There are over 1,100 Private Property Owners in these 3 Developments and Over 15,000 Property Owners in CFD 93-1 that have the right to Vote
Beaumont/Pardee Homes Settlement Agreement #2: Issuance of Bonds for Areas 8C, 8D, and 17C
Dated February 7, 2017
CFD 93-1 DEVELOPMENT AREAS 8C, 8D, AND 17C
The correct process for a government-funded construction project is that there is a need/want in the community, the citizens request the project from their city council, the cost of the project is calculated, and a bond is issued based on the cost of the project.
In the Settlement Agreement Pardee Homes and the City of Beaumont are attempting to acquire the largest bond possible using the property values of homes that Pardee has already constructed and SOLD to private citizens. If the City can’t acquire the bond Pardee will be ‘the bank’.
The houses are built, but Pardee refuses to produce Payroll Records or Construction Invoices. The City of Beaumont keeps no records. Only private houses and the roads within the Development were built. There was no Fire Station, Recycled Water, or outer Roadways built or considered. No CEQA EIRs were submitted to mitigate the additional houses.
The City and Pardee Homes has no legal right to use private property as collateral. Houses in Development Areas 8C, 8D, and 17C were built and sold between 2013 and 2014. There are over 1,100 Private Property Owners in these three Development Areas and over 15,000 Property Owners in CFD 93-1 that have the right to vote on every addition or change in CFD 93-1.
Brian Forebath from the Law Firm of Stradling Yocca admits at the 21:20 minute mark that the City has been illegally charging Development Areas 8C, 8D, AND 17C Mello Roos Special Taxes without any Bonds Issued to the Development Areas.
Beaumont 2017 Mello Roos Special Tax Rolls charged to Property Owners:
Area 8C: 689 Houses Charged $1.6 Million in Bond Payment and $222,000 for Services
Area 8D: 279 Houses Charged $460,00 Bond Payment and $92,000 for Services
Area 17C: 215 Houses Charged $47,000 Bond Payment and $70,000 for Services
Recitals: “Pardee has completed construction of all homes and other facilities within Improvement Areas 8C, 8D, and 17C.”
2. Issuance of Bonds: “City will use commercially reasonable efforts to issue Bonds for CFD 93-1 Improvement Areas 8C, 8D, and 17C by September 1, 2017. If Bonds can not be issued the Parties intend for such bonds to be sold through a private placement to Pardee. in that case such bonds will be subject to the following conditions:”
a) “Par amounts will be the maximum amount that an be funded given the annual special tax revenues from each development area…”
c) “The Value-to-Lien Ratio in Improvement Areas 8C, 8D, and 17C shall be 3:1 or greater based on the assessed values of all taxable property in the Improvement Areas.”
e) “The Bonds will be Issued to reimburse Pardee for eligible costs consistent with the Mello-Roos Act (Project Costs).”
f) “..Pardee will pay cash for debt service reserve fund, provided, however, that the bonds may be issued on a subordinate basis to any existing bonds if that will eliminate such requirement…”
n) “…Interest on the Bonds will be intended to be tax exempt, provided, however that the bonds shall be issued on a taxable basis if it is reasonably determined they cannot be issued on a tax-exempt basis ..”
Beaumont City Council Transcript February 7, 2017: https://www.youtube.com/watch?v=6Rq9YcukgCo&feature=em-lss
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.
11:45 Forebath: 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.
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.
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.