By: Libi Uremovic| Original Article at Patch.com
At the December 2, 2014 Council Meeting Beaumont City Manager Alan Kapanicas spoke about financing and prepaying. As usual, most of what Kapanicas said can best be described as gobblygoop. Aside from one statement that should be examined, the remainder of Kapanias’ monologue can be divided into two groups: Lies and Prepayment.
In reference to acquiring another Bond on Four Seasons Area 7A, Kapanicas stated:
“ I would ask you to do an Ordinance authorizing the levy of the Special Tax. And what we’re doing on this is actually creating a mirrored District. Only one or the other will stand. And there’s still another condition that needs to be met that everyone understands; if you go forward today we have to be able to have a Second Reading in more than seven (7) days. And that the municipal bond interest rate has to be under 5.6% because we’d have to swap bonds. We’ll have to market bonds to take out the old ones.”
Kapanicas is referring to the 2005 Series B Bond that was issued to Area 7A for $12,280,000. This Bond has an outstanding balance of $11,585,000. The last Bond the City acquired in April, 2013, was completely Junk. The City’s Wastewater Bond has been revoked. The City is beyond insolvent and does not have the equity to acquire more bonds.
LIES:
“This was based a request by Residences of Improvement Area 7A.”
It was pushed by City Staff and Council.
“State Law says that it’s the Registered Voters”
AND Property Owners.
“That’s State Law, that’s Prop 13.”
No, it’s Mello Roos Laws that must be followed for Mello Roos Bond Debt.
“a Property Owner, but she’s an English National. She could not vote. It’s a shame.”
it’s illegal and Beaumont Staff and Council should be ashamed of themselves.
PREPAYMENT:
“They’ve always had the option to pre-pay.”
“It’s set based on their rate, on the amortization of 5., 4.5% over 30 years that pre-payment. It’s increasing each year. They can pre-pay at any time.”
“Their current prepayment is anywhere from anywhere from $31, let’s see, anywhere from $16,830 for the smallest unit to $33,040 for the large unit. That’s what their prepayment amount is today.”
“And the only way we can stop this legislation is would be to make a prepayment.”
“They can always prepayments. If you want a prepay option.”
“this is exactly like a prepayment.”
“they can pay anything more than that and it’s like making a pre-payment on your home.”
“You can do any partial prepayment.”
“You can do full or partial prepayment.”
128:00 White: I have researched this extensively. And the Mello Roos laws, and I will bring it back to the next Council Meeting, state that it is the home owners, the current homeowners of the properties, that get to make the vote. To put that issue officially at rest; Mr. Wysocki, would you say the Election was valid?
Wysocki: I’m not the CFD Attorney and I don’t have that expertise, but I understand, in speaking with him, that his opinion is YES.
White: Okay. How many petitions were originally signed by the people of Four Seasons to start this process?
Kapanicas: They just came and talked to us and asked to consider that the council move forward. It can be done by a petition, I think it’s 8% or 10%, or it can be by two council members.
White: How many petitions did you receive from Stetson to do this? To renegotiate the financial package with the Beaumont Finance Authority?
Kapanicas: Mayor Council I’d say this is out of order
Knight: Yes
Kapanicas: Because this is totally different.
White: No.
Knight: This isn’t related. Let’s stay with this and then we’ll go forward to Stetson. We’re off the Agenda.
White: May I please relate this?
Knight: Is it apropos that we do that? What do we want to do?
Wysocki: I think it goes beyond what the Agenda Item is all about.
Knight: Okay, so we need to move forward here with your questions please.
White: Okay. What is the current amount of indebtedness total per house using your $30,000 and fair share per house? Have they already been assessed, issued, i’m not sure of the proper term.
