| Filed under

The Community Services District board centered its attention on developer-related issues at the April board meeting. The main focus was a request by the Rancho North developer to use funds reserved for a future water treatment plant expansion to pay bond delinquencies on six parcels of undeveloped land. (Full letter is enclosed.) The board also dealt with a problematic request to provide water and sewer service to model homes being built in Murieta Gardens.

Developer John Sullivan presented the board with a letter stating his rationale for asking the district to release $540,000 in funds to help pay delinquent bond payments and penalties totaling $647,754. The CSD reserved the funds from the developer’s $4 million-plus “fair share” obligation for the water treatment plant so plant capacity could be expanded in the future.

The delinquencies were first discussed earlier in the month at a CSD committee meeting where General Manager Mark Martin stressed that the CSD has not lost any money due to the late payments. Despite them, CSD is being paid through the state’s Teeter Plan, which allows Sacramento County to collect delinquent property taxes on behalf of local governing bodies. These payments are collected twice a year, in April and December. 

At the committee meeting and in his letter, Sullivan attributed the delinquencies to delays in moving forward with development plans. He also suggested that an expansion of the water treatment plant capacity may never be needed because of reductions in water demand.

But Martin pointed out in a memo to the board that “The release of these funds obligated to already-identified future development water needs would likely trigger a significant and potentially costly revisit of existing water studies to justify release of the funds.”

The Community Facilities District was formed and the bonds were issued in 2015 “as a means for property owners of developable lands to help fund their share of the of the District’s water treatment plant expansion needed to accommodate future development,” Martin explained.

At the board meeting, Director John Merchant asked Sullivan what would happen if the reserve money is needed.  “Where is the comfort level that the money is really going to be there?”

Sullivan replied that his group would look at providing “a replacement for the $540,000 if that would help satisfy the district.”

President Les Clark told Sullivan that the board would have to research his proposal before moving forward. Sullivan said he understood.

“But we would appreciate your consideration,” he said. “In the meantime, we will be working on various other ways to become more current.”

Martin told the board during the meeting that the developers had missed the April 10 installment of taxes, but he didn’t have the new figures yet.

Unlike other parts of the development plan, Murieta Gardens, the residential/commercial property south of Jackson Road, is current in its bond payments and Sullivan has said houses being built there are producing “significant cash flows.”

However, an issue came up between the CSD and the homebuilder.

Paul Siebensohn, director of field operations, said in his utilities report that K. Hovnanian Homes had asked for service permits for two model homes being constructed. Siebensohn let them know that the district doesn’t issue service permits until infrastructure work had been completed and accepted by the district.

Siebensohn said Sullivan’s project manager apparently believes that once pipes are put into the ground with district inspection and tied into the district’s system, they belong to the district.

Siebensohn said he and Martin met with a K. Hovanian representative. They agreed the sewer connections would be installed and not put into service. The home builder will bring in portable toilets.

Here's Sullivan full letter to the board about releasing the funds:

REQUEST FOR RETEASE OF DEVETOPER FUNDS TO CURE DELINQUENCY April 17 , 20L9

To: Rancho Murieta community Services District - Board of Directors
From: John M Sullivan, Manager Murieta Industrial Park, LLC Murieta Highlands, LLC Murieta Lakeside Properties, LLC

I am providing this proposal as suggested by Mark Martin as a follow up to the discussion held at the Finance Committee meeting on April 4th and my subsequent side bar discussion with Dick Shanahan, Director Maybee and Mark Martin (GM).

We have previously reported in our semi annual statements that the above entities were delinquent in payment of CFD2014-1 bonds. ln 2014, when the Rancho North Properties FSA was completed, we anticipated approvals from Sacramento County for re-zoning and parcel maps to be completed by midyear 2016. Development, as you know has not started on any of the eight villages proposed in our application to the County; in fact, the environmental document and hearings are still not underway.

The water treatment plant was completed with a capacity of 4,000,000 gallons, in addition to the 2,000,000 gallon per day capacity of Plant #2 which continues to operate along side plant #1. Part o fthe funding was $540,000 currently held by the District to fund 1,000,000 gallons of capacity for Rancho North added to Plant #1, by adding flights of filters into the existing plant basins. These funds are not part of the bond reserves but are separately held by the District for Rancho North's future added capacity. The FSA requires us to give 1 year minimum notice to add any portion of this capacity. lt isn't clear at this point if 1,000,0000 gallons or some reduced capacity would ever be needed. We respectfully request that the District release those funds to help cure the bond delinquencies.

WHY WOULD IT BE REASONABLE TO RELEASE THESE FUNDS

Even during the busy construction years in Rancho Murieta there were between 125 and 175 homes built per year. That means that it will be at least anothe five to six years before anye xpansion of the existing plant #1 is required or requested and close to full build-out if the District decides that plant #2 should continue to operate.

