Irvine city council members unanimously approved a new tax district in the Great Park, raising the total potential bond indebtedness of the Great Park Neighborhoods to over $1 billion on Tuesday night.
The new tax district will be the 11th in the Great Park approved by council members, encompassing nearly 120 acres that will be able to take on a potential $155 million in bonds to fund construction of neighborhood infrastructure as well as the Great Park.
However, the council’s primary talking point at the meeting didn’t revolve around the cost of potential new bonds.
Most council members – led by Mayor Christina Shea – stressed from the dais that the new district would not raise taxes for any current homeowners.
The special tax districts are established before homeowners move to the property, when the developer FivePoint is the only landowner. After the special tax districts are established, FivePoint begins to develop infrastructure in the area and begins the process of constructing homes.
FivePoint asks for the city to establish the special tax districts before any development begins on the land. The city requires a special election to place those taxes, but as FivePoint is the only landowner, they are the only elector that has any say over whether it’s approved.
The special taxes homeowners pay after moving to the Great Park go to the city, who then disburses the money to FivePoint after the developer completes construction of infrastructure in the Great Park and the neighborhoods surrounding it.
By the time potential homeowners come to the land, the special taxes and bond indebtedness are built into the cost of the home. Homeowners sign a disclosure before purchasing the homes that shows them the cost of the special tax, but that disclosure never explicitly states that special tax dollars will go the Great Park as opposed to standard neighborhood infrastructure.
On Tuesday night, Shea insisted from the dais that homeowners fully understand where all their tax money is going. She criticized Voice of OC reporting about how Community Facility District financing works for the Great Park neighborhoods, describing it as fear mongering.
“They signed the paperwork when they moved into their home and they understood those disclosures,” Shea said. “It makes it very clear to all the residents, this is a special tax.”
Yet after the council’s public debate of the item, one Great Park resident came forward to share her understanding of the special taxes.
“When we bought a house, nobody told me my taxes were actually paying for Great Park facilities. I thought all we were paying was for the schools, for the best amenities exclusively used by residents. Now I realize that all the money goes to the ice rink and to the water polo project,” said Eugenio Zheng, who also lamented the lack of a nearby shopping center near her home as promised by realtors.
“We’re just like a cow being milked.”
Zheng also said that if the issue had no impact on current Great Park residents, that the council should instead be trying to inform the current residents about how the Park works and should connect residents with the developer to explain where their tax dollars go.
“The Great Park won’t affect the city financially or the rest of the community, but we’re taking 100% responsibility,” Zheng said. “We’re so worried right now because we don’t know, there’s no transparency.”
Both the council and the city’s legal firm Rutan and Tucker stated that the bond indebtedness allows the city to simply get the money from special taxes levied on homeowners upfront so building can occur quickly but didn’t discuss the cost of the interest on the bonds.
“By selling bonds for the (special tax districts), it allows you, and I’m just going to make up some numbers here, but the reality is you can probably get in the range of 10 to 20 times the annual special tax up front,” said Bill Marticorena, a partner at Rutan and Tucker.
With other Great Park bonds, the interest on the bond has cost almost as much or more than the amount gained from the bond.
The city has issued over $280 million in bonds on the Great Park neighborhoods, but the total cost to the homeowners, with interest, will be over half a billion dollars.
The only discussion about the structure of the bonds Tuesday night came from Councilman Mike Carroll.
“We are going to authorize in this area a borrowing. This (special tax district) will go and communicate with Wall Street banks, and banks are going to, we call it bonding but I call it a loan, are going to loan $100 million for a bunch of roads to be built,” Carroll said. “And there’s going to be an interest rate, because money’s not free, there’s an interest rate that gets paid that’s rolled into the bond.”
Councilwoman Melissa Fox also raised questions around the tax structure and how the bonds would function to build the Great Park but voted for the measure.
“Undoing it would create more problems than it would solve,” Fox said. “We have obligations under development agreements and we could be sued to move forward with development.”
The council also went to great lengths to clarify that the new tax district would not raise taxes for current residents of the Park and that no one is currently living in the 11th tax district.
City Councilman Anthony Kuo – who also works at the OC Auditor Controller – largely ignored the total debt for homeowners in his public comments, instead focusing on whether approving the bond affected homeowner’s individual tax rates.
“It’s not a bait and switch, it’s not like I bought this home, this was the tax rate, and by golly on March 10 that city council voted and now I’m paying more than I thought I would. This is all in there,” said Councilman Anthony Kuo, stating that any criticism of the council’s action as a tax increase is “fundamentally untrue.”
Kuo also asked the following question.
“Tonight’s action doesn’t affect any current homeowner at all. What this affects, to my understanding, is undeveloped property. So when that property becomes developed, who’s burden are those taxes?”
“It’s the homeowner,” said city attorney Jeff Melching.
The public hearing was listed as a priority on the council’s agenda. But once the public meeting began – and the audience featured about a dozen residents, a far larger crowd than usual – city council members quickly reshuffled the agenda to place the hearing last on the schedule.
Council members ultimately took up public discussion of the item nearly three and a half hours after the time it was originally assigned.
Other items on the council’s agenda included a presentation from city staff on how the city was handling illegal short-term rentals, the declaration of March as women’s history month, and presentations from the county on pest control and an update on the county’s response to novel coronavirus.
Shea openly criticized a recent Voice of OC story series about the financing of the Great Park neighborhoods from the dais, saying that there was “nothing factual, maybe some facts” in the stories and that interviewing the residents of the Park was “just scaring people.”
Voice of OC stands by its reporting, which was based on city public land use and county tax records and conversations with city staff, developers in the park, members of the city council and Great Park homeowners.
The final step to approve the new special tax district is the second reading of the ordinance, scheduled for Mar. 24.
Noah Biesiada is a Voice of OC Reporting Fellow. Contact him at nbiesiada@voiceofoc.org or on Twitter @NBiesiada.