January 27, 2006

EEHVS Task Force update

Alternative funding mechanism discussions raise question, concerns

By Candy Richter
Staff Writer

The primary focus of the January 18 Evergreen East Hills Visioning Task Force meeting was the Trade-off Analysis presentation prepared by MuniFinancial outlining the available local funding sources for the proposed $235 million development of land parcels in the Evergreen area. Presented by Bob Spenser of MuniFinancial, the analysis introduced a three-pronged approach to the finance model, identifying the Developer/property owner contribution, the CFD, or Community Facilities District, and Impact Fees, for those as yet unidentified properties that may apply for building allocations later.

Of particular interest to many of the Task Force members was the CFD portion of the equation. The example showed a tax similar to a mello-roos funding mechanism. This CFD would be passed along to the homeowner in the form of a special 1.75 percent property tax or bond that would only affect home buyers of the new development units. According to Spenser, this type of funding model is “very common in newly developed areas around the state,” and is, in fact, currently in affect within 10 home developments in the city of San Jose.

Not in the original plan
One of the main concerns voiced by Task Force members and attendees alike was that the idea of a shared financial burden was not in the initial cost analysis presented by the developers to the original Evergreen Visioning Plan members.

“Until recently, it was always said that the developers would fully fund this project,” said Task Force member Homing Yip. “This [change] makes everyone very upset.”

This sentiment was echoed by fellow Task Force member Jim Zito “This stirs up lots of curiosity and doubt in the community. What problem are we solving? Who benefits?”

However, according to Andrew Crabtree, Principle Planner for the City of San Jose, the concept of a “shared financial mechanism” between the property owners and the homeowners has been part of the conversation since at least Sept. of 2004.

“This is not an unusual arrangement,” said Crabtree.

When the city approves land for development, it is not uncommon for the developers to approach the city for funding mechanisms to pay for infrastructure projects like street improvements, etc.

“When we initiated discussions on funding finance mechanisms for the Evergreen projects, we didn’t necessarily know that we’re going to go with a CFD,” said Timm Borden, Deputy Director of Planning for the City of San Jose.

“There are other finance mechanisms that our consultants may choose. It depends on the situation. If you go back in time in Evergreen, it began with a memo to council in 2003.” Borden explained that there was no discussion of a CFD per se, but rather approval of a funding agreement. Staff was instructed to initiate and complete an infrastructure financing mechanism. “It wasn’t until June 21, 2004 that the term CFD was finally used,” said Borden.

While Zito acknowledges that semantics may have played some small part in the original Task Force’s understanding of the financial model, he also pointed out that the early spreadsheets provided by the developer gave a different impression of the funding source. “The way it was presented to the existing task force as far as it being a mello-roos-type tax, that could be levied against the future homeowners and speaking with the previous EVP [members] as far as I can tell, we do not remember hearing anything about a mello-roos-type tax levied against new owners. They did mention bonding that had to be taken out in order to fund infrastructure, but that bonding was to be funded through developer contributions.”

Other concerns that came out of the January Task Force presentation included how a CFD would potentially impact the passage of future bonding measures for community projects like libraries or schools. And although these questions were posed, no real answers were provided.

As with many of the past Task Force meetings, the stacked agenda, short time frame and brisk pace of the sessions all seem to work against any in-depth resolutions.

“How can we address these issues in a two-hour meeting?” said Zito. They are so structured; we rarely have true, constructive dialogue. We make our comments, they’re recorded somewhere, and it’s off to the next topic.”

Frustration with the infrastructure process
Amenities and infrastructure support is what the CFD-generated funds will be supporting in these newly-developed areas of Evergreen. The challenge is that many area residents are already frustrated with a system that they see as inadequate for the current population. If the current infrastructure is not able to keep up with the demands of Evergreen’s present needs, what impact will a proposed 5,700 unit development have on an already unmanageable system?

“The developers purchased the land when it was zoned for industrial use and now want to change [the zoning],” said Yip. “The housing policy cannot be approved [before] traffic measures are in place. These amenities are very expensive.”

“In some cases there were specific [traffic] projects that were developer-funded,” said Zito. “These projects were never completed. What happened to that money? Is it still there? Or was it diverted to fill a pothole in another neighborhood?

According to Borden, the uses of bond or special tax funds are very concretely defined. “The uses of funds are reaffirmed when bonds are sold and cannot be co-mingled or deferred,” said Borden. Even if a project is postponed, the funds are held in a reserve account indefinitely.

Nothing has been decided
Although the recommendations of the EEHVS Task Force are scheduled to go to Council in June, Borden stressed that no one CFD financing model has been decided on.

“We feel that we’ve been fairly transparent with this idea that there would be some financial mechanism back in the beginning, but at this point, nothing has been approved by council.”

The next EEHVS Task Force Meeting will be held on Saturday, February 25 at 9 a.m., at a location to be determined. For the latest information on EEHVS meetings, go to http://www.sanjoseca.gov/planning/evergreen/.