CDIAC TRANSCRIPT November 17, 2020 California Debt and Investment Advisory Commission Webinar Transcript Mello-Roos Community Facilities Districts Fundamentals Mini-Series Session 2: Community Facilities District Bond Issuance and CFD Administration November 17, 2020 Community Facilities Districts (CFDs), or Mello-Roos Districts, have been used by public agencies since 1982 to finance public infrastructure and community facilities. CFDs may also fund public services, which has been a growing trend in recent years. Because this funding tool is used on the majority of new developments in California, it is imperative that public agency employees understand the fundamentals of CFDs and how they can be implemented to fund infrastructure and services. This introductory two-part webinars series will provide an overview of CFD fundamentals. Topics include the Mello-Roos Act, CFD formation process, and ongoing administration requirements once a CFD has been formed. Session One will kick off with an introduction to the Mello-Roos Community Facilities Act, a review of the history of CFDs, a discussion of pre-CFD formation considerations, and specific steps involved in the CFD formation process. Participants will gain a basic understanding of the role of public agency staff and financing team members in the CFD formation and ongoing CFD administration process. [Editor’s Note: This transcript has been prepared by the California Debt and Investment Advisory Commission (CDIAC) and it believes it to be a fair and accurate reproduction of the comments of the speakers. Any errors are those of CDIAC and not the speakers.] Title Slide – Mello-Roos Community Facilities Districts Fundamentals Mini-Series, Session 2: Community Facilities District Bond Issuance and CFD Administration ROBERT BERRY: Good morning everyone, and welcome to Mello-Roos Fundamentals, CFD Bond Issuance and CFD Administration. This is the second webinar in a two-part Mello-Roos series, presented by the California Debt and Investment Advisory Commission. My name is Robert Berry, and I'm the Executive Director here at CDIAC. I'm happy to see that most of you have returned for our second, Mello-Roos webinar this morning. For those of you that were unable to join us last week and others that would like a review of last week's program on CFD formation, the replay and transcript have been posted to the CDIAC website and we sent out an e-mail, I believe, yesterday, to all the registrants with a link and access instructions. As I mentioned last week, CDIAC one and one-half day in-person program on land-secured financing has been one of our most popular programs over the years. We feature an expanded faculty that goes into great depth on both Mello-Roos and assessment district formation, financing, and administration, and we plan to hold that full in-person program as soon as we can do that safely. So again, this two-part webinar is not intended to be a substitute for our full Land-Secured Fundamentals program. But our presenters have worked very hard to assemble a program that covers the topics at, we think, a sufficient depth and detail at least relative to Mello-Roos CFDs to give you a solid fundamental understanding. So last week's session covered the basics of the Mello-Roos Act, district pre-formation steps, and the formation process. This morning, our faculty has returned to take up debt issuance by community facilities The Mello-Roos Community Facilities District Bond Issuance and CFD Administration P a g e | 1 CDIAC TRANSCRIPT November 17, 2020 districts and ongoing CFD administration. So again, before we get started, let me run through a few of the housekeeping items. Slide 2 – Housekeeping 2:00 ROBERT BERRY: Okay, so, again, same as last week, the slides for today's presentation are available in PDF form, in the Handouts section of your control panel. We're planning a Q&A session during the last few minutes of the program. So again, please submit your questions using the Question Box at any time during the program. And then just as we did last week, we will host an extended Q&A session, where you will be able to directly speak with our panelists and ask more detailed questions. Again, like last week, we will post the login information for the Extended Q&A just before we close the main webinar. We had a very good group last week, but we weren't able to get to all the questions, get to everyone who had come into the extended Q&A. So, I hope [if] you all weren't able to raise your question, will be able to join us this week. If you're having any technical issues, the best way usually to resolve them is to close out and log back in. If that doesn't work, GoToWebinar can be reached at (877) 582-7011, or you can contact CDIAC staff at the number on the screen. We do have live captioning today, available in the Control Panel link in the chat box. We'll send out certificates of participation to all the registrants within a couple of weeks, and then MCLE credits are available upon e-mail request and please include your bar number. And lastly, like last week, all registrants will receive a link to the replay in 10 to 14 days, and of course, all our webcasts are available on our website for anytime viewing. Slide 3 –Mello-Roos Issuance Fiscal Years 2000-2019 3:50 ROBERT BERRY: So, we'll be talking about Mello-Roos debt issuance this morning. So, I thought it might be interesting to take a look at Mello-Roos issuance data before our panelists get into the details of the issuance process. Mello-Roos debt issuers are required to submit a variety of reports to CDIAC, including a report when debt is proposed, a report when debt is issued, then two annual reports - the Annual Debt Transparency Report and Yearly Fiscal Status Report. We'll discuss those a little bit later in the program. So needless to say, CDIAC collects and disseminates a great deal of data on Mello-Roos debt, all of which is available on our website, through our Debt Watch website. But just to frame our discussion this morning, this is Mello-Roos issuance data by fiscal year, from July 2000 through June 30, 2020. So, just up until last summer. Mello-Roos issuance was at historic peak in the five fiscal years, from 2002 to 2006, reflective of the surge in new home development in the post-dotcom bubble burst recovery. While there was significant refunding activity, especially in 2005, those five years were the highest new money years since CDIAC had been collecting issuance data. When considering that, we have not adjusted these numbers for inflation it really shows how important Mello-Roos was to the expansion of housing in California during that five-year period. And then issuance “fell off a cliff” during the Great Recession starting in fiscal year 2007. And hit its lowest point ever in 2008 at only $178 million dollars in new money and refunding combined. But then issuance began to slowly emerge from the Great Recession levels marked by year-over-year increases in new money issuance through 2014. And robust refunding activity in the five years preceding the elimination of advanced refunding in 2018. No doubt refunding a lot of the new money issuance surge prior to the Great Recession. In the last four years new money issuances hovering around the billion-dollar mark, appears to be a bit of a plateau. In the 2019 new money figure of just over a billion does include three months of the COVID-19 crisis. So perhaps we would have seen a The Mello-Roos Community Facilities District Bond Issuance and CFD Administration P a g e | 2 CDIAC TRANSCRIPT November 17, 2020 stronger increase without the pandemic. I think the question now is, how will Mello-Roos debt support California's emergence from the Covid-19 crisis and the development of housing so desperately needed across our state? So perhaps a topic for our discussion in one of our Q&A sessions. But now we're going to get into the practical aspects of Mello-Roos debt issuance and ongoing CFD administration. Slide 4 – Speakers 6:39 ROBERT BERRY: So, I'm happy that our panelists are back with us this morning, and I'm equally happy to briefly reacquaint you with them. First, we'll welcome back Susan Goodwin. Susan is managing principal at Goodwin Consulting Group; she has managed the planning and implementation of hundreds of districts and programs that have generated billions of dollars in funding for public infrastructure and services. And Susan is recognized as an expert in the preparation of special tax formulas, methods of apportionment, and disclosure documents for Mello-Roos CFDs. Next, welcome and good morning to Bradley Neal. Brad is a shareholder of Stradling Yocca Carlson & Rauth. Brad has worked as bond counsel, disclosure counsel and underwriter’s counsel on numerous public financings, specializing in community facilities districts, assessment districts, and Marks-Roos pooled financings, among others. And then completing our expert trifecta this morning is Jim Fabian. Jim is a principal and the secretary of the Board of Directors of Fieldman, Rolapp & Associates. He is an expert in the formation of community facilities districts and the financing of various public improvements. He also has extensive experience with the administration of land-secured special districts, having served as a local government official for 15 years. So, welcome back, Jim. I think you're going to kick us off.