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HomeMy WebLinkAboutD- 5 Ordinance Amending Chapter 46, Seciton 46-380 and 46-381 Municipal Code AZUSA- AGENDA ITEM TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: KING DAVIS, CHIEF OF POLICE VIA: RICK COLE, CITY MANAGER/4.-{/'a DATE: NOVEMBER 19, 2001 SUBJECT: ORDINANCE AMENDING CHAPTER 46 SECTIONS 46-380 AND 46-381 AZUSA MUNICIPAL CODE CONCERNING POSSESSION OF OPEN ALCOHOLIC BEVERAGE CONTAINERS IN PUBLIC PLACES RECOMMENDATION: It is recommended by staff that the City Council approve first reading of the ordinance amendments as requested. BACKGROUND: Residents living in Neighborhood Improvement Zone I, have expressed a strong desire for enforcement of alcohol regulations in public parks in an effort to improve park usage and to improve the quality of life for local residents. Inherently, residents feel that the presence of those who utilize the parks for alcohol consumption promote park use degradation and a general feeling that the parks are unsafe for use by many residents and their children. In essence,the quality of life and desire to live in close proximity to local parks are diminished in the absence of meaningful regulation of alcoholic beverages in public places, and particularly public parks. Existing provisions in the Azusa Municipal Code dealing with possession of open alcoholic beverage containers in public places, such as city parks, have previously been deemed unenforceable by the courts. In order to address the courts concerns, the State Legislature passed AB 2187 (1999-2000 Legislative Session),which amended Section 25620 Business and Professions Code which now sets forth specific authority for cities to regulate 1 4/ )4/7 ,40/Vld/ ///90/ dLilM possession of open alcoholic beverage containers in public places.Section 25620 Business and Professions Code states as follows: "25620 (a) Any person possessing any can, bottle, or other receptacle containing any alcoholic beverage that has been opened, or a seal broken, or the contents of which have been partially removed, in any city, county, or city and county owned park or other city, county, or city and county owned public place, or any recreation and park district, or any regional park or open-space district shall be guilty of an infraction if the city, county, or city and county has enacted an ordinance that prohibits the possession of those containers in those areas or the consumption of alcoholic beverages in those areas. (b) This section does not apply where the possession is within premises located in a park or other public place for which a license has been issued pursuant to this division. (c) This section does not apply when an individual is in possession of an alcoholic beverage container for the purpose of recycling or other related activity." Further, Section 647e. California Penal Code authorizes enforcement of open alcoholic beverages in areas around retail off-sale packaged alcohol sales locations when a city adopts an ordinance providing for the posting of such locations. Section 647e. Penal Code states as follows: "647e. (a) A city, county, or city and county may by local ordinance provide that no person who has in his or her possession any bottle, can or other receptacle containing any alcoholic beverage which has been opened, or a seal broken, or the contents of which have been partially removed, shall enter, be, or remain on the posted premises of, including the posted parking lot immediately adjacent to, any retail package off-sale alcoholic beverage licensee licensed pursuant to Division 9 (commencing with Section 23000) of the Business and Professions Code, or on any public sidewalk immediately adjacent to the licensed and posted premises. Any person violating any provision of such an ordinance shall be guilty of an infraction. (b)As used in subdivision (a), "posted premises"means those premises which are subject to licensure under any retail 2 package off-sale alcoholic beverage license, the parking lot immediately adjacent to the licensed premises and any public sidewalk immediately adjacent to the licensed premises on which clearly visible notices indicate to the patrons of the licensee and parking lot and to persons on the public sidewalk, that the provisions of subdivision (a) are applicable. Any local ordinance adopted pursuant to this section shall require posting of the premises. (c) The provisions of this section shall not apply to a private residential parking lot which is immediately adjacent to the posted premises. Nothing in this section shall affect the power of a county or a city, or city and county, to regulate the possession of an opened alcoholic beverage in any public place or in a place open to the public." The proposed ordinance amendments fully implement provisions of both Sections 25620 Business and Professions Code, and Section 647e. Penal Code to meet statutory requirements. Specifically, the amendments change the municipal code violations for consumption of alcoholic beverages, and possession of open containers in public places from misdemeanors to infractions, allows enforcement at off-sale alcohol retail locations when posted to prohibit the possession of open alcoholic beverages on the premises, and provides a specific exemption for persons transporting empty alcoholic beverage containers for purposes of recycling. FISCAL IMPACT: There is no fiscal impact as a result of this item. 3 STATE OF CALIFORNIA ) COUNTY OF LOS ANGELES ) ss. CITY OF AZUSA ) I,Vera Mendoza, Secretary of the Azusa Redevelopment Agency,do hereby certify that the foregoing Resolution No. was duly introduced and adopted at a regular meeting of the Boardmembers on the 19th day of November, 2001, by the following vote, to wit: AYES:DIRECTORS: NOES:DIRECTORS: ABSENT: DIRECTORS: Vera Mendoza, Secretary RVPUB\NGS\622765 -2- CITY OF AZUSA DEBT POLICY AND PROCEDURES TABLE OF CONTENTS GENERAL POLICY GUIDELINES Page