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37 1 STUDY SESSION (continued) improvements and develop a carry-over balance, so that by 1985 there is a cash flow deficit. Schedule B provides a similar projection, except that it calls for a beginning facilities charge of $2500 and escalating at the rate of $400 per year. The effect in either case is that the facilities charge will pay (in 1980 dollars) for all anticipated improvements for those units. Mr. Wells continued, stating that the problem is to overcome the cash flow deficit so that given reasonable evidence the land is ready for development, the City Council can authorize the improvements and have funds available to make those improvements. It was suggested that the City use the authorized bonds (see pg. 10 of the report) amounting to $87 million in Facilities Bonds and $60 million in Reclamation Bonds. He recommended that in addition to levying a type of Facilities Charge that the City plan to issue approximately $30 million in future bonds to overcome the $15 million 1980 dollar cost deficit cash flow in order to minimize the issuance of future bonds for this project, and have a source of revenue to repay the principal and some of the interest on the new bonds entirely out of revenues from future con- nections. This would benefit the existing property owners, since the use of this type of charge would be a protection against further escalation and increase of the property tax rate and would also provide development as assured source of revenues if they meet other requirements. It was recommended that Council not proceed with improvements at a pace that is accelerated ahead of actual reclamation and development of private land. That way the needed improvements could be put in at the same time the subdivisions are being built out, with assurance of the Council that it is not expending connection charge funds, nor issuing bonds for circumstances which make the bond mover or existing developed property owner a speculator. Mr. Wells referred to page 9 (Table 6) showing two schedules for Facilities Charges, either of which would accomplish what was being recommended. He stated that a combined facilities charge of this magni- tude is quite low compared to what many other communities are now charging for similar improvements. Acceleration shown there has the benefit of lowering cost at the be- ginning, and accelerating over a time to pick up the deferred costs of ordinary carrying costs of the improvements. In addition, an inflation factor of 12% is used to demonstrate what this charge would be if expressed in terms of future dollars. The proposal suggests how to provide the public improvements for the Improvement District in a way which provides these facilities reasonably in place at Ir.r the time they are needed by the land developer, without having expended funds until certain improvements are made to private property. City Manager Fales commented that the basis for the facilities charge, the build- out and the cost estimates were put together by both the Redwood Shores staff and City. He indicated that looking forward to around 1990, you are getting farther away in terms of estimates and rates of land absorption for development, so the one key to the imposition of the facilities charge is its inherent flexibility, and suggested that, if it is implemented, a review process be implemented that would lead to a formal Council review of the amount of the charge before it is escalated, or deferred, or reduced, or some of the money accumulated is used to pay off bonds so that no irreversible judgements would be made in terms of having enough money to follow the continuity of development. Also, private land reclamation costs and construction of interior waterways are to be done under this proposal by the developer, and not by the District as was formerly the case. He also referred to the City Attorney's memo and the key conclusion in his legal analysis that the proposal for a facilities charge would be subject to the provisions of Articles XIII A and XIII B of the Constitution. The proposal would be subject to a vote, with 2/3rds vote of the electors in the District required, and it would be subject to the appropriations limitations of what was called Proposition 4, and is now Article XIII B. That would have to be structured into the process of implementing the proposal in detail. In response to question by Council, Mr. Fales advised that the elections to meet the provisions of XIII A would have to be held before the charge was initially implemented, and if successful, the necessity for issuance of bonds to cover cash Adj.Reg.Mtg. 10/11/80 Page 3 Iowa