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HomeMy WebLinkAboutMINUTES - 09131994 - 1.144 _ Contra Costa r r_ County TO: BOARD OF SUPERVISORS FROM: Harvey -E. Bragdon Director of Community Development DATE : September 13, 1994 SUBJECT: Financing Policies — Mello Roos Community Facilities Districts SPECIFIC REQUEST(S) OR RECOMMENDATIONS (S) b BACKGROUND AND JUSTIFICATION RECOMMENDATIONS S ACCEPT the recommendation of the' County Debt Advisory Committee and ADOPT financing policies for Mello Roos Community. Facilities District debt financing as required by Section 53312 .7 (a) of the Government. Code. FISCAL IMPACT None. BACKGROUND/REASONS FOR RECOMMENDATIONS The Mello-Roos Community Facilities District Act of 1982 (Section 53311 et seq. California Government Code) established a method whereby cities, counties, special districts, school districts, or other municipal corporations could finance facilities, infrastructure and CONTINUED ON ATTACHMENT: XX YES SIGNATURE : RECOMMENDATION OF COUNTY ADMINISTRATOR RECO ATION OF BOARD COMMIT r APPROVE OTHER i SIGNATURE (S) : ACTION OF BOARD ON 3 APPROVED AS RECOMMENDED OTHER r VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A UNANIMOUS (ABSENT ) TRUE AND CORRECT COPY OF AN AYES: NOES: ACTION TAKEN AND ENTERED ON THE ABSENT: .ABSTAIN: MINUTES OF .THE BOARD OF SUPERVISORS ON THE DATE SHOWN. Source:Jim Kennedy 646-4076 cc: Community Development ATTESTED County Administrator PHIL BATCHELOR, CLE OF County Counsel THE BOARD OF SUPERVISORS Auditor-Controller AND COUNTY ADMINISTRATOR Treasurer-Tax Collector Redevelopment Public Works BY ""j- , DEPUTY JK:1h sralU melloroo.bos l ) certain public services by collecting a special tax within the special tax district. The formation of a district requires two- thirds voter approval if the district contains 12 or more residents, or two-thirds approval of landowners if the District is comprised of an area with less than 12 residents. The County has conducted two Mello Roos proceedings, both in the Pleasant Hill BART Station Area. Cities and school districts have also conducted Mello Roos proceedings in the County. A recent addition to the Government Code Sections governing the creation of Community Facilities District is a requirement that localities prepare and adopt guidelines relative to the issuance and establishment of Community Facilities Districts (Section 53312 .7 (a) of the Government Code) . The policies recommended to you have been. developed by the County' s Debt Advisory Committee, in consultation with a private consultant with significant experience in the field (Fieldman, Rolapp & Associates) . The Debt Advisory Committee consists of the County Auditor, the County Treasurer, the Deputy County Administrator for Capital Projects, and the Deputy Director - Redevelopment. The policies are summarized on Attachment A and are on file with the Clerk of the Board of Supervisors . ATTACHMENT A SUMMARY OF FINANCING POLICIES FOR COMMUNITY FACILITIES DISTRICTS I . Initiation of the Financing • A proponent of a project must submit an application to the County' s Community Development Department. Any proposal is subject to a pre-application review. • Applications are to be accompanied by a processing or formation fee of not less than $25, 000 . • Specifies that the County is responsible for determining underwriter, financial advisor, bond counsel and other professional consultants required. II . Debt Advisory Committee • All proposals are reviewed by the Debt Advisory Committee, which was established by the Board of Supervisors to review capital markets transactions and to make recommendations to the Board of Supervisors . The Committee is comprised of the County Auditor, the County Treasurer, the Deputy County Administrator for Capital Projects, and the Deputy Director - Redevelopment. III . Economic Liability of the Financing • To assist in evaluating the application and any proposed issuance of debt, the County may require any or all of the following to determine the economic viability of the proposed project, and the timing of the sale of any bonds: A. An absorption study; B. An appraisal; C. Financial information of the applicant; D. Land use approvals; E. Equity participation by applicants or major participants . IV. Revenue Supporting the Financing • Any bonds issue on behalf of a Community Facilities District are limited obligation bonds whose primary repayment is secured by a special tax. Criteria have been established to evaluate the revenue stream that will support a proposed CFD bond financing, including: A. The rate and method of apportionment of special taxes must be reasonable and equitable; B. The rate and method of apportionment of the special taxes to provide for administrative expenses; C. All property not otherwise exempted shall be subject to the tax; D. The annual special tax levy on each residential parcel developed to its final land use shall not escalate, except within minor variations . Commercial or industrial uses may escalate at a rate not to exceed 2% a year; E. The maximum annual special tax, together with ad valorem property tax, County Service Area charges, special assessments, or taxes for overlapping financing districts should not exceed 2% of the expected assessed value of the parcel upon completion of the improvements; F. The annual special taxes to be collected must be equal to or greater than 110% of the gross annual debt service requirement for any bonds issued; G. The rate and method of apportionment of the special tax shall include a provision for a back-up tax to protect against insufficient tax revenues within the District; H. A formula to provide for the pre-payment of the special tax must be provided. V. Structuring the Financing • Any bonds issued will be limited obligations of the County. • Financings must mature within 40 years of the date of initial issuance. • Financing must include an appropriately sized reserve fund. • Capitalized interest is permitted