Bond aid: McKinley Village developers slated to get $8 million in reimbursement funds

City will use money to repay developers for public infrastructure costs, though litigation could complicate things

This is an extended version of a story that appeared in the May 12, 2016, issue.

With little discussion, the Sacramento City Council last week unanimously approved the disbursement of up to $8 million in bonds to reimburse the developers of McKinley Village, including former State Treasurer Phil Angelides.

Who foots the bill and the project’s future could be complicated, however, by litigation that contends developers haven’t done enough to address side impacts of the inner-city housing development now under construction.

Slated for completion in 2018, McKinley Village will feature 336 units of both family homes and condominiums bordered by Business 80 and the Union Pacific railroad tracks. The bonds are intended to reimburse developer Encore McKinley Village LLC for constructing the public infrastructure—roads, streetlights, water, sewage and drainage facilities.

Acknowledging that the city’s ability to repay the $8 million by 2046, as planned, “may be impaired” if a legal challenge against the developer and city prevails, the treasurer’s office and finance department recommended bond privatization in a staff report.

A lawsuit filed by a group of residents calling themselves the East Sacramento Partnerships for a Livable City alleged that the city’s environmental impact report failed to adequately analyze or diminish the impacts of the infill housing project, including its location near a former landfill and proximity to freeway pollution, and the projected increase in residential traffic.

Dismissed last year in superior court, the lawsuit is currently completing the brief-filing stage in the California Third District Court of Appeal. The appeal’s potential impact on McKinley Village remains unclear. The group’s goal is to stop all development until a new EIR is conducted, according to court documents filed in superior court.

Traffic is among the more contentious aspects of the East Sacramento housing development, which will have two access points and is projected to add 3,500 additional car trips a day. At the May 3 meeting, council approval was granted to a separate item that will apply $150,000 in developer money to traffic-calming measures around the project area.

According to city documents, the bonds won’t be publicly traded on the open market due to the litigation, which means that only investors known to the city and its placement agent will buy and sell them. City debt manager Brian Wong described these private investors as “high net-worth individuals,” and said they could include pension and mutual funds as well as insurance agencies.

The Community Facilities District bonds are the first to be issued in about nine years, said Mark Griffin, special districts manager with the city. A CFD is formed to finance public improvements and services when no other source of money is available, according to California Tax Data. Future homeowners will have to pay between $900 and $1,800 annually in a special tax rolled into their property taxes. If the appellate court sides with the plaintiff, property owners, which include Encore, will have to pay the special tax until development can resume.

In an email, Megan Norris, vice president of partner developer Riverview Capital Investments, said the bonds will provide a “relatively small portion” of the estimated $160 million project. “This new neighborhood is an integral part of the Sacramento region’s plan to curb urban sprawl, locate housing near jobs and reduce vehicle miles traveled,” she wrote.

A representative of East Sacramento Partnerships for a Livable City could not be reached before deadline, but a briefing document filed by the group’s attorneys claimed the city should never have approved the project.

“Whether because of developer pressure or political expediency, the city abdicated its legal responsibilities and failed in its duty to act in the best interests of its citizens,” the document states.

Regarding the traffic-calming measures, half of the money will be spent on enacting a half-street closure on 28th Street on the south side of C Street to deter southbound traffic, as well as adding a traffic circle, pedestrian islands, a crosswalk and signage to C Street, a staff report states. Crews are expected to begin work in mid-June on a project that is expected to take five weeks to complete, said Debb Newton, a program analyst for the city.

After homeowners begin moving into McKinley Village, the other half of the money will be spent on creating a neighborhood-wide entrance east of the Capital City Freeway, she said.

“The city of Sacramento is usually on the forefront of traffic calming,” Newton said.

The sale of 20 model units currently under construction should begin after Labor Day, Norris said.