“..no additional improvements of infrastructure, or improvements are needed or required..”
On September 13, 2016 I emailed you the transcript from the September 6th City of Beaumont Council Meeting in which Council Approved transferring $5 Million from the Sewer Fund to the General Fund. The money was originally removed from the Mello Roos Bond Fund Accounts on November 18, 2014 to pay off the 2001 Wastewater Bond.
On October 18, 2016 the Beaumont City Council was presented with another Agenda Item to Approve transferring the $5 Million from the Sewer Fund to the General Fund, but removed the Bond Documents listing the facilities to be completed with the Funds and included another forged Certificate of Completion. The new Certificate of Completion states that the ‘real property’, meaning the houses, have been completed.
By removing relevant information and submitting misleading information the City of Beaumont is in violation of SEC 1939 Section 18.
The City continues to refuse to release the Asset Coverage Test prepared by Mike Busch of Urban Futures. Although the City claims that the Asset Coverage Test has never been prepared, William Bothwell from the Law Firm of Orrick , Herrington & Sutcliffe implied that the Asset Coverage Test has been completed at the 36:45 minute mark.
LIABILITY FOR MISLEADING STATEMENTS
SEC. 18. (a) Any person who shall make or cause to be made any statement in any application, report, or document filed pursuant to this title or any rule or regulation thereunder or any undertaking contained in a registration statement as provided in subsection (d) of section 15 of this title, which statement was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, shall be liable to any person (not knowing that such statement was false or misleading) who, in reliance upon such statement shall have purchased or sold a security at a price which was affected by such statement, for damages caused by such reliance, unless the person sued shall prove that he acted in good faith and had no knowledge that such statement was false or misleading. A person seeking to enforce such liability may sue at law or in equity in any court of competent jurisdiction. In any such suit the court may, in its discretion, require an undertaking for the payment of the costs of such suit, and assess reasonable costs, including reasonable attorneys’ fees, against either party litigant.
Beaumont City Council Transcript October 19, 2016
33:00 Item 1. Approval of Resolution Accepting Modified Certificate of Completion in order to Transfer $5 Million that was original removed from the Mello Roos Bond Fund Accounts from the Sewer Fund to the General Fund.
Pinkney: You’ll recall that John Knox from the Law Firm of Orrick Herrington Sutcliffe previously addressed the Council on this Subject. This evening you have a modified Certificate that’s before you on the Agenda. Bill Bothwell , who is an attorney also with Orrick Herrington Firm is here this evening. Mr. Knox could not be here and so Mr. Bothwell is going to be addressing this Item for the Council.
34:00 Bill Bothwell from Law Firm of Orrick Herrington Sutcliffe: As you know this Item was before you a little over a month ago and there was some discussion about the facilities that were financed in the various Improvement Areas. There was some ambiguity in the Official Statements that were used, sort of cross referenced the completion of those facilities. So it was thought by Staff afterwards that it would be helpful to clarify exactly what the condition of the Improvements is in various Improvement Areas. That, in essence, is what the Council has before it is a Certificate that describes the sort of condition of each of the Improvement Areas and their satisfactory status in terms of Residency, Infrastructure Improvements, and the ability to continue to levy the Special Taxes that support Debt Service on the Bonds. So I’ll just read to you one of them. There are 12 separate paragraphs describing various Improvement Areas. They all have the same representation regarding these Facilities.
35:00 Bothwell: With respect to Improvement Area No. 18. Staff is stating that all of the real property within the boundaries of Improvement Area 18 has been fully developed with Certificates of Occupancy issued by the City were acquired in a manner consistent with the related to the approvals related to the development of Area 18. And then secondly; each developed parcel in Improvement Area 18 is served with Infrastructure and Public Facilities adequate to serve such each parcels for their permitted uses. And third; no additional improvements of infrastructure, or improvements are needed or required in order to allow the continued use and occupancy of any developed parcel in the Improvement Area. The same representations are made for all of the various Areas that are of issue. This basically allows the Council to go forth with the Adoption of the Resolution, reaffirming these options of the Resolution from September 6th Approving the 32nd Supplementary Indenture.