Introduction 3 Needs Assessment 3 Debt Limits 4 Debt Calendar and Financing Priorities 4 Debt Structure 5 Sale Process 5 Credit Objectives 5 Limitations on General Fund Loan Guarantees and Credit Support 5 Target Limitations on the Issuance of Revenue-Secured debt obligations 6 Refunding Debt 6 Investment of Bond Proceeds 7 Costs and Fees 7 Private Placements 7 Underwriters 7 Fiscal Agents/Trustees 7 Arbitrage Compliance 7 TYPES OF DEBT FINANCING General Obligation Bonds 7 Municipal Notes 8 Revenue Bonds 8 Lease/Purchase Agreements 9 Certificates of Participation (COP) 9 Redevelopment Agency Debt 9 Redevelopment Agency Loans Between Project Areas/City 10 Interfund Loans and Cash Advances 10 Land-Secured Bonds 10 Conduit Financing 10 • CITY OF AZUSA DEBT POLICY AND PROCEDURES TABLE OF CONTENTS(continued) CREDIT ENHANCEMENTS 11 SELECTION OF THE FINANCING TEAM 11 OTHER SERVICE PROVIDERS 12 LAND BASED FINANCING 12 Application Process 13 General Requirements 14 District Costs, Deposits and Reimbursements 14 Use of Consultants 15 Eligible Public Facilities 15 Land Use Approvals 15 Value-To-Lien Ratio 15 Security 16 Continuing Disclosure 16 Terms and Conditions of Bonds 16 Limitation on Special Taxes and Overlapping Debt 17 Disclosure to Purchasers 17 Acquisition Provisions 18 Market Absorption Study(Mello Roos only) 18 Criteria for Appraisals 18 Definition of Appraisal 18 Standards of Appraisal 18 Conflict of Interest 19 Existing Resolutions and/or Ordinances 19 2 it CITY OF AZUSA DEBT POLICY GENERAL POLICY GUIDELINES INTRODUCTION The following policies and procedures are enacted in an effort to standardize the issuance and management of debt by the City of Azusa, the Azusa Redevelopment Agency, the Azusa Public Financing Authority and any other component units of the City. Their primary objective is to establish conditions for the use of debt, to minimize the City's debt service requirements and cost of issuance, to retain the highest practical credit rating, maintain full and complete financial disclosure and reporting and to maintain financial flexibility for the City and all of its component units. The policies apply to all debt issued by the City including capital leases, special assessment debt and conduit debt. Regularly, updated debt policies and procedures are an important tool to insure the use of the City's resources to meet its commitments, to provide needed services to the citizens of Azusa and to maintain sound financial management practices. These guidelines are for general use and allow for exceptions in extraordinary conditions. NEEDS ASSESSMENT The City of Azusa Five-Year Capital Improvement Program (CIP) is a multi-year financial planning and management tool that identifies public facility and equipment requirements. The CIP places these requirements in order of priority and schedules them for funding and implementation. It identifies a full range of capital needs, provides for the ranking of the importance of such needs and identifies all the funding sources that are available to cover the costs of the projects. In cases where the CIP identifies project funding through the use of debt financing, the CIP should provide information needed to determine debt capacity. The CIP gives the City Council part of the data needed to make informed judgments concerning the possibility of issuing debt. The City will consider the use of debt financing only for its one-time capital improvement projects or equipment and only under the following circumstances: 1. When the project's useful life will equal or exceed the term of the financing. 2. When the projected revenues or funding sources will be sufficient to service the long-term debt. Debt financing will not be considered appropriate for any recurring purpose such as current operating and maintenance expenditures. The issuance of short-term cash-flow instruments is excluded from this limitation. 3 Capital improvements will be financed primarily through user fees, service charges, assessments, special taxes, or developer agreements when benefits can be specifically attributed to users of the facility. Accordingly, development impact fees should be created and implemented at levels sufficient to ensure that new development pays its fair share of the costs of constructing necessary community facilities. The City will use the following criteria to evaluate pay-as-you-go financing: 1. Current revenues and adequate fund balances are available so project phasing can be accomplished. 2. Existing debt levels adversely affect the City's credit rating. 3. Market conditions are unstable or present difficulties in marketing debt instruments. The City will use the following criteria to evaluate long-term financing: 1. Revenues available for debt service are deemed to be sufficient and reliable so that long-term financing can be marketed with investment grade credit ratings, unless it is determined by the Director of Finance that adequate security for the financing is present. 2. Market conditions present favorable interest rates and demand for City financing. 3. The project is mandated by State and/or Federal requirements and current resources are insufficient or unavailable. 4. The project is immediately required to meet or relieve capacity needs and current resources are insufficient or unavailable. 