City Council - Regular Meeting

I'm gonna call the July 14th study session to order. I'd like to note that we have two absent council members. That's Mayor Pro Tem Burton and Council Person Comstock. If you'd please stand. Council Person Lucio's gonna lead us in the flag salute.

Please put your right hand over your heart. Ready, begin. I pledge allegiance to the flag of the United States of America and to the Republic for which it stands, one nation under God, indivisible, with liberty and justice for all. Thank you, Mark.

Okay, this is the time and the place for the general public to address the council about subjects that are on the agenda only. Due to council policy and Brown Act requirements, action cannot be taken on any issues that are not on the agenda. Ordinance number 9708, Chino Municipal Code section 2.04.090. limits speakers to no more than five minutes in which to address the council, except as provided under government code 54954.3b2. If more than three persons seek to address the same agenda item or the same subject matter, the mayor may establish a maximum period of time not to exceed 30 minutes. Do we have any green cards written this evening?

No, and no remote callers.

Do we have any remote callers? No. Requests, no. Is there anyone in the audience that would like to address the items on the agenda? Okay, seeing none, then we'll move into our study section. Item number one, section 115, trust for pensions and other post-employment benefits. Our staff report this evening will be provided by our Director of Finance, Kim Sal, and the Schuster Advisory Group, gentleman Mark Schuster.

Thank you Madam Mayor and members of the City Council. Tonight the presentation will be provided by Mark Schuster and his partner Joanne Perino. And before he starts, I would like to give a brief introduction. Mark Schuster is the Private Wealth and Retirement Managing Partner and National Managing Director of Government Markets with Schuster Advisory Group. an independent fiduciary investment advisory firm serving public agencies nationwide. Since 2018, Schuster Advisory Group has served as the city's fiduciary advisor for the 457B, 401A, Retirement Health Savings, and part-time seasonal plans. In this role, they provide independent oversight of the city's defined contribution plans, monitor investment performance, review fees, and support compliance with applicable fiduciary standards. During their tenure, they have helped the city reduce record keeping and administration costs, and have supported updates to the investment options available to employees. In addition to overseeing the city's defined contribution plans, Schuster Advisory Group also provides analysis and support for Section 115 trust programs used by public agencies to pre-fund pension and other post-employment benefits, also known as OPEB. Although the City of Chino does not currently maintain a Section 115 trust, staff asked Schuster Advisory Group to prepare an analysis of the City's pension and OPEB liabilities to help inform future policy discussions. Mark will now present that report to the Council.

Wonderful. Thank you, Kim. Appreciate Mayor and Council for allowing us to present today. For our presentation today, we want to discuss the use of a 115 trust and why you set aside dollars into the future. Like any other type of investment that all of you may have been involved in, whether it's your own retirement plan, a 529 plan for your children, you want to have your dollars work for you in a manner that takes advantage of compounded growth. What is very unique to government agencies is the fact you have a code 53601 that limits what you can invest in as far as your general account. That limitation, based upon current interest rates and what the code allows for, realistically would provide any type of city investment anywhere from a 2% to 5% annual return. Currently right now, because interest rates are higher, you can be yielding around 3.5% to 4%. That's the great news. The bad news is, if we go back four years, you have CDs at 25 basis points and bonds being issued at 1%. And so with that, one of the reasons why a 115 trust was created was for any agency to take in a little bit more control of their dollars. Have those dollars that you own, you control, you customize to who your city is. And that is the whole premise of a 115 trust. You can customize it to the city of Chino. And so what we have today is why would you would use one to save for the future for either a OPEB liability that you currently have, and of course a pension liability that is perpetual. It is not going away. What it looks like in the future may be very different. As you all know, you have Classic, you have PEPRA. Realistically, there'll be a PEPRA II and a PEPRA III in the future funding those liabilities. Now, what can you do as a city to help control that? Part of it just falls under your responsibility of a code called 53600.3, which means you are the fiduciary of every dollar that comes to a city. And with that, it's critical that you look at this to take advantage of what the codes allow you to do to earn in a portfolio what you can earn. Obviously, under 53601, you are limited. But in 115, it is unlimited. There is no code on what you could invest in. No differently than today, CalPERS can go out and invest in any investment in the marketplace. As you probably saw the other day, the returns for 630 came out. The good news is they far exceeded 6.80, which is their hurdle rate or their discount rate. That's the good news. The bad news is for the eighth out of the last 11 years, they've underperformed their own benchmark. Benchmark being a Morningstar or a 70% equities, 30% fixed income. There are a variety of reasons why they underperform. I'm not here today to talk about those, but the bottom line is they can struggle when markets are robust. What we're going to show you today is what would it do to the city to help you in the future, getting your money to work for you in a capacity that doesn't have to be aggressive, But take advantage of what the markets give you. If you go back the last six years, whether it's the stock market or the bond market, we've never had more volatile interest rates or stock markets ever before in the history of this country. That's the bad news. The good news is it's worked out well. The markets have performed extremely well because companies are profitable. They are making money. in the marketplace today. And with that, you can take advantage of what the markets are giving you and have your money work for you, whether it's conservative, moderate or aggressive. Not advocating one or the other, but it's allowing your money to work for you more than a 3.93 rate of return. Because what you're paying out today for your pension liability and your OPEB liability, you're just stripping out your existing dollars out of your general account. That's only earning 393 when then what you're stripping out is more like 6%. So, inevitably, you're going to be depleting your own principle. And for anybody that saves for the future, for your own retirement, for your city, for your children, you want it to grow so that you don't run out of money. So, what we're going to do today is illustrate if you were to do a 115, how would you do it? What would be the best method to go ahead and build a 115? So as a reminder, a 115 trust is an irrevocable trust. So think of your own personal money. Today, you might have a living trust that you can change your mind on where the dollars go. With an irrevocable trust, they can only be earmarked for OPEB expenses or liabilities or your pension liability. They cannot be used to fix roads, to hire people, but they can be reimbursed back into the city coffers. So as an example, if you had a $10 million 115 trust and you had assets sitting in them and each year you spent 500 grand a year on either pension stabilization or OPEB liability, you could be reimbursed for your 500 grand a year and then you could go spend that on anything you want in the city. You can be reimbursed on an annual basis for any expenses that go out the door. Now, what do most cities do? They let it grow to let their money work for them. Ideally, you're not pulling out the money every year, no differently than you saving for your own retirement and deciding when you're 42, let's start pulling out my money because I need to pay bills. You want it to be there for the future and let it compound and grow for you. So ideally, You let this money grow so that inevitably the money that accumulates is paying for your pension outlay each year and your OPEB outlay each year, no differently than when you get to retirement, you want your investments to pay for your retirement because you're not working any longer. So that's the whole simple concept about a 115 trust, whether it's an OPEB or a pension stabilization. So what we're going to do today is look at some examples. And quickly, just to share a little bit, Sarah, if you would, as mentioned by Kim, we do work for... over 100 agencies, 100 cities, from your neighbors all around you to Beverly Hills to Palo Alto. We are doing this type of work, bringing candidly what is being done in the private sector to government that has not been there in the past. Whether it's a 457, a 115, or any other type of investments within a city, we're just trying to bring state-of-the-art, and over the last 10 years have transferred over $18 billion into cities' hands versus the vendors in the marketplace. That's the kind of reduction, and as Kim mentioned, we reduced the fees in the city's plan 93%. going back eight years ago. And so with that, here's how this works. And I'm going to go right to some spreadsheets. So I think you all have a handout. But with that, I'm going to go to a page that this slide here. And this slide shows an example of taking a portion of over your $300 million that you have in all of your cash, money market, treasuries and allocating that and so we'll use as an example 10 million dollars so what would happen if today you took that 10 million dollars and said let's pay our opeb liability and our opeb liability you can see in that distribution that first year is 432 000 that is what is needed to fund those obligations that the city has so if you look at that 10 million and we go out to 2039 if you earned 3.93 which is the average rate of return over the last 20 years, you would see that 10 million would go down to 4.2 million in 2039. Because even though you're earning interest at 393, what you're paying out is higher. So then you look at, well, what would happen if we used 20% equities and then the balance of it into bonds. You can see that it gets better. You're ready to return at 547, and the amount of money you're left at the end is $3 million more. But again, it's not self-sustaining. So then you move on to 30% equities. And then if you would change the slide. to 40% equities, 50% and 60. So you can see it's 60% equities, which, by the way, is considered to be a moderate portfolio. When you look out at investments, balanced is 50-50, moderate is 60-40, and then defined aggressive. You can have conservative aggressive and you can have aggressive aggressive. Aggressive is Bitcoin. To put it into perspective from an investment portfolio, the safest investment in the world is a U.S. Treasury. It's considered on a scale of 1 to 100, a 1. Just to put into perspective, Bitcoin is 100. Is it bad? Is it good? Is it real? Is it fake? We'll let others debate that. The point is it's 100 times riskier than the safest investment in the world. So when you start to look at portfolios, you analyze, do we want to be conservative, moderate, aggressive, et cetera? But as an example for what many cities do is they go into a 60-40 portfolio. Now, again, to put it in an apple-to-apple, currently CalPERS for the defined benefit plan is a 70-30. They are in 70% equities and 30% bonds or fixed income to meet that 6.80 obligation going forward. This year they earned 14%, which is great. Our 60-40 earned 17%. just to put into perspective how things are being invested. But at 60-40, if you look at it, you can see that over the next to 2041, you'd end up with 10.7 million. Now, you could access those dollars at any time, and during that, you paid for your entire OPEB liability the entire time on an annual basis. That is the goal. You're using these dollars. Again, if the city ever needed the money back, you could get reimbursed for the entire amount. Again, it's not what you ever want to do, but you can do that. That is the beauty of having a 115 trust. It is an asset of the agency. It is irrevocable for those purposes only, but your expenses can be reimbursed. When you look at this type of portfolio, even if you said, I want it to grow, you'd start to look at really at this point, once you get above 10 million, it's really only 10 and a half million or 11 million that allows this to grow to 15, 20 million. because you're able to pay for your obligation at the same time accrue. We have a city recently that did not have a 115. And they are fearful for the future. What does pension stabilization look like? They have an OPEB liability. It was $38 million. They're funding that out of both a 115 and cash flow. But their real fear was, what does the future look like for pensions for all of our employees? So the goal was to accumulate $100 million, and that $100 million so it could generate on an annual basis $6 to $7 million of income to pay for that obligation to PERS going forward while maintaining that principle. And so these are ways that you can design this. But when you look at your total holdings of over 300 million, carving out just 3% to 4% of it to put into a 115 trust is prudent. You are simply taking advantage of what the laws are giving you to say you can go out and invest something that can earn more than 393. So what you're really doing here is simply taking a rate of return of 692 versus 393 and that delta is what you're putting in your pocket and are paying for those ongoing obligations versus the first scenario where you're depleting it. And that is really where you sit today. That money is coming out of cash flow and or your investment earnings And yet, in theory, it's depleting because you're eating away at your principal because your outlay is greater than the investment earnings, not because you're doing anything wrong, simply because the bond market and the law says you can only earn so much money in these type of investments. So let me stop there a second and answer any questions from what I've just described.