36:00 Bothwell: Which basically, as you know, allows the City to request the transfer of Residual Account monies from the Wastewater Fund to the Authority then to the City’s General Fund in order to be used to address certain Deficits the City’s facing.
36:30 Mike Lara: In the document it referenced an Asset Coverage Test. Explain what an Asset Coverage Test is.
Bothwell: Basically; an Asset Coverage Test is a test that allows, and I’m not sure who it was that actually calculated the Asset Coverage Test, I think somebody on staff did. That basically indicates to bond holders there’s sufficient Assets held by the Trustee in the Reserve Account or in other Accounts so the bond holders can be assured that as tax revenues come in it will be sufficient to pay debt service on the bonds.
37:00 Bothwell: The bond holders have been fully satisfied, so it’s okay to release these funds.
White: In the backup documentation it talks about how a Hearing was heard and the Beaumont City Council made an Approval to this and the Beaumont Finance Authority also Approved it. I know we’re the same Board. I’m not sure I remember that going down that way, but if that’s the way it’s stated and you can confirm that I’m ok with that. My question is; who governs the Sewer Plant? Is that governed by the Beaumont Utility Authority?
Pinkney: That is the Utility Authority.
38:00 White: Shouldn’t the Utility Authority give Approval to have that funds removed from the Wastewater Sewer Fund?
Bothwell: I think the understanding that the City has set forth in the materials in here reviewing from September 6th. This is the Joint Powers Authority and the City. This was, in 2014, an Advance to the Wastewater Fund. In other words, a loan that was to be repaid. Basically, the legal structure that was signed off by the City Council last September.
White: I don’t mean that this wouldn’t be a 5/0 vote. I’m just looking at the legals. Did we do everything legal because the Beaumont Finance Authority signed on it, but the Beaumont Utility Authority, which is what we are, has not officially held a hearing to ask if it’s ok to take $5 Million from the Sewer Fund.
39:00 Bothwell: It’s not exactly, the concept wasn’t for taking $5 Million from the Sewer Fund, it was your reimbursing the Authority for ..
White: But if I read what it says in here is that the $5 Million will be withdrawn from the Sewer Fund and I’m just wondering how you do that without going.. It says on September the City Council directed an amount of $5 Million to be withdrawn from the City’s Wastewater Enterprise Fund, but I thought that was under the authority of the Utility Authority.
Pinkney: If you go to the beginning of your Agenda; your meetings are agendize’ as the Agenda for the Beaumont City Council, the Beaumont Finance Authority, the Beaumont Utility Authority, the Beaumont Conservation Authority, and the Beaumont Successor Agency.
White: I realize that. The reason it comes up, I want to make sure we’re doing this legally and everything is above board and correct. The reason I bring this up is because we’ve had Finance – we’ve pulled out of the City Council during meetings and put on our hats as the Beaumont Finance Authority, transacted business, closed that meeting, and went back as Council and I don’t know that we ever did that with the Utility Authority for this. If you say that we don’t need to then I will defer to your judgement.
40:00 Pinkney: Let me suggest since you raised this issue. We can have the City Council vote on this Item tonight and then at the next meeting we’ll agendize’ it for the Beaumont Finance Authority and the Utility Authority.
White: That works for me. If you tell me this is good, I’m comfortable.
Pinkney: I think it’s a valid point that you raise. To avoid any questions about the propriety of the way it’s being done, we’ll do that.
White: Thank you. If there are no other questions I move to Approve this Item.
48:00 White: I’d like to have, since he’s here – we’re paying him. I’d like to have him answer the concerns that Mary Daniel raised regarding the changing of the wording of the document and why that is brought back here. Do you understand what I’m asking you? Did you hear her question?