5. The life of the project or asset to be financed is commensurate with or exceeds the term of the financing. DEBT LIMITS The City will keep outstanding debt within the limits prescribed by State of California statutes and at levels consistent with creditworthiness objectives. DEBT CALENDAR AND FINANCING PRIORITIES It will be the responsibility of the Director of Finance, within the context of the Capital Improvement Plan, to oversee and coordinate the timing, process of issuance, and marketing of the City's borrowing and capital funding activities required in support of the Plan. In this capacity, the Director of Finance will make recommendations to the City 4 Council regarding necessary and desirable actions and will keep it informed through regular and special reports as to the progress and results of current-year activities. DEBT STRUCTURE The City will normally issue debt with an average life of not more than 25 years. The structure should approximate level debt service for the term where it is practical or desirable. There will be no debt structures that include increasing debt service levels in subsequent years, with the following exceptions: (1) the first and second year of a debt payoff schedule, (2) with respect to debt issued by the redevelopment agency or (3) with respect to Mello-Roos Bonds where the estimated development schedule does not support such a structure. There will be no "balloon" debt repayment schedules that consist of low annual payments and one large payment of the balance due at the end of the term. There will always be at least interest paid in the first fiscal year after debt issuance and principal starting no later than the second fiscal year after the debt issue. Capitalized interest will not be for a period of more than necessary to provide adequate security for the financing. SALE PROCESS The City will use a competitive bidding process in the sale of debt unless the nature of the issue or specific circumstances warrants a negotiated sale. The City will attempt to award the sale of bonds based on a true interest cost (TIC) basis. However, the City may award an issue based on a net interest cost (NIC) basis as long as the financial advisor agrees that the NIC basis can satisfactorily determine the lowest and best bid. CREDIT OBJECTIVES The City of Azusa seeks to maintain the highest possible credit ratings for all categories of long-term debt that can be achieved without compromising delivery of basic City services and achievement of City policy objectives. The City recognizes that external economic, natural, or other events may from time to time affect the creditworthiness of its debt. Nevertheless, the City is committed to ensuring that actions within its control are prudent and well planned. LIMITATIONS ON GENERAL FUND LOAN GUARANTEES AND CREDIT SUPPORT The City of Azusa will not enter into moral obligation pledges to guarantee debt of any kind. As part of the City's financing activities, General Fund resources may be used to provide credit support or loan guarantees for public developments that meet high priority City needs. Recognizing the limited capacity of the City's General Fund to support both ongoing operating programs and secure long-term debt obligations, use of the General Fund to secure such obligations must first be approved by the City Council. Key factors 5 that will be considered in determining whether or not the General Fund should be used to secure a particular debt obligation will include the following: 1. Demonstration of underlying self-support, thus limiting potential General Fund financial exposure. 2. Use of General Fund support as a transition to a fully stand-alone credit structure, where interim use of General Fund credit support reduces borrowing costs and provides a credit history for new or hard to establish credits. 3. General Fund support is determined by the City Council to be in the City's overall best interest. TARGET LIMITATIONS ON THE ISSUANCE OF REVENUE-SECURED DEBT OBLIGATIONS The City will seek to finance the capital needs of its revenue producing enterprise activities through the issuance of revenue-secured debt obligations. Prior to issuing revenue-secured debt obligations, City Departments, in consultation with the Director of Finance, will develop financial plans and projections showing the feasibility of the planned financing, required rates and charges needed to support the planned financing, and the impact of the planned financing on ratepayers, property owners, City Departments and other affected parties. The amount of revenue-secured debt obligations issued by a City Department will be limited by the feasibility of the overall financing plan as determined by the Director of Finance and the City Manager. REFUNDING DEBT Periodic reviews of all outstanding debt will be undertaken by the Director of Finance and the City's financial advisor to determine refunding (refinancing) opportunities. The purpose of the refinancing may be to: a. Achieve debt service savings b. Update or revise covenants on outstanding debt issue c. Restructure debt service associated with an issue d. Alter bond characteristics such as call provisions or payment dates. While the number of tax-exempt current refundings is not limited by the IRS, tax-exempt advance refundings are limited to two times for debt issued prior to 1986 and once for debt issued after 1986. In cases where an advance refunding is intended to provide interest rate savings, the City will strive to achieve a minimum of three percent (3%) net present value savings of the refunding bonds net of issuance costs and any cash contributions. The 3% savings target may be waived, however, if sufficient justification for lowering the savings target can be provided by other achievements in the debt's structure. 