Do you have any questions right now? What is our EPEB liability right now?

Roughly, because it moves, around $15 million. 15? 15. Okay.

And our PERS?

Do we know our PERS? What's that? Our PERS liability? I don't have that in front of me.

So we're looking at OPEB and then our yearly payment versus our unfunded liability, which is a separate amount that we owe.

What is our yearly payment?

Was it 3.6 this year for PERS? I'm sorry, the... Just our PERS payment. Was it 3.6, Kim? That's, right. I think that's what it was, 3.6 million a year. And what do we pay for OPIP?

That number is around $400,000. If you look on, it's 432 in 2027. That'll be your outlay. And the year after that, it's 491. And this comes out of your actuarial review. Okay. So that is accruing each year. Okay. The OPEB liability, it's like all medical care. It's out of your control to some degree. You don't control what they're going to charge you no differently than you don't control today what CalPERS is going to earn in their portfolio. You always don't control your own budgets as far as overhead, as far as employees too. So you want that flexibility to hedge against what markets are doing. And part of the whole point of a 115 is you're hedging in your own control and who Chino is, what you want in your investments. Because you don't control anything CalPERS does. They invest where they want to invest, you have zero control. In a 115, you can hedge against that and say, we want to customize it more to who we are in a portfolio versus what CalPERS is doing on our behalf. And it's that balancing act.

But we're not experts in investing, obviously. So who makes the decision of what equities this money goes into?

We do.

You do.

And I can share with you now, if you would pull up, Michael or Sarah, our performance in these portfolios. So we have performance today. And I will compare this right now. If you would first pull up versus CalPERS. Well, here's our performance. So if you just look at... Oops, go back. Here's our portfolios, and so I want to describe what you have. This is as of 5-31-26. 6-30 numbers are still coming in and being calculated. But the very first, when you see zero at the front of any investment, that is always equities or stocks. The second number is always fixed income or bonds as you know it. And then as you go down, you're adding 10, 20, 30, 40%. So you can see just in the last 12 months, in an all equity portfolio, it did 30.53% rate of return. In just a balanced 50-50, it did 18.85, and in a 60, 21% rate of return, net of fees. And so what we do is we are completely agnostic. We are an independent fiduciary only looking at your best interest. We could care less if it's Vanguard or Fidelity, if it's American funds. It is about who performs and how do you get there. You look at overall markets. So I am now going to go to a comparison in the CalPERS 115. CalPERS 115 is limited. They only give you three investment options in OPEB, and they give you two in pension stabilization. So again, these returns as of 5-31, and again, I'm not here to advocate, but to compare a 16-05 and a 40-60 compared to 14-64. Why is that? Because we don't use just one investment company. we use the best in the industry. There is no investment firm in the world that's best at everything. PIMCO is great at bonds. Fidelity is great at equities. Other firms are great in small cap, large cap, or mid cap. They specialize in certain areas. And we take advantage of that, extremely low cost fees. So this is how we, the results of portfolios. Now, to answer your question even deeper, Mayor, let me go to an analytical comparison of every investment class in the world. And this is called the BlackRock Aladdin system that almost every major country and firm in the world utilizes. And not to overbear you, but this is every investment in the world and what it does is it takes a projection of five to thirty years that based upon current and uh... the incurring environment and when i say current as of a week ago what's going on in the middle east what's happening with oil what's happening with interest rates what could happen with inflation and it projects not only the long-term rate of return but if you look on the far right hand side the risk the volatility And one of our objectives is always is you don't want to take any more risk than you need to get a good rate of return. That's called beta. And so you want to look at what is valuable. You think about the movie Moneyball. Remember what Moneyball came from. It came from the financial services world that does this kind of analytics. It was about taking the emotion out of decision making and simply looking at data to look at where you should invest your money, and how much risk you should take in investing your money. So you take this data, Mayor, and then you go to this next slide. where it takes what does the risk look like when you invest your money. And I'll use an example of 50-50 that you see in the middle of the page. And you look at 50-50 and it says long term if I invest for any of you, whether it's the city money or your personal money, if I go out and invest 50% equities and 50% bonds, what is the probability within a 95% probability and accuracy, what am I going to earn? And what does that say after 30 years? It's roughly between 6.5% and 7.25%. So then you back into the numbers I showed you earlier that if you earned 6%, you would not only sustain your $10 million, but you would have paid for every bill along the way without depleting your portfolio. But then you look to the right-hand side and it says, well, what would happen in a bad year and what would happen in a good year? A bad year, if you had a million dollars, you could be down 90 grand. In a good year, you could be up 160 grand. That's the range of flexibility of where markets move. What do we know historically? Historically, markets are up seven out of 10 years. They're going to be down three years. We don't know when those are, but they're going to happen. It is about staying the course and making sure that you have a disciplined philosophy. So, Mayor, the answer is we look at your discount rate. We look at that 393 or that dollar figure you're paying out, and then we say, okay, how do we beat that? CalPERS at 680 has a benchmark of 680. That's what they're calculating your payment at. If they exceed it... they're in the money. If they're under it, they come back to Kim and say, send me the money, send me more money, if they don't meet it. You're always trying to exceed it without taking risks. So we meet with your staff to determine what you're trying to beat, what you're trying to accomplish. And I can share with you that cities are everywhere from a 2080 to all equities. There are cities out there that put in their 115. We have a 100-year pension liability. This isn't going away in 10, 15, or 20 years. It will always be here. And based upon probability, we're all equities, 100%. If Warren Buffett were sitting in this room right now, he'd tell you to put all your money over the next 30 years in the S&P 500. And he'd probably be right. I'm not saying you do that here in Chino, but we sit with your staff to determine what allocation you should be in. And when markets move, we move with them. And that is why you see the returns you've seen. It's not because we're rocket scientists. But if you have not moved with the market the last six years, you missed the market because it's been that dramatic and that volatile over the last six years. Do we expect anything less over the next 10 years? No, we don't. So saving for the future is not something we invented. It's just putting monies aside. And the reason the 115s are used is because cities said we need to do more than just earn 3.9%. It's not going to get us to where we need to be with all of our obligations in the future. So our recommendation, if the city were to implement it, is to take a dollar figure between $10 million and $12 million and set it aside for OPEB and a pension stabilization to let the money grow. And again, in the future, if there was ever an emergency that the city said, we need the money, you get your reimbursement back of everything your outlay was.

How do you determine whether it's 10 or 12 million or 14 or eight?

The rate of return. Great question. You look at, well, I'll use that last example. And if you would pull that back up, Sarah. There we go. And go down to the lower slide at 60-40. So we did not show anything beyond a 60-40. Mayor, we simply showed a 60%, but based upon a rate of return of 692, between 2027 and 2041, you will have paid for all of your obligations. You see that in the distribution, and you would still have $10.7 million. Now, obviously, if it were only $8 million, it'd be less than that. If you had $12 million, you would be accumulating more money because what I can assure you is expenses are not going to go down. They're going to go up.

Can you add to this every year?

