TO: HONORABLE
CHAIR AND MEMBERS OF THE FINANCE ADVISORY COMMITTEE
FROM: DENNIS McLEAN, FINANCE DIRECTOR
DATE: DECEMBER 12, 2001
SUBJECT: ASSESSMENT DEFERRALS FOR UNDERGROUNDING DISTRICTS
During the November 7th
meeting of the City Council, the Director of Public Work’s presented the
following staff report regarding programs
that could allow property owners the opportunity to defer undergrounding
assessments:
BACKGROUND
On October
2, 2001 staff presented two reports regarding residential undergrounding
program. The first report presented program guidelines in the form of a
resolution. The second report was a part of a public hearing to establish the
$100 fee on property owners wishing to establish a residential undergrounding
district. During discussions on these two items, the City Council asked
questions about, and requested staff to provide information on programs that
allow property owners to defer undergrounding assessments in addition to the
state deferral program discussed in the guidelines. The City Council also
requested staff to provide additional information regarding the state deferral
program, the bidding process, and Southern California Edison’s financial
responsibility towards a residential undergrounding district.
This staff
report presents that additional information. This evening staff is requesting
direction from the City Council regarding deferral programs. Once that
additional direction is provided, staff will bring a revised undergrounding
program to the City Council for adoption.
DISCUSSION
The
attached October 29, 2001 memorandum from the City Attorney provides detailed
information regarding deferral programs available to the City Council. The
characteristics, advantages, and disadvantages of each program are as follows:
State
Program
·
Covers only assessment, not house connection
·
Available only to Senior Citizens, and disabled
·
Assessments are due when property is sold
·
If eligibility is met, the deferment is automatic,
there is no hearing process
·
No program costs for City
1913 Act Funding
·
Covers only assessment, not house connection
·
City sets eligibility criteria
·
There is a cost to underwrite the bond
·
Assessments are due when property is sold or bonds
mature
RDA low and moderate housing fund
·
Covers only house connection, not property
assessments
·
Project must be within, or benefit, the
redevelopment area
·
May be a loan or grant program
In addition the City Council
raised the following issues:
Since Southern California Edison
(SCE) ends up with new facilities, do they pay a portion of the cost?
Yes.
Southern California Edison pays a portion of the cost of the construction, in
the form of a line equivalency, which is approximately $9 per foot. The amount
is determined by the Public Utilities Commission and approximates the cost of a
new overhead project.
If one meets the eligibility
requirements for the State Program, is the deferral automatic?
Yes.
Rather than SCE constructing the
improvements, can the project be advertised and awarded like other Public Works
projects?
Yes,
however, if SCE does not perform the work they will charge a fee for inspection
that they require. This would be in addition to the City’s public works
inspector.
CONCLUSIONS
To finalize the guidelines for the
neighborhood undergrounding program staff requires additional direction from
the City Council regarding the assessment deferral programs. Once that
additional direction is provided staff will bring the program guidelines back
to the City Council for adoption.
Submitted
Dean E. Allison, Director of
Public Works
Reviewed
Les Evans, City Manager
After the Director of Public Works
completed his oral presentation, the City Attorney presented the following
staff report regarding possible programs
that could allow property owners the opportunity to defer undergrounding
assessments:
CITY OF RANCHO PALOS VERDES
OFFICE OF THE CITY ATTORNEY
M E M O R A N D U M
TO: Mayor Lyon
and Members of the City Council
FROM: Carol
Lynch and Mark Mandell
DATE: October
29, 2001
SUBJECT: Assessment
Deferrals for Senior Citizens, the Disabled and Persons with Limited Income
BACKGROUND AND EXECUTIVE SUMMARY
The City of Rancho Palos Verdes is
currently developing a procedure for the creation of assessment districts to
finance the undergrounding of utilities. The City Council has requested a
summary of the available mechanisms through which it can offer senior citizens,
the disabled, and persons with limited income the opportunity to defer payment
of assessments against their property.
There
essentially are two mechanisms available to the City for this purpose:
A. The City can encourage its
residents to participate in the State Controller’s Office Property Tax
Postponement Program. Advantages of this program are that it would be
available to residents at no cost to the City and that program participants
could transfer the amount of the deferral to a new home, should they move away
from the home subject to the assessment. Disadvantages of this program are that
it is only available to senior citizens and the disabled with household incomes
of less than $24,000 and that it requires participants to file annual
applications with the State.