Kapanicas; It is not the amount of bonds that’s issued, it’s the amount of currently, their total originally was at $34 to, I’d have to look and see what their original prepayment was. Their current prepayment is anywhere from anywhere from $31, let’s see, anywhere from $16,830 for the smallest unit to $33,040 for the large unit. That’s what their prepayment amount is today. That’s been 10 years in, so the interest for 10 years so they’re original amount was to start at $1,099 up to $2,011 escalating each year by 2%. Ending in year 30 at $1,828 or the large home, $3,633 amortized at 5% that total payment that would have given them what their original prepayment would be. Then each year it’s come down by, so the difference between the interest and the percent and the principal paid.
131:20 White: Okay, let me ask this in a different way. If the value or the revenue that you, when you use that $30,000 per home, that’s what their payments are based on, the maximum you could take from, per home, correct over the 30 year period?
Kapanicas: Can you repeat that please?
White: Sure, You indicated that there’s $30,000 fair share, $30,000 fair share per home, I understand that number’s going to fluctuate a little bit, but I’m trying to get to an understanding here. Right now their payments, if they were not to change and it goes to the full term of 30 years their payments that they’re paying now plus the 2% annual increase is going to just cover what they’ve been requiring you to pay at this point, or us to pay at this point.
Kapaniicas: That’s a good question. That’s wrong. We never issue bonds to the maximum amount. Technically, we should have over-charged them by 10% to cut it down to that amount. The bonds may or may not have been issued and some bonds come in as pay-as-you-go for ongoing projects.
White: if you reissue those bonds, their payments are not going to go up, correct?
Kapanicas: Correct.
White; So my question is; did it have an option to keep the Mello Roos terms as is and eliminate that 2% increase and still finish their Mello Roos within the original term?
Kapanicas; No. if I understand what you’re asking is; could they lower the payments by, in essence 2% per year to keep it flat.
White: To freeze the payments.
Kapanicas: Freeze the payments. Good way. So let’s say it’s 10 dollars today; instead of being 10 plus 2% extra, they would be short paying their debt service by roughly 40% on the other end.
White: Even if you don’t issue any more debt?
Kapanicas: Even if you don’t issue any more debt. The debt issue would be just to replace the current debt. It’s just longer to pay for it. Again, taking that 20 year mortgage and bring it over to 30 years. If you drop down to the picture; if that first house originally would have been, it would have created. Originally their payments would have totaled $40,933 and if theirs was the $25,000, it’s an average $30,000 it’s according to .. it’s originally as low as $25,000 in Solera. It’s according to what they needed for public infrastructure and the timing of what infrastructure cost. Now, what they’re going to do is pay more interest, so the same way $40,933 by doing this and going the extra 10 they’re going to pay $47,947 for those 40 years instead of 30 years. Again, time value of money. If $30,000 is worth $30,000 today at 5% interest that works out to.. Someday you and I are going to have to get the numbers so you can help me get. It’s roughly $1,500 a year at 5%. Now in this case it was, it started at $1,000. It would have moved up to about $1,500 a year had it used the slope, so that was the reason we called it the teeter-totter effect. We tipped it down so instead of being the initial year being right about $1,500, instead it was $1,000. What it’s going to do is have more interest to pay. Now they do have the option; we can continue charging at that escalating rate. if you don’t pass this the only option they don’t get is that they can have a flat rate. It would automatically escalate for the next 20 years. And the only way we can stop this legislation is would be to make a prepayment. It gives them the ability to have the escalation of they want, the prepayment no matter what. The third option is that they could go an extra 10 years and stay flat.
White: But none of them are allowed the option to leave it as it is?
Kapanicas: Yes they can
White: Each individual person can leave it as it is.
Kapanicas: They can always prepayments. If you want a prepay option.
White: I’m not asking about prepayment.
134:00 Kapanicas: No, but this is exactly like a prepayment. In essence they’ll be making a 2% prepayment every year and if you made a 2% prepayment on one of these you’d be done in 20 years instead of 30 years. And they have that option just by asking. They have the option to make any payment they want maximum the number. Today that maximum number is $1,230 for the small one and it goes up by 2%. That’s the maximum they can be charged. They can pay anything less than that or more than that I should say, let me rephrase; they can pay anything more than that and it’s like making a pre-payment on your home.