Yeah, every year. In fact, we have cities put in $20 million, $30 million a year to get to a level where We have cities putting in a half a million dollars a year. It all depends upon what their liability is, how their cash flow is, and you have good cash flow. And then you look at this overall, and it's like any other type of retirement or savings account that you're going to look at this on an annual basis. You always want to put it in your budget, but in a given year, if it's a tougher year, you put in less. If it's a better year, you put in more. Look, this doesn't take away from you wanting to fix your roads, okay, and to have your facilities and your employees taken care of. It's like any other investment. You want to take a few dollars, set it aside, and let it grow and compound. Compounding is your greatest ally in investments, especially when you're not paying tax. And as a reminder, 115s... are exempt from all tax like cities are. So that compounding takes into account even more. Mayor, I can later on show you an example. What if we did not pull out the 400 grand a year and the 500 and the 600? your number would be double. There's something called a rule of 72. So for all of you with your investment, it's called the rule of 72. Do any type of multiple to get to 72. So it's really simple. Eight times nine is 72. If you earn 8% a year, it would take you nine years to double your money. So if you earn 9%, it'll only take you eight years. And your 10 million would become 20 million. Now, if you had 20 million and you earned 5% a year, you'd be taking that and be making a million dollars a year in just investment earnings while never dipping into your principal. And so it's about accumulating dollars, which you've done in your general account. We're simply telling you to allocate into a 115, 10 to 15 to 20 million so you can earn 6, 7, 8, 9, 12, 20%. that the markets are giving you, okay, and versus 393 forever.

Do you have any questions or comments?

Okay. Mark, I have a quick question. This model here shows the payment for OPEB liability. Could the trust fund be a combined for OPEB and pension?

Yeah, typically most cities do create both a pension stabilization and an OPEB account. Again, typically your liability for OPEB is much lower than your pension stabilization and oftentimes your OPEB is frozen. You're not having to fund for any type of new future liability. Every agency is different. Pension stabilization is never going to go away. In the future, Kim, Is it only going to be a defined benefit plan for government employees? Probably not. Realistically, most people believe it's going to go towards what the private sector did 50 years ago. Start to create profit sharing plans, start to create cash balance plans where it's a combination of both a defined benefit and a defined contribution Either way, the city will have an obligation to fund. What that funding mechanism goes into could be different in the future.

It's a lot to take in.

Could you repeat it?

I'm joking.

No, I'm joking. Look, and that is why the agencies you've seen on the screen have brought us in. I'm going to share, if you would go back to the private sector slide, Sarah. We've done this for 30 years in the privately held, publicly held, the largest companies in the United States. solving these same issues. The only difference is you're a nonprofit. This is the public's money. In those situations, it's shareholders or the owner of the company. And that's the only difference. Either way, you want best of class. And it's simply bringing best of class and doing these type of analytics so that you're in a healthy place. What is so different about government than the private sector is you have many more codes and laws so that you don't repeat an Orange County or any other debacle that has happened over time. But in fairness, there have been far fewer debacles in cities than there have been in corporations. Those don't get publicized, cities do. And so you do have so many very definitive codes that protect a city. A 115 was created to not only protect a city, but to help a city. And by protected is you have these future liabilities. You can see them. How do you beat them when you can only earn 393? You can't. So you have to do more than that. And how do you do more than that? In a 115 trust.

Okay. Thank you very much for all the information. Linda, what is our next step?

You're finished, right? Or did you have more? No, I think we're finished. So the next step as, you know, Council Member Flores and the Mayor, you know, we had another presentation on the CalPERS. In September, we'll have that presentation for the full Council and then we'll have a discussion whether or not the Council truly wants to go into 115 plan to secure our future. So that's the goal for now. And then we have a different presentation tonight. So if you don't have any more questions for Mr. Schuster, then we can move on to the next one. Well, thank you very much. You've given us quite a bit to consider.

Thank you very much. Thank you.

Thank you, Mark and Joanne. Thank you. Enjoy your dinner tonight. Okay, next.

We have a long-term community facilities district. And this, once again, will be Kim Sao. And then Mr. John White from Urban Futures. And Heidi, is it Shepi? Shepi from Webb Municipal Finance. Do we have any handouts for that? No?

Okay. I offered. I offered.

That's very nice of you.

Madam Mayor, I would like to turn this report over to John and Heidi. Go ahead, thank you.

Is someone going to advance the slide for me? Great, thank you.

You are.

Good evening, it's my pleasure to be here to discuss Long-term CFDs. Every time you see me before the City Council, we've been talking about CFDs and the sales of bonds. And today we're going to talk about the possibility that the levy of the special tax, the facility special tax, might extend beyond like a 30- or 40-year period. Currently, that's the period, and it's in place to secure bonds that are sold. The presentation is going to discuss another alternative because there have been certain parties in the community who have argued that the City Council might want to consider extending the term. So just like the other gentlemen, we're here, we're agnostic. We're here to provide information to you and answer your questions. There's benefits and costs of what we're being discussed. So some of these These concepts should sound familiar because they've been incorporated in the existing CFDs. I'm a finance guy. I understood those slides earlier. Heidi is a CFD specialist, knows about special tax in a little more detail. So collectively, we'll be able to cover this.

Okay.

So the city has utilized CFDs since the 1990s to fund facilities and services. It's primarily related to the housing development in the preserve and college park developments. Now the bonds that are sold, as we've discussed over the years, by special taxes that are levied and paid for homeowners in the various CFDs. So when a homeowner goes to buy a home in a particular area, they have disclosure as to the cost of the home and the existing taxes that will be paid, and the Melrose tax is disclosed. Also, we've mentioned before, which is important, that the city is not on the line financially. You've been fortunate in that there's been no defaults or the inability to pay taxes and the bondholders have always been paid on time. But should that happen in the future, the city's not on the line. And I know you would care very much about the investors and the property owners, but I just always want to reassure you that you're a conduit and you're facilitating this to construct and finance the improvements that are laid out in the development agreement that you enter into with the various developers that you do business within the city. Am I supposed to be pointing something? Okay, next slide. Got an assistant now, this is great. The city CFDs have a, so it's a facilities special tax and a services special tax. As mentioned before, the facility special tax is used to secure bonds. And the selling of the bonds allows you to monetize this revenue stream. If you wait it over time, that's a pay go, a concept that we'll talk about later. It's like trying to buy a house. If you wait to accumulate enough on a pay-as-you-go basis, you're never going to get there because it just takes a long time and or prices go up. So the facility special tax allows you to upfront the money and you pay it back with the bonds with these revenues. The service special tax is used for a variety of services laid out here. It includes public safety, parks and recreation, library services, maintenance and lighting, parkways, streets, roads, open space, and floods and storm protection services. This is a general description as laid out by the Melrose Law. I know the particulars for the city of Chino may be different development by development. This is generally what's allowed. Now the special tax collection for facility CFDs are typically 30 to 40 years. You put the tax in place and you wait for the development to get to a certain point where it makes sense. They have enough development to generate revenues that you can sell meaningful a bond issue. But the point is the tax is put in place before the bonds are sold. So while your bonds are typically 30 years, this tax is in place 30 to 40. That delta of 10 is to allow for the development to get to a place where you can sell the bonds. And as you know, development, I mean, lately it's been very accelerated, but sometimes it goes and stops and starts, if you will. So that's why it's a 30 to 40 year period. And the special tax revenues for services CFDs are in perpetuity. That's in place because there will always be a need for these services. Is there any questions so far?

So for example, we may have CFD that were formed in 2023, but three years later, we are now just issuing bonds for those CFDs. So when John says the delta of 10 years, even though the bond is 30 years, We have extra 10 years for that lifetime for us to issue the bonds at a later time, even though the formation happened a few years back.

Next slide, please. Okay, so this is the concept, the long-term facility CFDs. As a mean to generate revenue for additional future facilities and to maintain existing, bless you, existing facilities, municipalities have considered extending the special tax beyond the term of any CFD bond, thus generating this pay-as-you-go revenue for a longer period of time. The uses, and again, this is laid out in the Melrose Law, you can do the acquisition of facilities, the payment of additional facility costs in later years, repair and replacement of facilities, and contribution for major projects for which funding could be delayed. These decisions are made by the city. Now, I understand and the city attorney understands there's development agreements and there may be restrictions or enumerations as to how many homes the developer can build and the types of projects. The special taxes are there to pay off the bonds, but once the bonds are paid off, there still can be this revenue stream, and what the city decides to do with that is the city's decision. Did I say something confusing, Mayor? I think maybe I didn't quite say that artfully.

You say special tax is in perpetuity, but you talk about it extending beyond the term of any CFD bonds. If they're in perpetuity, why are they tied to the term?

Great point. I wasn't clear enough. So the services is perpetuity. The long-term CFD that we're talking about is a facility. And by order of magnitude, I may be off a little here, but the services tax is like 0.1%. The facility tax can be, what would it be?

0.65 to 0.75% of the value of the home. Okay.

So the services is in perpetuity. This slide speaks to facilities. And so some of the existing CFDs that you have, the taxes in place say for 40 years and the bonds are say 30, and there's out there in year 31 where there will be facility special taxes that can be collected and there are no bonds that money needs to be directed to. And that surplus money, that pay-go money, could be used for these facilities. It is also the City Council's decision as to whether or not you would continue to levy that. As long as the bonds are outstanding, of course you need to levy it because you want to pay back bondholders. In that year 31 through 40, and I'm sure there's real reasons to levy it, it would be your decision as to whether you wanted to levy it and how that money would be used. Use consistent with the Mellow Roots Law for purposes that infrastructure that would benefit that particular project and benefit the property owners in that district.