6 INVESTMENT OF BOND PROCEEDS All bond proceeds will be invested consistent with the bond documents and applicable state laws. It will be the goal of the City to maximize interest earnings up to and exceeding the stated arbitrage yield of the debt obligation. COSTS AND FEES All costs and fees related to issuance of debt will be paid out of debt proceeds except where limited by IRS regulations. PRIVATE PLACEMENTS When determined appropriate by the Director of Finance and the City Manager, the City may elect to sell its debt obligations through a private placement or limited public offering. Selection of a placement agent will be made pursuant to selection procedures developed by the Director of Finance, consistent with other City Debt policies. UNDERWRITERS For all competitive and negotiated sales, underwriters will be required to demonstrate sufficient capitalization and experience related to the debt issuance. FISCAL AGENTS/TRUSTEES The Finance Department will utilize a fiscal agent/trustee on all City indebtedness. Fiscal agent/trustee fees for outstanding debt will be paid from the interest, redemption or administration funds of the issue unless specified otherwise. ARBITRAGE COMPLIANCE The Department of Finance will maintain a system of record keeping and reporting to meet the arbitrage rebate compliance requirements of federal tax code. TYPES OF DEBT FINANCING GENERAL OBLIGATION BONDS General obligation bonds are secured by a pledge of the ad-valorem taxing power of the issuer and are also known as a full faith and credit obligations. Bonds of this nature must serve a public purpose to be considered lawful taxation of the citizens of the City and require a two third's majority vote in a general election. The benefit of the improvements or assets constructed and acquired as a result of this type of bond must be generally available to all citizens. 7 The City can issue general obligation bonds up to but not to exceed 15% of the assessed valuation under Article XVI, Section 18 of the state constitution. An annual amount of the levy necessary to meet debt service requirements is calculated and placed on the tax roll through the County of Los Angeles. The City will use an objective analytical approach to determine whether it can afford to assume new general obligation debt. This process will compare generally accepted standards of affordability to the current values for the City. These standards will include debt per capita, debt as a percent of taxable value, debt service payments as a percent of current revenues and current expenditures, and the level of overlapping net debt of all local taxing jurisdictions. The process will also examine the direct costs and benefits of the proposed expenditures. The decision on whether or not to assume new debt will be based on these costs and benefits, the current conditions of the municipal bond market, and the City's ability to "afford" new debt as determined by the aforementioned standards. MUNICIPAL NOTES Tax Anticipation Notes (TANs) are issued to offset the timing issues of tax collection. Revenue Anticipation Notes (RANs) are issued to offset the timing issues of revenue collection other than taxes. Tax and Revenue Anticipation Notes (TRANs) are issued to offset the timing issues of a combination of tax and revenue collections. Bond Anticipation Notes (BANs) are issued as an interim financing mechanism in anticipation of a future bond issuance. Generally this method is used when the construction costs of the project and other funding sources are not yet determined. Grant Anticipation Notes (GANs) are issued as an interim financing mechanism in anticipation of award of a Federal or State Grant. REVENUE BONDS Revenue bonds are limited-liability obligations that pledge revenues of a specific enterprise to debt service. This method of financing is used when the benefiting parties or group are more directly identified. Though revenue bonds are not generally secured by the full faith and credit of the City, the financial markets may require coverage ratios of the pledged revenue stream (a Coverage Covenant). Also there may be an additional bonds test required to demonstrate that future revenues would be sufficient to maintain debt service coverage levels after any proposed additional bonds are issued. 8 For the City to issue new revenue bonds, revenues, as defined in the ordinance or resolution authorizing the revenue bonds in question, may be required to be maintained at certain coverage ratios. The City will strive to meet industry and financial market standards with such ratios. Annual adjustments to the City's rate structures may be necessary to maintain these coverage ratios. LEASE/PURCHASE AGREEMENTS Over the lifetime of a lease, the total cost to the City will generally be higher than purchasing the asset outright. As a result, the use of lease/purchase agreements and certificates of participation in the acquisition of vehicles, equipment and other capital assets will generally be avoided, particularly if smaller quantities of the capital asset(s) can be purchased on a "pay-as-you-go" basis. The City may utilize lease-purchase agreements to acquire needed equipment and facilities. Criteria for such agreements should be that the asset life is three years or more, the minimum value of the agreement is $25,000 and interest costs must not exceed the interest rate earned by the City Treasurer's portfolio for the average of the past 6 months as reported to the City Council. CERTIFICATES OF PARTICIPATION (COP) A COP transaction is a form of lease obligation in which a government enters into an agreement to pay a fixed amount annually to a third party, the lessor, in exchange for occupancy or use of a facility or equipment. The transaction is structured such that the lease payments are sufficient to pay the principal and interest on the certificates. Because the voters of the City have not approved the imposition of any additional tax to secure the obligation, the City will make lease payments from its generally available revenue sources that are subject to the annual appropriation process. Upon completion of the final lease payments that support the COPs, the City acquires title to the facilities or the equipment. REDEVELOPMENT AGENCY DEBT Debt incurred by the Redevelopment Agency that is secured by Tax Increment revenue is governed by Health and Safety Code section 33000. Debt incurred by the Redevelopment Agency that is secured by Sales Tax revenue is governed by Revenue and Taxation Code in Section 7200. 