The CFD issue has been heating up in recent weeks just in time for the council to vote to finalize it at next Tuesday’s meeting. A number of prominent residents have come out against the CFD recently, but the local paper today has published its editorial supporting the CFD.
Unfortunately, what they put forth is of both questionable accuracy and logic.
They begin the editorial arguing that Davis is a desirable place to live, but that desirability comes “at a price” as “houses in Davis cost more than comparable houses in many nearby communities.” Ironically, they put forward a policy that will make housing prices higher for the very reason they put forward, saying, “Demand for Davis homes is high, and supply in this slow-growth community remains low.”
The editorial notes that the council was divided 3-2 on the vote to direct staff to draft up the CFD. They write, “Those in the majority — Mayor Dan Wolk and Council members Rochelle Swanson and Lucas Frerichs — want to move forward to ensure that future residents receive everything they’ve been promised.”
But then they add, “Those in the minority — Mayor Pro Tem Robb Davis and Brett Lee — are wary of the additional taxes that will be levied on future Cannery residents and argue that the developer agreed it could build the amenities without further fees.”
To me this seems like an inaccurate representation of the minority view. There has been discussion that the CFD was not publicly discussed at the time when the developer agreement was finalized. There were questions about what would happen if the CFD was not approved.
There was also discussion about the “may” versus “shall” provision in the developer agreement and whether the “may” provision obligated the council to consider and/or approve the CFD. And there have been any number of other points raised in opposition.
The editorial, by choosing that questionable contention, misrepresents the debate.
They continue: “What’s lost in that simplistic description is a simple truth: Cannery residents will be paying for their amenities one way or another. Either they’ll get their parks, greenbelts and bike connections up front and pay the additional taxes or they’ll have to wait for what’s been promised until developers sell enough homes — at a higher price — to afford their construction.”
The problem with that simple truth is that the truth is one of the central points of contention in this debate.
Mayor Pro Tem Robb Davis argued in his op-ed that this is “a highly inelastic demand function” where “TNHC is essentially a price setter in this market.” He argues, “In such a market they very well may be able to set a home price and not have to reduce it if a CFD is included. In other words, unlike in a competitive market, they will not have to reduce the price by the full amount of the CFD.”
He argued, “Given the foregoing, I believe that home buyers moving into the Cannery face the risk of overpaying for the infrastructure there.”
In essence, the problem is this. In a more equitable market, the home buyer could negotiate the cost of the CFD off of the cost of the initial purchase. But the problem in Davis, with limited supply and large amounts of demand, the seller doesn’t have to agree to reducing the cost to offset the future CFD costs; instead, they can simply find someone will to pay their asking price and eat the cost of the CFD later.
There have been debates over whether that means the homeowner would pay double or pay for the cost twice, but from this perspective, there is no simple truth that Cannery residents will pay one way or another, but, rather, they will pay now or pay more later.
This becomes a crucial point, because the editorial bases this fact on their support for the CFD. They write, “For that reason, we support the formation of a CFD for The Cannery.”
Like others, the editorial then moves to downplay previous mistakes.
They write, “Much has been made of the mistakes made with the Mace Ranch CFD, the last such major Community Facilities District in Davis. And yes, plenty of mistakes were made — Korematsu Elementary School and Mace Ranch Park were built many years after they were promised — leading residents there to distrust city and school district leaders. Consequently, the voters were restive, and have supported school parcel taxes to a lesser degree than voters in other Davis neighborhoods.”
They argue, “Fast-forward about 30 years, and things are much different. There’s no iconic feature such as a school envisioned at The Cannery. The economy is different now, and the players are much more savvy about CFDs; we have 30 years of history both in Davis and across the state from which to learn. The Cannery is not nearly as large as Mace Ranch, and far fewer homeowners will be affected.”
“Will Cannery residents be less likely to support school parcel taxes in the future? We know those taxes are key to the financial stability of our school district and to the rich slate of opportunities our children receive,” they put forward. “We believe the answer is no. We believe future Cannery residents will be moving here from other communities where CFDs are common and they won’t blink twice, or they’ll be downsizing from larger Davis homes and choosing The Cannery for the type of community it will be. Those folks are already invested in the top-notch Davis schools.”
