effectively pay off future debt. Prepayments are generally made in $5,000 increments, limiting the precision some and requiring minor changes to property tax levies to hit targeted fund balance thresholds. Conditions are not ideal for prepayments in all CFD’s at this time, which limits the available savings. Two CFD’s, Cortina and Cottonflower, would have a net loss on prepayment.
Due to the various factors mentioned, a combination of using both tools will likely be necessary.
The second tool is the prepayment of debt within FY21. The prepayments will reduce the fund balances by effectively pay off future debt. Prepayments are generally made in $5,000 increments, limiting the precision some and requiring minor changes to property tax levies to hit targeted fund balance thresholds. Conditions are not ideal for prepayments in all CFD’s at this time, which limits the available savings. Two CFD’s, Cortina and Cottonflower, would have a net loss on prepayment.
Due to the various factors mentioned, a combination of using both tools will likely be necessary.