Financing Major Developments – How Does it Work?
Large scale projects like Mission Bay, Bay Meadows and Park Merced are complicated and expensive. Most costly is the infrastructure, streets, utilities and parks. What financial tools are available for developers to deliver a successful project? What all these neighborhoods have in common is a Community Facilities District (CFD), also know as Mello- Roos. In 1982, the State passed the Community Facilities Act which allows local governments to create these special districts that could raise financing for public facilities. Homeowners living in these districts agree to pay for improvements as part of their property taxes spread out over decades.
An example is the Bay Meadows project in San Mateo. Bay Meadows is an 83-acre major redevelopment of a former horse racetrack. Set alongside the Hillsdale Caltrain Station and Highway 101, the community includes 1,100 homes, up to 1.5 million square feet of office space, 90,000 square feet of retail space and 15 acres of parks. When the CFD was created in 2008, a special tax was levied, and bonds were issued and sold to provide the large amount of money initially needed to build the infrastructure and eventually fund services for the new development. The tax underlying a CFD must be approved by a vote of landowners in the district.
In this case, the entire property was owned by the developer, Bay Meadows Land Co., which agreed to vote in favor of the district in advance during negotiations with the city. The property owner paid a special tax to support the issuance of bonds, which was passed on to homeowners and tenants who eventually moved into the development. The special taxes are charged annually until the bonds are paid off in full. Homeowners pay the special tax in addition to their regular property taxes, except for the residents occupying the exempt below-market-rate housing units. The CFD continues to pay for the roads, traffic signals, drainage, sewer system, utilities and more – without burdening the City of San Mateo or it’s current residents living outside of the Bay Meadows neighborhood.