Loading...
HomeMy WebLinkAbout18 - Underground Utility Assessment Deferral Program aEwcoRr CITY OF NEWPORT BEACH C9��FO0.NP City Council Staff Report October 13, 2015 Agenda Item No. 18 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Dan Matusiewicz, Finance Director - 949-644-3123, dmatusiewicz@newportbeachca.gov PREPARED BY: Dan Matusiewicz, Finance Director PHONE: 949-644-3123 TITLE: Underground Utility Assessment Deferral Program ABSTRACT: Staff has received numerous inquiries from assessment district proponents and opponents regarding the City's willingness to sponsor and administer an Underground Utility Assessment Deferral Program. The program would be designed for resident property owners that may not have sufficient disposable income to pay the annual assessment. Such a program would allow property owners in impacted districts to apply for an assessment deferment whereby the City would pay for the costs of the assessment until the property transfers to their heirs, a new owner, or if the agreement is breached in some way. The purpose of this staff report is to determine the City Council's willingness to approve a new assessment deferral program and identify the eligibility requirements, process and proximate terms. RECOMMENDATIONS: a) Provide staff direction as to whether Council supports a Deferred Assessment Loan Program; and b) If Council is in support of an Underground Utility Assessment Deferral Program, provide input on the staff's recommended criteria and process outlined in Staff Report Attachment C. FUNDING REQUIREMENTS: The fiscal impact of this item is dependent on the level of public participation in the proposed loan program and whether funding caps similar to the City's 1989 deferral program are put in place. Underground Utility Assessment Deferral Program October 13, 2015 Page 2 BACKGROUND: An assessment district is a public financing mechanism that is initiated by interested citizens (proponents) who request the City to form an assessment district in order to assess their property to pay for the construction of public infrastructure within a specified area. With underground utility assessment districts, all existing overhead utilities such as electric, cable television and telephone poles, and wires are removed and the wires are placed in underground conduit. In the public right-of-way, this involves trenching, laying conduit lines in the trenches, installing new utility vaults, backfilling, repaving the street and removing the overhead poles and wires. The assessment amount for the next several planned districts appears to average $20,000 per parcel. Property owners are responsible for connecting the main service conduit in the public right-of-way to the property owner's home. This cost ranges between $1,000 and $4,000 and is not included in the assessment amount. Current Financing Mechanism Upon successful formation of an assessment district, property owners may pay all or a portion of their assessment in cash from any source, or allow the assessments to go out to bond. Individuals who pay off the assessment prior to the issuance of bonds will not incur costs associated with the bond financing. If bonds are issued, The debt service is collected by the County Treasurer from district homeowners through the annual tax roll in semi-annual installments due no later than December 10 and April 10 of each year until the assessment is paid in full. The cost of improvements is spread in proportion to the benefit of properties within the boundaries of the designated area. The annual amount due related to the assessment is likely to range between $1,400 to $1,600 per year depending on the precise amount of the assessment and the interest rate achieved by the district financing. Subsequent to financing, property owners may still pay off the assessment but will have incurred the cost of financing and may be subject to an early bond call premium usually between 0 to 3 percent of the outstanding principal. Staff has received a number of public inquires about whether the City will consider a deferral program for resident property owners within an underground utility assessment district that may not have sufficient disposable income to pay the annual assessment. DISCUSSION: Proposed Option for the City to Sponsor a Deferred Assessment Program Some proponents have suggested the City offer a deferred assessment program whereby qualified applicants could defer all payment of their assessment until the Underground Utility Assessment Deferral Program October 13, 2015 Page 3 property transfers to their heirs or a new owner. All principal and accumulated interest would become payable at this time. Under this option, interested property owners would submit an application to the City. Based on criteria approved by the City Council, staff would review the application and order any title reports and insurance the City deemed necessary. If the application was approved, the applicant and the City would enter into a promissory note agreement that would be evidenced by a deed of trust recorded against the property in addition to the assessment lien. The City would pay the principal and interest assessment on behalf of the property owner as it became due. The principal amount of the assessment would be financed by the City in the same manner as the property owners that choose not to pay the assessment during the cash collection period. The City would track the payments made on behalf of the approved applicant. Interest would accrue on the payments made by the City, at an agreed upon rate, and would become part of the promissory note balance. Upon transfer of the property or other qualifying events, the promissory note would become due and payable to the City. The property