Bothwell: Yes, I did hear it. The understanding is that there was some confusion in the previous Certificate. Not that the Certificate was necessarily inaccurate, but there was some confusion. The key issue here is whether or not in through this Certificate and through the Amendment procedure in the 1994 Indenture the City can Adopt this Resolution Approving the 32nd Supplement.
49:00 Bothwell: We’ve reviewed this and we believe that the Certificate is sufficient and that the Amendment procedure is properly followed and that you can Approve the 32nd Supplement revising Section 505C, as you know. Our view is as a completely legal matter. You’ve got policy issues and you’ve got legal issues. As a legal matter, you’re doing everything properly and we can give you an Opinion that that is so. There are policy and political issues as you well know. Money is being transferred to address the City deficit. That is an entirely valid use of this money, an appropriate use of this money, but that’s a policy issue.
Mike Lara: Ms. Daniels also had a question in regards to the Fire Station which I had brought up when the original question had come up.
50:00 Lara: Mr. Warne, you had a list of everything that went along with the first item when we approved it back, I think was in September. The Fire Station, Ms. Daniels referenced that there’s a script or a list of potential facilities that could be built and the fire station was one of those. Within the CFDs there as about $750,000 that was set aside for a fire station from the CFDs, that was supposed to be set aside for the fire station, that was done?
City Manager Richard Warne: The Bonds finance both fees and facilities and the fire station fee was $74,000 in one of the Improvement Areas. We have verified that was deposited into the Fire Station Development Impact Fee Fund Account
51:00 Warne: And so it is our conclusion and our Attorneys have verified that we have met their obligations of that Improvement Area.
Lara: Do also have an estimate of the balance of the Enterprise Fund? You said it was about $800,000..
Warne: Less. The Report that I gave when I was asked that question at the meeting last time and the answer is $834,000 as of the previous meeting when I made my report and that’s after you make this transaction.
Orozco: We did meet our obligation for the fire station. There’s a misconception out there. It’s not about building a fire station at this point; it’s about operating costs of putting the fire station up.
52:00 Orozco: That was the concern of why we don’t have a fire station at this point. It’s operating costs.
Warne: Well that’s obviously a budget and a policy issue that Council needs to address is the adequacy of fire protection in the community. The City has been collecting Fire Station Impact Fees. Those are now in a separate, segregated Account and are being accounted for separately. At such time as the Council chooses to take this up as a policy and budgetary matter we can report to you how much money was in those Accounts, is in that Account for the fire station. You have a Capital Cost of building the station, and I want to be careful that I don’t violate the Brown Act by getting into fire protection services, but the other issue that has to be addressed is the staffing of a fire station that is constructed should the City Council decide to do that.
53:00 Warne: That’s obviously a question that has to be addressed as you discuss fire protection as a budgetary and policy matter.
White: Mr. Pinkney, I understand where you’re separating these two Items and I look at the second Item and it also doesn’t speak to the Utility Fund. So I think where you’re going with these is that the first is sort of asking for the money, the second one is changing our documentation to allow us to move forward with this, and I think you’re going to tell us that the Utilities something we should do.
Pinkney: Well, I’ll need to talk to Mr. Knox about whether that’s required to do that, but we can certainly bring it back to cover…
54:00 White: The reason I ask you that is I think Dr. Ball raised some good questions. Those questions I would like answered before I put on my hat as a utility guy and move the money. So if that’s not going to be done in a future meeting then I would move to table this until we have those questions answered. If you’re going to tell me that we approve 1 and 2 here and then we don’t have that follow up Utility Meeting for me to get those questions answered, then I’m going to vote differently this issue.
Pinkney: Okay. Well, if the Council is in agreement to bring it back also through the Utility Authority we can certainly; whatever your pleasure is as a Council. So what we would have is a vote on 1. Then you would convene as the Beaumont Finance Authority and you would vote on number 2, whichever way you want to vote. Then the 3rd Item that Councilman White has raised that’s not on the Agenda tonight would be to have a future meeting of the Beaumont Utility Authority to discuss whether it agrees to repay the funds to the Beaumont Finance Authority.
Approved 5/0