But they do so without any analysis. Recent history shows that the Mace Ranch voters are more likely to oppose CFDs.
In 2011’s Measure A, 2012’s Measure E, and 2014’s Measure O – three of the last four elections for taxes, the voters in Mace Ranch failed to achieve passage levels for the taxes. While the number of voters in Cannery will be significantly fewer than in Mace Ranch, in a close election such as 2011’s Measure where a few hundred voters would have swung the election, every vote is likely to count.
Moreover, the city may end up shooting itself in the foot. While many voters, who are otherwise opposed to taxes, hold their noses to support the local schools, the city might be another story. Measure O only passed 58-32 with Mace Ranch primarily opposing the measure. If the city is looking at a parcel tax to fund roads, such a measure could depend on voters who will already be paying a $1000 to $3000 annual tax assessment.
“A CFD is a popular funding instrument for a developing neighborhood for a reason: It works. And we believe a CFD for The Cannery will work for Davis,” they conclude.
In general, the editorial is a stunningly bad analysis, failing to support their conclusions, providing inaccurate representations of the fact, and creating a simple truth that is, in fact, the heart of the argument.
—David M. Greenwald reporting
Fairly well done, except as noted below:
(from Emptyprize) “And yes, plenty of mistakes were made — Korematsu Elementary School and Mace Ranch Park were built many years after they were promised… “. Ignored is the FACT that Mace Ranch pays into four (count them, 4) CFD’s.
There is the City-Wide CFD for CITY major projects (Pelz bike/ped OC, as an example), to which many new projects paid not only in a CFD, but paid for in impact fees. There was no-double dipping here, as those participating in the City Wide CFD paid less in impact fees that those who weren’t paying CFD payments.
Then there is the City-wide CFD for DJUSD major projects, where the “newbies” pay towards the maintenance/rehab/reconstruction of the facilities that existed before MR was built. So does everyone else, even if developed before the DJUSD set up the CFD.
There is the “new development”, City-wide DJUSD CFD, to fund EXPANSION of existing facilities to accommodate the student yield expected from the new Development, AND NEW FACILITIES NEEDED. This is the CFD that funded Margarite Montgomery, Korematsu, and Harper. The developer (nor, City) had NOTHING to do with this CFD funding, nor the TIMING of any of the funded improvements. Anyone who lays the delay of Koramatsu construction on the City or the MR developer are ill-informed, or have some sort of nefarious agenda in “conflating” the developer CFD with what happened (or didn’t) regarding the schedule for building Korematsu.
Finally, there is the MR “developer” CFD. There are bad-information/errors/lies here, too. Mace Ranch District Park WAS NOT INTENDED, nor was it set up to be funded by the MR developer CFD. It was intended to be solely funded by impact fees and/or the City-Wide CFD for new development. Only the neighborhood parks and greenbelts OTHER than the district park were intended to be funded by the ” developer” CFD. The timing was always under the City’s control.
Lucas, and apparently the Emptyprize editorial board have apparently bought into the mis-information and/or deceptions. So much for journalistic integrity/”investigative reporting”. This forum’s reporter hasn’t done much better.
It’s a “fait accompli” now, as the Emptyprize has given Lucas/Dan/Rochelle “protective cover”
The main point the Emptyprize editorial missed, that David pointed out, as many others including myself is,
Mayor Pro Tem Robb Davis argued in his op-ed that this is “a highly inelastic demand function” where “TNHC is essentially a price setter in this market.” He argues, “In such a market they very well may be able to set a home price and not have to reduce it if a CFD is included. In other words, unlike in a competitive market, they will not have to reduce the price by the full amount of the CFD.”
He argued, “Given the foregoing, I believe that home buyers moving into the Cannery face the risk of overpaying for the infrastructure there.”
In essence, the problem is this. In a more equitable market, the home buyer could negotiate the cost of the CFD off of the cost of the initial purchase. But the problem in Davis, with limited supply and large amounts of demand, the seller doesn’t have to agree to reducing the cost to offset the future CFD costs; instead, they can simply find someone will to pay their asking price and eat the cost of the CFD later.
And the paragraphs that follow on the issue. I give the Emptyprize a D-, David a C+ as to looking for FACTS and reporting them out.
