Homeowners in Irvine’s Great Park neighborhoods are on the hook for over half a billion dollars in debt to build Orange County’s most iconic public works project, often compared to New York’s Central Park.
They have virtually no say in what gets approved for the project or any control over how much debt can be charged to them as the ultimate financiers of Orange County’s Great Park.
It wasn’t supposed to be like this.
When former Governor Jerry Brown shut down the state’s redevelopment agencies in 2011, the city of Irvine lost millions in potential funding for the Orange County Great Park, leading to fears from the public that the biggest municipal project in the county would be stuck in a development limbo.
That’s when developer FivePoint Holdings and city officials announced a new approach.
While the developer had already been working with the city to develop the park, both sides proposed to save the regional park project by increasing FivePoint’s investment and returns, with the developer investing a further $550 million into the park and more than tripling the number of homes that could be developed according to city records.
City officials promised at the time that the same Great Park would be built, but the reality a decade later is that the Park has no final budget or clear end in sight, and no finalized master plan, according to Irvine’s records.
That means that 3250 current homeowners in the Great Park are now responsible for paying back nearly $600 million in debt, a number that will only rise as more people move into the park neighborhood and the city continues construction according to city records.
Great Park Special Tax Districts
The map below shows the Great Park’s special tax districts. The graphic above the map shows the range in annual Mello-Roos for each area. Data research by Noah Biesiada, graphics by Sonya Quick.
NOTES: * IA 2 is set up differently from the other areas and is land FivePoint has not sold yet. ** IA 3 is the Great Park property, and there are no taxes on this public land. *** IA 11 (not on the map) is in the process of being established, and the tax range for this area could be $3,786-$21,197.
According to projections generated by FivePoint, homeowners in the area will have paid close to $2 billion towards the development of the Great Park by the end of the project assuming there aren’t any changes to the design package.
Once the park is completed, it’s expected to cost $37 million a year in maintenance fees. That number was established by looking at the cost of maintenance for New York City’s central park, not an independent cost analysis of the Great Park, according to Five Point CEO Emile Haddad.
Lacy Willis, an accounting professor at Chapman University, said without an independent cost analysis, determining the cost of the maintenance would be “difficult to determine.”
“Central Park is so established, and the amenities are so much different than what the Great Park is offering, that without a specific cost study for the Great Park it would be hard to even determine if that $37 million is anywhere near what that maintenance cost,” Willis said. “It’s so new into the process and it’s such an unprecedented thing in Orange County that that would be hard to determine.”
While the special taxes the residents pay are intended to be used for infrastructure in developing the new neighborhoods, portions of money are being used to develop projects including a $250 million aquatics center that would serve as the home for USA Water Polo, with no specifics on what the public’s access to the center would be.
The long-term financing of the park has also generated concerns from experts that the city needs to thoroughly plan a viable income stream for the park that does not yet exist.
“I think the real issue is how is this thing going to sustain itself?” Willis said. “(Irvine’s) only option to make sure it can sustain itself would be to make sure there’s enough houses around to pay a sufficient amount of tax in that area to it and make sure the park is getting a sufficient revenue stream.”
Despite homeowners investment in the Park, they do not have control over where that money goes or how much they are taxed. The developer FivePoint Holdings, the city’s partner in the Great Park development and one of the largest campaign contributors in Irvine politics, established the special tax arrangements with the city before homes were sold, a common practice for developers.
Funding the Park
After Marine Corps Air Station El Toro was closed in the 1990s, a major debate over what would be built there ensued, and in 2002 the city began the process to establish what would become the Orange County Great Park.
The funding mechanism chosen by the city was a Mello-Roos tax, which would institute a special property tax on the homes in the Park to pay for the development of new infrastructure including roads, utilities and even environmental conservation efforts.
The city of Irvine has received $93 million from special taxes on the Great Park in the last five years and is set to receive an additional $30 million by June 2020 according to city records.
The city has also placed close to $280 million in bonds on the area, but with interest the cost rises to almost $600 million once the bonds are paid off by 2050.
Currently, the city of Irvine is able to place just over $999 million in bonds on the Great Park Neighborhoods. That number will rise as development continues throughout the park.
In January, the city council scheduled a public forum for March 10 discussing creating a new improvement area for the park, which would raise the total amount of potential bonds to over $1.1 billion.
At the January meeting where the March forum was scheduled, Mayor Christina Shea explained the establishment of the new bond maximums.
Video: Irvine Mayor Christina Shea on Financing
Irvine Mayor Christina Shea at the Jan. 28, 2020 Irvine Council meeting discussing who pays for Great Park bonds, as part of setting up another special tax district for a Great Park neighborhood.
“We’re not holding the debt for the developer, it gets passed off to the homeowners,” Shea said.
According to city records on the establishment of the special taxes, homes in the development could pay anywhere from $2,000 to just over $21,000 in additional taxes per year. The $2,000 statistic is for a property less than 800 square feet.
The disclaimer announcing the special taxes is a 10-page document that shows perspective homeowners the cost to their home and a basic overview of the cost range in their neighborhood. It also states that the maximum tax can increase by 2% annually for the first 40 years after the special bonds were issued, and can then grow by 3% every year after that.
In the Great Park, the taxes are designed to automatically increase by that 2% annually according to city records.
There is no sunset date for the additional taxes.
Irvine City Councilman Anthony Kuo said that while the special taxes in new infrastructure aren’t uncommon, the fact that they’re levied permanently is different due to past decisions of the council.
