How did the City Pay the September, 2015 and March, 2016 Bond Payments Without the Debt Service Schedules?
On April 5, 2016, Beaumont City Council Approved Agenda Item 3.b. to pay $35,000 to Webb and Associates to create Debt Service Schedules for the City’s $350 Million Mello Roos Bonds.
Both Webb and City Manager Gibbs-Urtiaga claimed that they had never seen any debt schedules, Union Bank did not create debt schedules, and it was unknown if the City ever had Debt Service Schedules.
Debt Service Schedules are the invoices that the Trustee sends to the Agencies. They are the backup documentation to justify the Mello Roos Bond payments.
Copies of Beaumont’s Debt Service Schedules were released by the City to justify their Bond Payments to Union Bank three years ago.
At the April 19, 2016 Beaumont Council Meeting City Manager Gibbs-Urtiaga stated “No documents have been destroyed since I’ve been City Manager”.
Two (2) Debt Service Payments have been made since Gibbs-Urtiaga became City Manger; one in September, 2015 and other in March, 2016.
And the fantasy that the City used the Mello Roos Property Tax Pre-Payments to retire Securities is ridiculous. The money was stolen.
Beaumont City Council Transcript: April 5, 2016: http://www.ci.beaumont.ca.us/index.aspx?NID=212
DEBT SERVICE SCHEDULE
1:37:00 Gibbs-Urtiaga: Without the Debt Service Schedules the City, in essence, would be taxing at the maximum levy because we can’t determine the actual amounts that can or should be in the tax levies. When Bonds are Called the total outstanding balance is reduced, including the remaining Interest Payments. And therefore a reduced Debt Service Payment is Required. The current Debt Service Schedules are not available from the Trustee. We’ve asked Union Bank. This was part of our discussions when they alluded to the fact that they had destroyed all of the Records and that’s when we got the City Attorney involved. We have since discovered that they didn’t destroy all of the records, but they stand firm that they do not have Debt Service Schedules, have never created Debt Service Schedules, and that they’re not in the business of doing that.
1:38:00 Gibbs-Urtiaga: I would like to bring Shane or Rich up to answer any questions from Council about the importance of the schedules and what they intend to do for the $35,000.
1:38:20 Rich Walt with Webb and Associates.
1:41:00 White: Were you not aware that the DSS, the Debt Service Schedules were incomplete at the time?
1:41:20 Webb: At the time of the formal RFP process, no. Our original engagement from June to August was an emergency to get the Tax Rolls submitted to the County. There was a brief Audit done to make sure weren’t carrying any past mistakes, in fact we did find several mistakes that had been done and we corrected those mistakes. But we were working off the same practice that had been done previously, which was to just levy at the max and get the Taxes on the Rolls. We did not do an inept look at the budgeting process. So fast-forward through September, during the normal course of business we start to get into our reporting season, which is kind of the normal course of business for the annual administration. We start to look for those and ask those questions.
1:42:00 Webb: When we take a client from another consultant it’s almost like the handing of a baton. You’re just taking budgets, you’re taking rate and method apportionments, you’re taking notices of special tax liens and maps. You’re taking them from one agency to another and you really continue the work. I mean, it’s not the magnitude of effort that was set forward with Beaumont. It’s no surprised, it’s a special case. We were faced with that every step of the way. Back to the Debt Service Schedules; we didn’t know at the time of the RFP process. So as we went through that exercise and started to ask for them and we started to learn that bonds had been called, where are updated schedules? That’s when we brought the to the attention of the City Manager’s Office that we needed to get those information. So we went through the process with the Interim Finance Director, Onyx Jones. We had several calls with Union Bank, we asked for them, and Elizabeth’s done a great job of explaining.
1:43:00 Webb: The responses we got were simple: the Bank doesn’t create those, their systems aren’t set up to do that, and in fact any information they had likely been destroyed. It was archived and then we learned later that it was destroyed.
1:50:00 Webb: We only have originals. From our perspective; that continues the practice that has been implemented in the prior administration without regard to what the actual debt due is; it’s levying the full amount. For us to alter that course, assuming there was some reliable information available, which appears there is not, so we have to reconstruct that.
1:51:40 Webb: This is highly unusual. Over 500 bonded transactions and no one has a record of the current Debt Schedule is unheard of. No one could have anticipated that would be a need.