Yes but I take a C+ from you as an “A” given how tough a grader you are 😉
I see potential… set a goal for improvement. You had resources available on this issue that you didn’t avail yourself of, so moving forward, suggest you aspire to more. At a stretch, I’d give myself a solid B, IF I was you… you did seem to listen and react to those who offered more background/facts, but the best I can give is the C+.
My main point was meant to be, on this topic, you did very significantly better than Dave Ryan AND the Emptyprize editorial board. I want to acknowledge that. Ryan’s pieces read to me as “press releases” by Lucas, and the CC majority, and am thinking the editorial board was “spokesman” for the CC majority on this issue. Perhaps their editorial can be used by the developer to convince potential buyers what a “good deal” they are getting, while the developer has to disclose the CFD. Might even be the good “marketing tool”, to distract from anyone asking the seller to “show them the math”. I’ll scan and keep the editorial for about 6 years from now to give to a buyer who finally “figures out the math”.
So, the Enterprise writes:
This is the original point that had me either supporting the CFD or not really caring too much. Pay it now or pay it later. Buyers will make up their own minds about price-value. But then there is the fact that the builder already committed to pay for these things, and the fact that I do expect future Cannery residents to claim “unfair” and demand that the city absorb more of the costs that their Mello Roos taxes cover.
But then the Enterprise follows up with…
This sheds light on the probable reason that at least two of our council members voted for the CFD. Dan and Lucas probably don’t want to wait for those amenities to be funded by the sale of future homes because they will not be able to claim the accomplishment in pursuit of their next political career move. Or maybe they are just impatient and don’t like to wait.
But I question this point. As a developer you would be better off building most of the amenities at some point upfront in the development project since it:
1. Is less expensive given inflation.
2. Adds to the attractiveness of the development to help maximize the price that the homes will sell for.
From my perspective, the CFD is not a good deal for Davis in general. However, I don’t see it as having any material impact to the buyers of the Cannery properties… they will pay for all those goodies one way or the other.
You get it, IMO about 75%, Frankly. Lets try an example:
There’s a house you want to buy in the Cannery.
You have a choice of paying 600,000 for it in cash, paying $600,000 by putting 20% down, and financing the rest @ ~ 4%. Or, MAYBE, you’ll get a discount off that $600,000 house (and you’ll have to rely on the seller to let you know what that is), finance as above, and take out a “second” to finance your discount to the tune of $2,000/years (based on ~ 5.5% interest rate), for 30 years, and you get an initial “teaser” payment that will increase up to 2%/year for those 30 years. Oh, and they could go even higher if the developer doesn’t build out, as planned.
A commercial/business entity can and will do the math and be able to figure it out as to “deal or no deal”. As a SFR buyer I needed a “finance guy” to help me figure it out, and we had a situation where there were good ‘market comps’ in a competitive market. The math said it was a “push”, or I could come out somewhat ahead. I pushed the “deal” button.
There are no “market comps” for new housing with all the amenities of greenbelts, etc. that there were in the early 90’s, in Davis. I think that if you bought into the CFD, you’d still pay damn close to the $600,000. Plus the higher interest than a mortgage (for what you’d pay for anyway [goodies]), and the 50-50 risk that THAT interest would not be tax-deductable.
With that said, as it you seem to frankly say you get business and economics, do you stand by, “However, I don’t see it as having any material impact to the buyers of the Cannery properties… they will pay for all those goodies one way or the other.”?
BTW, I believe the train has definitely ‘left the station’ and is ~ half way to Dixon by now. I suggest that we require that the Emptyprize editorial and poster’s comments be handed to future buyers who eventually realize they’ve been “had”, so they’ll know who to “thank”.
I don’t get why this wasn’t all decided 1 or 2 years ago.
If the developers are making say $200,000 per house, there should be plenty of dollars to pay for these amenities. Davis falls all over its self for minutia, and then lets this slip by?
Should I ask the impolite question: how many of these developers contribute money to city council races?
Looks like you’re asking me… that might not have been intended. If you intended it, I don’t know, but it probably wasn’t THIS developer who gave anything other than token contributions. Particularly in Davis. Would likely be counter-productive as the donations have to be disclosed, as part of “public record”.
That being said, my understanding (limited) is that as you aspire to higher office, this changes. But I truly am no expert in this.