in certain situations . • The County will extend a covenant dealing with judicial foreclosure. • The underwriter' s discount shall be negotiated and determined solely by the County. VI . Agreements with Affected Public Entities • For County-initiated financings, an agreement must be entered into with other public entities which own, maintain or operate the facilities to be financed. • For CFD financings not initiated by the County, an administrative review will be made by the Community Development Department and, if necessary, by the Debt Advisory Committee, prior to entering into a Community Facilities Agreement. VII . Credit Enhancements • Credit enhancement may be required or permitted subject to the review and approval of the County. VIII . Offering Statements • The County intends to comply with all applicable Federal or State requirements regarding disclosure. • The County will require retention of disclosure counsel or underwriters counsel for any financing exceeding $1, 000,000. IX. Administration • The County Auditor-Controller is responsible for administration of Community Facilities District debt issues. • The County will require the statutorily prescribed disclosure to property owners. The County may require additional disclosure to aid subsequent purchasers of such property. • The County will prepare and file on a timely basis all statutorily required reports to State and Federal agencies. X. Refundings • Refundings are permitted when the actual value of savings significantly exceed the cost of the refunding. • Refundings must meet certain minimum requirements, including: A. Shall mature on a date not later than the date of the original bonds; B. Annual debt service savings to be realized are to be apportioned over the remaining life of the refunding bonds; C. The prior bonds are to be legally defeased; D. Refundings that result in an increase in the principal amount of bonds must consider pre- payments that have been received. CONTRA COSTA COUNTY FINANCING POLICIES FOR COMMUNITY FACILITIES DISTRICTS August 11, 1994 TABLE OF CONTENTS SECTION PAGE I. GENERAL POLICY STATEMENT .......................................................... 1 A. Community Facilities District Financings.......................................... 1 II. INITIATION OF THE FINANCING.......................................................... 2 A. Application...................................................................................... 2 B. Processing and Formation Fees........................................................ 2 C. Petition For Formation and.............................................................. 3 Waiver of Time Requirements of the Election D. Selection of the Financing Team...................................................... 3 III. DEBT ADVISORY COMMITTEE ............................................................ 4 IV. ECONOMIC VIABILITY OF THE FINANCING...................................... 6 A. Absorption Study ............................................................................ 6 B. Appraisal......................................................................................... 6 C. Financial Information Required of Applicant.................................... 6 D. Land Use Approvals........................................................................ 7 E. Equity Participation by Applicant and Major Participants................. 7 V. REVENUE SUPPORTING THE FINANCING............:............................. 8 VI. STRUCTURING THE FINANCING........................ : " A. Limited Obligations of the County................................................... 9 B. Structuring of Debt Service............................................................. 9 C. Reserve Funds................................................................................. 9 D. Capitalized Interest........................................................................ 10 E. Foreclosure Covenant.................................................................... 10 F. Underwriter and Original Issue Discount ....................................... 10 VII. AGREEMENTS WITH AFFECTED PUBLIC ENTITIES ....................... 11 A. County Initiated CFD Financings................................................... 11 B. CFD Financings Not Initiated by the County.................................. 11 VIII. CREDIT ENHANCEMENTS................................................................... 13 IX. OFFERING STATEMENTS .................................................................... 13 X. ADMINISTRATION................................................................................ 14 A. Debt Administration ...................................................................... 14 B. Notice to Future Property Owners................................................. 14 C. Annual Reporting.......................................................................... 14 XI. REFUINTDINGS......................................................................................... 15 iAuMos\42180801.poi -7- SECTION I: GENERAL POLICY STATEMENT Contra Costa. County (the "County") has created these policies on Community Facilities District debt financing (the "Policies") as guidelines to assist all concerned parties in determining the County's approach to Community Facilities District ("CFD") financing. It is the County's intent to support projects which address a public need and provide a public benefit. These Policies are also designed to comply with Section 53312.7(a) of the Government Code. A. Community Facilities District Financings 1. The County encourages the development of residential, commercial and industrial property consistent with the adopted General Plan. The Board of Supervisors will consider the use of community facilities districts to assist these types of projects. 2. The County will consider the funding of services permitted under the Act if such funding does not create an unreasonable economic burden on the land and special taxpayers. 