So let's say, for example, a homeowner buys a house in 2006, and it's supposed to be a 30-year bond. So they're supposed to pay their facilities tax for 30 years. So is there that portion of the bond over in 2036, or are you saying it can still be continued a couple years after that?

Well, I agree with the math. So the bonds will be paid off in 36. if the uh... the special tax was put in place and in two thousand six and it had a forty year life you would have a from a thirty six to forty six that time frame there would be the ability to love the i'm not saying you would i'm just saying that's Remember, the facility special tax is in place longer because we don't know when. We're using 2006 when the tax is established and when the bonds are sold. There's scenarios where the tax is in place in 2006 and the development doesn't take place because there's a recession until 2013. So now you sell those 30-year bonds around 2043 and the delta is three years.

But I'm talking about the homeowner who signed paperwork saying your taxes are going to be assessed for 30 years.

For 40. That will be disclosed 40 years.

But we're talking, let's say, College Park. Mm-hmm. That started in 2006. Mm-hmm. I believe theirs said 30 years. Are you saying that it's really 40 years?

Heidi, well, my understanding is that the bonds are 30 years, but that the tax is 40 because we didn't know when the 30-year bond was going to be sold.

So we may have homeowners that are under the assumption that they're going to be done in 30 years, but really... My belief is that it would be disclosed.

The length of the tax is disclosed. So all the property owners would know it has a 40-year tax.

Yeah, so when the notice of special tax is provided to a homeowner to sign, the term of the tax is disclosed in the notice. Because even at the time the home is sold, the developer doesn't know when bonds are gonna be sold or when they're gonna mature. So the term of the tax is established to be at least 40 years out. Sometimes it could be more depending on how big the development is. 700 units, they might need more time to sell everything and get all the bonds sold. So depending on how big the development is, the term of the tax would be what's disclosed to the property owner. The bonds are sold a couple years after someone buys their home in 2006. The CFD was formed in 2005. Bonds might have been sold in 2007, depending on how development was going. I know a lot of the College Park improvement areas had series of bonds sold. Specifically in College Park, everything is levied at that assigned rate, and there's a development agreement, so that kind of comes into play a little bit. But the term of the bond issue was 30 years from 2005. There might have been a second series sold in 2007. Now that one's 30 years. And so it kind of just goes until all the bonds are matured. There might be some additional information in the development agreement that requires the city levy PAYGO until all facilities are reimbursed. But the term that is disclosed to property owners in the notice of special tax is the term of the tax, which is 40 years. And it's attached in the rate and method of apportionment, which is attached to the recorded notice of special tax. So that's what every property owner should have been disclosed and signed, is that term.

So even though they paid the additional taxes from from that year that they bought their home, they'll still continue to pay potentially more than 30 years after.

Through at least the maturity of the bonds and then determining how the development agreement is written, there could be room for additional facilities, special taxes to be collected after the bonds mature. And I think that would be up to your bond council and city attorney to determine whether they're eligible or whether they're allowed to have that additional revenue.

If I may, Mayor, just as a follow-up question, if let's say the council at some point wanted to extend the term of a particular CFD, I understand that nexus is fairly broad as far as what kind of expenses can be charged to the extended period. Like, for example, if a development didn't get the ADA improvements right, they can be deployed to address those, replacement of some of the infrastructure that has aged and things of that nature. Is that a fair explanation?

Correct. I just wanted to, because I heard extend the tax. It's the tax that's originally approved would be in place for the 40-year. I just don't want you to think that in the, Any of the existing CFDs that we've formed, it's not like you could today say, oh, it's a 40-year tax, let's make it 50. Did you get what I'm saying? That today's city council can't extend that. for the existing CFDs that are in place.

Yeah, and I think there's an assumption here that because it's a 30-year bond, the payment is 30 years.

Correct.

I think there's an assumption.

Right, okay.

So what you're saying is that when people have purchased their home, it says that this tax that you're paying this .75 plus .0, whatever, you're going to be paying this for 40 years, not 30 years.

It's disclosed that way. And I just want to say, we've not, the city and us, we've not gotten to that point.

We've not gotten to the end of one yet.

Where the bonds are paid off. And what Heidi was saying is that for the preserve, and I think the college part, when you negotiated the development agreement, that the sale of the bonds were never going to be sufficient.

Whoa, that's weird. Turn off more of the mic.

Yeah, I think my phone's off. Anyway, the proceeds of the bonds were never going to be sufficient to reimburse the developer for all of the eligible project costs. So built into this arrangement, like say this 40 years we're talking about, is a 30-year bond whenever it might be sold. And then after the bonds are matured, there's this revenue stream. And it's our understanding that for some of these developments, there's still a list of eligible facilities for which the developer will seek reimbursement. And that pursuant to the development agreement, it's their right to seek that. Now, the city attorney was saying, depending on interpretation, maybe they're I don't mean to be cynical. Where there is money, there will be justification. Did you get my point? We're not there yet, but that's how the tax revenues after the bonds are retired might be used. The developer might say, when we signed this development agreement, we laid out all these facilities at this expected cost. You sold the bonds. We got a lion's share of that, but there's still an element that was unfunded and we will seek to be reimbursed that whether there's maybe while the bonds are outstanding there might be a little revenue string a little sliver that wasn't needed for the bonds they would seek that and when the bonds are paid off there's going to be a large source of funds again it's not happened but that's what I understand is the likely scenario in the college park and the preserves

Now, there have been cases where we have refinanced bonds, correct, and gotten the interest rate down, and I think we have paid some off. I think. I'm not sure.

I don't think they were paid.

Or do we just refinance them? It was just refinancing to get better rates. Better rate. Now, who benefits by better rates?

Well, that's just it, and we talked about that, but you cover a lot of information, obviously a lot of issues. When we refunded, as I recall, there was four underlying districts that were refunded. Two were pay-go, so the signed tax, the tax that Heidi helped set, didn't change. And so the debt service on the bonds went down, and the residual I talked about went up, and that was available to the developer to reimburse them versus the pay-go. So what that does is accelerate how quickly the developer can get to the reimbursement. Now, if it's a finite amount of reimbursement, you could argue that then the taxpayer gets that benefit further out, but they still get the benefit. Now, there were some districts that were not pay go and so the tax went down and the debt service savings went directly to the benefit of the property owner, but that was per the development agreement on what kind of district it is. It had already been determined at the time it was formed. It was a 50-50 experience, Mayor.

Okay, so pay-go, the homeowner will still pay the same amount, and then whatever's left over, if the developer feels that they need to be reimbursed for something, they get reimbursed. Now, if they don't need reimbursement, the money that's paid in there, can it be put back into the facilities?

That's what we're saying. So what we're going to cover later on is this notion that PAYGO, while I think a lot of the focus has been on the developers getting reimbursed and maybe the impetus behind this was from developers, there is a scenario where either developers are satisfied or there's just that extra money. The city can use that for public infrastructure in the area.

Okay, so if we have a shortfall like ADA or storm drains or whatever and the money is left over, we can put it back in that development to improve the quality of life or whatever is needed.

Correct. And as Heidi and the city attorney was saying, you'd want to involve bond counsel just in the future to have that conversation because some projects... are really a no-brainer, if you will. No one would contest it. Others might, I'm just acknowledging the notion that there's different parties with slightly different motivations, and one might be more aggressive in seeking reimbursement for something, and others might be, well, let's just stick to the basics. This is, because you are responsible to the public, you hear from them on a regular basis, and you want to do right by them. So your assessment and discernment of that subject might be different from other parties.

Real quick, and we can use it for maintenance or facilities, or to purchase property for a facility, right? Correct. Yes, so all of those things. Okay. I'm sorry. Do you want to forward to the next slide on PICO? Wait, wait, Fred has something.

And I'll add the items that are reimbursable to the developer are essentially the council's discretion. For example, a lot of the development agreements here in Chino have included reimbursement of development impact fees that are paid by the developer. So it's a policy decision and sometimes It's sort of on a sliding scale. They either get all or some or none of those fees and other expenses that the developer incurs.

The problem is sometimes we're just shortchanged and we can't get all of the improvements that we need for a development.

Yeah, exactly.

Okay. Mark, do you have any other questions? Okay.

