By: Libi Uremovic , December 13, 2013 | Original Article at Patch.com
Municipal Bonds have a basic life cycle: the local agency has a one-time financial need. The agency appeals to the voters for a property or sales tax increase to pay for the bonds. After voter approval the bonds are issued and sold to investors.
The bond issues are divided into Securities of varying monetary values and due dates. The Underwriter sells the bond securities to investors. The money paid for each security is placed in the care of the Bond Trustee less 5% Underwriters’ Fee.
The investor purchases the bond securities with the expectation of receiving interest payments twice per year and their initial investment returned when the bond is due.
As Bond Trustee; Union Bank’s duty is to create and control the Bond Fund Accounts as described on the Sources and Uses pages of the bond. The Trustee collects the money from the sale of securities and distributes the funds as directed. The Trustee also collects the Interest and Premium payments. The Interest is paid to investors every March and September and the Premium funds are used to retire securities.
Every City of Beaumont bond has two sets of 10-digit account numbers and every bond has a provision for a Program Fund Account. Union Bank uses the account numbers ending in ’07’ for the program fund accounts. The program funds listed on the bonds are for a specific use, but the City of Beaumont 07 bond fund accounts contain all of the bond securities.
The City of Beaumont bonds were never sold. The bonds could not be sold because they illegally attach tax liens on private property. The Bonds were issued in the name of the Beaumont Financing Authority and transferred into the name of the Beaumont Communities Facilities District, but there was no money paid for the bonds from the City of Beaumont.
November 2011 Bank Statements show that the City of Beaumont overdrew their checking account twice in November. It is not possible for the City of Beaumont to pay for $12 Million worth of bonds in December when their bank account shows that the City was insolvent.
The securities were never sold, yet Union Bank distributed money. It is unknown what money was used by Union Bank to establish the bond fund accounts and distribute money to the City of Beaumont. The City made a journal entry to record the transaction, but did not have the funds nor was there any funds transferred to pay for the securities.
Page 32 of the City of Beaumont 2011 GAAP Audit Note 3c reports a $20.2 Million deficit fund balance and 2012 Audit reports a $19.5 Million deficit fund balance in the Communities Facilities District. The City of Beaumont is a small town that only generates $15 Million/year in property and sales taxes. The City does not generate the funds to loan itself $20 Million/year.
The City of Beaumont pays $5 million/year to retire the securities and $10 million/year in interest payments. As Bond Trustee; Union Bank receives the interest payments and distributes the interest to the bond holders, but the securities were never sold. The City claims over $200 million in investment assets, but the City does not receive the $9 million in earned income that an investment of that magnitude would produce.
Page 34 of the 2012 Audit lists the City’s investments. The City listed $10.4 Million in the State LAIF Account, but the City drained the LAIF account in 2011 and the actual amount for 06/30/12 was $1.8 Million.
The $32.0 Million listed as ‘Money Market Mutual Fund’ is actually the funds remaining in the Bond Fund Accounts. Union Bank lists the Blackrock investments at .001% or 0.00% interest.
The remaining investment claimed by the City of Beaumont is the $213.9 Million Community Facility District Bonds that are hidden in the bond fund 07 accounts. The securities state 3.5% – 6% interest rates, but the accounts show no interest is accrued.
The City of Beaumont is currently attempting to acquire another $6.7 Million bond on property that had no homes a year ago and currently has 57 property owners that are paying special taxes without voter approval and before Council approves the bond.
At the November 19, 2013 Beaumont City Council Meeting 122:00 City Manager Kapanicas stated: “There’s 216 homes that started building and selling last year. There’s one homeowner that’s already prepaid. …. Special Tax Rates stayed the same no matter how much, when, or if bonds are issued….Bond buyers will only buy bonds now when there are product being built. That’s why we waiting a year, almost a year ½ from the time this CFD was formed. They want the homes to secure the bonds, they want to see them being built.”
Union Bank is using the City of Beaumont to illegally attach liens and collect special taxes from new homeowners without voter approval and before Council approves the bond. This is a violation of California Proposition 13 and 218 requiring voter approval.
In the last 20 years the City of Beaumont has acquired over $300 million in bonds secured by liens on 20,000 private property owners and not one homeowner voted for the special taxes. The market is flooded and homes in this area are worth ½ the value. The area does not have the water resources to sustain additional population growth yet the City is planning to develop more land for housing and warehouses.
November 19, 2013 Beaumont City Council Meeting: http://podcast.ci.beaumont.ca.us/CC_2013-11-19_agenda.htm
City of Beaumont 2012 Audit: http://www.ci.beaumont.ca.us/DocumentCenter/View/17614
City of Beaumont 2011 Audit: http://www.ci.beaumont.ca.us/DocumentCenter/View/16409