Subject:
Title
PUBLIC HEARING: A Resolution of the Board of Trustees of the Town of Erie Approving the Service Plan for Lafferty Canyon Metropolitan District
Body
Department: Administration
Presenter(s): Zachary P. White, Attorney for the Applicant
Malcolm Fleming, Town Administrator
Time Estimate: 30 minutes
only required for non-consent items
Staff Recommendation:
Recommendation
Staff recommends the Board approve the Service Plan with conditions to:
1. Require definition of and the terms of any developer advance, require the method of interest calculation as simple interest, and limit the maximum interest rate to the Prime Lending Rate plus 4% not to exceed 12%.
2. Specify in Section VI, sub B that the maximum voted interest rate be specified as the Prime Lending Rate plus 4%, not to exceed 12% as reported at the time of issuance.
3. Limit the maximum underwriting discount to 2.5%.
Based on the Board’s approvals of other recent metro district service plans, the Board may have questions regarding sustainability, affordable housing, environmental issues or other matters that have a bearing on the financial aspects of the Service Plan. If so, the Board should ask the applicant to address such questions.
End
Summary and Background of Subject Matter:
This application was last heard by the Board of Trustees on September 28, 2021. At that time, the Board considered the matter and entertained a motion to approve the proposed Service Plan, but the motion died for lack of a second. On December 21, 2021, the applicant submitted a revised proposed Service Plan. The new proposed Service Plan has a lower Total Debt Issuance Limitation ($13,555,000 compared to $21,606,613 in the previous proposal), and a slightly higher total lot development cost ($32,888,043 compared to $30,371,607 in the previous proposal).
The applicant also provided this additional information:
All units will be market rate consisting of entry market product (paired units) and small 35' detached and mid-level 40' detached. There will be three distinct product segments in the community. Funding from, and maintenance through, the District will be tasked to do:
1. Continuation of the spine trail along the south edge of the RTD ROW to the Town limits.
2. Expansion of internal trails to connect from Redhawk Ridge elementary to Jay Road
3. Completion of Jasper Road to provide vehicular connectivity from Jay Road to Teleen, and maintenance of the Jasper median
4. Completion of water and sewer utility looping for this section of the Town.
5. Upgrades to and maintenance of the regional detention pond that serves this area
6. Cleanup, maintenance and preservation of the Leyner Cottonwood ditch corridor
7. Installation and maintenance of public open areas, park facilities and trails
8. Maintenance and ownership of a ground water underdrain system
9. Location and proper capping of 3 mine shafts
10. Piping installation and maintenance of the Brennan Box ditch lateral (this lateral serves a dozen or so users of the Leyner Cottonwood ditch)
11. HOA related operations as required to bolster the role of, and minimize the cost associated with HOA functions
12. And generally offset the costs associated with other public improvements to help offset the cost of housing.
The homebuilder for this development will be KB Home. Attaches to this agenda item is a communication from KB Home.
The Town asked UMB, the Town’s metro district review consultant, to review the updated Service Plan. UMB’s complete analysis is attached. Key comments and conclusions include the following:
The plan identifies a total of $13,555,000 maximum debt to be issued…Based on the maximum language in the plan, and the amount that is being issued in 2024, we would recommend that the maximum debt to be issued number be increased to $14,000,000 to allow for the issuance of refunding bonds (covers future issuance expenses) as Section 6 only allows for the principal amount of debt to be refunding to not be counted against the cap. [Town staff note: UMB’s recommendation to increase the maximum debt limit is to facilitate refunding, which could reduce future borrowing costs and thus potentially reduce the levy imposed on future taxpayers to cover debt service. As UMB explained in response to staff’s inquiry, “The way the language is written now allows for the principal of a refunding to not count against the cap, however the issuance expenses would. With the single issue utilizing the entire cap, undertaking a refunding may prove difficult in the future. This [increasing the cap] would give the MD Board greater flexibility in the future to achieve cost savings on the outstanding debt.”
The financial plan itself relies on a target 45 mill levy, leaving some cushion within the cash flow to meet any delays in development or other market disruptions. At the 45-mill levy for debt purposes, the anticipated debt service coverage is 1.2x, which while on the low side of a solid financial footing, however, certainly exceeds the typical metropolitan district debt service coverage that is reviewed.
• Developer Advances: While the cash flow identifies no need for developer advances, the Town may wish to require definition of and the terms of any developer advance; define the method of interest calculation (recommend simple interest); and define the maximum interest rate.
• Section VI, sub B: UMB recommends the maximum voted interest rate be modified to be the Prime Lending Rate plus 4%, not to exceed 12% as reported at the time of issuance. We further recommend that the maximum underwriting discount be modified to 2.5%. We note that the financing plan in Exhibit D-1 includes issuance expenses of 4.2%.
• While the Service Plan identifies a $100,000 initial operating budget, we recommend a full build-out operational budget be prepared in order to understand whether the 10-mill operational levy will be adequate to serve the operation and maintenance needs of the district.
The developer did provide UMB with a full sources and uses analysis of the development. The information provided by the developer was comprehensive and did provide a better financial picture of the need for the metropolitan district financing tool.
Based on the information provided by the developer, we were able to conclude that the return on investment for the developer is within the range of what would be expected for similar developments. In fact, the return on investment that UMB was able to calculate is on the low end of the range that we
would expect for a project similar to this.
Without the use of the metropolitan district financing tool, it is unlikely that the developer would proceed with the project.
Based on UMB’s financial analysis of the proposed Service Plan and UMB’s conclusions, staff recommends the Board approve the Service Plan with conditions to:
1. Require definition of and the terms of any developer advance, require the method of interest calculation as simple interest, and limit the maximum interest rate to the Prime Lending Rate plus 4% not to exceed 12%.
2. Specify in Section VI, sub B that the maximum voted interest rate be specified as the Prime Lending Rate plus 4%, not to exceed 12% as reported at the time of issuance.
3. Limit the maximum underwriting discount to 2.5%.
Based on the Board’s approvals of other recent metro district service plans, the Board may have questions regarding sustainability, affordable housing, environmental issues or other matters that have a bearing on the financial aspects of the Service Plan and should ask the applicant to address such questions.
Additional Background.
The applicant initially submitted a request to approve the Service Plan for the Lafferty Canyon Metropolitan District in November of 2020. The Town and Town’s metro district consultant reviewed that Service Plan and provided comments to the applicant in January 2021. Based on those comments, the applicant provided a revised Service Plan on August 10, 2021. This timing also allowed the Town to review and the Board consider the related Canyon Creek filing 7 & 8, preliminary plat, which the Board approved on August 10, 2021.
Board Priority(s) Addressed:
ü Attractive Community Amenities
ü Engaged and Diverse Community
ü Prosperous Economy
ü Well-Maintained Transportation Infrastructure
ü Effective Governance
ü Environmentally Sustainable
Attachments:
1. Resolution 22-30
2. Proposed Service Plan and Exhibits
3. UMB Review and Analysis
4. KB Homes communication
5. Public Hearing Notice