3. While recognizing that public facilities proposed to be financed by a CFD are to benefit those properties within the boundaries of the proposed CFD, the Board of Supervisors finds that public benefit can only be "sigYdficant" when the benefit is also received by the community at large or are regional in nature but have a benefit to the properties within the proposed CFD. 4. The use of CFDs will be permitted to finance public facilities whose useful life will be equal to or greater than the term of the bonds. Facilities which are, upon completion, owned, operated or maintained by public agencies shall be considered public facilities. Limited exceptions may be made for facilities to be owned, operated or maintained by private utilities, or for facilities which could be owned by public agencies, or utilities. 5. The County is concerned that the proposed project that is to be financed is not premature for the area in which it is to be located. The proposed project must meet the land use approvals listed in Section D. 6. Extending public financing to a proposed project for identified public improvements cannot be done without considering the aggregate public service needs for the project. Upon receipt of an application for public financing, the County will notify the other public entities having responsibility to serve the proposed project and request comment on the application. Periodic meetings, on a regional basis, with all affected public entities will be iAuMos14218080Lpol 1 — encouraged by the County to address the issues relative to overlapping debt considerations. 7. The Screening Committee (as defined below) and Debt Advisory Committee may waive all or some of the provisions of these policies if unique and special circumstances apply to specific CFD financings. SECTION II: INITIATION OF THE FINANCING A. Application The proponent of a project must obtain and submit the required application to the initiating; County department or related district or agency. The initiating County department with respect to CFD financings is the Community Development Department. Prior to accepting an application for a CFD financing, the initiating County department or related district or agency shall request that the proposed project be reviewed and commented on by a screening committee (the "Screening Committee") to be composed of representatives of the Department of Public Works, Treasurer - Tax Collector's Office, Auditor, Controller's Office, Community Development Department, County Counsel's Office and other representatives as appropriate. An application must be completed and the necessary information provided, as determined by the initiating County department or related district or agency, before any action will be taken to process the application and initiate financing for a project. B. Processing and Formation Fees Applications are to be accompanied by a processing or formation fee. All costs to the County associated with the proceedings statutorily required to establish a CFD are to be advanced by the applicant and paid prior to the actual sale of any bonds. The applicant will be reimbursed solely from the proceeds of the bonds sold for all monies advanced. An initial deposit in an amount of not less than $25,000 for a CFD is to be attached to the completed application submitted; such deposit amount to be determined by the initiating County department or related district or agency. The deposit shall be placed in a separate trust account held by the County. The deposit may be placed in an interest bearing account so long as it is directed to do so by the Board of Supervisors and is allowable under state law. All costs of the County and/or its consultants retained during the formation process are to be paid from this account. iAuMos\42180801.pol - 2 - If, in the judgment of the initiating County department or related district or agency, the costs incurred or projected will cause the balance in this account to fall below $5,000., a written demand shall be made to the applicant to advance monies sufficient to bring the account to a balance that is projected to meet remaining costs required to establish the CFD. Failure to advance the requested monies within ten (10) days of a written demand by the County will result in all processing of the application to cease and no further actions to be taken toward establishing the. financing district until the monies have been received. Waiver of this requirement can be made only by formal action of the Board of Supervisors . Monies held in the trust account are to be applied to pay the County and its staff in reviewing and processing the application as well as the costs of the special tax consultant, appraiser, absorption consultant, all publication expenses, and any other costs determined by the County to be necessary to establish the CFD. Accompanying the application will be an agreement governing the processing or formation fee, its deposit in a trust account, the use of the monies, the return to the applicant of any unused portion of the fee or other monies advanced, and reimbursement of all monies advanced from bond proceeds. C. Petition For Formation and Waiver of Time Requirements of the Election The Mello-Roos Community Facilities Act of 1982, as amended, (the "Act") states that one way to request the formation of a proposed community facilities district is through a Petition signed by landowners holding title to ten percent (10%) of the land by area within the proposed community facilities district. The Petition must be submitted to the County before formal action can be commenced to form the community facilities district. The form of the petition will be supplied by bond counsel. once the completed application has been received and initial processing has been completed. The Act also provides that the formation can be shortened if one hundred percent (100%) of the property owners within the proposed