TO: LINDA REICH, CITY MANAGER
FROM: HYE JIN LEE, PE, DIRECTOR OF PUBLIC WORKS
SUBJECT
title
Construction Credit/Reimbursement Agreement with Chino Development Corporation and Chino Preserve Development Corporation for the Construction of Circulation (Streets, Signals & Bridges) Development Impact Fee Improvements at Various Locations in The Preserve.
end
RECOMMENDATION
recommendation
1) Appropriate $4,000,000 to the Transportation Fund and schedule a corresponding year-end transfer in the same amount from The Preserve Circulation (Streets, Signals & Bridges) Development Impact Fee Fund (Fund 260); 2) adopt Resolution 2024-057 memorializing the developer’s rights to the highest priority reimbursement from The Preserve Circulation (Streets, Signals & Bridges) Development Impact Fee Fund (Fund 260); 3) approve a construction credit/reimbursement agreement with Chino Development Corporation, a California corporation and Chino Preserve Development Corporation, a California corporation for an amount not to exceed $35,131,528.37 for the construction of Circulation (Streets, Signals & Bridges) Development Impact Fee improvements at various locations in The Preserve; 4) approve a reimbursement to Chino Development Corporation, a California corporation in the amount of $4,000,000 for said improvements; and 5) authorize the City Manager to execute all the necessary documents on behalf of the city.
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FISCAL IMPACT
Requires an appropriation of $4,000,000 to the Transportation Fund with a corresponding year-end transfer in the same amount from The Preserve Circulation (Streets, Signals & Bridges) Development Impact Fee Fund (Fund 260). There is $7.1 million available in the fund balance for this purpose.
Staff will continue to monitor the fund balance in The Circulation (Streets, Signals & Bridges) Development Impact Fee program and will make progress payments to the Developer (when funds are available) until the terms of the agreement are fulfilled. Each progress payment requires an appropriation of funds and, therefore, each payment will be brought back to the City Council for approval.
CITY OF CHINO MISSION / VISION / VALUES / STRATEGIC ISSUES
The recommendation detailed above further the City’s values and strategic issues that serve as key pillars on which identified priorities, goals, and action plans are built, by fostering:
• Positive City Image
• Financial Stability
• Responsible Long-Range Planning
• Public Service Excellence through Internal and External Partnerships
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Revenue: |
Expenditure: 3207100-43640 |
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Transfer In: 3201000-50000 |
Transfer Out: 2601000-40001 |
BACKGROUND
In 2004, the City of Chino (“City”) entered into a Development Agreement (“DA”) with three entities of the Lewis Management Corporation known as Chino Development Corporation, Chino Preserve Development Corporation, and Chino Holding Company, LLC (collectively referred to as “Lewis”). The DA was executed to help guide the orderly development of The Preserve, which was envisioned as a master-planned residential and commercial community. Additionally, the DA set the terms and conditions of development on property owned by Lewis and established the rights and obligations of the developer and the City during development.
The amended Preserve Development Agreement (DA), along with the conditions of approval for Tracts 16419, 16419-1, 16420, 16420-1, 16797, 17057, 17571, 17572, and 19994, obligated Lewis to design and construct various master-planned circulation and transportation improvements as conditions for developing The Preserve. From 2004 to 2019, Lewis completed several major projects, including, but not limited to, primary arterials such as Pine and Hellman Avenues, secondary arterials like Kimball Avenue, collector roads such as Rincon Meadows, and multiple traffic signals (collectively referred to as “Transportation Improvements”).
The Transportation Improvements are included in the City’s Circulation (Streets, Signals & Bridges) Development Impact Fee (“DIF”) program for The Preserve. The City’s Municipal Code, Chapter 3.45, titled Development Impact Fees, provides that if, as a condition of approval of a development project, a developer constructs a public facility identified in the DIF Nexus and Calculation Report, for which a DIF is imposed, the Developer shall be eligible to receive reimbursement and/or fee credit toward the DIFs imposed on the development project for the same type of public facility so constructed and shall be entitled to credit for eligible costs of constructing the public facilities.
In 2019, the City adopted a policy and updated the DIF Ordinance to include requirements for public bidding and construction on DIF-eligible projects. Consequently, development projects initiated after 2019 are now required, as applicable, to enter into an agreement with the City before a building permit is issued to qualify for DIF credit. All transportation improvements completed before 2019 are undergoing retroactive reconciliation, as no formal process or agreements existed between the City and developers at that time.
In September 2022, Lewis submitted documentation to the City to validate costs related to Transportation Improvements completed between 2004 and 2019, necessitating a DIF Construction Credit & Reimbursement Agreement. Projects completed prior to 2019 were managed using a "single bid" approach, grouping multiple projects under one bid without providing detailed cost breakdowns for each specific street. This approach complicated the cost reconciliation process. To streamline this allocation, the City applied a methodology based on square footage, calculating each street segment’s length and approximate width. The resulting area was used to proportionally distribute costs, ensuring fair and equitable allocation across all streets based on the scale and scope of work performed. Street work was reconciled by development project and location, as detailed in Exhibits 1-7.
