Councilman Lloyd White: “After April, 2015, I Haven’t been Lied to by Staff or by Consultants.”
Beaumont City Council Transcript November 1, 2016 http://www.ci.beaumont.ca.us/i…
Item 2: Item no. 02 – Approval of Resolutions Affirming and Ratifying Actions Concerning [$5 Million] Transfers from the Wastewater Enterprise Fund.
24:00 Mike Lara: I call this Meeting of the Beaumont Utility Authority to order. The time is 6:22.
25:00 City Clerk Julio Martinez: Roll Call: Agency Member Condon?
Condon: Here
Martinez: Agency Member Orozco?
Orozco
Martinez: Agency Member Knight?
Knight: Here
Martinez: Vice Chairman White?
White: Here
Martinez: Chairman Lara?
Lara: Here
Lara: Item no. 02 – Approval of Resolutions Affirming and Ratifying Actions Concerning [$5 Million] Transfers from the Wastewater Enterprise Fund.
25:25 Pinkney: This is an Item that has already gone before the Council and the Beaumont Finance Authority. We have on the phone John Knox. Mr. Knox and his Firm have handled this matter for the City. At the prior Council Meetings you’ll recall that Mr. Knox originally attended, then one of his Partners came for the last meeting. To keep costs down, Mr. Knox is attending this evening by phone. He’s going to give a report and update on this matter.
26:00 Pinkney: Councilman White had requested that we come back and convene as the Utility Authority to vote on approving the repayment of the advance from the Residual Account.
27:00 John Knox from Orrick Herrington Law Firm: The Staff Report that you have is fairly self-explanatory. It was discovered that there is a ‘Beaumont Utility Authority’ which apparently was set up to operate the Wastewater Treatment Fund. Given that it is there and the City Council Members all serve as the Board we thought it was appropriate to simply have that Authority ratify the actions of the prior taken. So most of the discussion of this and description of these transfers is by reference to the October 18th and September 6th Staff Reports in which there’s quite of bit of detail about these various Transfers. So you’re familiar with that. Really, all this Resolution does is ratify the actions taken by the City Council to have the Wastewater Treatment Enterprise Fund repay to the Beaumont Financing Authority the Advance that was made back in late 2014 that was effectively used by the Beaumont Utility to pay off a prior Bond that was issued in 2001.
28:00 Knox: All of that is described in the prior Staff Reports. This is just a Ratification of that Action and doesn’t change any of the underlying transactions at all.
Pinkney: Does the Council have any questions for Mr. Knox?
White: I’m not sure if my questions would be directed towards Mr. Knox or towards Staff, but it’s regarding the rate increases and how they apply to paying off Bond Debt. Is that something I should get into with Mr. Knox?
29:00 Pinkney: The question that you’re raising is something that Mr. Knox has looked into.
White: Mr. Knox, here’s my point of view. I have another question for Melana [Taylor], and we can address that later, as far as the availability, the history of the balance of the money, that kind of thing. In 2013 the previous Council approved a Rate Increase and it was presented to the community as it was necessary in order to build the desalination plant or the Brine solution. The question has come to me as to whether or not what part of that increase; is it Restricted or not Restricted from being used to pay off the existing Sewer Fund Debt.
30:00 White: That’s what I need to be comfortable with before I can make a vote on this.
Knox: I was presented with the Documents from that Rate Increase, Resolution 2013-06, which was Adopted to implement that Rate Increase. As is typical for utility rates around the State; there isn’t any legal restriction on the funds that are generated from any particular rate or rate increase. They are to be used for all of the operations of the Wastewater Plant. Now that’s different from saying the reason for the increase was that the City expected there to be increased costs. Certainly the City did expect there to be increased costs and I expect that there will continue to be increased costs of the sewer system, but there was no Restriction of any particular funds.