We throw around this pay go, and just to go over it, in the classic sense, pay go refers to funding these capital improvements based upon current tax revenue instead of selling bonds. So it's an alternative to debt financing where you would borrow the money from bonds and then pay it from the revenue streams. Pay go is this notion of accumulating funds so it gets to a certain point that you can go ahead and build the facilities. The good thing about the PAYGO is there's no interest expense and it's very inexpensive, but it takes time to access the money. So like a home, there's that elusive home that if you did PAYGO, you're never going to get it because the prices keep going up. The third bullet point is that really what we're talking about is a hybrid. All of these CFDs have bonds, which is not PAYGO. But the conversation we've had the last five minutes is about when the revenue stream still exists and the bonds are paid off, that's where the pay go kicks in. And what can you do with that pay go revenue? Who controls that decision? The city. Who's going to be looking to be reimbursed if it's spelled out in the development agreement? The developer. And it's just this general notion that, and you know this better than I do, City Council members is that the city's gone through a transformation the last 20 and 30 years. It's really changed. It's beautiful. It's always nice, but the homes are expensive and you know upper end and it's hard to keep pace of the facilities and keep it maintained and so I understand there's some pressure now today to just you know, are you being getting the sufficient revenues for the service you're providing and Looking forward over the next 30, 40 years, is that problem going to grow and what revenue streams are? I know a couple of years ago, it was a parcel tax. It's just these instruments that can provide revenue. What's the most prudent way to go about it? Do we have any questions about PAYGO? We're really a hybrid. Bonds and then PAYGO on the tail end is what we're doing.

Next slide, please.

So some policy considerations for these long-term facility CFDs. What's the term of the collection of this new CFD versus older CFDs? And if I didn't mention this already, this is about new, I think of the preserve, a third of it is yet to be developed. So this is all about what's to be developed. The two-thirds that are in place, it's been written. There'll be a discussion about what you can do with the PAYGO in the future. But we're not talking about long-term CFDs for the 66 years. that exists. That's already in place and it's maintaining it. This is for the new ones. So you can use pay-as-you-go revenues primarily to benefit the city and its citizens. There's the developer benefits that we mentioned, which is if you have a development agreement that says you're going to reimburse us this list of facilities and you only got to a portion of it from the bond issue, we developer are now asking you to reimburse us. And as the city attorney said, you'll look at the list, you'll have a consultants, make sure it's appropriate. But that's how a pay go would benefit the developer. And as we mentioned, Mayor, when you talked about the refunding, that benefited taxpayers, property owners, and also the developer, depending on where you were. And then the question, as you mentioned, about the refunding, where does the benefits go? It can go to property owners or the developer, depending on what kind of district they're in.

Next slide, please.

Okay, this is, we're looking at two existing CFDs here, 2003-3, which is the preserve, improvement area number 11, and then a non-pay-as-you-go district. That's Falloncrest 2022-1. As we said, the term of the facility special tax for these CFDs can be beyond the term of the bonds, as we talked about. And given the uncertainty of when the development occurs, the special tax is typically levied for like 40 years to ensure that it's in place for when the thirty-year bond assault because we kind of covered this ground so the question becomes what can you with the disposition of the the revenues after the bonds are sold who benefits from it so if you look at the the table here for the first the two thousand three dash three we're saying the bonds mature and in two thousand forty seven forty eight but the taxes in place until fifty six 57 so the the number of years after the bonds are paid off is nine years the annual levy is 2.6 million so that generates 23 million 634 000 i don't know how that compares to maybe the the level of unreimbursed facilities from the developer i don't know if that that um but that initially goes to the developer and then some of that, again, I don't know what is owed the developer, but that $23 million is in play. If the developers own $3 million, there's a potential for $20 million to go to the city. There's also the potential on the other extreme, which is to say we owe the developer $3 million, We agree that it is. It's been vetted. It's a legitimate, reimbursable cost. We'll pay the $3 million, but we have some other revenue stream. We've covered that, and we're going to stop living. We don't need the other $20 million. Again, I'm not making that decision, but the point I want to make is while these issues are daunting and they're real, you also have control and input, City Council, as to what is the right thing to do at that time, and we know how The environment is now in 2026. Who knows what it's going to be out there in 48, 49.

I have a question. Any money over and above the bond maturity that is not paid back on a pay go to the developer? Is there, and I hope there is, is there a legal requirement that if that money is paid held by the city that the city must pay it back or improve that development?

Yeah, that's pursuant to the Mellow-Roos Act, as the city attorney mentioned. So there's a wide list of improvements, and that's when we said you should also talk to your bond counsel to make sure it's the appropriate ones. But yeah, the whole idea behind it is that it must benefit the property owners and the area.

That paid it.

Yeah, that paid it. And I don't...

I would just want to make sure that there's no future funny business where that money goes somewhere else. No, I... Because it should go back to benefit the people that paid it.

Yeah, I think the city attorney would say that the word is what, nexus? There must be a...

But it could, if there's no improvements needed, if everything's okay, then that money could be reimbursed back to the homeowners.

And when you say reimbursed, which is to say your tax is over.

Yeah, just stop collecting the taxes.

Exactly. Yeah, Mark. And so I think it was last year we ended up, reimbursing some of the developers like in College Park for some of the infrastructure or things that they put in, is that coming from the CFDs that we're reimbursing them? And now is there a certain amount that we all keep track that's owed to them and then we subtract it so that we know at the end of this that we don't give them any more? Yeah, they do.

Yeah, we do keep track. So when Sylvia Ramos comes and gives the reports on CFD, she's tracking everything that they build. So once they build it, they have to bring in receipts or not receipts, but what they paid for everything. And then we reconcile that. And we have a consultant that works with us who knows everything. construction costs and how it works. So we look at that very closely and there are times when they bring something that they want reimbursed for and we say no. For instance, if it's a diff, they've already gotten credit for a diff and we don't double dip on that. I think Sylvia mentioned that at the last report. Unless it's in the DA that says that they can get reimbursed for diff, but typically not. So when you see that, when you see us bring a reconciliation of the CFDs which we've been bringing for Lewis that we haven't reconciled since 2002. So we have spent probably the last three or four years trying to reconcile all that so we can know exactly how much credit they have or how much they've built so we know how much it is. And when they say, They can keep bringing things and bringing things and bringing things. It's up to us to say whether it qualifies. They just can't keep bringing us things. Well, I put that stop sign over there and I want $100 for it. We will look at that before we say yes, that qualifies, if that makes sense.

I have a question, and I don't know if it really can pertain to this or not, but we have a circumstance where there was an agreement to build a facility and the developer is refusing to build what they were supposed to build. So it's going to be smaller. Maybe in the future it could be enlarged, but right now the argument looks like we're not going to get what we originally thought. At the end of the bond, instead of reimbursing them, can that money be used to finish out the facility that was supposed to be built originally? That's our choice.

So there's still hope.

There is still hope.

Excuse me. Is this a facility that's within College Park or the preserve? Oh, it's in the preserve. Okay.

So if, let's say, after nine years or for the bonds mature, they've given us everything, we've reimbursed them for everything, and this $23 million here and the city says, okay, we're going to invest that in the community center, either to add on to it or pay what we then owe. We can pay what we owe. Let's say we have a $20 million debt towards a community center. We could then use that and pay that off, correct? Mm-hmm.

or sell bonds up front and then pay it back with your portion of that revenue stream.

Or say we've already borrowed it, and now we're paying off on a $20 million debt for a community spanner that was supposed to be built 15 years ago, and it wasn't, so now the cost is higher, but the developer's only responsible for a certain amount of money. And so instead of getting the facility we need, it's going to be a lot smaller.

Right. Because the cost has changed.

Because the cost has gone up.

Yeah, I'm with you.

Yeah.

OK. We've covered that example. The other one is, by the way, it's a typo. That first PAYGO district is number seven, not 11. 11 is the one we did in December of last year. But the non-PAYGO district, all the things we talked about still apply. But the $10.4 million that we're talking about, there's no discussion there. The developer is not at the door. waiting for reimbursement, he or she knows that, and so the questions that you raised, Mayor, still, can we no longer levy the tax, or can we use that tax to have city infrastructure improvements that benefit that district, all those options are available. But it's just clear that that's in your purview and there's not a developer arm wrestling with you.

Okay, and we have the option of doing PAYGO or non-PAYGO, and that's tied to the DA.

For CFD 2022-1, there isn't a development agreement? For future. Okay, for future, yes, you have that option. For this one, you're currently not levying PAYGO. So that 801-109-37, that's debt service and admin. So these property owners are paying less than their assigned rate. So if you were to maintain the levy for the next 13 years after the maturity of the bonds, you would have 10 million. You have the option of levying PAYGO. You could levy PAYGO currently to pay for facilities in this CFD, or you can levy PAYGO after maturity. That's at the discretion of the city, depending on the needs of this development. So if you had a facility out there, in Fallon Crest that needed to be constructed or maintained or repaired, you would have the ability to do that. However, you would be increasing the current levy on the property owners and the amount is in excess of about 10%. So it'd be about $80,000 you could collect annually.

Heidi. If the pay go and if the property owners have to pay go, well, if we issue a pay go rate, will that count towards the limitation of how much they can pay a year?

Yes, so they have an assigned rate that's set forth in the rate method of apportionment. And that amount is established based upon the projected initial values of the home. So any development where you don't have a development agreement, your policy is a 1.9% max. So you have your services, which is 0.1. You have ad valorem and other taxes, which is about 1.1. And then so the balance of that, which would be about 0.7, would be available to pay for facilities. So if you were to levy at the assigned rate, they would pay that full amount capped at 1.9 when we form the CFD. And they could pay that assigned rate for just like College Park or the preserve. even after you issue bonds you could continue levying PAYGO on any new CFD that comes in the future or in reality any CFD you have at the discretion of the city.

So I guess the question tonight is if the council wants to consider extending our 40 year tax term to even a longer term.