It should be noted that the improvements to Pine Avenue were conditioned as part of multiple Lewis developments and were constructed in phases. Lewis holds a separate reimbursement agreement with the City for Phase I of the Pine Avenue improvements (Stages 1-3), and costs associated with these improvements must be reconciled independently from other DIF-eligible improvements. However, due to Lewis’s choice to utilize a single-bid approach, the costs for Pine Avenue - Phase I are included in the exhibits and were validated as part of this submittal. These costs were subsequently deducted from the total validated costs and allocated to the relevant agreement. Additionally, DIF credits for developments conditioned to complete the Phase I Pine Avenue improvements were excluded from the credits applied to this agreement.
Lewis has completed all work required in connection with the design and construction of the Transportation Improvements in accordance with City standards and to the satisfaction of the City Engineer. The City reviewed the final accepted/approved "as-built" plans, specifications and supporting documentation and determined that $35,131,528.37 is eligible for DIF credit and/or reimbursement.
Upon the costs being validated by the City, staff reconciled the Circulation (Streets, Signals & Bridges) DIF credits issued to all Lewis developments through April 2024, totaling $28,200,441, which is summarized below. The credits issued were deducted from the validated costs above, bringing a balance forward still owed to the developer in the amount of $6,931,087.37. This amount may be applied to future building permits and/or may be reimbursed depending on available fund balances.
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Validated Costs (Projects 2004-2019) |
$ 35,131,528.37 |
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Allocated DIF Credits Proposed DIF Agreement |
$ (28,208,553.49) |
|
Amount Owed to Lewis |
$ 6,922,947.88 |
ISSUES/ANALYSIS
In October 2024, staff brought an informational item to the Infrastructure/Street Committee (“Committee”) to briefly discuss the Transportation Improvements constructed by Lewis, the associated costs, and the DIF credits issued over last 20 years. This was necessary due to the size of the Lewis submittal and to better explain the nuances associated with staff’s review of the backup documentation provided by the developer.
Following the Committee meeting, the credit amount was adjusted to reflect the prepayment of Circulation DIF for two additional Lewis projects known as the Van Vliet and Block 4 developments. This prepayment is earmarked for the Pine Avenue widening between Euclid and Johnson Avenues, with the City taking the lead on the project.
To date, Lewis has satisfied 65% of its Circulation DIF obligation through three cash installments, with the remaining 35% applied as credits. The cash portion of the DIF obligation was fully offset by Community Facilities District (CFD) 2003-3 funds. Therefore, the credit amount was adjusted to the 35% of the total DIF obligation for these developments to prevent any potential overstatement of credits.
Lewis has expressed a preference for receiving a cash reimbursement along with DIF credits toward future building permits. The current balance in the Preserve Circulation DIF Fund is $7.1 million. This amount reflects previously designated funding, which includes allocations for the south side of Merrill Avenue, various segments of Pine Avenue, and the traffic signal at Merrill and Hellman Avenues in The Preserve.
The fund balance is sufficient to accommodate a partial cash reimbursement to Lewis of $4,000,000. This payment will leave an outstanding balance of $2,922,947.88 owed to the developer.
Additionally, City staff has reconciled Circulation DIF credits applicable to 4,460 of the 8,104 units required under the Preserve Development Agreement.
The City Council by resolution, may designate certain public facilities as “high priority”. The Transportation Improvements subject of this Agreement was constructed and accepted by the City for use prior to the date of the completion and acceptance by the City of any other Transportation DIF facilities which may be eligible for reimbursement. Accordingly, pursuant to the first-in/first-out provision of the DIF Ordinance (i.e., Section 3.45.130.A7), reimbursement to Lewis for the Transportation Improvements shall have priority and be first in line over all other Transportation DIF facilities constructed by other developers.
The proposed Agreement includes a provision that each year, the City and Lewis representatives will meet for the purpose of ascertaining credits for Circulation DIFs issued by the City to Lewis for developments within the Lewis properties. The City and Lewis will prepare a document that reconciles the foregoing Circulation DIF credit and reimbursement reconciliation until the terms of the agreement are fulfilled.
Therefore, staff recommends that the City Council adopt Resolution 2024-057 memorializing the developer’s right to the highest priority reimbursement of funds from The Preserve Circulation (Streets, Signals & Bridges) Development Impact Fee Fund; approve a construction credit/reimbursement agreement with Lewis for an amount not to exceed $35,131,528.37 for the Transportation Improvements at various locations in The Preserve; and approve an immediate reimbursement to Chino Development Corporation in the amount of $4,000,000.
Attachments: Exhibits 1-7 - Street Atlas Maps
Construction Credit/Reimbursement Agreement
Resolution 2024-057