Beaumont Pardee Homes Settlement Agreement Transcript
Mayor White: “The steady stream of DIF monies for Infrastructure – I think it totaled about $31 Million over the next 5 years..”
Beaumont City Council Transcript February 7, 2017:
5:00 Pinkney: It is my understanding that Council would like to take Action in Open Session on Item #2 that was discussed, but not decided upon in Closed Session. The City is in receipt of a Settlement Agreement that has been negotiated by Brian Forebath from the Stradling Yocca Law Firm representing the City and legal Counsel for Pardee Homes [Michael L. Tidus from Law Firm of Jackson Tidus].
6:30 Forebath: I’m pleased to present to you today a Settlement Agreement that we’ve been working on very diligently on behalf of the City, with Pardee Homes in cooperation, for six or seven months now. The claims from Pardee date back a significant period of time.
7:00 Forebath: They relate to alleged breaches in the Development Agreement by the City related to the failures to form CFDs, the failure to Issue Bonds on behalf of the CFDs, and the failure to reimburse Pardee for Infrastructure that was constructed within the CFDs. The key terms of the Settlement Agreement are; the City will agree to use commercial reasonable efforts to Issue Bonds on behalf of Improvement Areas 8C, 8D, and 17C by September 1, 2017. There’s an explicit acknowledgement in the Settlement Agreement that the City is currently undergoing an SEC investigation the City is not ‘obligated’ to issue bonds by that specific time. If the City does not issued bonds by September 1, 2017, it is not a breach of the Agreement. Pardee has also agreed to purchase those Bonds on a ‘private-placement’ basis if the City does not have access to the Public Markets. Those bonds will be sold at a Market Interest Rate to Pardee as established by third party advisors of the City.
8:00 Forebath: Other key provisions of the Settlement Agreement relate to the REIMBURSEMENT OF PARDEE OF CERTAIN BOND PROCEEDS THAT ARE CURRENTLY HELD AT THE TRUSTEE LEVEL THAT PARDEE IS ENTITLED TO RECEIVE. The formation of CFDs 2016-2 and 2016-3 for Pardee, those are both on tonight’s Agenda. Resolutions of Intentions were adopted were adopted on those Items back in September. Those items have been continued and delayed while we negotiated the Settlement here for you tonight. Key provisions of of that Settlement is there will not be a 2% Escalator on Special Taxes for Facilities on those CFDs. Pardee is agreeing to have those CFDs fund their fair share of Public Safety Costs going forward with $419 per unit with appropriate annual escalators [5%].
9:00 Forebath: And also allowances for the effective Tax Rates in CFD 2016-2 to be 2.05%, which is above the City’s stated goals and policies of 2%. CFD 2016-3 will be at 2.0%. Other key provisions related to this Agreement is that Pardee is agreeing to advance approximately $31 Million in Development Impact Fees to the City for the City’s Construction of Public Infrastructure or, at the City’s election, to have Pardee construct those $31 Million in Public Infrastructure on behalf of the City. In return Pardee will receive credit against their Development Impact Fees that are due & owning and reimbursement from Bond Proceeds Issued by CFD 2016-2 and 2016-3 and some of their other Improvement Areas.
10:00 Forebath: A key point to this is that Pardee is agreeing to provide the City with a stable and determined source of Funding for this Infrastructure to the tune of about $8.1 Million in 2017, $6.4 Million in 2018, $6.4 Million in 2019, $5.9 Million in 2020 and $4.2 Million due in 2021. Those obligations of Pardee to provide that Funding regardless of the number of building permits that Pardee pulls and in no event will Pardee Defer Fees on any of those units. If development slows considerably; Pardee is still on the hook to make those payments annually. Those Fees will be adjusted, those amounts will be adjusted if Development Impact Fees were to be increased by the City, so Pardee’s costs would go up in that event, proportionally. And they will go down if Pardee’s Development Impact Fees were to be decreased.
11:00 Forebath: Additionally, there was a certain amount of Development Impact Fees that Pardee PAID IN ERROR on Improvement Area 8E to the tune of $2.5 Million. Pardee, per the Agreement, has been in title to Defer the payment of Impact Fees from Improvement Area 8E. That’s about $3.2 Million that’s currently been Deferred. Part of the Settlement Agreement; the City will keep the $2.5 Million and Pardee will pay the $3.2 Million in Deferred Fees to the City. Additionally, there were some Development Impact Fees that were for 435 units that were Deferred dating back to 2010 to Present. The City will be entitled to keep Special Taxes that were levied on Pardee’s Improvement Areas that would otherwise be entitled to go to Pardee to reimburse Infrastructure, for the City to keep that money and Reimburse it for the Development Impact Fees that were deferred.
12:00 Forebath: This Settlement Agreement provides a Full Release of all the Parties of all their Outstanding Claims and I’m more than happy to answer any questions the Council or Public might have on it, but that is a ‘high level’ summary of the Settlement Agreement that’s before you tonight.
12:30 Councilman Julio Martinez: How soon will you be able to start collecting?
Forebath: So there’s a couple steps. Pardee will pay the full amount of Deferred Development Impact Fees of $3.5 Million owed within 60 days of the execution of this Agreement. The Special Taxes that have been collected that would go to Deferred Fees will be the City’s immediately, and then they would also advance another $8.1 Million in 2017 – the year 2017, not the Fiscal Year.