B. The City can establish a
deferral program pursuant to the Municipal Improvement Act of 1913. A
major advantage of such a program is that it gives the City maximum flexibility
in determining eligibility criteria. Disadvantages are that the amount of such
a deferral may not be shifted to a new home, but must be repaid upon transfer
of the property, and that such deferrals must be repaid by the final maturity
date of bonds issued to finance the undergrounding project, even if no
ownership change has occurred for the property. Such program could be either of
two types:
(i) A
program where the City enters into year-to-year agreements with eligible
homeowners to pay those homeowners’ annual assessments. An advantage of this
type of program is that it would allow the City to make annual assessment
payments rather than one large payment at the initiation of the program. A
disadvantage is that the City cannot commit to making annual payments beyond
the current year, but instead must have the right to stop making payments in
any year, which may cause concern to any property owner who requests a
deferral, or
(ii) A
program where the City deposits into a deferral fund the full amount necessary
to make future assessment payments. The advantage of this option is that the
City would be able to commit to deferring future year assessment installments
against eligible properties. The disadvantage is that it would require a large,
up-front, cash commitment by the City.
Finally, the Rancho Palos Verdes
Redevelopment Agency can establish a loan or grant program using moneys in its Low-
and Moderate-Income Housing Fund. Loans or grants could be made for the
purpose of assisting homeowners in paying only for their on-site
connections to undergrounded utilities. This program is not listed as one of
the basic funding options, since it does not cover the cost of undergrounding
the improvements within the public right-of-way, which is the largest portion
of the undergrounding expenditures. Advantages of such a program are that the
Agency would have a high level of discretion with regard to loan or grant terms
and that housing funds, rather than general funds, would be used. A
disadvantage is that such a loan or grant may be made only to households
meeting certain income criteria living in homes meeting certain affordability
criteria. Another disadvantage is that the undergrounding either should be
located within the Redevelopment Project Area or should benefit that area of
the City.
DISCUSSION
The City is contemplating the
formation of assessment districts pursuant to the Municipal Improvement Act of
1913 (Streets & Highways Code Section 10000 et. seq.) (the
"1913 Act") to finance the undergrounding of overhead utilities in
certain neighborhoods. The City desires to identify mechanisms by which
property owners can defer such assessments.
There are two components to an
undergrounding program: (i) work done in the public right of way to convert
above ground utilities to underground locations (i.e. relocating transmission
lines from poles to conduits) and (ii) work done on private property, including
connections to individual homes and businesses. Work on private property is the
responsibility of the property owner. However, if a property owner files a
request, the City may include the costs of such work in the assessment and
issue bonds to pay such costs. If such private costs were included within the
assessment, then these costs would also be eligible for deferral under each of
the deferral options discussed in this memorandum. If private costs are not
included within the assessment, they still could be financed through a
redevelopment loan or grant program, provided that all of the criteria for
doing so can be satisfied.
Analysis
Each of the programs discussed in
this memorandum has separate limitations. The City may wish to consider
establishing a deferral program in conjunction with a Redevelopment Agency loan
program. Also, regardless of what programs the City wishes to establish on its
own, the City may wish to consider publicizing the State’s Property Tax
Postponement Program.
I. Property Tax Postponement
Program.
Pursuant to the Senior Citizens
and Disabled Citizens Property Tax Postponement Law (Revenue & Taxation
Code Section 20581 et seq.), the Office of the California State
Controller administers a statewide property tax postponement program. While the
City has no role in the administration of this program, it could play a role in
ensuring that the City’s residents are aware of the existence of the program.
This program allows homeowners to delay payment of their property taxes until
they die, sell their home, cease to live in their home, or fail certain
criteria. For the purposes of this program, property taxes include assessments
against real property.
In order to qualify for
postponement pursuant to this program, a homeowner and his or her home must
meet all of the following criteria:
•The
homeowner must be 62 years of age or older, blind or disabled;
•The
homeowner’s household income cannot exceed a certain amount, which is adjusted
annually for inflation (currently $24,000);
•The home
must be a residential dwelling occupied as the principal place of residence of
the homeowner;
•The
homeowner must own the home, and meet certain ownership criteria (e.g. holding
at least a 20% interest in the home);
•The
homeowner must receive the property tax bill for the home; and
•Property
taxes against the home must not be delinquent.
Additionally, if any portion of
the home is used for rental or business, only a percentage of the property
taxes equal to the percentage of the home devoted to the personal use of the
claimant is eligible for postponement.
A homeowner must file a claim for
each tax year he or she desires postponement. The Office of the Controller,
after approving a homeowner’s claim, issues the homeowner a certificate of
eligibility. This certificate may be submitted by the homeowner to the county
tax collector as payment of eligible property taxes. Once the certificate has
been used to pay taxes, the State records a lien against the property for the
amount of taxes postponed. During the postponement period, interest (currently
at a rate of six percent) accrues against the postponed tax amount.
Postponed property taxes need not
be repaid to the State until the homeowner: (i) ceases to occupy the premises
as a primary dwelling; (ii) dies; (iii) sells, conveys, or disposes of the
interest in the home, or (iv) allows any non-postponed property taxes against
the home to become delinquent. The surviving spouse of a homeowner need not
repay the postponed taxes, so long as the surviving spouse continues to occupy
the home as his or her primary dwelling. However, unless the surviving spouse
would otherwise qualify for the postponement program, that surviving spouse
must pay property taxes which come due in the years following the death of the
eligible spouse.