“Unfortunately, what they put forth is of both questionable accuracy and logic.”
Or accuracy and logic you don’t happen to agree with…
“Ironically, they put forward a policy that will make housing prices higher for the very reason they put forward, saying, “Demand for Davis homes is high, and supply in this slow-growth community remains low.”
To not approve a CFD forces the developer to tack the infrastructure costs onto the price of the house, making the houses higher priced.
“But then they add, “Those in the minority — Mayor Pro Tem Robb Davis and Brett Lee — are wary of the additional taxes that will be levied on future Cannery residents and argue that the developer agreed it could build the amenities without further fees.”
To me this seems like an inaccurate representation of the minority view. “
How is this an inaccurate representation of the minority view? Both Councilmembers Davis and Lee expressed concern about additional taxes and how it would effect Cannery residents (unequal taxation across the city; paying more than they should for infrastructure); and also indicated the developer had to build the required amenities in the developer agreement whether a CFD were approved or not. Go back and listen to the last City Council meeting in which the CFD was discussed.
“Either they’ll get their parks, greenbelts and bike connections up front and pay the additional taxes or they’ll have to wait for what’s been promised until developers sell enough homes — at a higher price — to afford their construction.”
The problem with that simple truth is that the truth is one of the central points of contention in this debate.”
How is it not the truth that Cannery homeowners will either pay for their amenities upfront with a CFD or have to wait for amenities if no CFD is approved?
“He argues, “In such a market they very well may be able to set a home price and not have to reduce it if a CFD is included. In other words, unlike in a competitive market, they will not have to reduce the price by the full amount of the CFD.”
He argued, “Given the foregoing, I believe that home buyers moving into the Cannery face the risk of overpaying for the infrastructure there.”
So the city should not approve the CFD because the Cannery may make too much profit?
“In a more equitable market, the home buyer could negotiate the cost of the CFD off of the cost of the initial purchase. But the problem in Davis, with limited supply and large amounts of demand, the seller doesn’t have to agree to reducing the cost to offset the future CFD costs; instead, they can simply find someone will to pay their asking price and eat the cost of the CFD later.”
Shouldn’t that be up to the homebuyer to decide if the asking price is too high or not? And if a CFD is not granted, the developer will merely tack on the infrastructure costs to the price of the house, and has the option to phase in the amenities over time, the very mistake made at Mace Ranch.
“There have been debates over whether that means the homeowner would pay double or pay for the cost twice, but from this perspective, there is no simple truth that Cannery residents will pay one way or another, but, rather, they will pay now or pay more later.
This becomes a crucial point, because the editorial bases this fact on their support for the CFD.”
This is “fact”, that homeowners will pay double or pay for the infrastructure costs twice, or pay now or pay more later? Sounds more like speculation to me.
“Recent history shows that the Mace Ranch voters are more likely to oppose CFDs.
“In 2011’s Measure A, 2012’s Measure E, and 2014’s Measure O – three of the last four elections for taxes, the voters in Mace Ranch failed to achieve passage levels for the taxes.”
And how many other parts of Davis failed to achieve passage levels (2.3) for the taxes, particularly in the last election? This is such a bogus argument.
“Moreover, the city may end up shooting itself in the foot. While many voters, who are otherwise opposed to taxes, hold their noses to support the local schools, the city might be another story. Measure O only passed 58-32 with Mace Ranch primarily opposing the measure. If the city is looking at a parcel tax to fund roads, such a measure could depend on voters who will already be paying a $1000 to $3000 annual tax assessment.”
This is sheer speculation. Mace Ranch folks are going to want the potholes in this town fixed just as much as anyone else.
“And how many other parts of Davis failed to achieve passage levels (2.3) for the taxes, particularly in the last election? This is such a bogus argument.”
It’s not a bogus argument. It’s suggestive of what we are likely to see in coming elections. If people are already paying $1000 to $3000 in their tax assessment, PLUS the $500 for schools, do you see them as more or less likely to pay for an additional parcel tax as someone not saddled with the additional $1000 to $3000 charges? How is that a bonus argument? It has a logical basis and an empirical foundation.