31:00 Knox: For example; if the Base Rate was $10.00 and the Rate Increase was an additional $2.00; that $2.00 was no earmarked for anything. It was not restricted in any way, it just went to the Enterprise Fund to be used for all of the Enterprise Fund’s expenses. Remember that back in late 2014 the Enterprise Fund owed a little over $5 Million in connection with a Bond. The Letter of Credit for that bond had expired, which meant that the Enterprise Fund had to pay that entire Bond off. What happened, based on what we’ve been able to review and also been told by Staff is that the money from the Beaumont Financing Authority was advanced to the Enterprise Fund.
32:00 Knox: The Enterprise Fund paid off in cash that Bond, did not refinance it, just paid it off. That was booked as an advance to the Enterprise Fund which is now being repaid by the Enterprise Fund. The Enterprise Fund no longer has that $5 Million Bond Debt. So it is free’d of $5 Million of debt and presumably if it needs additional financing for additional capital projects it will need to issue additional debt if it doesn’t have the cash to pay for a large capital project and the fact that the $5 Million Bond had been paid off will certainly improve the Enterprise Fund’s ability to issue additional debt and it’s debt capacity. Ultimately; all of the money from rates and the rate increase is going into the Enterprise Fund to be used for Enterprise Fund purposes and the repayment of this advance, which in turn had been used to pay off an Enterprise Fund Bond if just a part of the cost of operating the Enterprise Fund.
33:15 White: So Restricted Funds will not be used in the $5 Million Transfer?
Knox: When you say ‘Restricted Funds’; the Enterprise Fund money is restricted – it’s restricted to Enterprise Fund purposes. The Enterprise Fund has an obligation to repay the Beaumont Financing Authority advance, so that is within the restricted purposes of the Enterprise Fund. There’s no additional restriction related to the rate increase that disguises the rate increase amount from the base amount of the rates.
37:20 Judy Bingham: And Who was the lying City Manager and Finance Director Bill Aylward on that date? We know how they cooked the books. Council, you are wasting money on more lies. Citizens; here’s the gobblygoop $900/hour Attorney that we are paying for and I am sick to death of the way you are wasting our money.
38:00 Bingham: He [Knox] is here to tell you that it’s okay to commit fraud. It’s okay go on with the corruption and just pretend nothing ever happened. It is wrong to do this. It is a lie. He knows nothing about our City and what happened beforehand. He knows nothing and he also doesn’t know that this Staff still are liars. They have made up all this stuff to cover up their former boss’. So let’s just see what the SEC thinks about this. Let’s just see what they think about this Council and what they’re wiling to cover up this corruption. It is still ongoing and I am sick of it. If Citizens do not stand up now this dirty city will continue on.
39:00 Dr. Ball: I believe the Utility Board should postpone this. There’s no compelling reason for this to occur tonight. You’re being asked to relinquish $5 Million and yet I don’t believe the five of you understand fully what goes on in this Sewer Bill. You have Operations Expenses and you have Regulatory Expenses. If you don’t understand what the Regulatory Expenses are; you need to take a time out and have your Staff FULLY DISCLOSE. I have in my hand here from your Staff that they are proposing in 2013-2014 to put $700,000 into a Salt Mitigation Facilities Fund in the Regulatory Account.
40:00 Dr. Ball: The concern isn’t that you owe the City $5 Million. The concern is that when you give that $5 Million up; are you giving up monies that are earmarked for funding by your Staff and by the Council. It may not have been you personally, but it was Council Approved that they were going to set monies aside to fund these things. Now you’re being asked to sweep $5 Million into the General Fund for day to day operations. It’s hard to really get a good, clear picture of what’s happening here. In fiscal year ending June 30, 2015, you had $2.5 Million in cash based on Schedule 2.
41:00 Dr. Ball: In one year and three months you earned in this Fund another $2.5 Million plus $800,000 because Staff said ‘we’re going to sweep $5 Million, leaving $800,000’. That’s after all of your expenses were paid, so in one year’s time the Wastewater Treatment Fund earned $2.5 Million plus $800,000 AFTER expense. That seems like a lot of money to be swept over. If that’s going to happen every year we may not have to have an increase because every year we’re going to be gaining another $2.5 Million. Think that through; that doesn’t make sense. And yet in 2015 you netted $286,000. In the Enterprise Fund any monies earned in excess is going to carry over to the Enterprise Fund. It’s going to stay with the Fund. If you have loses the business, the wastewater business.