“There were promises made by previous councils that tax dollars from the balance of the city would not go to pay for the Great Park,” Kuo said. “It’s somewhat like property tax, for each homeowner it depends on the property value, and frankly I know of people who’ve chosen to not purchase a home in the Great Park Neighborhoods.”
Kuo was the only city council member that responded to questions about the park financing.
Councilmembers Farrah Khan, Melissa Fox, and Mike Carroll did not respond to requests for comment.
How FivePoint’s Involvement in the Great Park Works
In a contract adopted in 2005, the city of Irvine and FivePoint arranged an exchange for the development of the Park: FivePoint would be responsible for helping build infrastructure in the park in exchange for space to build 3,500 homes.
Fifteen years and several revisions later, FivePoint now is entitled to build over 10,000 homes, and has increased its initial investment in the infrastructure from $200 million to $550 million, all of which will be paid back by special taxes.
Once construction is completed, 9,500 of the homes have to pay the special taxes, while the remaining homes are affordable housing that are exempt from paying the additional taxes. Currently, 3,250 of the homes are occupied according to FivePoint.
According to numbers released by FivePoint, by the end of the project the company will have invested close to $1.3 billion in the Park, not including the cost of originally purchasing the land, if there is no further expansion of the development plan. They’ve currently invested $767 million.
Video: Opening of Great Park Bosque
The start of a promotional video showing the opening of the Great Park Bosque, with a high five chain ending with Irvine Mayor Christina Shea giving the last high five to FivePoint Chairman and CEO Emile Haddad.
Under its current deal, FivePoint builds infrastructure for the park, and after a review by the city is reimbursed through the special taxes paid by FivePoint and the residents. As more of the homes are sold, the burden is passed to residents.
The arrangement is structured in different levels that organize where the taxes flow. The first level is $10 million a year that goes toward the primary maintenance of the park.
The second level is known as backbone infrastructure, where the primary spending comes in. After FivePoint has built the infrastructure as agreed, the city reviews the work and if they approve it, they reimburse FivePoint with the money that was brought in through the special taxes.
Currently, that second level holds $285 million, and is capped at $550 million. However, that cap can increase if both FivePoint and the city agree to expand new infrastructure development.
The third level is a bracket known as secondary maintenance that costs $27 million a year, bringing the park’s total maintenance cost to $37 million per year. This tier will not be paid for until after the backbone infrastructure is completed.
Again, that figure was established by referencing the total cost of maintenance for New York City’s Central Park, not an evaluation of the Great Park, according to Haddad.
The fourth and final level of funding is labelled as excess funding, two thirds of which goes to FivePoint and the other third is returned to the city. That money has to be invested in the Great Park, and is projected to be worth $1.5 billion total according to FivePoint.
Some of the tax money even goes toward building streets that will later be used for more houses by the developer. According to Haddad, due to the fact that the Park is a “scrambled egg,” of public and private, there’s no way to avoid the mixing.
“It’s a street that’s benefitting the park and might benefit us because a street is a street, but anything that’s infrastructure purely to our development is not part of the (special taxes),” Haddad said. “Anything that’s pure to the home is being funded by us.”
But $250 million of the special taxes is also going toward the establishment of a new aquatics center that will be the home of the USA Olympic Water Polo team. The exact details of public access to the center have yet to be determined, and the money is coming out of the projected $1 billion that FivePoint maintains in the fourth level.
But while it comes out of FivePoint’s portion of the special taxes and does not increase the current tax rate, the project will be funded almost entirely by the homeowners in the Great Park.
Future Development and FivePoint’s Role
Currently, FivePoint is only contracted to aid in the construction of the Western Sector of the Park, including the construction of infrastructure, ongoing construction of a wildlife corridor and several other projects. It has also constructed additional amenities including the FivePoint amphitheater from its own funds and not the special taxes.
But for future development of the Park, the city will have to work with FivePoint and other private partners due to a lack of additional funding to complete the project according to Haddad.
“The balance of the park is going to require a few hundred million dollars, and there’s no money there,” Haddad said. “They don’t have the money, and they’re not going to be able to deliver.”
Haddad said the advantage in FivePoint developing amenities like the aquatics center and amphitheater are that it brings increased value to the Great Park Neighborhood developments.
“If I have an Olympic venue across the street, I’m building a hotel, I’m building restaurants…this is all a feeder for me,” Haddad said. “By virtue of building these amenities we get an intrinsic value that impacts real world value for the whole community.”
While no future development has been arranged yet, Haddad has stated that it would likely follow the same route the aquatics center is taking by amending the original land agreements.
“There’s the cultural terrace and everything the city wants to build, and once they come to a decision on what they want to see built, and the balance of the park, then we will sit down with our partner and see how we can help following the same thing,” Haddad said.
But questions on how the park can keep up its maintenance costs after development are still up in the air.
Eventually, all of the bonds passed off of the special taxes must be paid back by a set date that is different for each bond, but falls between 30 and 35 years. After all the bonds have been paid off, the taxes are cut to 1/3 of their value. They will still increase by 3% annually.
“In its planning in the future, the city really needs to make sure that in terms of housing developments that the housing is done in a smart way and a way that they can make sure they’re getting sufficient tax revenues to support this once the bonds have to be paid back,” Willis said.
According to city staff, the long-term funding of the park maintenance will come from several sources, including funds from the special taxes, leases, participation revenue and all private companies in the park leasing land will have an additional possessory interest tax for the use of the land.
“We’re a ways out, but in negotiating all the contracts coming forward in the next few years that will be operating on the park property they should be sure that they’re negotiating the contracts in such a way that it can pay for these maintenance costs,” Willis said. “Because if $37 million is really the maintenance number per year, that’s a big burden for the city to bear.”
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