9 REDEVELOPMENT AGENCY LOANS BETWEEN PROJECT AREAS/CITY Redevelopment Agency loans between project areas are governed by Health and Safety Code section 33000 and accounting procedures are detailed in a white paper published by the California Committee on Municipal Accounting through the League of California Cities dated September 1996 (Appendix H). INTERFUND LOANS AND CASH ADVANCES From time to time, interfund borrowings may be appropriate; however, these are subject to the following criteria for ensuring that the fiduciary purpose of the fund is met: 1. The Director of Finance is authorized to approve temporary interfund borrowing for cash flow purposes whenever the cash shortfall is expected to be resolved within 45 days. The most common use of interfund borrowing under this circumstance is for grant programs like the Community Development Block Grant, where costs are incurred before drawdowns are initiated and received. However, funds are typically received shortly after the request for funds has been made. 2. Any other interfund borrowings for cash flow purposes require case-by-case approval by the City Council. LAND-SECURED BONDS Land-secured bonds are issued under the provisions of the Mello Roos Community Facilities Districts Act of 1982 (Commencing with Section 53311 of the Government Code), the Improvement Act of 1911, the Municipal Improvement Act of 1913 for special assessment districts and the Improvement Bond Act of 1915 Act for the issuance of bonds. CONDUIT FINANCING The City may sponsor conduit financing for those activities (i.e., economic development, housing, health facilities, etc.) that have a general public purpose and are consistent with the City's overall service and policy objectives. All conduit financing must insulate the City completely from any credit risk or exposure. The City will consider requests for conduit financing on a case-by-case basis using the following criteria: 1. The City's bond counsel will review the terms of the financing, and render an opinion that there will be no liability to the City in issuing the bonds on behalf of the applicant. 2. There is a clearly articulated public purpose in providing the conduit financing. 3. The applicant is capable of achieving this public purpose. 10 The review of a request for conduit financing will generally be a three-step process. The first step is to determine if the City Council is interested in considering the request and establishing the ground rules for evaluating it. The second step is to evaluate the request based on the three aforementioned criteria. The third step is to provide the City Council with the results of the evaluation and the appropriate recommendation. This three-step approach ensures that the issues are clear for both the City and the applicant, and that key policy questions are answered. The City may, at its sole discretion, require additional protections including but not limited to: asset appraisals, credit enhancements, financial audits of the non-City participants or bond insurance. CREDIT ENHANCEMENTS The City will seek to use credit enhancement (letters of credit, bond insurance, surety bonds, etc.) when such credit enhancement proves cost-effective. Selection of credit enhancement providers may be subject to a competitive bid process developed by the Director of Finance. Credit enhancement may be used to improve or establish a credit rating on a City debt obligation even if such credit enhancement is not cost effective if, in the opinion of the Director of Finance, the use of such credit enhancement meets the City's debt financing goals and objectives. SELECTION OF THE FINANCING TEAM The City's Director of Finance will be responsible for establishing and maintaining a solicitation and selection process for securing professional services related to individual debt issues. Goals of the solicitation and selection process will include encouraging participation from qualified service providers, both local and national, and securing services at competitive prices. To the extent possible and where utilized, the request for proposal (RFP) process should seek to qualify the expertise being sought. The City should be able to justify its selection of debt professionals on a rational and objective basis. Unlike the normal competitive bid process that the City employs to acquire physical assets, the selection of public finance professionals involves the evaluation of intangible qualities and this must be given a heavy weight in the selection process as opposed to simply selecting the lowest bidder. While the City's, preference is to issue debt via competitive bid, there are many circumstances when a negotiated issue is in the best interests of the City. For example, competitive sales offer issuers some advantages in terms of objectivity in the selection of the underwriter. However, negotiated sales are preferable if the security features are particularly complex or market conditions are volatile. The Director of Finance will decide whether the method of sale is competitive or negotiated based on the type of issue and other market conditions. In the case of negotiated sales, the Director of Finance will 11 choose an underwriter based on a formal RFP process, where practical, in an effort to select the firm with the most relevant experience with the type of debt being issued. In the case of competitive sales, the City will select a firm on the basis of low bid and delivery of good faith deposits. The City will permit discounted and premium bids for the purchase of debt instruments when it retains sufficient flexibility to compensate for the discount or premium by increasing or decreasing the par amount of the bond issue. All bids will be evaluated based upon their true interest cost(TIC). OTHER SERVICE PROVIDERS The Director of Finance will have the authority to periodically select other service providers (e.g., appraisers, escrow agents, verification agents, fiscal agents/trustees, market absorption economists, arbitrage consultants, etc.) as necessary to meet legal requirements and minimize the City's net