42:00 Dr. Ball: I urge you to take a time out. There’s no compelling reason for you to vote this tonight. You need to understand what this involves and you need to have full disclosure from your Staff. Full Disclosure. You need to require that.
42:30 Nancy Hall: This Beaumont Financing Authority was set up way back when all this corruption was happening. The Staff was recommending things to Council that they were personally profiting on. Many of the monies were not going where they were supposed to go. I think the Consultant was on the surface and had not gone deep enough to understand what occurred in the beginning so you know that what you’re dealing with.
43:00 Hall: I don’t believe you have all the facts. Full disclosure and transparency are really important point. You can’t afford for anything else to come out of the woodwork, so you need to know wholeheartedly what you’re dealing with. And I do question after being upside down for so long, so many years – until WE brought in the Authorities I might add, that the City didn’t realize they were so upside down before then. You’re spending all this money on consultants and ultimately they’re making money. They recommend; “O yea, you need to stay with us because you need to see what’s going to happen two years down the road”. That’s money you’re continuing to pay. That’s like going to pay Walmart and them asking if you want to buy insurance for a $30.00 item.
44:00 Hall: There were a lot of people involved when this Beaumont Financing Authority was set up and not even half of them were arrested. You need to really evaluate the facts before you make a decision.
45:25 Melana Taylor: In going through the records trying to complete the records for Fiscal Year 2015 Sewer Fund because they were not done when I got here. We went through the Trustee Statements and indeed the Bond was paid off, which was $8 Million. So the Trustee received money from the City to pay off the Bond. The Bond was related to the Wastewater Fund. The Wastewater Fund itself did not have enough money to make that bond payment.
46:00 Taylor: The only place that the money could have come from was from the Beaumont Utility Authority, [wrong – it was the CFD District] which at that time emptied out some of those Accounts and put it into the Pooled Cash Account. Pooled Cash is shared amongst all the Funds. That’s the only way there was enough cash for that bond to be paid off at that time. Which in essence creates a loan to the Utility Authority that the Utility Authority needs to pay back. It wasn’t their money to use in the first place.
46:30 Knox: I think you mean the Financing Authority.
Taylor: The Financing Authority, right. The Utility Authority needs to pay back the money to the Financing Authority.
51:00 Knox: Can I just about the accounting question? You’re working on completing and releasing your 2014/2015 Audit. As Melana has indicted, there is a balance due from the Wastewater Fund to the Financing Authority. If you approve this then obviously that will happen in this fiscal year and not in 2014/2015, but the Note in Financial Statements of Subsequent Events, and I’m assuming that if this is Approved that Note will state that this advance that had been made back in late 2014 has been restored to the Financing Authority by the Wastewater Authority, which is beneficial to the City because it closes the loop on that question otherwise it would be left outstanding.
52:00 Taylor: Correct.
White: We’re talking about $5 Million here, but you mentioned there was an $8 Million Bond retired. And were was the other $3 Million come from?
Taylor: It came from the Utility Authority Funds that were in the bank accounted to them and from the General Fund.
White: I’m talking about on top of the $5 Million, $3 Million came from the General Fund as well?
Taylor: Correct.
White: Why are we only paying back $5 Million?
Taylor: Because of the way the pooled cash is shared between the funds. At the end of June, 2015, that situation between the General Fund and the Utility Fund had corrected itself.
53:00 Taylor: What hadn’t been corrected was the $5 Million that was taken from the Financing Authority, that was too much for the Utility Authority to recoup for the end of June, 2015.
Knox: So in other words, it was paid; the $3 Million was paid back during that fiscal year and the $5 Million was left outstanding.
Taylor: Correct.
