HomeMy WebLinkAboutRES 2494 CITY OF RENTON, WASHINGTON
RESOLTUION NO. 2494
A RESOLUTION REGARDING FINANCIAL CONSIDERATION
IN FORMING LOCAL I111PROVEMENT DISTRICTS .
WHEREAS the City of Renton has been approached on a number
of occasions to form Local Improvement Districts that are of
substantial size and complexity, and
WHEREAS such Local Improvement Districts present considerable
financial risk for the City and,
WHEREAS the traditional methods of meeting that financial
risk have been by local improvement district guarantee funds which
are in effect a general pledge of the City' s property tax which falls
upon all citizens within the City, and
WHEREAS the City Council finds that the benefit to the assessed
properties is greater than the benefits to the general populace oaf
the City and that the risk of the general populace by way of its
property taxes is not justified in substantial local improvement
districts , and
WHEREAS the City Council finds that the adoption of a general
policy concerning local improvement districts would alleviate the
burden on the general. populace and place it instead on the benefited
property owners , NOW THEREFORE,
THE CITY COUNCIL OF THE CITY OF RENTON, WASHINGTON, DO
RESOLVE AS FOLLOWS :
SECTION I : The above recitals are found to be true and
correct.
SECTION II : The attached Financial Considerationsin Forming
City Local Improvement Districts (L. I.D. ) is hereby adopted by the
Renton City Council as the official policy of the City.
PASSED BY THE CITY COUNCIL this 28th day of ,-.Tebxuary,, 1983 .
Maxine E— Mo for Zity Clerk
APPROVED BY THE MAYOR this 28th day of •:pebruary. 1983 .
Bar ara Y. S inpoc yor
Approved as to form:
Lawrence J. W ren, City Attorney
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FINANCIAL CONSIDERATIONS IN FORMING CITY
LOCAL IMPROVEMENT DISTRICTS (L.I.D.)
1.0 PURPOSE:
To establish financial criteria for proposed L.I.D. formations.
2.0 ORGANIZATIONS AFFECTED:
Public Works Department and Finance Department.
3.0 REFERENCES:
RCW 35.43, 35.23, 35.44, 35.45, 35.49, 35.54
4.0 POLICY:
4.1 It is the policy of the City to limit its financial
responsibility in the case of a default on an L.I.D.
assessment. Such protection will be provided in several
ways: (1 ) the L.I.D. guaranty fund; (2) advance cash
deposits by L.I.D. participants; (3) advance letter of
credit agreement with L.I.D. participants; (4) refusal of a
council to undertake L.I.D. 's which are financially unsound.
4.2 The City wi l l incur no costs beyond those of preparing the
preliminary assessment roll until the L.I.D. ordinance takes
effect, interim financing has been obtained and a take-out
letter from the City' s investment banker is obtained.
5.0 DEFINITIONS:
5.1 L.I.D. :
Local Improvement District.
. 5.2 Letter of Credit:
An agreement between the L.I.D. participant, the City, and a
financial institution which promises payment to the City, if
the L.I.D. participant defaults on assessment payments.
5.3 Take-out Letter:
A letter from the City' s investment banker promising to
provide purchase proposals for future L.I.D. bonds which
provide permanent financing for L.I.D. improvement projects.
5.4 Interim Fi na nc i ng:
Short term financing, usually in the form of interest
bearing warrants, which is used to construct the L.I.D.
project which will be replaced by permanent L.I.D. bonds at
project completion.
5.5 L.I.D. Guaranty Fund:
A special fund of the City established to guarantee the
payment of L.I.D. assessments. No minimum amount is
established for this fund, but sufficient amounts must be
maintained to insure the marketability of L.I.D. bonds. In
an L.I.D. default, the assessment payments are made from the
L.I.D. guaranty fund and,, when exhausted, interest bearing
warrants are issued on behalf of the LI.D. guaranty fund to
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continue assessment payments. Such interest bearing warrants must be
redeemed in the following budget year through a special property tax levy
upon all citizens within the City.
6.0 PROCEDURES:
The following procedures are not intended to replace or augment
existing L.I.D. requirements as established in state law but rather
are additional requirements to insure the financial soundness of an
L.I.D. before it is accepted by the City Council .