boundaries of the community facilities district execute a waiver regarding the timing of and certain procedures associated with the required special election. The applicant should indicate on the application whether this waiver can be secured. D. Selection of the Financing Team The County shall select the bond counsel, financial advisor, underwriter or placement agent or remarketing agent, and fiscal agent/trustee in accordance with adopted Board of Supervisors policy. It will require the retention of underwriter's counsel or disclosure counsel. Providers of letters of credit, liquidity supports and other types of credit enhancements are also subject to the approval of the County. Bond counsel and underwriter or disclosure counsel must be different firms. is\u3\fos\4218080Lpol — 3 — In addition to the consultants that compose the financing team, as noted above, the County shall select a special tax consultant to determine a fair and reasonable method to allocate the special tax required to meet debt service on the bonds and other related expenses of the proposed CFD. Unless satisfactory and current information regarding land values for property within the proposed CFD and subject to the special tax is available, the County shall require; that a real estate appraiser of its choice be retained and an appraisal made. Additionally, an economist or real estate appraiser or other qualified independent third party may also be retained for the purpose outlined in Section W.A. In addition, the County reserves the right to retain additional professional consultants that it deems appropriate. SECTION III: DEBT ADVISORY COMMITTEE The Board of Supervisors established the Debt Advisory Committee to review issues relevant to capital markets transactions and to make recommendations to the Board of Supervisors when appropriate. The Committee is charged with the task of reviewing and commenting upon all CFD financing as well as other types of financing proposed to be issued by the County or its related districts or agencies. The Committee is to review each proposed debt issue and provide comment on whether the proposed debt issue is consistent with these Policies. It is to comment on the economic viability and credit. worthiness of the proposed debt issue. In performing its function the Committee may, in its sole discretion, review a matter more than once and retain additional consultants to assist in its review. The cost of such consultants is to be borne by the proponent of the debt issue. In addition, the Committee has an ongoing responsibility to monitor the status of debt issued by the County or related districts or agencies. A written summary of the Debt Advisory Committee's review of the proposed financing is to be prepared and submitted to the Board of Supervisors after it considers the financing. The written summary will state the issues considered by the Committee, whether the financing and the issues considered were consistent with or at variance with these Policies, and its recornmendation with regard to each issue and the financing. If the vote of the Committee is not unanimous, the written summary is to so indicate and summarize the position taken by the minority members of the Committee. The following are those matters which at minimum the Debt Advisory Committee is to review and comment upon with regard to the CFD financings. 1. Prior to the Board of Supervisors considering the resolution of intention to establish a CFD, the Screening Committee is to determine that all land use approvals required for the project under Section IV.D. have been fulfilled and iAuMbs\42180801.pol — 4 — that the proposed rate and method of apportionment of the special tax is consistent with Section V.A. of these Policies. Any variation from these Policies is to be noted and a recommendation made to the Board of Supervisors.with regard thereto. 2. Prior to the Board of Supervisors considering the resolution authorizing the sale and issuance of bonds, the Debt Advisory Committee is to determine that: a. A current appraisal and any related absorption study have been prepared consistent with Section N.A. and IV.B. of these Policies and that satisfactory land value to lien ratios exist. b. Each property owner responsible for twenty percent (20%) or more of the debt service on the bonded indebtedness to be incurred has supplied the financial information required by Section N.C. of these Policies. C. The rate and method of apportionment of the special tax is in compliance with Section V.A. of these Policies. d. The structure of the proposed financing is consistent with the applicable subsections of Section VI of these Policies. e. Each property owner responsible for 20% or more of the debt service in connection with any series of bonds must be current with respect to payment of all general property taxes, and any assessments or special taxes levied. As stated above, any variation from these Policies is to be noted and a recommendation made to the Board of Supervisors with regard thereto. In addition, the Debt Advisory Committee is to make any comment it deems relevant in determining the economic viability or credit worthiness of the proposed debt issue. The Committee is to make a recommendation to the Board of Supervisors as to whether or not to proceed with the sale and issuance of the bonds. If the proposed financing contemplates that bonds are to be issued in series, then each series is to be reviewed and commented upon by the Debt Advisory Committee before that series of bonds is considered by the Board of Supervisors for issuance. Any proposal for refunding or defeasing a particular CFD financing is to be reviewed for consistency with Section XI of these Policies and commented on by the Debt Advisory Committee prior to it being submitted to the Board of Supervisors for consideration. Once issuance of bonds has been approved by the Board of Supervisors and the bonds. have been sold, the County department or related