debt costs. These services can include debt restructuring services and security or escrow purchases. The Director of Finance may select firm(s) to provide such financial services related to debt without a RFP or RFQ, consistent with City and State legal requirements. LAND BASED FINANCING The City will consider developer or property owner initiated applications requesting the formation of community facilities or assessment districts and the issuance of bonds to finance eligible public facilities necessary to serve newly developing commercial, industrial and/or residential projects. Generally, only community serving public facilities such as major streets, highway improvements, freeways, flood or drainage improvements, sewers, water improvements, libraries and fire stations (including public parking facilities) may be eligible for this financing program. Facilities will be financed in accordance with the provisions of the Municipal Improvement Act of 1913 and the Improvement Bond Act of 1915, or the Mello-Roos Community Facilities Act of 1982. The City shall make the determination as to whether a proposed district will proceed under the provisions of the Assessment Acts or the Mello-Roos Community Facilities Act. The City may confer with other consultants and the applicant to learn of any unique district requirements such as regional serving facilities or long-term development phasing, prior to making any final determination. All City and City consultant costs incurred in the evaluation of new development, district applications and the establishment of districts will be paid by the applicant(s) by advance deposits in those instances where a party or parties other than the City have initiated a proposed district. Expenses not legally reimbursable by the district will be borne by the applicant. The City may incur expenses for analyzing proposed assessment or 12 community facilities districts where the City is the principal proponent of the formation or financing of the district. APPLICATION PROCESS Early communication with the City is encouraged to assist applicants in evaluating the feasibility of available financing programs and to discuss program procedures. The following details a typical district application review and approval process: 1. Application Submission: Applicant shall submit an application to the City together with a non-refundable fee in the amount of $5,000. This fee is for the purpose of application processing, and other preliminary costs. The City will conduct an initial evaluation of the application to determine if it is complete and whether additional information is required. 2. Project Review: The City staff will meet to discuss the application, including any issues raised and further information that might be required. Once the district's application is accepted by City Staff, it will be reviewed by a City Assessment and Mello-Roos financing team consisting of, but not limited to, the City Manager, Director of Finance, and other City staff based on the needs of the project. 3. Application Processing: Upon determination that the application package is complete, City Staff prepares a report to the City Manager or the designee, who will then forward the application for district formation and project financing, along with the recommendations of the Director of Finance to the City Council for further action. 4. City Council Consideration: The City Council grants or denies the application. If approval is granted, the City Council directs the City Manager, or the designee, to engage additional consultants, which may include, but not be limited to: an appraiser, financial advisor, underwriter, bond counsel, special tax consultant and assessment engineer. This includes negotiation of necessary contracts, and the collection of • additional developer deposits, as necessary. 5. Project Initiation: City Staff submits contracts, reimbursement agreements, bond documents and other pertinent items for consideration to the City Council, as required. 6. Project Implementation: Applicant, City Staff and consultants meet to determine preliminary project schedule and begin work necessary to complete district formation and financing. 13 • GENERAL REQUIREMENTS District Cost Deposits and Reimbursements All City and consultant costs incurred in the evaluation of district applications and the establishment of districts will be paid by the applicant through advance deposits. Expenses not chargeable to the district shall be directly borne by the applicant. Each application for the formation of an AD or CFD shall be accompanied by an initial deposit of $25,000 or such higher amount as determined by the City to fund initial consultant and staff costs associated with district review and implementation. If additional funds are needed to offset costs and expenses incurred by the City, the City will make a written demand upon the applicant for such funds and the applicant will comply with the demand within fourteen (14) calendar days of receipt of such notice. If the applicant fails to make any deposit of additional funds for the proceedings, the City may, as its sole option, suspend all proceedings until receipt of such additional deposit. The deposits will be used by the City to pay costs and expenses incurred by the City incident to the proceedings, including, but not limited to, legal, engineering, appraisal, special tax consultant and financial advisory expenses, administrative costs and expenses, required notifications, printing and publication of legal matters. The City may refund any unexpended portion of the deposits upon the following conditions: 1. The district is not formed; 2. The proceedings for formation of the district or issuance of Bonds is disapproved by the City; or 3. The proceedings for formation of the district or issuance of Bonds are abandoned in writing by the applicant. Pursuant to the adoption of a reimbursement resolution, the applicant