On new ones.

On new ones, yes. And if we do, then it would only make sense to have a PAYGO structure on these types of long-term CFDs.

Why? Why would you have a PAYGO structure? and have it go back to a developer? That is the question.

So the PAYGO would only go back to the developer for CFDs where you have a development agreement that requires that they get paid the PAYGO for reimbursement of facilities. Any new CFDs going forward that aren't within the Preserve or College Park, if you levy PAYGO, that goes to the city and is directed by the city as to how it will be used. So the developer is really only entitled to collection of special taxes up until the issuance of bonds and then proceeds from the bonds that go into the project fund. Any PAYGO levied after the issuance of bonds would be for the use of the city and facilities that benefit that development.

But why would you call it PAYGO? Why wouldn't it be a non-PAYGO? if it doesn't go to the developer?

PAYGO is just the term for the collection of special taxes above what's required for debt service and admin. So if you were to collect the assigned rate on a property, you know, $1,000 a year, then that would be an additional PAYGO. So you're paying as you go for facilities rather than issuing debt secured by that revenue.

Okay, you have really thrown me for a loop now. I thought PAYGO was for developers.

It is right now. I think it's currently the only PAYGOs and others here like in public works know better. I believe no matter how we feel about it today and whether it's fair or not fair, I believe at the time that these large developments were done to preserve in College Park that the infrastructure needs were far beyond what a particular bond issue could could do, and I think if the city is positioned a bit, there's no pay go, we'll sell bonds, and whatever that yields, be happy with the developer. The question would be, would the developer have entered into the development agreement? Again, I'm not saying they were not, but I believe the pay go was raised by the developer as a way to get more facilities reimbursed. What Heidi is saying is moving forward, while this long-dated CFD PAYGO may have been introduced by a developer, and it may be for the third of the preserve that remains, that concept still is available to the city for other developments if it wants to have a revenue stream beyond when the bonds are sold. We're not advocating, but what we're saying is when you're concerned about all this money that's going to go to the developer, could that not also be all this money that is available for the property owners that the city council can direct to the benefit of that neighborhood? And that's what that pay go is. Did that help, Mayor?

I don't know, because I'm still, because I look at the Fallon Crest and it's non-pay go, and yet there's going to be extra money in that, and it's not going to go to the developer.

So I have a question. I think I know the answer, but I just want to clarify it. Everything that's built in the preserve has a CFD, correct? Correct.

As far as we're aware, yes. Okay.

How about the apartment complexes? Did they create their own CFD areas for that or did they just do the development themselves and do all the improvements and therefore they're never going to be charged a CFD? Because those apartments take a considerable amount of services from our city. And if the owner of that property is never going to pay, then we're kind of asked out. But we do have a potential 800 additional units, and is the city in a position where we can force them to make that a CFD, where some of their property taxes will be levied to pay for some of the services that the city's going to be having to utilize to police those apartment complexes?

So currently, all the resident, including apartments, so they're in CFD 2003-3 Improvement Area 5, which is services only. So the developer was required to annex them into a CFD, but for services only. They elected not to issue debt on, you know, they paid that themselves.

And that's per the development agreement.

Right.

So if it's something that they own, the development agreement says they don't have to pay. So they don't pay that facility CFD. So then are they essentially funding it themselves? Yes. The development?

So they're not paying the CFD, but they are paying the services part. That's correct. So do we know what they pay every year on the services part?

I don't know if we have it broken out that way, but I think we gave you the numbers. The preserve was 2.1 million. Do you remember the numbers? I don't know if we have it broken out by properties when it comes to us from the county, but we can see if we can find that. By property?

We could probably find it by property, right? We can provide that to you. We have a breakdown of every parcels levy that we can provide. So there's multiple annexations in 2003-3 Improvement Area 5. So every property that comes in that is not forming its own facilities CFD would annex in to pay for services only. And everything within the preserve is required to annex and pay services. Since the renegotiation of the development agreement, all residential property that annexes has to annex into your new 2020-1, which includes an escalator, and only the non-residential property are the remaining that get to annex into improvement area five, which is a services tax that does not escalate.

So did we look at... At the apartment buildings and do them at a higher rate than a regular house? Or did we not?

The percentage?

Yes.

I don't know. That was done a long time ago.

How about the new one that's going to be built?

Well, the new one has an escalator in it.

She says not the apartments though, right?

The non-residential does not have an escalator, but I believe the apartments are considered residential and they would have to annex into 2020-1. And it would have an escalator? Yes, 2020-1 has an escalator. I can verify for you and give you that information and provide you a breakdown. The rates set forth for apartments are in the RMA and it's depending on apartment unit and it's like per unit as a rate.

So we have an issue with the current ones that they have in there. It requires heavily policing, a lot of calls for service there, and we are going to anticipate that the additional 800 units is going to be something similar to that. So I don't know if we need to look to see if maybe we need to, if we could, adjust those numbers. Is that going to be something that's possible before they're built?

PROBABLY NOT.

GENERALLY BEFORE PROJECTS ARE BUILT, BUT IN THE NEGOTIATION OF THE DEVELOPMENT AGREEMENT IS WHEN THAT NEEDS TO BE SET.

OKAY. OKAY, SO WE'RE GOING TO GET... YOU CAN BREAK IT DOWN BY PROPERTY, SO WE'LL BE ABLE TO KNOW. SO WE'LL GET THAT. AND THEN, YEAH, SOME OF THE THINGS THAT ARE IN THE DEVELOPMENT AGREEMENT THEY DON'T HAVE TO DO, WHILE OTHERS HAVE TO DO, RIGHT? I MEAN, IS THAT HOW YOU SAY IT? I think that the escalator that's in 2020 is a good thing for us, and I'm sure they're not happy about it.

I got nothing else.

Anything else? No?

So I guess we need some direction as new CFDs are being formed going forward. We can stay with the 40 to 50-year tax term or extend the term longer. And there's concept of, let's say, the 100-year CFD. So let's say within the first 100 years, we issued a 30-year bond, and it matures. And 30 years later, these same facilities that were built 30 years ago, they're deteriorating. So, what money do we have to maintain these buildings in let's say the preserve? If we had extended another 30, 40 years on the tax term, we are either able to issue another bond. to fund the maintenance of those same facilities, or if these facilities have a pay go structure, we can continue to assess the property owners without issuing bonds, but we will wait and accumulate these revenues that we will use to maintain those same buildings. So we can either fund the construction by issuing bonds or fund the construction by a pay goal, which is slower to earn those money. So that is kind of the direction that we are seeking as we are forming new CFDs.

Okay, if you don't extend the term of the tax, like your example, 100 years, and you have a deterioration and the 30-year bond's paid, how are you going to bring about a new bond, do the homeowners have to vote on that at all? You just do the bond, they're continuing to pay for 100 years, we would collect the money, put it in some kind of an account to ensure that it's paid toward that, pull a bond, get everything done, pay as much of the bond as possible, and then pay off the balance? Yes.

Right, that's a possibility. But you're subject to the same constraints as to what you are currently now. When you're selling these bond issues, they're for facilities that are enumerated. I don't want you to think that it's just carte blanche and you can just sell it and do something that's not related to the district or that's not spelled out in the, Melrose Act. And of course you would take the issue seriously as to whether or not you want to sell that. But what Kim is saying is it's a revenue stream that's available.

Let's say you have a district and you do the 30 years and you do the 100-year tax, which just is inconceivable to me. Say you do that and say that people... pay $1,000 a year. 50 or 60 years from now, that $1,000 a year is gonna be peanuts compared to what it's gonna cost to replace a building. So you can't improve the tax. I mean, you can't increase the tax. So you may need to pull bonds, but you won't even have the revenue to pay them off.

well i don't know if there could be an escalator on it and or you would sell the bonds at the time subject to the revenue constraint that you knew your point is made today maybe that would raise thirty million and in the future time adjusted you know in real terms inflation adjusted that might be fifteen million thirty years from now but but the point is you wouldn't be selling bonds that the amount of bonds you sold would be limited by the revenues that were generated at that future date. It wouldn't be worth as much as it is today. So like today's $30 million bond issue would be worth much more than it is in 2070, for example.

Isn't, and Kim, basically, I think you asked this, isn't the key question for the council do you have an appetite for longer term bonds that need to be in place during the development agreement so that you have this ability to basically have development fund their own costs for improvements rather than burden the general fund.

Okay, you're saying longer-term bonds, but it's my understanding that we're talking about longer-term tax.

CFD, I meant. Correct. Sorry.

So I thought the thing that we're going to talk about is, for example, if you go over to Ontario Ranch, They don't have 30-year bonds. They have 99-year bonds. Right. And some of the developers have been saying that's what everybody's going to now. So I thought that's what we were going to discuss was that when people buy homes, instead of it being a 30-year bond, they've extended it out to 99 years, and if that was something that was worth doing. Which we thought was just CFD, which we thought was completely, we didn't believe people would actually buy a home, knowing that they'd never actually own it.

that they'd have to pay off this tax probably. And the theory is that the developers paid off at that point, at an earlier point, but the later years go to relieve the general fund from having to pay for these improvements.

So it's not a 99-year bond, it's a 99-year tax.