owner could pay off the promissory note at any time without prepayment penalty. Other Deferred Property Tax or Assessment Programs Deferred property tax and assessment programs are not prevalent in California but the City is aware of a few. In February 2009, the State Legislature suspended the State Controller's Office Property Tax Postponement Program designed to assist senior, blind, and disabled homeowners with their property taxes. However, this program is scheduled to be reinstated in September 1, 2016. Effective January 1, 2012, the Governor signed AB 1090 (Chapter 369, Statutes of 2011), which allows each county, if it wishes, to implement a property tax postponement program for properties located within the county. This program is not currently available in Orange County. Only the County Board of Supervisors has the authority to implement this program. The City of Manhattan Beach currently offers an assessment district program and the cities of Solana Beach and Rancho Palos Verdes are considering such programs. The City of Newport Beach initiated a Deferred Assessment Program in 1989 in conjunction with Assessment District 57 (Corona Highlands), included as Attachment A and currently had a Utility Connection Grant Program through the City's Community Development Block Grant (CDBG) program in 2010. Attachment B compares some of the applicant criteria and program details between the aforementioned programs. Risks While many risks can be mitigated, Council should be aware that loan programs, however carefully established, cannot eliminate all forms of risk. Underground Utility Assessment Deferral Program October 13, 2015 Page 4 • Assessment liens are statutorily senior to mortgage deeds of trusts and other non-tax liens on the property and are on a parity with liens in favor of ad valorem taxes and assessments. The City's promissory note would be subject to and subordinate to any existing or future liens for ad volerm taxes or assessments and any existing mortgages or liens on the property. Accordingly, although the property value-to-lien ratios are generally very high in Newport Beach, equity may not be sufficient to cover the promissory note balance when any combination of senior liens, reverse mortgages, insufficient or uncovered property liability and hazard insurance erode the perceived home equity. In such event, in order to preserve its loan, the City may have to cure defaults on senior mortgages in the event of insufficient equity. • Title disputes may create legal burdens if title is obscured in any way and not properly insured. • It is always possible that properties may transfer to new owners without sufficient or obvious disclosure. It could be possible that the new owner will be required to satisfy the obligation of the previous owner. • Property transfers may be difficult to detect if the property is placed in a trust or assumed by family members or other non-traditional transactions. Other Considerations • The City is not in the business of making loans and staff may not have industry expertise that may be readily available in the private sector. • The cost of creating and administering a program that may have low enrollment may not be an efficient use of staff time. • Loan programs do require additional staff time to administer. Applications need to be thoroughly reviewed, and proper title and appraisal documents may need to be secured. Property owners and real estate agents often need information quickly when refinancing or property sale transactions are in progress. • The City does not currently maintain a loan database application to archive and administer applications which may require some investment in time and money. • The loan deferral will increase the amount of debt on the property as the property owner will be reimbursing the City for interest on the assessments and paying interest on the City deferral loan. Staff's Initial Criteria Recommendations If the City Council chooses to approve a new assessment deferral program, staff can administer or outsource the administration of such a program. Pending continued review of the necessary program details staff has prepared a summary of initial application process criteria to obtain Council's guidance. Attachment C summarizes the Underground Utility Assessment Deferral Program October 13, 2015 Page 5 proposed program requirements and tasks associated with an assessment district deferral program. If conceptually approved, staff would return with additional or refined program details and the proposed contours of a promissory note agreement for Council consideration and approval. ENVIRONMENTAL REVIEW: Staff recommends the City Council find this action is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENTS: Attachment A - 1989 Staff Report: Postponement of Paying Assessments for Undergrounding Utilities in Corona Highlands (Assessment District No. 57) Attachment B - Eligibility Requirements of Assessment Deferral Programs Attachment C - Proposed Program Requirements and Tasks Associated with an Assessment District Deferral Program ATTACHMENT A 1989 Staff Report: Postponement of Paying Assessments for Undergrounding Utilities in Corona Highlands (Assessment District No. 57) 18-6 July 10, 1989 a �f CITY COUNCIL AGENDA ITEM NO . J-2 TO: CITY COUNCIL FROM: Public Works Department SUBJECT: POSTPONEMENT OF PAYING ASSESSMENTS FOR UNDERGROUNDING UTILITIES IN CORONA HIGHLANDS (ASSESSMENT DISTRICT NO. 57) RECOMMENDATIONS: Adopt criteria listed below for determining eligibility of property owners for City help in postponing payment of assessments . DISCUSSION: After a public hearing held on June 26, 1989 , the City Council adopted resolutions forming Assessment District 57 , and approved a budget