district or agency having responsibility for the administration of the bond issue is to annually file with the Auditor Controller of iAuMos\42180801.pol - 5 - the County a report regarding the status of the bond financing on forms provided by the Debt Advisory Committee. The occurrence of a technical default, or the likelihood thereof, is to be reported immediately to the Auditor Controller of the County by the administering County department or related district or agency. SECTION IV: ECONOMIC VIABILITY OF THE FINANCING In evaluating the application and the proposed debt issue, the County may require any or all of the following to determine the economic viability of the proposed project and the timing of the sale of any bonds or series thereof. A. Absorption Study Unless waived by the Debt Advisory Committee, an absorption study of the proposed project shall be required for CFD financings. The absorption study shall be used as a basis to verify that the assumptions supporting the special tax formula are appropriate and sufficient revenues can be collected to support the bonded indebtedness to be incurred. The absorption study will also be used to evaluate the timing consideration identified by the applicant and the financing team. The absorption study will be provided to the appraiser and the appraisal required below in Section N.B. is to reflect consideration of the absorption study. B. Appraisal Unless satisfactory and current information regarding land values for property within the proposed CFD and subject to the special tax is available, acurrent appraisal will be required of the property that compromises the CFD against which a lien will be placed to secure the bonded indebtedness to be incurred. The appraisal will be made by an appraiser retained by the; County. C. Financial Information Required of Applicant Both at time of application and prior to the sale and issuance of any bonds, the applicant for a CFD debt issue and all property owners owning land within the boundaries of the proposed financing district that will be responsible for twenty percent (20%) or more of the debt service on the bonded indebtedness to be incurred shall provide financial statements (preferably audited) for the current and prior two fiscal years. The applicant shall also provide all other financial information related to the proposed project that may be requested by the County. iAuMos\42180801.pol - 6 - Subsequent to the sale and issuance of the bonds, federal and state statutes and/or regulations regarding the financing may require the preparation of periodic reports. The applicant and all major participants in the project will be required to provide that information needed to complete such statutorily required reports. In addition, the County department or related district or agency responsible for the administration of the bonds may require information of the applicant or the major participants in the project to satisfy reporting demands of rating agencies or institutional buyers. D. Land Use Approvals For CFD financings the County will require, at a minimum, that the proposed project must: 1. be; consistent with the County's General Plan; 2. be; reviewed by the County's Director of Community Development or his designee, and have satisfied or be able to satisfy, all of the relevant land use requirements specified by the Director; and, 3. have had the service levels for the required public facilities established or the exact public facilities required for the project identified. A proposed project that requires: (i) a General Plan amendment, (ii) a change of zone that increases the density or intensity of land use, (iii) a specific plan, or (iv) a specific plan amendment that increases the density or intensity of land use will be referred to the County's Community Development Department for evaluation as to whether the project is premature. An appropriate environmental review of the proposed project is to have been completed that will have addressed all of the public facilities that are to be constructed through the proposed financing. E. Equity Participation by Applicant and Major Participants In evaluating the proposed debt issue, the Debt Advisory Committee will consider the equity participation of the applicant and the major participants in the proposed project. At the time the application for the proposed financing is received, an analysis will be made as to the equity interest that the applicant has in the proposed project. It will also be required of the applicant that in addition to the financing, the applicant will fund in-tract public infrastructure and may be expected to contribute to other public improvements related to the proposed project. iAuMos\42180801.pol - 7 - SECTION V: REVENUE SUPPORTING THE FINANCING CFD bonds are; termed "limited obligations" whose primary repayment is secured by a special tax. The following are criteria that will be applied in evaluating the revenue stream that will be supporting a proposed CFD bond financing. A. The rate and method of apportionment of the special tax must be both reasonable and equitable in apportioning the costs of the public facilities and services to be financed to each of the parcels within the boundaries of the proposed CFD. B. The rate and method of apportionment of the special tax is to provide for the administrative expenses of the proposed CFD, including, but not limited to, those expenses necessary for the enrollment and collection of the special tax and bond administration. C. All property not otherwise exempted by the Act from taxation shall be subject to the special tax. The rate and method of apportionment may provide for exemptions to be extended to parcels that are to be dedicated at a future date to public entities, held by a homeowner's association, or designated open space. D. The annual special tax levy on each residential parcel developed to its final land use shall not escalate , except that a variation for services