may be entitled to reimbursement from Bond proceeds for all reasonable costs and expenses incident to the proceedings and construction of the public facilities as provided under the Mello-Roos Act, the 1911 Act, or the 1913 Act. All such costs and expenses will be limited to those district-related consultants hired by the City and invoices will be verified by the City as a condition of reimbursement. The applicant or property owner will not be entitled to reimbursement from Bond proceeds for any of the expenses specified as follows: 1. In-house administrative, legal and overhead expenses incurred by the applicant; 2. Interest expense incurred by the applicant on moneys advanced or expended during the proceedings and construction of public facilities; and 14 3. Any other costs and expenses incurred by the applicant, which are not, otherwise authorized for reimbursement under the Mello-Roos Act, the 1911 Act or the 1913 Act. Neither the City nor the district will be required to reimburse the applicant or property owner from any funds other than the proceeds of Bonds issued by the district. Use of Consultants The City will either select or have the right of refusal over all consultants necessary for the formation of the district and the issuance of bonds, including the underwriter(s), bond counsel, financial advisor, assessment engineer, appraiser, market absorption study consultant, and the special tax consultant. City Staff may confer with the applicant, but consent of the applicant is not required in the determination by the City of the consulting and financing team. The need for district consultants and the scope of their services will be determined by City Staff on a case-by-case basis with consideration given to market conditions and the nature of the district and financing(s). Eligible Public Facilities Facilities to be financed must be public facilities for which the City, or a public agency as determined appropriate by the City, will be the owner or will have normal operating and maintenance responsibility. The City has final determination as to any facility's eligibility for financing, as well as the prioritization of public facilities to be included within a district financing. Land Use Approvals The City will accept applications for the formation of ADs and/or CFDs only when properties to be included within a proposed district have City site plan and other applicable zoning approval. Value-To-Lien Ratio Upon receiving an appraisal and determining the value-to-lien ratio, the City will apply the following criteria: If the value-to-lien ratio of particular property within the CFD is 4.0 to 1 or greater, the City will not require a letter of credit or other security enhancements to secure payment of the special taxes or assessments to be levied annually on such properties within the CFD. However, letters of credit or other security may be required for individual parcels within the district that have a value-to-lien ratio of less than 4.0 to 1. 15 Security For new development, the applicant or property owner must demonstrate its financial plan and ability to pay all assessments and/or special taxes before full build-out has taken place. The City, in certain instances, may require additional security such as credit enhancement. If the City requires letters of credit or other security, the credit enhancement will be issued by an institution in a form and upon terms and conditions satisfactory to the City. All fees payable on the letter of credit or other security will be the sole responsibility of the applicant or developer, not the City or the district. Any security required to be provided by the applicant will be discharged by the City upon the opinion of a state certified appraiser retained by the City, that a value-to-lien ratio of 4.0 to 1 has been attained. Continuing Disclosure The applicant/developer will comply with the federal requirements concerning secondary market disclosure as those requirements are interpreted by the City and its counsel. Terms and Conditions of Bonds The City will establish all terms and conditions of the bonds. The City will control, manage and invest all district bond proceeds. Unless otherwise authorized by the City, the following shall generally serve as bond requirements: 1. A reserve fund equal to the lesser of(i) ten percent (10%) of the proceeds of the sale of the Bonds, (ii)maximum annual debt service on the bonds, or (iii) 125 percent (125%) of average annual debt service will be established. A Surety Bond will be considered in lieu of a cash funded reserve fund based on the following criteria: a. Cost of Surety versus Interest Rates on a cash funded reserve fund. b. Arbitrage considerations c. Financing requirements of the project. Selection of a surety provider will be dictated by the requirements of the bond insurer. In the absence of a bond insurer, the surety provider must posses a minimum long-term debt rating (or claims paying ability) of double A by both Moody's and Standard and Poor's. 2. The special taxes or annual assessments shall be levied for the first fiscal year following the sale of the Bonds for which they may be levied unless interest has been capitalized to provide appropriate security for the Bonds. Interest shall not be funded 16 (capitalized) beyond the earliest interest payment date for which sufficient special tax revenues or annual assessment installments will be available for payment of interest. 3. The repayment of principal shall begin on the earliest date for which sufficient special tax revenues or annual assessment will be made available. 4. The maximum special tax will be established to assure that the annual revenue produced by levy of the maximum special tax shall be equal to at least 110% of average annual debt service on the bonds. 