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Frequently Asked Questions of Property Owners within
Community Facilities District (“CFD”) No. 2006-5

1. What is a CFD?
In 1982, the Mello-Roos Community Facilities Act of 1982 (“Mello Roos Act”) was created to provide an alternative method for funding public improvements needed to mitigate the impact of residential development within a community.
2. Who petitioned Hesperia Unified School District (“HUSD”) to form CFD No. 2006-5?
Western Pacific Homes, the owner of Tract Nos. 15501 and 15503, petitioned HUSD to form CFD No. 2006-5 in April 2006.
3. What public improvements were expected to be funded by CFD No. 2006-5?
CFD No. 2006-5 was formed to fund school facilities of HUSD and water and sewer capacity fees and improvements for the Baldy Mesa Water District (“Water District”).
4. How was the amount of school facilities funding determined?
HUSD and Western Pacific Homes entered into a School Facilities Mitigation Agreement (“Mitigation Agreement”). The Mitigation Agreement identified the minimum school facilities funding to be generated by CFD No. 2006-5.
5. Why was a minimum school facilities funding amount identified in the Mitigation Agreement?
Unlike cities, counties, water districts, sewer districts, and other public agencies impacted by new residential development, school districts do not have the same authority to impose a fee equal to 100% of the impact created by such development. The minimum school facilities amount was less than the full impact of the development and represented a minimum level of funding guaranteed to HUSD.
6. Did the Mitigation Agreement allow HUSD to receive additional funding from CFD No. 2006-5?
The Mitigation Agreement did include provisions to allow HUSD to receive additional funding to help off-set the unfunded impacts created by the residential development. These provisions include (1) additional proceeds generated by the issuance of bonds, but only as available after funding the minimum school facilities amount and fees/improvements for the Water District and (2) the collection of annual taxes not needed to fund debt service on the bonds and obligations of CFD No. 2006-5.
7. Was the initial plan to issue two (2) series of bonds?
Yes, at the time the Mitigation Agreement was entered into and the formation documents were created, CFD No. 2006-5 was expected to issue two (2) series of bonds.
8. Why was only one (1) series of bonds issued?
The pace at which development within CFD No. 2006-5 occurred was much faster than anticipated.
9. Did the issuance of one (1) series of bonds generate additional proceeds?
Yes, the single series of bonds did generate additional proceeds. These additional proceeds were attributable to (1) more efficient financing costs associated with a single bond issuance and (2) the realization of reduced interest rates.
10. Did the planned second issuance of bonds assume a 7.00% interest rate?
Yes, a 7.00% interest rate was assumed for the issuance of the second series of bonds when the Mitigation Agreement and formation documentation of CFD No. 2006-5 were being generated and approved.
11. Why was a 7.00% interest rate assumed for the second bond issuance?
The second series of bonds was expected to be issued a number of years after the formation of CFD No. 2006-5 and historically, many CFD bonds have been issued at or above a 7.00% interest rate. This interest rate was used to ensure HUSD would receive the minimum school facilities funding in accordance with the Mitigation Agreement. Similar to the pace of development experienced by Western Pacific Homes or the economic downturn in 2008 (“Great Recession”), it is impossible to predict where interest rates will be several years in the future.
12. Who is responsible for disclosing the additional property tax associated with CFD No. 2006-5?
State law is very specific with placing the obligation to disclose the additional property tax of a CFD on the owner of the property. This means Western Pacific Homes was obligated to disclose the property tax of CFD No. 2006-5 to the initial homeowner and each homeowner thereafter is responsible for disclosure to the new homeowner.
13. Have the taxes increased since the inception of CFD No. 2006-5?
No, the annual tax levied on each residential unit has not changed since the initial levy of CFD No. 2006-5.
14. How long will the taxes of CFD No. 2006-5 be levied?
The Special Taxes of CFD No. 2006-5 will be levied no later than Fiscal Year 2039/2040.
15. Can HUSD independently lower the property taxes of CFD No. 2006-5?
When bonds were issued on May 3, 2007, HUSD covenanted to the bondholders that the annual tax would be levied in accordance with the Rate and Method of Apportionment of Special Tax (“RMA”). Step One of the RMA for CFD No. 2006-5 requires 100% of the Assigned Annual Special Tax to be levied on residential property.
16. What happens if HUSD deviates from the RMA?
By deviating from the RMA, HUSD is lowering the security of the bonds, which could impact principal and interest being paid to the bondholders in accordance with the terms agreed upon at the time the bonds were sold. Lowering the annual tax could expose HUSD to potential litigation from the existing bondholders.
17. Why is approximately $1.15 million in bonds proceeds remaining in the School Facilities Account?
HUSD believed prior to the Great Recession that additional school facilities might be needed to serve students generated from CFD No. 2006-5 and the planned residential development in the surrounding area. The remaining balance was expected to assist in acquiring property and developing plans for these additional facilities.
18. Why is HUSD now using the $1.15 million in bond proceeds remaining in the School Facilities Account at this time?
HUSD recognizes the planned residential developments in the general area of CFD No. 2006-5 are not moving forward at this time and that inflation is eroding the amount of facilities which can be funded with the $1.15 million. HUSD has identified current school construction/improvement projects that will directly benefit the residents within CFD No. 2006-5.
19. Have the funds of CFD No. 2006-5 been invested?
Since the initial deposit, funds of CFD No. 2006-5 have been invested in Blackrock Liquidity Fund Dollar MMKT, which is a permitted investment in accordance with the Fiscal Agent Agreement with Union Bank.
20. Does Dolinka Group, LLC provide investment advisory services to HUSD?
Dolinka Group is the Special Tax Consultant and Financial Advisor for CFD No. 2006-5. Dolinka Group is not registered with the Securities and Exchange Commission as an Investment Advisor and is not qualified or permitted to provide investment advice.
21. Has HUSD performed the required audits of CFD No. 2006-5?
Yes, HUSD is in compliance with the legal requirement that CFD No. 2006-5 annually reports fund balances and the uses of funds. The accounts of CFD No. 2006-5 are also included in HUSD’s annual audited financial statements.
22. Is the Governing Board of HUSD aware of property owners concerns in CFD No. 2006-5?
The Governing Board has been receiving updates on this matter ever since the initial meeting held at Hollyvale Elementary School on February 25, 2015.
23. What has HUSD been doing with the property taxes not needed to fund debt service and obligations of CFD No. 2006-5?
Similar to the $1.15 million remaining in the School Facilities Account, these revenues were being accumulated to fund additional school facilities to serve students generated from CFD No. 2006-5. However, in order to assist the taxpayers of CFD No. 2006-5, the Governing Board has directed Administration to apply these funds towards the refunding of the bonds and the reduction of property taxes.
24. How did HUSD arrive at the approximate 10% reduction in tax rates?
HUSD has been actively working to refund the bonds of CFD No. 2006-5. The reduction would be realized by (1) lowering the interest rate on the bonds, (2) modifying covenants to the bondholders and (3) applying special taxes received in prior years not needed to pay debt service and obligations of CFD No. 2006-5.
25. If the refunding of the existing bonds occurs, when would taxpayers in CFD No. 2006-5 realize a reduction in their property taxes?
The goal of HUSD has been to complete the refunding in time to lower the property taxes of CFD No. 2006-5 for Fiscal Year 2016/2017.

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