and administrative expenses will be allowed. The County will allow,an annual escalation factor, not to exceed two percent (2%) per year, on parcels to be developed for commercial or industrial uses. E. The maximum annual special tax, together with ad valorem property taxes, County Service Area charges, special assessments or taxes for an overlapping financing district, or any other charges, taxes or fees payable from and secured by the property, including potential charges, taxes, or fees relating to authorized but unissued debt of public entities other than the County, in relation to the expected assessed value of each parcel upon completion of the private improvements to the parcel is of great importance to the County in evaluating the proposed financing. The objective of the County is to limit the "overlapping" debt burden on any parcel to two percent (2%) of the expected assessed value of the parcel upon completion of the private improvements. In evaluating whether this objective can be met, the County will consider the aggregate public service needs for the proposed project. It will consider what public improvements the applicant is proposing be financed in relation to these aggregate needs and decide what is an appropriate amount to extend in public financing to the identified public improvements. F. The total maximum annual special taxes that can be collected from taxable property in a district, taking into account any potential changes in land use or development is\u3%os\42180801.pol — 8 — density or rate, and less all projected administrative expenses, must be equal to at least one hundred ten percent (110°/x) of the gross annual debt service on any bonds. issued by or on behalf of the CFD in each year that said bonds will remain outstanding. G. The rate and method of apportionment of the special tax shall include a provision for a back up tax or other assurances to protect against any changes in development that would result in insufficient special tax revenues to meet the debt service requirements of the CFD. Such backup tax or other assurances shall be structured in such a manner that it shall not violate any provisions of the Act regarding cross- collateralization limitations for residential properties. H. A formula to provide for the prepayment of the special tax may be provided; however, neither the County nor the CFD shall be obligated to pay for the cost of determining the prepayment amount which is to be paid by the applicant. SECTION VI: STRUCTURING THE FINANCING In structuring a CFD financing, the County and its financing team will insure that the following issues are addressed in connection with the CFD bond issue. A. Limited Obligations of the County Both the statutory authority providing for the issuance of CFD bonds as well as the proceedings resulting in the sale and issuance of the bonds must insure the bonds are limited obligations of the County payable only from the revenue source identified and do riot require the expenditure of the general funds or any other revenues of the County to satisfy debt service obligations or to replenish any reserve fund established for the bonds. B. Structuring of Debt Service CFD financings may be structured with level, escalating, or declining debt service, and to mature within forty (40) years of the date of the initial bonds issued. C. Reserve Funds The County will require that for CFD financings a reserve fund be established at a required funding level as determined appropriate by the financing team. is\u3\fos\42180801.pol — 9 — D. Capitalized Interest In CFD financings, the County is concerned with the degree to which property ownership, and therefore the responsibility for payment of the special tax is concentrated in one or more individuals or entities. Capitalized interest is considered a means by which the County can assure itself and bond owners that debt service obligations will be met during the initial year(s) of the CFD. However, the amount of capitalized interest should be balanced against the annual levy on future landowners. The amount of capitalized interest that will be required to be funded from bond proceeds in a particular CFD financing shall be based on the degree to which the property ownership is concentrated in one individual or entity. Whenever one individual or entity whose land holdings within the financing district is responsible for twenty percent (20%) or more of the debt service on the bonds, then eighteen (18) months of capitalized interest, or an amount determined by the Screening Committee to be adequate, will be required. E. Foreclosure Covenant For CFD financing, the County will extend the following covenant dealing with judicial foreclosure: "The County covenants for the benefit of the owners of the Bonds that, subject to the excerption stated in the following sentence, it will commence judicial foreclosure proceedings against parcels with aggregate delinquent special taxes within 150 days of August 15th of each bond year in which it receives special taxes in an amount which is, less than 95% of the total special taxes needed to pay principal and interest on the bonds for the current bond year, and diligently pursue to completion such foreclosures. Notwithstanding the foregoing, the County, in its sole discretion, may elect to defer foreclosure proceedings on any parcel so long as the amount in the reserve fund is at least equal to the reserve requirement. The County may, but shall not be obligated to, advance funds from any source of legally available funds in order to maintain the reserve fund at the reserve requirement." F. Underwriter and Original Issue Discount The underwriter's discount shall be negotiated and determined solely by the County and shall be competitive with and comparable to such discounts on similar financings being issued by the County and other public entities. The County shall consider any other compensation the underwriter may be receiving in connection with the