6.1 Upon receipt of an L.I.D. petition, the Public Works Department
will gather the following information:
6.1 .1 Number of property owners involved in the L.I.D.
6.1 .2 Percent of the L.I.D. area already developed.
6.1 .3 Nature of the requested L.I.D. improvements.
6.1 .4 Age of the developed property within the proposed L.I.D.
6.1 .5 Other L.I.D. 's in the area.
6.1 .6 Other assessments outstanding on the property in the L.I.D.
6.1 .7 A preliminary estimate of approximate costs to construct the
requested L.I.D.
6.2 Based upon the information provided by the Public Works Department
in 6.1 above, the Finance Department, with assistance from the City
investment banker, will perform the following financial test for
each individual assessment on the preliminary assessment roll :
6.2.1 Foreclosure ratio test: The lower of the current assessed
valuation or market value (as determined by a certified MAI
appraiser)must be at least two times the estimated cost of
the improvement. For example, for property with a current
market value of $500,000, the maximum L.I.D. the City would
accept without additional collateral would be for $250,000.
The L. I.D. participant may provide additional collateral
through cash deposits in an escrow account or letter of
credit. In this case, the sum of the lower of the assessed
or market value of the propertyNe—improvements.
l�u s the additional
collateral must be twice the value of tie i mproveme nts. If,
at a later date, assessed value or market value (the lower
of, as certified above) becomes two times the value of the
improvement, then the additional collateral requirement is
waived. %,
6.2.2 Collateral to insure assessment payments: If an assessment
payment is not made by anL.I.D. participant, it may take as
long as two years to foreclose on the property and use the
foreclosure proceeds to satisfy the L.I.D. assessment. For
this reason, it is necessary for the City to have access to
sufficient funds to make the assessment payments on the
L.I.D. bonds while undergoing thi s foreclosure procedure.
This collateral will be provided as follows:
1. For L.I.D. 's for which the total assessment payments
for a two-year period are less than $50,000, the L.I.D.
guaranty fund will serve as sufficient collateral , and
no additional collateral from the L.I.D. participant
wi l l be required.
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2. For L.I.D. ' s for which two years assessment payments
exceed $50,000, the L.I.D. participant must provide
additional collateral above the $50,000 in one of two
way s:
a. Through a cash deposit placed in escrow payable
to the City in case of L.I.D. default; or
b. Through a letter of credit with a bank acceptable
to the City.
3. If at any time during the life of the L.I.D.
assessment, two years assessment payments are $50,000
or less, the additional collateral requirements above
are waived.
6.2.3 It is the intent that each and every assessment on the
preliminary assessment roll meet the criteria in 6.2 above.
However, the Council reserves the right to proceed with an
L.I.D. , if it is satisfied that a sufficient number of
assessments do meet the criteria in 6.2 and it is in the
City' s best interests to do so.
6.2.4 Marketability of the future L.I.D. bonds: Before an L.I.Q.
will a accepted y the City, a take-out letter from the
City' s investment banker is required which promises that the
investment banker will provide a proposal to purchase for
resale the L.I.D. bonds which will provide permanent
financing for the project. In determining whether such a
take-out letter will be issued, the investment banker will
consider the following factors:
1 . Property values within the L.I.D.
2. Number of owners.
3. Percent of L.I.D. already developed.
4. Nature of the improvements.
5. Age of the area to be improved.
6. Other L.I.D. ' s in the area.
7. Other assessments outstanding against the owner or
property.
8. Dollar size oil,the issue.
9. Ability to offer the L.I.D. bonds at a discount.
10. The length of the assessment roll .
11 . The guaranty fund balance.
7.0 SUMMARY:
The purpose of this policy is to evaluate preliminary L.I.D.
applications to insure that:
1. The participants can demonstrate the ability to pay their
assessments.
2. The value of the property to be improvved is sufficient to
pay for outstanding L.I.D. 's in case of default.
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3. That both interim and long-term financing can be obtained
for the L.I.D. project.
These three objectives are accomplished by tests in three critical
areas:
1 . Foreclosure ratio as described in 6.2.1 above.
2. Security for at least two years L.I.D. assessment payments
as indicated in 6.2.2 above.
3. A determination that long-term L.I.D. bond financing is
available as indicated in the take-out letter from the
City' s investment banker and as determined in 6.2.3 above.
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