5. In instances where multiple series of bonds are to be issued, the City will make a final determination as to which public facilities are of the highest priority and those public facilities will be financed first and will be subject to the earliest or most senior lien. 6. The City may require that each new district bond financing refund any prior liens, if they exist, on properties included in the district in order to avoid subordinated liens. Instances where prior liens may not require refunding are: (1) where refunding prior liens will result in higher interest cost, (2) where there can be assurance that prior liens may pose no marketing problems for the new district bonds, or (3) where refunding prior liens may present future administrative difficulties to the City or other affected public entities. Limitation on Special Taxes and Overlapping Debt It is the City's intent that the special tax, when added to the ad valorem property tax and other direct and overlapping debt for the proposed district (including other benefit assessments, special taxes levied for authorized but unissued debt, and any other anticipated special assessments, taxes or charges which may be included on a property owner's annual property tax bill), shall not exceed two percent (2%) of the projected assessed value of each improved parcel within the district. The City shall retain a special tax consultant to prepare a report which: 1. Recommends a special tax for proposed CFD. 2. Evaluates the proposed special tax to determine its ability to adequately fund identified public facilities, City administrative costs, services (if applicable) and other related expenditures. Such analysis shall also address the resulting aggregate tax burden of all proposed special taxes plus existing special taxes, ad valorem taxes and assessments on the properties within the CFD. Disclosure to Purchasers The applicant/developer shall be responsible for compliance with all applicable federal and state statutory disclosure requirements, as well as any additional City requirements, in transactions with purchasers of properties within the district. 17 Acquisition Provisions The City generally will provide for acquisition districts. The City will have final determination as to whether and to what extent it will allow the financing of public facilities through acquisition. In the event the acquisition provisions of the 1913 Act or the Mello-Roos Act are used, the City and the applicant or property owner will mutually agree upon public facilities to be acquired and the method of determining reasonable acquisition cost. A funding and acquisition agreement will be required and approved by the City Council on or prior to the adoption of the resolution of formation to form the district. Market Absorption Study (Mello Roos only) An absorption study of the proposed development project will be required for land secured financing on undeveloped property. The absorption study will be used as a basis for verification that sufficient revenues can be produced and to determine if the financing of the public facilities is appropriate given the timing of the development. Additionally, the projected absorption rates will be provided to the appraiser for use in the appraisal and to verify special tax projections. CRITERIA FOR APPRAISALS Definition of Appraisal An appraisal is a written statement independently and impartially prepared by a qualified appraiser setting forth an opinion of fair market value of an adequately described property as of a specific date, supported by the presentation and analysis of relevant market information. Standards of Appraisal The format and level of documentation for an appraisal depend on the complexity of the appraisal problem. A detailed appraisal will be prepared for complex appraisal problems. A detailed appraisal will reflect nationally recognized appraisal standards, including, to the extent appropriate, the Uniform Appraisal Standards for Land Acquisition and the CDIAC Appraisal Guidelines (published in 1994). An appraisal must contain sufficient documentation, including valuation data and the appraiser's analysis of the data, to support his or her opinion of value. At a minimum, the appraisal shall contain the following: 1. The purpose and/or function of the appraisal, a description of the property being appraised, and a statement of the assumptions and limiting conditions affecting the appraisal. 18 2. An adequate description of the physical characteristics of the property being appraised, location, zoning, present use, and an analysis of the highest and best use. 3. All relevant and reliable approaches to arrive at the value consistent with commonly accepted professional appraisal practices. If a discounted cash flow analysis is used, it should be supported with at least one other valuation method such as a market approach using sales that are at the same stage of land development. If more than one approach is utilized, there must be an analysis and reconciliation of approaches to value that are sufficient to support the appraiser's opinion of value. 4. A description of comparable sales, including a description of all relevant physical, legal and economic factors such as parties to the transaction, source and method of financing, and verification by a party involved in the transaction. 5. A statement of the value of the real property. 6. The date of appraisal, signature and certification of the appraiser. Conflict of Interest No appraiser or review appraiser will have any interest, direct or indirect, in the real property being appraised for the City that would in any way conflict with the preparation or review of the appraisal. Compensation for making an appraisal will not be based on the amount of the valuation. EXISTING RESOLUTIONS AND/OR ORDINANCES Any existing City resolutions and/or ordinances, which may be in conflict with procedures or policies contained in this document, will be given higher priority until such time that either the ordinance or this document can be amended to provide greater consistency. 19