bond financing in determining the appropriate amount of the discount. An original issue discount will be permitted only if the County determines that such discount results in a lower .true interest cost on the bonds and that, for CFD iAu3\fos\4218080Lpol — 10 — financings, the use of an original issue discount will not adversely affect the ability of the CFI) to construct public facilities identified by the bond documents. SECTION VII: AGREEMENTS WITH AFFECTED PUBLIC ENTITIES A. County Initiated CFD Financings 1. For CFDs, the joint community facilities agreement(s) required with other public entities which will own, maintain or operate the facilities to be financed must be adopted and approved by all parties at or prior to the adoption of the resolution establishing the CFD. 2. Should a CFD bond issue be for the construction of public facilities required to be sized to exceed the service needs of the properties within the boundaries ofthe financing district, the County will negotiate the following: a. To the extent that the affected public entity's regulations allow, a credit against connection fees or other fees such that the credit will preclude the affected properties from contributing twice toward the cost of the identified public facilities. b. To the extent that the affected public entity's regulations allow, a reimbursement for oversized facilities that will allow the CFD to balance the bonded indebtedness incurred with the level of benefit the properties are to receive from the public facilities that are to be financed. C.. Any reimbursements for oversizing received from the affected public entity are to be paid to the CFD and, depending upon date of receipt, will be used either to augment construction proceeds or to reduce the outstanding bonded indebtedness of the financing district as determined appropriate by the County. B. CFD Financings Not Initiated by the County An administrative review will be made by the Community Development Department of all non-county initiated CFD financings that will require a joint community, facilities agreement with the County to ensure compliance with the following minimum requirements. Only those financing that do not satisfy these minimum requirements will be referred to the Debt Advisory Committee for review and comment. 1. For CFDs containing residential projects, the rate and method of apportionment of the special tax shall not provide for an annually increasing iAuMbs\4218080Lpol - 11 - maximum special tax for any residential classification. However, for commercial and industrial projects within the CFD, the County will accept a maximum special tax for such classifications that escalates at a rate not to exceed two percent (2%) per year. 2. For CFDs, the total projected annual special tax revenues, less estimated annual administrative expenses, must exceed the projected annual gross debt service on the bonds by ten percent (10%). In structuring the rate and method of apportionment of the special tax, projected annual interest earnings may also be included as part of the projected annual revenues to satisfy this coverage requirement. Annual bond reserve fund interest earnings shall be calculated at a rate to be determined by the County but, in no event greater than the then current passbook savings rate. 3. Whether the projected ad valorem property tax and other direct and overlapping debt for the property within the proposed boundaries of the CFD, including the proposed maximum special tax, does meet the County's objective of not exceeding two percent (2%) of the anticipated assessed value of each improved parcel upon completion of the private improvements as articulated in Sections V.D. will be reviewed. This review will include current or estimated County Service Area or Community Service District charges, benefit assessments, levies for authorized but unissued debt and any other anticipated charge which may be included on the property tax bill. 4. With regard to any bonds to be issued, there will be created a reserve fund that shall be funded from the proceeds of each series of bonds. 5. Ifthe County or its related districts or agencies are to: a. own, operate, or maintain a majority of the facilities to be financed, or, b. be the single largest recipient of the facilities to be financed, or, C. own, operate or maintain facilities having a combined construction cost of $100,000 or more, including design, engineering, construction contingencies and related costs of the construction project, then the County will require that all of the appropriate Policies set forth herein. shall be adhered to before entering into a joint community facilities agreement. iAuMos\42180801.po1 — 12 — SECTION VM: CREDIT ENHANCEMENTS Credit enhancements, if required by the County, are to be utilized either to improve the credit worthiness of the proposed financing or to insure that the debt service requirements of the proposed debt issue are met in a timely manner. It is important to the County to minimize the possibility of a debt issue being placed in default and to insure that sufficient cash flows are available to meet debt service requirements. The County will examine carefully the provider of the required credit facility and the form that the credit facility will take. The rating of the provider, as well as the provider's capitalization, are of principal concern, and a reduction in either during the term of the credit facility to a level unacceptable to the County may require that an alternate credit facility be secured from an acceptable provider. The County reserve the right, in its sole discretion, to determine the acceptability of both the credit facility and its provider. SECTION IAC: OFFERING STATEMENTS It is the intent of the County to comply with all applicable federal or state requirements regarding disclosure to insure that fair and accurate descriptions of debt issues are provided to the purchasers of the bonds. The County will require