The demand on the combined water plants #1 and #2 typically peaks in July or August each year, when seasonal irrigation demand Increases dramatically. Last year during the peak August season plant #1 was operated at 1.44mgd and plant #2 at 1.00m9d. That peak 2018 demand was only about 40% of the combined plants capacity.

The residential and commercial water consumption report that is in the monthly Board packet reports 2546 residential hook-ups. lf you ignore the commerciaI demand for a moment and calculate the total demand within the District against the peak 2018 demand of 2.44/mgd you get about 950 gallons per day per occupied house. This is peak demand. That means that it would take another 2,484 homes with similar demand before the treatment capacity is 80% used. lf you take water treatment plant #2 permanently offline, plant #1 still provides enough capacity for service to the next 800 homes. Additionally, with the advent of 20x2020 (an overall mandated reduction of 20% throughout the State), and recent State of California legislation mandating more and more efficiencies within the District's boundaries, it is clear that the peaking and total water demand on the water treatment capacity within Rancho Murieta will decrease over time. And when recycle water is available the average use per house will also decrease, although not proportionally (only on those future homes served with purple pipe).

We propose amending the Rancho North FSA to release our $540,000, for the express purpose of curing the delinquencies. The FSA has been amended before and is not a CEQA document. We would coordinate with District counsel to accomplish the funding of the past due property taxes by year, such that second half 2017 and 2018 payments are fully resolved. As we stated at the Flnance committee meeting, our goaI is to be current by June 30th. With your assistance l'm confident that can be accomplished.

As I indicated in my remarks to the Finance Committee, the County does not take property tax payments out of sequence, so there are other amounts due in addition to the CFD 2014 bonds. The payment and acceptance of the parcel tax payments must be done in sequence. To facilitate some additional flexibility, we would agree to add the roughly $195,000 of additional infrastructure reimbursements due to us to the $54O,OOO to facilitate payment ofthese additional amounts due.

Your cooperation and assistance would be greatly appreciated.


Betsy Guzzetta's picture
Joined: 10/09/2007
Posts: 128
Post rating: 166

Developer Request

 No to both.  RM ratepayers don’t get that consideration- neither should the developers.

Betsy Guzzetta

Bunky Svendsen's picture
Joined: 08/07/2007
Posts: 160
Post rating: 206

Open Space

Looks like we might have plenty of open space for quite some time...the way this development is progressing.

Bob Tauber's picture
Joined: 08/22/2014
Posts: 36
Post rating: 58

The District is not a Bank

No Way should the District go further out on limb for any developer. They have dragged out the Retreat and Murieta Gardens way too long and now the developer is in trouble. I think they deserve a reasonable return on their investments, but it is the developer’s responsibility to plan his development and the complete his development. I strongly feel the District should not advance any money to the developer he may not be able to repay. If the developments were well managed it would not have taken two years to build the Retreat and the Gardens would be well underway. Permits were about to expire on the gardens and suddenly some work in being done, but at the pace this work is advancing more payments to other creditors will come due long before there is any income generated. This is a privet development, the District has already invested heavily to support needs for water and sewer and it is not the public’s responsibility to help bring this haphazard development to completion. If the District helps bailout the developer now who will make the payments in July, August, September ……………… ? The District is not a Bank or an investor, that is where developers get money.

Bunky Svendsen's picture
Joined: 08/07/2007
Posts: 160
Post rating: 206

No way is right

Exactly Bob..."no way" is right. Maybe the developer should solicit Deutsche Bank for the $500-600K?. Ive heard their lending guidelines are very lenient:)

Pat Reeves's picture
Joined: 04/17/2008
Posts: 17
Post rating: 15

Flim Flam

Am I missing something here? We have a developer who's obviously broke, asking CSD to supplement their debt? The saying, Poor financial planning on your part does not necessitate an emergency on mine, should definitely be applied here. As a former financial analyst all I can say is this "loan" request by the developer has a foul order about it.

Chris Woods's picture
Joined: 06/15/2016
Posts: 16
Post rating: 12

Unfunded Liabilities

Please accept these comments as utilitarian. A business should be able to operate and profit. People in the community should partner with the business, either directly by using the service or indirectly by the appreciable capital gains. 

A bond is simply a loan. Callable or not, a bond is a promise to pay the coupon and principle. In this case, the business borrowed money and now is unable to pay. Complicating the issue is the reserve the government required for liability funding, ie. increased water usage. Currently, the tax payer, you and I, are paying the bond.

I believe CSD was correct to fund a possible future liability, concerning water usage. The CSD is incorrect to use tax payer funds to secure someone else’s debt. This, by definition, is unfunded liability. Just because you can, doesn’t mean you should. Governments don’t run surpluses, because it is easy to spend other people’s money this way.

For what it is worth, this is my 2 cents. Worth every penny!

C L Woods

Sue Kohlhardt's picture
Joined: 02/13/2016
Posts: 33
Post rating: 14

Rancho Murieta Pickleball Club Saturday play

Go to. Youtube. " Rancho Murieta Pickleball Club Saturday play"

Jeff and Sue Kohlhardt

Your comments