Ok David, reminder the CFD is NOT taxes… what they’ll see on their tax bill will be (assuming a $500,000 purchase price, probable on the median/low end) $5,000 in property tax, $2,500 in developer CFD assessments, PLUS the parcel taxes for schools and the City. Currently, that would put the “tax” bill to just under $8,000/year. And both the property taxes and CFD assessments likely to grow @ 2% (another $150/year, compounded annually for as long as they owned the home.
You greatly understated the argument, IMO.
To DG: IMO it is an absolutely bogus argument. Mace Ranch is going to want good schools for their children and street maintenance just as much as any other part of town.
The empirical evidence suggests otherwise. In many communities not named Davis, parcel taxes routinely fail to gain the required two-thirds votes.
As far as I can tell from following this issue over these weeks, this CFD provides:
— a cash flow advantage to the developer so they can front load some of the amenities; it helps them pay for the farm infrastructure.
— no particular advantage to the home buyers.
— a somewhat misleading purchase price presented to prospective homebuyers, since the CFD costs presumably come up further in the discussion.
— no particular advantage to Davis taxpayers.
— a one-time payoff to the city of $750,000, which arguably is right out of the pockets of new homebuyers.
— it creates the highest tax basis for this neighborhood of any development in the city.
Have I misunderstood this?
Don… the CFD assessments ARE NOT A TAX! I tell you three times! However, those who pay CFD assessments may ‘perceive’ them as a tax, as the assessments are collected along with the property tax bill. Not only is it not a “particular advantage” to the buyers, under the current market force drivers, I believe it is not a “push” as it was for me, but a definite “dis-advantage”. Other than that, you’re understanding pretty much correct.
Again, I really don’t ‘give a damn’ as for myself. I do react poorly to the ill-informed (who don’t know they are, and state things as facts, when they aren’t), the opportunistic (hell if the developer is raking in a profit, I want a piece of that, too), and the liars/deceivers (MR developer CFD didn’t ensure that Korematsu was built on time).
Fee added to tax bill, I assume? How is this cost actually assessed on the home buyers?
By house square footage, in “quanta”… 850-1300 SF = X, 1301-2800 SF = Y, etc. We still have to see the “rate and apportionment” document. It is “billed” with the Property Tax bill, and is a lien on the property. does that help? BTW, still, not a “fee”, more like a “second mortgage” payment that happens to be billed with the property tax. Fees (like utility fees) are seldom billed that way, unless seriously delinquent where they are turned into a lien.
the enterprise editorial was a disgrace. no insight. no new information. no context. no analysis. as hpierce suggested, it was as though it was written by lucas frerichs (lucas, not accusing you of anything).
Or, the CC majority on the issue.
Always a bit scary, DP, when we appear to be on the same page. But on this issue, “anyone who is not my opponent, is my friend”. Appreciate the ‘validation’, as far as it goes.
I’m confused by this comment. I was under the impression that the developer is obligated to provide residents everything they were promised regardless of whether a CFD is put into place.
Am 95% sure it is only “timing”, but 5% possbility that the “quality” might be slightly reduced. The City can already protect the latter 5% event, IMO.
What will suffer if CFD not approved: Phasing in of amenities over long period of time, quality of amenities, and any amenities not in developer agreement.
I would empathize with this argument if there was a cap on how much the developer was able to sell the house for with a CFD in place, or if the houses were not being sold in a competitive market like we have in Davis, where people have very few choices when it comes to buying a house. I agree with Robb, as it is New Homes “will not have to reduce the price by the full amount of the CFD.”
Since when does the city get to decide how much profit a developer will make?
The city doesn’t get to decide anything about profit. It does, however, have complete discretion in the matter of whether or not a CFD gets implemented. If that affects developer profit, so be it, but that’s not a concern of the city.
By the same token, the city is under no obligation to make the development “pencil out” for the developer. The developer is solely responsible for that.
Jim, good answer, except, if the City, based on the available evidence, takes a ‘positive’ action that increases the developer’s profit, at the expense of existing/future residents, I can’t get to “… so be it…”
If it was a “push” for the buyers, OR if ‘inaction’ by the CC results in a big profit for the developers, I’d agree 100%. Those two tests, in my opinion, have not been met.