amendment from the General Fund in the amount of $40,000 to assist property owners who have a hardship resulting from the formation of the assessment district by allowing them to postpone payments on their assessments until such time as the property is transferred. The staff was directed to develop criteria for determining who would be eligible for assistance from the City. The standards for .postponing .payment .of assessments are partially based on the Senior Citizens Property Tax Postponement Law, Section 20581 and following of the Revenue and Taxation Code of the State of California. The program is based on the assumption that the City will help a few hardship cases by paying their assessments , and the Corona Highlands Homeowners Association will help .property owners reconnect individual service connections . It is recommended that the City make the interest and principal payments to the bondholders as they come due, subject to a showing of hardship, the signing of an agreement and the recording of a lien on the property. The entire amount advanced, including interest, will become due and payable when the property is transferred. Interest will be charged by the City at the rate of 7% per annum on all money advance including interest and other expenditures made to satisfy the City that there are no other prior claims against the property. The City will agree not to demand payment until the property is transferred. The City's interest can be protected by requiring that the property owner have at least a 20% equity in the assessed value of the property. CRITERIA 1. Each claimant applying for postponement of his assessment shall complete an application under penalty of perjury with the City on a form supplied by the City. The claim shall contain evidence acceptable to the City that formation of the assessment district has worked a hardship on the claimant. ,v 18-7 Subject: Postponement of Paying Assessments for Undergrounding Utilities in Corona Highlands (Assessment District No. 57) July 10, 1989 Page 2 2. The claim form will include, in addition to the address of the property and the County Assessor 's parcel number, a list of any other encumbrances against the property. The City will obtain Litigation Guarantees at an estimated cost of $250 per parcel , which will disclose existing encumbrances on the property. The cost of the Litigation Guarantees will be added to the costs of the principal and interest payments advanced to the property owners. 3. Claimant must provide any other information deemed by the City necessary to establish eligibility. 4. The claim shall include a copy of claimant ' s last Federal Income Tax form and a copy of the last property tax bill . 5. Claimant must own and reside in the dwelling on the property for which the assessment is to be postponed. 6. No person with a household income exceeding the approximate amount of $24,000 per year shall be deemed to be eligible unless circumstances warrant special consideration. In case the number of applicants exceeds the amount of funds available, priorities shall be given to claimants in the following order: . _. a. Lowest household incomes . b. Highest minimum age of the property owners. If there is more than one owner, the age of the youngest will be the determinant . Attached is a copy of a suggested application form. Benjamin B. Nolan Public Works Director KP:so Attachment 18-8 CITY OF NEWPORT BEACH OFFICE OF THE CITY MANAGER SPECIAL ASSESSMENT POSTPONEMENT CLAIM FORM Assessment District No. 57 (Undergrounding Utilities in Corona Highlands) 1989 1. Name of claimant . 2. Social Security No. 3. Date of birth. 4. Spouse's name. 5. Spouse' s Social Security No. 6. Spouse' s date of birth . 7 . Total household income (including Social Security) . 8. Address of property. 9 . County Assessor ' s Parcel No. of property. 10. Existing encumbrances against the property. 11 . Is your residence based on a leasehold (possessory) interest? 12. Is your residence based on a life estate or under a contract of sale? 13. Is your property used for rental or business? 14. Did you and all other recorded owners (spouses and direct-line relatives excepted) live in your home on June 26, 1989? 15 . To the best of your knowledge, the date you purchased your home. 16. Additional comments that will assist the City in determining eligibility. 18-9 SPECIAL ASSESSMENT POSTPONEMENT CLAIM FORM Assessment District No. 57 (Undergrounding Utilities in Corona Highlands) age 2 Note: To qualify for postponement of the assessment, Line 7 must be $24,000 or less unless special circumstances warrant exception to the rule. SIGN THE COMPLETED FORM, AND ATTACH ALL REQUIRED DOCUMENTS. A copy of your most recent federal income tax form and 1988 County property tax bill must be attached . Under penalty of perjury, I declare that this claim, including any accompanying documents, is to the best of my knowledge true, correct and complete. Signature Date Telephone Number ( ) ),ction by the City: ignature Date 18-10 ATTACHMENT B Eligibility Requirements of Assessment Deferral Programs 18-11 Eligibility Requirements of Assessment Deferment Programs Minimum Age Disability Y/N Other Income Limit Cash Investment Limit Home Equity Manhattan Beach Applicant or spouse must be at Blind or Disabled in Assessed property must be Tiered contribution of Assets may not exceed$1 Assessment loan least 62 years old or meet the accordance with primary residence and owned 0%-S%up to Defined million,excluding amount from the City disability definition standards used by the by applicant or spouse or held Taxable Income of property in question and plus residential debt Internal Revenue in a revocable trust by aplicant $100,000,whereby cash value of life senior to it,may