If a homeowner sells his or her
home, he or she may apply the amount of postponed property taxes towards the
purchase of a new home, establishing a lien against that home and continuing to
defer the postponed property taxes. Future year assessments against the
original home would remain the obligation of the new owner of that property.
Claim forms and other information
about the State postponement program may be found at http://www.sco.ca.gov/col/taxinfo/ptp/index.cfm.
II. Deferral of Assessments Pursuant
to the 1913 Act.
Chapter 8 of the 1913 Act
authorizes the City to allow property owners to defer payment of an assessment
levied pursuant to that act, so long as eighty percent or more of the area of
the assessment district is developed for residential, commercial, or industrial
use. Such a deferral program may be adopted by resolution of the City Council,
and the City Council may establish both eligibility criteria for the deferral
and a procedure for determining that property owners taking advantage of the
deferral are eligible. The 1913 Act establishes no limitations on the criteria,
which the City may establish, though, as with all governmental actions, the
City must have a rational basis for any criteria it establishes.
The City
has two options for financing a deferral pursuant to the 1913 Act:
•It can
enter into annual agreements with individual homeowners, pursuant to which the
City agrees to pay that homeowner’s assessment installment for the coming year.
Such an agreement may not commit the City to make assessment payments beyond
the current year; or
•It can
create a deferral fund for the assessment district, depositing into such fund
(from some other source of funds available to the City) the amount necessary to
pay assessments against specific properties for a specific period of time
(including the full term of the assessment).
Although there is a provision of
the 1913 Act which purports to allow the City to issue additional bonds in
order to fund a deferral fund, it is unlikely that this authorization survives
Proposition 218. As has been noted, Proposition 218 requires that assessments
be levied according to special benefit. It is unlikely that properties, other
than properties receiving the deferral, could be found to benefit from such a program.
Therefore, it would likely be impermissible under Proposition 218 to levy an
assessment against all properties to service the debt on bonds financing a
deferral program that only benefits certain
properties.
Deferred assessments must be paid back to the City if: (i) the home is
transferred; (ii) the bonds issued to finance the assessment district reach
their final maturity, or (iii) other criteria established by the City, at its
discretion, are met.
III. Redevelopment Loans and
Grants
The Community Redevelopment Law
(Health & Safety Code Section 33000 et. seq.) (The "CRL")
requires that the Rancho Palos Verdes Redevelopment Agency (the
"Agency") use not less than twenty percent of its tax increment funds
for the purposes of increasing, improving and preserving the City’s supply of
low- and moderate-income housing available at affordable housing cost to
persons and families of low or moderate income and to very low income
households. A person or family qualifies as being of low- or moderate-income when
household income is below a level established by the State (currently $52,300
for a family of two living in Los Angeles County). Affordable housing cost is
equivalent to various percentages of the area median income, adjusted for
family size, income level, and type of housing (ownership or rental).
The Agency is authorized to use
housing fund moneys to rehabilitate buildings or structures. Pursuant to this
authorization, the Agency could consider establishing a program to lend or
grant money to persons of low- or moderate-income to help defray the costs of
converting their home’s utility connections in order to connect them to the new
underground system.
If the Agency were to establish a
loan program, it could set eligibility criteria and loan terms, so long as the
loans are only available to persons owning the affordable housing that is
occupied by low- or moderate-income residents, as defined above. Use of
Redevelopment Funds typically is restricted to the redevelopment project area.
In order to make a loan or grant for the rehabilitation of housing outside of a
redevelopment project area, both the Agency and the City must find that the use
of funds for the loan or grant will be of benefit to the project area.
CONCLUSION
There are programs that the City
Council could choose to implement to assist low income households, senior
citizens and persons with disabilities so that the assessments for the cost of
the undergrounding of utilities can be deferred.
During its discussion of assessment deferrals for undergrounding districts, the City Council
decided to assign the FAC with the following task:
“To investigate a
structure that creates a revolving fund to allow people who meet criteria to
delay fees, including the $5,000
connection fee, with a lien placed on the home and funds repaid when house is
sold, possibly funded initially by a securitized bond.”
Finance staff assumes that very few disabled, blind and low-income (i.e. annual household income less than $24,000) property owners exist in the City. Based upon a discussion with the Director of Public Works, Finance Staff offers the following non-substantiated data to assist the FAC:
Finance Staff has not prepared any suggestions regarding assessment deferral programs. Robin Harris, a municipal finance specialist from Richards, Watson & Gershon, and the Director of Public Works are present to provide an overview and assist Finance Staff and the FAC in the beginning of this assignment.
Respectively Submitted,
Dennis McLean
Finance Director
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Meeting\20011212_FAC Mtg Staff Report_Deferral of Undergrounding Districts.doc