White: So what I’m getting at is, what I’m struggling with is that we wear three hats up here. We’re the Beaumont Financing Authority, we’re the Utility Authority, and we’re the City Council and I’ve got my Utility Authority hat on right now. It is my responsibility to make sure that the resources of the Utility Authority are being properly managed and protected.
54:00 White: There was a Sewer Bond for $8 Million, which I believe the $8 Million Sewer Bond, if it was to be retired, I know why it was done this way, because the money wasn’t there. So my question is; do you know what the balance of the Sewer Fund was in November, 2014?
Taylor: I know what the books showed what the balance was in November.
Bingham: That’s a different story, isn’t it?
Taylor: Yes it is. The Cash Balance, according to the General Ledger, of the Utility Authority on November 30 was $939,000.
White: And none of that $939,000 was used to retire the bond, is that correct?
Taylor: No, all of it had to have been in conjunction with General Funds and the Financing Authority Funds in order to significant transfer that was required to make the payoff on the debt.
55:00 White: And the Financing Authority Bonds; just to back up a second. I addressed this with Mr. Kapanicas before I was on Council. I wanted to know why he felt this Bond had to be retired and he led me ‘round and ‘round and ‘round. He gave me partial information then finally he basically said “I don’t have to worry about you”. He didn’t have $8 Million to pay off the Bond. He didn’t have any of the funds that would be allowed to pay off the Bond and he knew the condition of the City and he knew that he wasn’t going to be able to go and get $8 Million in a funding to pay this. So we have been lied and misled by the previous Administration and Council. But I want to correct something. I have not been lied to here and I haven’t since I’ve taken office by Staff.
Bingham: O’ come on.
White: Well, after April, 2015, I haven’t been lied to by Staff or by Consultants.
56:00 White: I had concerns about the Restricted Funds, where or not Funds were Restricted. But after looking at the Resolution that was passed I believe that has been answered in my mind that we can do this. The problem we have is that we were lied to by a dishonest Staff and we had an incompetent Council that allowed themselves to be lied to and I’m not going to do that going forward. We are spending money on consultants for legal purposes and this is one of those legal issues.
1:02:00 Pinkney; I also want to make a comment that what Ms. Taylor said was that: #1 The Sewer Authority had a debt, which was the bond. And what I heard her say was that money was used from the Finance Authority, $5 Million, to help pay off that bond without Council permission to use that money Finance Authority. And this would be putting that money back to the Finance Authority then the Finance Authority can use it, as Knox has indicated, for any governmental purpose. And the most pressing issue before the City is this issue of the bond deficit and that’s been addressed by Mr. Knox in prior council meetings.
1:03:00 Lara: Mr. Knox brought up the fact that we’re also trying to close out an Audit? Does this impact the 2014/2015 Audit that has yet to be …
Taylor: It impacts the subsequent events that will be disclosed in the Footnotes of the Audit Financial Statements. In that section of your Audit Report; it’s going to discuss any significant financial or other transactions that have occurred within the City since June 30, 2015. So it can address that the debt of the Wastewater Fund; that actions have already been taken, the debt has already been resolved, and it will then indicate the date that the resolve was voted. So that will be in there so you can see that the Resolution was already done.
Lara: Which will adjust us with the 2015/2016 Audit, is that correct?
1:04:00 Taylor: Correct. The 2015/2016 Audit will have the exact same Footnote, but it will clarify that the debt has been acknowledged and also been paid.
1:04:44: Martinez: Roll Call: Agency Member Orozco?
Orozco: Aye.
Martinez: Agency Member Knight?
Knight: Yes.
Martinez: Agency Member Condon:
Condon: Yes.
Martinez: Vice Chairman White?
1:05:00 White: I want to thank ‘John’ and ‘Melana’ for providing the information I needed and I am fully vetted on this and that’s why I’m going to vote yes in favor of this. I just question whether everyone else has become as well informed on this Issue.
Martinez: Chairman Lara:
Lara: Yes.