13:00 Forebath: One other point I did not discuss is the full extent of the Facilities to be constructed are EITHER by the City OR by Pardee will be negotiated and discussed in an Acquisition and Funding Agreement that the City will enter into – a subsequent date within the next 60 to 120 days for each of their Improvement Areas or their Community Facility Districts that Pardee has entered into with the City. So that will come back to the Council and Public to see a full vetting of the Public Infrastructure that will be funded with those monies.
14:00 Councilman Nancy Carroll: So when the Acquisition Funding Agreement is made, will it be determined or will it still be open as to the facilities to be constructed by Pardee whether they are not ..?
Forebath: It may still be left open depending on the amount of money for the City to determine how best utilized. I’m not – we wouldn’t want to tie the City’s hands in 60 days. We want to make sure that it’s a well thought-out plan by the City on how to deploy this significant amount of resources.
14:00 Orozco: And with this Agreement – it eliminates the 2% Escalator?
Forebath: On the CFDs that are before you later this evening on a future Agenda Item; there’s not a 2% Escalator on those CFDs for the Facility Tax, yes.
15:00 White: Briefly explain something that’s unusual compared to other Agreements with other CFDs is the privately placed bonds. Can you just sort of address that?
Brian Forebath: As we all know, the City is currently under investigation by the SEC related to a certain of its Bonds that are outstanding. We believe that in no event should the city be in a position of making public statements to Bond Owners, providing Disclosure to Bond Owners in connection to the bonds. So accordingly, the Bonds will be sold either to Pardee Homes or to sophisticated Investors, which will likely be private Banks on a private placement basis whereby there will be no offering documents provided by the City so that there’s not a risk of any future violations of Federal Securities Laws. Additionally, there will be added protections to the City in that the Bonds will be sold or be able to be transferred only after the conclusion of the SEC Investigation and only pursuant to what we would call a ‘traveling big boy letter’. What that means is that any future investors that buys these bonds will have to buy it by providing certification to the Trustee of the City that they are a sophisticated Investor and that is the defining rule under federal securities laws; that they have a high net worth, that they’re familiar in these sorts of securities, that they’ve done their own diligence on the project and an acknowledgement that they have not received or been advised by the City of any assurances as to the security of the Bonds or disclosure related to the project itself. We feel that is a very important step for the City in this sort of ‘techno’ state that we are in with the Investment Market.
White: And the CFDs that were outlined in the Settlement Agreement that we will be discussing later tonight. As far as I understand; they are in the format that we have asked all future CFDs going forward.
17:00 White: In other wards; there’s no 2% Escalator, there’s a Public and Safety Special Tax, an Annual Maintenance Special Tax. Is there anything Unusual about those CFDs compared to what we have given direction for CFDs going forward?
Forebath: No. The only unusual aspect, and it’s part of the Settlement Agreement is, as a trade-off for getting the Escalator and adding the Public Safety Tax; in order for the financing for CFD 2016-2 to really pencil out the Effective Tax Rate is in excess of 2%, which is about your normal goals and policies. It’s not a legal requirement, but it’s your policy that can be waved. So as part of the Approval of that tonight when you Approve the Resolutions of Formation you will be waving the 2% policy with regards to that CFD to allow for a 2.05% Tax Rate.
18:00 White: You mentioned the steady stream of DIF monies for Infrastructure – I think it totaled about $31 Million over the next 5 years, is that about right?
Forebath: That’s right, yea.
White: And there are no restrictions to us being able to use that money for things such as the Oak Valley Interchange, Highland Springs, Wastewater Treatment Plant ..?
Forebath: No. I believe, without having a full set of plans, that will be the decision of the Council. Planning amongst those; Oak Valley and Fire Stations are sort of key improvements that are being considered as possible uses for those Funds.
White: I have no other questions, anyone else?
19:00 Carroll: In past history there’s been a lot of concern from the Public and also Council Members about the Cost of Issuance, the fact that sometimes we could have been a little more competitive. Council you just speak generally on that we’re intending to be more competitive in all angles of this bond.
Forebath: Absolutly we will be and the supervision of your City Manager and Staff. It will be brought back to the Council. When the bonds are ultimately issued we will be sure to provide the Council with a summary of what the expected Cost of Issuances are in connection with each financing.
Mike Lara: This is not something that this current Council or Administration was – it’s something that we inherited, is that … ?
20:00 Forebath: This is all Issues that pre-date the current Council. It all relates to disputes that have arisen over the years between Pardee and the City. Essentially; back in the prior Administration there was a reluctancy, for whatever reason, to Issue Bonds on behalf of Pardee and it became really slow. In order to do that the City, to its own detriment really, went into a series of Agreements with Pardee to Defer Development Impact Fees and they agreed to pay itself, eventually, out of Bond Proceeds when and if Bonds were Issued. However many years later; CFDs are fully developed, but Bonds have never been issued. The City has NOT been paid those Development Impact Fees on lots of these things, so this Settlement Agreement makes the City whole, it provides Pardee with some assurances about being able to ‘monotize’ their investments made in the City; putting Special Tax on things, SELLING HOUSES AS IF THEY HAD SPECIAL TAX LIENS ON THEM, collecting the money from it.
21:00 White: The Improvement Areas that are already built out; we’re not adding anything to what they’re already paying. In other words; they have been paying Mello Roos Fees, but the Bonds had not been Issued. That’s a portion of the money we’re talking about in the Settlement is for, is that correct?
Forebath: Yes, that’s correct. The Special Taxes have been and continue to be levied on the CFDs where Bonds have not been issued.