not Service for tax return or spouse' eligibility phases out insurance,but includes exceed 80%of the purposes assests in a revocable value of the property trust (appraisal and title report required) State of California Applicant must be 62 years of Blind or Disabled,based Assessed property must be Total Household N/A Has at least 40%equity age or meet the disability on the Social Security primary residence and owned income of$35,500 or in the property each requirements Administration and occupied by applicant' less,as defined by year an application is definition(proof Revenue and Taxation submitted required every year) Code 20503 and 20585a Newport Beach-1989(Corona Highlands) See below` See below` Claimant must own and reside Total Household See below` Has at least 20%equity in the dwelling on the property income of$24,000 or in the property each for which the assessment is to less(including Social year an application is be postponed Security).$45,000 submitted adjusted for CPI. Newport Beach-CDBG Utility Connection a N/A N/A All properties assisted must be Tiered limits range from N/A N/A single-family residential 1-8 in household size properties or owner-occupied and$32,550 and duplexes located within the $61,350 in family city limits of Newport Beach income.Family Income (includes manufactured includes all income homes) from all family members living in the household to be repaired All these requirements must apply in order to inititally qualify.A registered domestic partner under the laws of the State of California will be considered a spouse. eAccording to the State of CA,pursuant to Revenue and Taxation Code section 20583(d)(1),40%may now be the requirement on home equity-20%may no longer be allowable as of 9/2016. `The rest of the determining factors will be based on the funds available with priority given based on lowest household income and highest minimum age of the property owners(if more than one owner,the age of the youngest will be the determinant). 'Assistance is a maximum one-time grant of$5,000 per household,not a loan as the others.Work appears to be arranged household by household with contracting/contractor requirements outlined by the City. 18-12 ATTACHMENT C Proposed Program Requirements and Tasks Associated with an Assessment District Deferral Program 18-13 Attachment C:Proposed Program Requirements and Tasks Associated with an Assessment District Deferral Program Responsible Party One-Time or Requirements Ongoing City Staff Applicant Staff Recommendation Notes 1 Establish a minimum age to participate in One-Time Review Submit IRS 1040 Applicants who are at least 65 years old,are blind,or the loan program. and supporting disabled in accordance with standards used by the IRS for schedules. tax purposes will be eligible to participate in the loan program. 2 Primary place of residence Review Assert and Property must be the primary place of applicant's submit evidence residence. of primary residence. 3 Submit and review supporting One-Time Review Submit IRS 1040 Household income shall not exceed Orange County median Household income is defined as"Total documentation to verify income and supporting income applicable to household.The 2015 limit for a single Income," plus"Tax-Exempt Interest"plus schedules. person household is$61,050,a 2 person household is any non-taxable Social Security income $69,750,a 3 person household is$78,500 and a 4 person received as definedon the IRS 1040 and household is 87,200. supporting schedules. 4 Submit documents to support the market Review Submit cash& The market value of all cash,investments,cash value of value of cash and investment holdings. investment insurance policies,and interest(s)in LLP,LLC,S Corps, statements from Trusts and Partnerships shall not exceed$500,000. all sources of income. 5 Assess loan to value ratio. One-Time Review Submit Assessment plus secured debt may not exceed 60%of the Supporting documentation shall include supporting value of the property the statements evidencing the balance of documentation. 1st&2nd mortgage and any other notes and liens recorded against the property. 6 Conduct home appraisal to establish value One-Time Review Submit Appraisal shall be required if total secured debt exceeds if necessary. appraisal. $750,000 or if property is undeveloped or has been significantly impaired by a hazard(fire,Flood,earthquake etc). 7 Establish Ownership Rights One-Time Review Submit Title Conduct title search. Fees paid by applicant. Report 8 Title Insurance One-Time Review Submit Acquire litigation guarantee or other title policy. Fees paid by applicant. supporting documentation. 9 Submit Executed Promissory and Deed of One-Time Execute& Record Trust Deed against applicant's property. Trust Record 10 Remove assessment payment from annual Ongoing Exclude City Should pay bondholder paying agent directly(pending tax levy assessment further legal review). s from levy 11 Make principal and interest payments to Ongoing Monitor N/A Payments made to Trustee/Paying Agent. bondholders on property on an semi- annual basis. 12 Monitor the sale or transfer of property on Ongoing Monitor Monitor the sale or transfer of properties subject to the loan an ongoing basis. to ensure that ensure the loan is paid off and the assessment lien is removed. 13 Providing pay-off quote upon request. Ongoing Respond N/A 14 Respond to real estate inquiries that may Ongoing Respond N/A arise for properties with an assessment lien. 15 Update promissory note balance as Ongoing Record Apportion interest on the City payments at the same rate Promissory note is subordinate to 1st payments are made and record interest as the issued bonds(Net Interest Cost)plus 1%. mortgage and all other senior secured accrual. debt. 18-14