1:54:00 White: The CFDs pay for administrative fees. Have we confirmed that no one has been paid for doing that service over the years?
Gibbs-Urtiaga: We have no record of Debt Service Schedules ever being created, so no we haven’t.
White: We haven’t told someone we’re going to pay them for doing something that hasn’t been done.
Gibbs-Urtiaga: No, and that would be part of Urban Futures’ Reconciliation; they’re looking at the CFDs. But to answer your question; no, we haven’t confirmed that.
1:55:40 White: I would like to get a consensus from my colleagues on Council. I believe that we need to do a Resolution to send a letter to the Department of Finance, the Treasurer; and the Attorney General’s Office and ask them to start looking into Union Bank for us. We’ve done the Subpoenas, we still are not getting the documents that we’re supposed to be getting.
1:56:00 White: I would like to see if the rest of the Council that we put together a Resolution asking the Department of Finance, the Treasurer; and the Attorney General’s Office to give us some support and help on what’s going on with Union Bank.
Pinkney: You can always vote to put an Item on the Agenda at the next Council Meeting. It’s not on the Agenda tonight.
White: Okay, I move that on the next Meeting we put an Agenda Item to send a Resolution to the Department of Finance and the Attorney General’s Office regarding Union Bank.
City Clerk: Motion to put that Item on the Agenda by Mayor Pro Tem White, second by Orozco.
2:06:00 Webb: We have original Debt Service Schedules. What we don’t have are any current Debt Service Schedules that may have been revised as part of a Bond Call that would have reflect from Pre-Payments. We don’t have a current from the original.
Gibbs-Urtiaga: I want to make sure that everyone understands what a Bond Call is. Every time a pre-payment is made, what happens?
Webb: In the bond documents there are optional and mandatory bond calls. When there are pre-payments received as a part of a property owner, developer, whoever is paying their debt obligation to these bonds and they pay in advance of that; they need to turn around and reduce the debt in proportion to the amount the pre-payment was. Many of these schedules have term bonds.
2:08:00 Webb: You see here 13, 14, 15, 16. Then in the later years, not on this schedule necessarily, that’s why we don’t think we’ll have to do every schedule, but there are schedules that have 5-year terms at increments until maturity. There’s details in those individual terms that when someone calls bonds. When there’s a $50,000 payment received as pre-payment there should be at least ten $5,000 redemptions on the Debt Service Schedule. Because that person that pre-paid is no longer going to be paying a tax, therefore; you’re not going to be able to use those funds to pay the debt, so it should be a one to one. So as these pre-payments come in; there should be a bond redemption. What I’m saying is that no one did the calculation to manage those schedules to keep them current. What we’re proposing is that in the instances where there were redemptions; that we would reconcile those to have an accurate calculation of what each debt service payment due for the 2016/2017 tax rolls would be.
2:09:00 Webb: Because each bond call, regardless of its final maturity, has an effect to the whole debt service schedule and the interest payments.
Glossary of Municipal Securities Terms
DEBT SERVICE:
The amount of money necessary to pay interest on outstanding bonds, the principal of maturing or redeemed bonds and any required contributions to a sinking fund for term bonds. This amount is also known as the “debt service requirement.” “Annual debt service” refers to the total principal and interest required to be paid in a calendar year, fiscal year, or bond fiscal year. “Total debt service” refers to the total principal and interest paid throughout the life of a bond issue. “Average annual debt service” refers to the average debt service payable each year on an issue. “Maximum annual debt service” refers to the amount of debt service for the year in which the greatest amount of debt service payments are required and is often used in calculating required reserves and in additional debt tests.
http://www.msrb.org/Glossary/Definition/DEBT-SERVICE.aspx
From State Treasurer: A Debt Service Fund (DSF) is typically composed of interest, principal and/or redemption accounts, and is intended to facilitate proper matching of revenues and debt service obligations. DSFs are usually required to be funded in advance of actual principal and interest payment dates – typically on a monthly basis. The predictability of when monies will be needed to make debt service payments suggests that issuers purchase, or instruct their trustee to purchase, securities with DSF deposits that mature on or about the debt service requirement date.
http://www.treasurer.ca.gov/cdiac/debtpubs/handbook.pdf