retention of counsel by an underwriter or disclosure counsel for any particular land secured or conduit financing have an aggregate principal value of$1,000,000 or more. Decisions as to the adequacy of the disclosure will be determined by the County, its counsel, bond counsel and underwriter or disclosure counsel. No preliminary or final offering statement for a particular land secured or conduit financing will be released for circulation unless it is deemed final by the County on the advise of its counsel and/or bond counsel. The proponent(s) of a particular land secured or conduit financing and all principal participants therein are expected to provide the information requested by the County, its counsel, the underwriter, its counsel, disclosure counsel or bond counsel that is deemed necessary for disclosure purposes. Failure on the part of the proponent and any principal participants to comply with such requests will jeopardize completion of the debt issue. The proponent of a particular land secured or conduit financing and all principal participants therein will be required to execute those certificates and provide those written opinions of their respective counsel that are required by the terms of the bond purchase agreement. Failure to do so will result in the bonds not being sold and issued. is\O\fos\42180801.pol — 13 — SECTION X.: ADMINISTRATION All matters related to administration of issued bonds are to be handled consistent with the terms of the trust indenture or fiscal agent agreement pursuant to which the bonds were sold. Administrative responsibilities with regard to the bonds and the project being financed by bond proceeds will vary depending upon the nature of the project. A. Debt Administration CFD bonds are issued pursuant to bond indentures or fiscal agent agreements which identify the Auditor-Controller of the County to have administrative responsibility for these debt issues. This includes, among other duties, the computation and enrollment of the special tax, payment of principal and interest on the bonds, initiation of foreclosure proceedings with regard to delinquent parcels, and management and investment of monies held in all funds and accounts created by the bond indentures or fiscal agent agreements. B. Notice to Future Property Owners The Act requires that certain disclosure certificates regarding the existence of a CFD and the special tax obligation be provided to those individuals purchasing property within the CFD. The County will require that the statutorily prescribed disclosure be made to the initial purchaser of property within a CFD, and it will make available the information necessary to complete the disclosure certificate required for secondary transfers. In its sole discretion, the County may require additional disclosure if to do so will aid subsequent purchasers to be made aware of the existence of the CFD and the lien obligations created by the special tax. C. Annual1teporting The County departments or related districts or agencies identified in Section X. of these Policies as having responsibility for bond administration will prepare and timely file with the state and federal agencies all statutorily required reports. Consistent with Section III of these Policies, County departments or related districts or agencies having responsibility for bond administration are to prepare and submit annually to the Auditor Controller of the County a report on the status of their respective debt issues on forms to be provided by the Debt Advisory Committee. The occurrence of technical default, or the likelihood thereof, is to be reported immediately to the Auditor Controller of the County by the administering department or related district or agency. For the purposes of these Policies, the term "technical default" shall mean the occurrence of an event or omission that may result in the inability to make timely payment of debt service on the financing or would jeopardize the tax exempt status of the financing (e.g., the need to draw on a iAu3%'os\4218080Lpoi - 14 - r reserve fund, the insolvency or bankruptcy of a principal property owner, the insolvency of a provider of a credit enhancement, or insufficient funds to make a required rebate payment). The information contained in these reports will allow the Auditor Controller of the County to prepare an analysis of the outstanding debt of the County and its related districts or agencies. SECTION XI: REFUNDINGS The principal objective of the County in refunding an outstanding debt issue is to secure a public benefit which may include an interest rate savings that will result in both an annual and present value savings to the property owners responsible for paying debt service on the bonds. The actual value of the savings must significantly exceed the costs of the refunding and any increase in the principal amount of bonds that will be outstanding as a result of the refunding. Refunding of a particular CFD financing must at minimum be structured to reflect the following: 1. The refunding bonds shall mature on a date not later than the date on which the bonds being refunded (the "prior bonds") mature. 2. Annual debt service savings to be realized from the refunding are to be apportioned over the remaining life of the refunding bonds. 3. The prior bonds (or any portion thereof being refunded) are to be legally defeased in accordance with the indenture or fiscal agent agreement authorizing their issuance. If there is no provision for their defeasance, a defeasance escrow shall be established that will contain only cash or direct obligations of the United States. 4. A refunding that results in an increase in the principal amount of bonds outstanding must consider prepayments that have been received prior to the refunding. The County will also consider refunding an outstanding land secured financing to address unacceptable or unworkable bond covenants, debt service schedules or bond maturities. iAuMos\42180801.pol - 15 -