Anon-I think you missed my point. I’m saying unless you can cap the sale price (which im not arguing should be done) the above arguement does not hold water. The CFD allows the developer to cover at least 12 million dollars, it does not stop the homeowners from having to pay above and beyond that . It is a complete win-win for the developers . The same cannot be said for home future homeowners or the community at large.
This was in Dave Ryan’s piece today in the Enterprise:
I don’t understand the last line, “any other bond proceeds would net the city a 50/50 split.”
Why would there be additional proceeds? If the infrastructure was paid off early would property owners continue to be assessed fees, 50% of which the developer gets to pocket?
The staff report says tehy could go up to $13 million, so at that point, the city could get another $600,000 in proceeds.
And, developer and City could get the new property owners to cover that additional ~ 5% cost. Nice.
Are there any restrictions on how the developer and the city can spend these “extra” proceeds?
Michelle… you seem to be asking me. I don’t know. The basic premise is that CFD’s are for physical improvements, not maintenance or operational costs. I believe there are “nuances”, but I cannot answer your question with any ‘authority’.
BTW, good question.
Other infrastructure improvements, not currently itemized. Which either will result in lees “up-front” cost of the home (yeah, right) or more “profit” (my guess).
I have another question that applies more generally to CFDs. For the sake of argument, and not that I think this is a likely outcome, lets say that the houses in the Cannery don’t sell right away, so anticipated Mello-Roos fees are not collected. Is the developer still obligated to pay for the infrastructure that the CFD was supposed to fund, or are they off the hook for that?
Don’t they take out bonds and payoff the bonds with the sales?
So what if the city takes out the bonds but the houses never sell? Is the city responsible for paying the money back or the developer ? (again I’m asking not because I think this is going to happen, but just to understand the process better).
As I understand it, not all 11.8 million (or whatever) of bonds will be issued right away. The “authority” to sell bonds is a one-time shot, pretty much. The proceeds from the bonds will be paid, as the improvements are completed, and accepted as complete by the City. If there is a problem in cash flow, the developer likely will have bond in place to keep up with the principal and interest payments, at least for a time. Believe there are provisions that buyers will need to pay “super-assessments” if/when that fails to stay current on the cash-flow and re-payment. Worst case scenario, City would be on the hook for paying off the principal and interest for the bonds that had been issued up to that point. If the latter is DefCon5, as much as I’m opposed to the CFD as unwise, don’t think we’ll even get to DefCon1.
Consider the plight of the Wild Wings homeowners west of Woodland. When slow sales failed to support the cost of the golf course the developer built, the homeowners were faced with a choice between seeing the course closed or taxing themselves $1,700 per year each to buy it and run it themselves. Fearing a dramatic decrease in home values if the course closed, the homeowners swallowed hard and approved the purchase, hoping to recoup their investment sometime in the (distant) future.
While their privately-owned golf course situation isn’t a direct comparison to a CFD, it does illustrate what can happen when rosy predictions fail to materialize.
Didn’t know that. Your conclusion appears to be “spot on”. The only difference I can see is that Wild Wings was a completely private venture, but I don’t know about their utility “systems”.
I do know that the Senda Nueva area proposed a private greenbelt amenity, funded completely by the HOA (again, NOT a CFD). Similar problems occurred. The Senda Nueva folk ‘forced’ the City into making the Greenbelt and overland drainage facilities a City amenity/problem, and to finance the costs the City created the first Landscape and Lighting Assessment District assessing the homeowners for the maintenance. That kinda died with prop 218. Now everyone pays for what was supposed to be a locally financed amenity. [think, Urban Farm] There are risks to the CFD approach. Those who support it, in my opinion, need to take responsibility for any unintended consequences if there is a problem. As I said before, I think I’ve disclosed enough where my hands are clean.
That being said, I think the train has passed Fairfield, on its way to Martinez. I still have the ridiculous hope that Lucas, Dan, and./or Rochelle will stop the train and send it into reverse. But I’m not willing to bet a nickle, at 20,000 : 1 odds that will happen. Well, maybe a nickle at those odds…
Alan Miller: please note my train analogy uses a train “heading south” theme…
[the above comment was supported to be in a reply to Jim Frame’s 9:19 post… parsed it wrong]
Wild Wings is a very poor analogy. I cannot say anything more than that.