CFD, right.

Yeah.

So after 30 years, when the bond is matured, let's suppose that you issued bond for 30 years. After 30 years, if there is no need for funding any more construction, it could be just there is no assessment.

And then if you needed money in the future, could you reassess them? Because you've got that 99-year period? Yes. Yes. people would have a heart attack.

Yes. Right, so after 30 years, it doesn't mean that we now are reissuing a $25 million bond because now we would be maintaining. It may cost less, let's say $10 million instead of $25 million because we just need some funding to maintain a building.

So you mentioned Ontario Ranch. Cities are doing these 99-year taxes now?

From what I've been told, Ontario's been doing it for about 15 years, so they've been, all of the CFDs they've been forming for the last 15 years have been long-term CFDs.

I wonder if people really know that.

I believe that they do disclose it, whether people pay attention or not. Maybe people don't intend to live in the home for that long and they're gonna pay it for their 15 years and then pass it on to the next person who pays it for their short period of time.

I think, too, when you go into these new developments and you're going to buy a home, they sit you down. Here's your mortgage. Here's your property tax. And the property tax is at 1.9% or 1.1%, which includes that CFD. So they don't really know the difference. They're like, okay, I can afford that mortgage, and I can afford that property tax, and then here's my insurance and my HOA, and it's $10,000 a month, and I can afford that, so I'm going to buy this house. So I think that's how most homeowners go into it. They don't say, oh, this has got a 99-year CFD on it. They just say, OK, these are my things I'm going to have to pay, and can I afford it or not?

I think that's how it works.

And in all that paperwork you signed, somewhere it says, you will be paying this extra property tax of 0.9 or whatever it is for 40 years or 50 years or 99 years. But I don't think the regular homeowner is coming in thinking, my property tax is going to cut in half in a year, unless you know. You know, okay, I've got this CFD that's going to go for 30 years or 40 years, and in 40 years, if I still own this house, my property tax is going to be cut. Because it all rolls in as property tax. Mm-hmm.

So just to clarify, if we do include a PAYGO language, what we're saying is that we could put limitation that the funding will be used by the city for those facilities and not be used by the developers.

Right, so if you go to form a new CFD that's not within one of your already existing development agreements, then you would have language in your rate and method of apportionment and in your acquisition agreement that requires that the city get any pay go, the developer is eligible for only bond proceeds and money is collected for facilities up until the issuance of bonds. And then anything collected after that at the city's discretion would be eligible for city use for facilities that benefit that development.

So if we put that limitation, then whoever will be sitting in these chairs in the future can make that decision of whether to fund the maintenance of those facilities using these available options, or just use general fund money to fund you know, to improve those facilities. As long as it's in the city's hands and in the city's discretion, I think wiser decisions could be made at that time.

Well, we've always, for years, been very, very strict about new development paying its own way. That current residents would not be burdened with pain for new development. And I still believe that's appropriate. People that already live here should not be burdened with the expenses of new buildings being built. But they should be responsible for what they live in or their current area.

And as we analyze the build-out and the fast build-out, we're not keeping up. We're not keeping up with the services CFD either. It's not paying for itself. Because when the money that's coming in on the services CFD, if we look at, and we're trying to do an analysis to say, okay, on the services side, it costs us, I'm just going to use round numbers, it costs us $10,000 a home. A YEAR FOR SERVICES, BUT WE'RE ONLY BRINGING IN 4,000 A HOME PER YEAR FOR SERVICES, WHICH IS WHY I THINK WE SEE US AS A CITY FALLING BEHIND ON MAINTENANCE BECAUSE WE DON'T HAVE ENOUGH MONEY COMING IN. AND WHAT'S HAPPENING NOW IN COLLEGE PARK AND THE PRESERVE, BECAUSE WE'RE HITTING THAT 20-YEAR MARK, THE ROADS ARE IN NEED OF IMPROVEMENTS RIGHT NOW, AND THE ROADS ARE NOW OURS. SO FOR US TO HAVE THE AMOUNT OF MONEY THAT WE NEED TO CONTINUE MAINTAINING IT, Because I think the intentions were very good when we started these developments that they would pay for themselves. But because most don't have an escalator either, that money is just staying at 2002, 2003, 2004, whenever it was formed rates. And it's not keeping up with today's costs. So I think as we all struggle with our budget every year and say, why can't we keep up? It's growing so fast, no escalators, the money's not coming in at the rate we need. And I think when you, you know, Phae Jin would tell you, we've got so many roads out in the preserve right now that either need a slurry or they need a grind and overlay. And we don't, the money's not coming in to cover that. But Linda, you said the services. The services.

Okay, but that should be facility money, not services money.

But we don't have any facilities. No, I understand. But I'm just saying you say the services. Right. You're right, Mayor. You're right. But all those things, we don't have the money coming in to take care of. So if you think about putting a cop out, another cop, because we're growing, we can get two cops for $2 million. That's it. And if we're trying to grow and we've got all the issues going on in the preserve right now at homecoming and trying to make sure that we're covering that, we're having to take cops from here and put them out there, and we can't pay for that. Recreation programs, one, we don't have a good facility to put in, but if we had a good facility, once that facility opens, we're looking at $1.5 million to operate that every single year. We don't have an additional $1.5 million to pay for those services in there. That's where we're struggling as we see that build so fast and us trying to keep up.

So going forward, you wouldn't need just facilities money. You'd need services money, too.

Well, and services are in perpetuity. However, does only one have an escalator right now? Yes.

Which one?

One CFD have an escalator?

Everything from, I think, four years ago or so, I started putting it in and no one's complained.

So anything before? Services and facilities. Just services.

Just services. Facilities does not have an escalator.

You know, and I understand what you guys are saying, but the reality is the people in the preserve pay over $2 million a year for services. And other than police services, we don't really offer any programming out there. And I know eventually when we get a facility, we're going to do that. But, I mean, if I was a resident out there, I'd say, you know, I've been here for 20 years. And we've been paying this much money every single year. And we really haven't gotten our money's worth out of here from the city. Now, and I understand, you know, they're not supposed to. New development isn't supposed to be paid for by the old development, but I think we've gotten to the point where even in College Park, we pay $2 million a year, but we're really truly the services for the $2 million that they've been paying every year for 20 years. It hasn't really been much. I mean, all the parks are maintained by the HOAs. The homeowners association pays for any of the renovations that need to be done in the clubhouses. And all our landscaping is paid for by the HOAs. So I understand we say that, but I mean, I almost feel like maybe if we're looking at there may be future downfalls, then I think we need to start maybe looking at putting their services amount that they pay every year into a separate account so that we know that we're spending that money in those communities, as opposed to just throwing it in the general fund and saying, hey, we don't have enough money to cover them. And allocate something in writing that, hey, you get so many police officers out there and that's what it costs you, so that they're aware that they're getting their money's worth and where their money's going. as opposed to just the way we're currently doing it right now. I think right now it's not transparent for any of the residents, whether it's in College Park or whether it's in the Preserve.

I think the difficulty when I listen to that and think about it is some of the services will not be duplicated in each area. You're not going to have... you're not gonna have a senior center in the college park and a senior center in the preserve, but the senior center is there for everyone. So I think it would be very difficult to segregate the funds, especially when everyone gets to use certain facilities. Do you know what I mean? I don't know how you would.

Right, and Mark and I have talked about this a lot. But when we have this services money, our population has gone from, since in my time, 75,000 to 90,000. So when you look at capacity, and yeah, there's not going to be a senior center there, and we're not putting that money directly right back there, but our capacity is growing across the city. And it's because the population in the south part of the city is growing. THE POPULATION UP HERE ISN'T NECESSARILY GROWING, BUT ALL THAT POPULATION AND ALL THOSE PEOPLE IN COLLEGE PARK AND THE PRESERVE, THEY HAVE THE RIGHT TO GO TO ALL OF OUR FACILITIES. NEIGHBORHOOD ACTIVITY CENTER, SENIOR CENTER, MUSEUMS. WE ARE OPERATING A COMMUNITY CENTER IN THE PRESERVE. IT'S PROBABLY COSTING US A MILLION, A MILLION TWO A YEAR TO OPERATE THAT COMMUNITY CENTER. Are we operating at full capacity where we'd like to be with two full community centers? And we run our after school programs. So all the things we have out there, is it as much as we'd like to do? Probably not. But the problem is we don't have the facilities to put it in. And our relationship with the district isn't such right now that they'll give us any space on the schools.

Now the other question. As I know, for example, College Park and the Preserve are not the only ones with CFDs, so we do have some infill projects that are along Cypress. Is that Cypress or is that, what is that street?

Cypress, we're by Mountain View Park.

Or Cypress Trail? Off of Euclid, you have some developments in there that have CFDs. So some of these major housing developments that they want to put in these EMTL projects, have we created CFDs for them? Because we know those are going to impact...

Services CFDs, don't all residential have to go in the one services CFD, right?

So all residential projects that come into the city have to either annex into a services CFD or form a CFD. So if they come in and they want to form a facility CFD, we tack on a services special tax.

So let's say like the 200 units that want to go in on Mountain and Riverside. Did they annex into a service CFD? Because there's no service CFD up there.

How far is that development along?

