In March, 2005, the City Council adopted Resolution No. 2005-81 forming Community Facilities District No. 10 (CFD 10) to fund infrastructure for the development of Whitney Ranch, authorizing up to $60 million in bonds. It was anticipated that the bonds would be issued in phases to help fund development phases of Whitney Ranch infrastructure.
In 2005, the City issued $25 million in CFD 10 bonds to fund phase one of Whitney Ranch backbone infrastructure. In 2015, the City issued $27.1 million in CFD 10 bonds to refinance, in full, the 2005 bonds and provide $6.3 million in new bond proceeds in order to fund construction of additional backbone public infrastructure within Whitney Ranch phase two. In 2019, the City issued $16 million in new bonds to facilitate additional backbone public infrastructure in Whitney Ranch phase two.
Of the original $60 million CFD 10 bond authorization, there is approximately $15.6 million remaining. In order to facilitate additional backbone infrastructure construction in Whitney Ranch, the developer is requesting issuing additional CFD 10 bonds of approximately $12 million for public improvements.
When a CFD is formed a “Rate and Method of Apportionment of Special Tax” (RMA) is created. The RMA sets a per parcel maximum special tax with an annual inflation factor, and establishes the last year the special taxes may be levied. The RMA for CFD 10 provides that the annual maximum special tax can escalate annually at a rate not to exceed 2% and the last fiscal year to levy for special taxes is 2050/51. Currently, CFD 10 special taxes are being levied at approximately 69% of the maximum tax.
In addition to these maximum special tax limitations, the City adopted policies and procedures for land secured financings, including CFDs (Resolution No. 2005-112). Within this policy is the requirement that for residential property, the maximum annual debt service for the expected financing, together with all other charges collected or to be collected on the annual tax bill for each developed parcel, shall not exceed two percent (2%) of such parcel’s assessed value. Currently, homes in CFD 10 have a median combined tax levy of approximately 1.7% of assessed value, as detailed in Exhibit 1.
Proposed Financing Plan:
With rising interest rates and volatile market conditions, the actual project funds generated through the 2022 Bonds sale will not be known until the day of sale. For example, if interest rates rose by 0.5% over current market conditions, approximately $12 million in new bond proceeds could be generated, with a 2043 final maturity and 2031 optional redemption provision. This is why the amount of the bonds to be issued is considered "approximate." Stifel Nicolaus & Co. will be lead underwriter with Piper Sandler & Co. as co-underwriter. Currently, the Developer is estimating build out for Whitney Ranch at around the 2023/24 fiscal year. This will increase the number of Special Tax payers in CFD 10. After the proposed 2022 bonds are issued, approximately $3 million in authorized borrowing capacity remains. These funds could be used for further improvements of public facilities within CFD 10 if the City Council desires.
If a property owner fails to pay their special taxes when due, the City covenants to pursue accelerated foreclosure on the delinquent parcel. Consequently, investors consider the value of taxable parcels relative to the land-secured debt. The total combined assessed valuation of CFD 10 property subject to the special taxes is $1.459 billion, with most of this derived from developed property. With total land-secured debt on parcels within CFD 10, including Rocklin Unified School District’s and CFD 10 bonds, of about $71.4 million, the overall value to lien ratio for CFD 10 is quite strong at over 20 to 1. Historically, delinquencies on CFD 10 tax payments have been extremely low (approximately 0.1%).
Good Faith Estimates:
In accordance with California Government Code Section 5852.1, the following information has been obtained and disclosed to the City Council prior to the issuance of the bonds: (i) the estimated true interest cost of the bonds (being the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the bonds) is 4.89%; (ii) the estimated finance charge of the bonds (being the sum of all fees and charges paid to third parties) is $557,898; (iii) the estimated proceeds of the bonds expected to be received, net of proceeds for finance charges in (ii) above to be paid from the principal amount of the bonds and any reserves or capitalized interest paid or funded with bonds is approximately $12,140,000; and, (iv) the estimated total payment of the bonds (being the sum of debt service plus finance to be paid to final maturity, plus any financing costs not paid from proceeds of the 2022 CFD 10 bonds) is $24,955,157. This information is based on good-faith estimates provided by the financing team.
Financing Documents:
There are three financing documents required for this transaction: the Supplemental Agreement No. 2 the Fiscal Agent Agreement, the Official Statement, and the Bond Purchase Agreement. The Supplemental Agreement No. 2 to the Fiscal Agent Agreement sets forth the terms and conditions under which Special Taxes will be paid to bond owners and the remedies available to bond owners in the event of a shortfall. The Official Statement is the disclosure document distributed to potential bondholders. It contains information necessary for potential bond investors to determine whether or not the proposed bond issue is an appropriate investment for them. The bonds are payable only from special taxes, the City is not liable for payment or for any shortfalls. The Bond Purchase Agreement establishes the terms and conditions under which the Underwriters will purchase the bonds.
The Resolution before the City Council references, as to form, these three documents, and authorizes the issuance of the bonds.