It hasn't been entitled yet.

Okay, so they haven't yet, but it's a condition of their development.

So we'd have to create a CFD for them.

Or we can put it into the 2020.

They annex into it an existing CFD. Because there is no CFD up there.

Right, but we have a citywide one. For residential. What's its number?

2020-1 is your citywide services CFD.

Yeah. So anything new will annex into there as a condition of approval.

And have we determined an amount for or an escalator for some units that are that much or 100 units that also want to go in?

They haven't gotten that far yet because it's not been approved.

But it will be determined.

Yeah.

And how in the world do you determine that for a big apartment complex?

So for CFD 2020-1, the rates are set forth in the RMA, and they were set forth in 2020, and they replicated the rates that were in CFD 2003-3 Improvement Area 5. So that was the direction is replicate the rates, but we wanted to add an escalator. So the escalator is the key difference in 2020-1 and those rates have been escalating since 2020 and at any point some project annexes into that CFD, they pay the then prevailing escalated rate from 2020 to today. So they would pay the 2026 rates that are in CFD 2020-1. We're working with the city to do a fiscal impact and review whether or not those rates are sufficient to provide for services, and then that'll be coming to you guys soon. But currently, any project is required to either form their own services CFD or annex into a services CFD, which would be 2020-1 with the escalator.

Okay, so if in the study it shows that what we think we needed in the 2020-1 is not sufficient to cover services, that can be changed?

2020-1 can't be changed, but you would form a new services CFD for all future development, correct?

So 2020-1 has an escalator that's based on CPI. CPI, okay. But if that's not covering it, then the new.

You wouldn't have them annexed into the current.

The basis would be different plus an escalator then.

Right, so the new CFD should the city elect to form a new services CFD that's citywide annexable would be prevailing cost based on the impact analysis and then in addition an escalator added on an annual basis.

Okay. And so would it also be worth doing the other CFD for some of these large projects since a lot of these projects they want huge apartment complexes? Would it be also a community service CFD? You know because they're going to impact yours. Yes I mean not not not the services But the other one the facilities one because they are going to impact your senior housing and they are going to impact Your parks they are going to impact a bunch of because you're going to put a lot of people because now in fact, I just heard Governor Newsom just signed a new bill saying that They don't want us to have any developer impact fees so

Are they giving us money?

No. Of course not. But supposedly you signed that today, so I mean is this something that we should be looking towards because somehow or another we're gonna need to get some reimbursement for the high density that they're gonna be pushing on us.

So you can do a CFD on these new massive developments going in because of the effect that they're gonna have on current facilities. And how in the world are you going to identify that?

And I think the difference, too, for these big complexes, there's one owner.

Right. Yeah.

So the one owner would be paying that.

But if it's property taxes.

But you have to come up with some kind of nexus that shows, like, money going toward the senior center or whatever. You have to tie that somehow to that development.

And as our population continues to grow, wherever it is, it's going to impact all of our services citywide, all of them. And even though the fire district is not ours, it's also impacting the fire district, impacting CSPR, impacting PD, impacting City Hall. and people coming here to do business. It will just continue to go. And we're anticipated to go to 125, 130,000 people. And just the 20,000 that we've brought in in the last few years, it's been a huge impact for us. But I always say, when Mark and I have this conversation, he makes a good point. Because when you are a homeowner, and I'm moving into College Park, and I've got this beautiful home, and my property tax rate IS ALMOST DOUBLE EVERYBODY ELSE'S. SO WHAT AM I GETTING FOR THAT? ESPECIALLY SINCE WE'VE ALSO CREATED THESE DEVELOPMENT AGREEMENTS WHERE IT'S TAKING THE BURDEN OFF THE CITY, BUT IT DOESN'T TAKE THE BURDEN OFF THE GROWING POPULATION THAT THEN IMPACTS EVERYTHING WE DO. IT IMPACTS OUR SHOPPING CENTERS. IT IMPACTS THE SPECTRUM AND THE TOWN CENTER. Our small shopping centers, our small little hospital, our emergency services, all of that, even though it's not our city service. And it's going to just continue to grow. That's why, you know, for us, it was so important to get that shopping center out in the preserve because they needed the grocery store. And now they have urgent care and they have a bank and they have restaurants and all of these things that we couldn't get for 10 years.

Right.

But those are services, we don't provide it, right? And we're not doing maintenance there, but it's a service for those residents out there as it kept growing and growing and growing. And I know, you know, we're not saying make a decision today, but we wanted to give you the information about this because these long-term CFDs have come up a lot, and it's always been, oh, my gosh, we don't want to put this burden on our residents. And that's a hard thought, but where do we as a city ensure that we have funding into the future so that 20 years from now, 30 years from now, the city is like, oh, my gosh, we're out of money because we didn't prepare for the future? And I say it all the time, our property tax has steadily gone up. Our sales tax, except for Measure V, the increase of Measure V, has been stagnant since 21. We're almost right at the exact same place, and I don't understand it. We're reviewing it. We're trying to figure it out because we can see the new businesses coming in to our city. but we're not seeing that tick up in sales tax. So making sure that we're looking at all our revenue streams so that we're saying, okay, 20 years from now we're going to have another, you know, 15,000 people. How are we going to make that work? So this is more about our future, and none of us will be here. This council will turn over. All of our staff will turn over. But we want to leave it in a place where we can make sure that we can – cover the costs and they keep going up. Our MNOs, you saw in our budget, our MNOs across the board are up, maintenance and operation costs. Every contract practically has gone up.

Heidi, suppose we now make a policy for, let's say, a 100-year CFD. Could there be language included that will allow the future council members to rescind that and just end it?

Yes, so as long as you don't have bonds outstanding, you can record a notice of special tax defeasance. So you basically end the term of the tax at any point in time following the issuance of bonds. So at any point after you have no bonds outstanding, you can do that.

So that we can make it so that it's flexible for future council members to end it. But if we don't put it in place, they can't really extend it, right? Correct.

Okay, well, I think this is really, I think, a very critical decision that needs the whole council's input. So I don't know whether we have another workshop or how we go about doing that, but we're missing two members that need to have this information.

I agree.

Okay.

So?

So we can have them listen to the tape. or watch the thing, and then we can bring it back and have a decision. Because I think the information presented here was good. I don't think we need to go over that again. But since they weren't able to make it today, we can provide the audio and let them listen, and then we can certainly come back and give you time to think about it. Because this is a big thing. This is a big impact. And if the council says, hey, we don't want to do this, That's fine, too.

You know what I would ask also? It's one thing to listen to the tape, but I would ask that you take the questions and the points that were made today and document that so that we can go back and kind of think about it, you know?

Yes.

A lot of questions have been asked, and you guys have done a really good job in clarifying it, because some of this stuff's pretty confusing, at least for me.

Mm-hmm.

So I would appreciate me going back and reviewing. I think that would be a very good, helpful tool.

And just to clarify, long-term can be any number of years. It doesn't have to be 100. It could be 60, 70, 80, whatever.

I would like to know also, I mean, Mark mentioned Ontario Ranch, but what other communities have either taken this step or are considering it?

Are you aware? I'm not aware of a lot that have done this particular move with facility special taxes going out 100 years. I have one client in the desert that has a PAYGO CFD that goes out to 2021, 2,201, sorry, which that's beyond my lifetime. And then we have another client that does something similar, but it's more for services. So they have a special tax for facilities and a special tax for services. And then at the maturity of the bond, they call that the termination event, the services special tax then kicks up and takes the capacity of what was used for facilities. And then that special tax goes out in perpetuity. And so the services amount would then provide additional revenue to pay for services. So it's a similar approach, but a different, similar mechanism, different approach.

But then if it's just services, I don't think you can use that for facilities, right?

No, it would just be for the increased cost of services and maintenance. So maintenance of facilities, but not capital replacement.

Okay. Okay. All right. Okay. Anything else? No. All right. With that, I think we are adjourned to our regular council meeting on July 21st, 6 o'clock with closed session. Because we're brewing up business, Chino is absolutely a phenomenal place to be. Multi-generational city. We've been here over a hundred years and very business friendly. You're going to love Chino. As far as businesses are concerned, I personally want to see something for everyone. I want our kids to be able to stay in town, have entertainment places to go. I also want all kinds of entertainment for every age group. We need to stay here, we work here, we live here, and we play here. So I'm looking for businesses that are going to fill any void that we have.

So welcome to the business round table. This is the broker's edition.

I was first elected in 1984. Chino used to be very, very heavily agricultural, and over time we have evolved into something for everyone when it comes to housing stock, which is wonderful, and also businesses. We're growing by leaps and bounds. Very, very proud of our community. Multi-generational, so we have grandparents, parents, kids. So Chino's a wonderful place to be, and I'm very, very proud to represent it.

Hey there, I'm Samantha. I'm the community engagement manager here at the Animal Resource Center of the Inland Empire. We're the new animal services agency for this region. We serve Ontario, Montclair, Chino, and the unincorporated areas of West San Bernardino County. We provide all animal services for this area, things like pet licensing, microchipping your pets, supporting the community when they find stray animals, adoptions, foster opportunities. We also have volunteer opportunities. Come on down, come meet some of our very cute animals.