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HomeMy WebLinkAbout03-04-2004 City Council Study Session MINUTES CITY COUNCIL STUDY SESSION CITY OF LAKE ELSINORE 183 NORTH MAIN STREET LAKE ELSINORE, CALIFORNIA TUESDAY, MARCH 4, 2004 ......................................................................... CALL TO ORDER The City Council Study Session was called to order by Mayor Buckley at 7 :02 p.m. ROLL CALL PRESENT: BOARDMEMBERS: HICKMAN, KELLEY, MAGEE, SCHIFFNER, BUCKLEY, ABSENT: BOARDMEMBERS: NONE Also present were: City Manager Watenpaugh, Assistant City Manager Best, City Attorney Leibold, Administrative Services Director Pressey, Community Development Director Brady, Community Services Director Sapp, Lake & Aquatic Resources Director Kilroy, Police Chief Walsh, Information/Communications Manager Dennis, Public Works Manager Payne City Treasurer Weber, and City Clerk/Human Resources Director Kasad. DISCUSSION ITEM Bonds & Other Debt (F:28.1)(X:30.1)(X:22.1) City Manager Watenpaugh noted the planned slide presentation; and indicated that the complete package would be $70.50 for the copies. He introduced Administrative Services Director Pressey, CFD Consultant Page 1\vo - City Council Study Session - March 4, 2004 - Dennis Anderson, Bond Counsel Don Hunt and Bond Underwriter Tony Weatherby. Administrative Services Director Pressey indicated that the process of preparing for this study session was very informative and brought him up to speed on the financial obligations of the City and the history of the bond issuances. He explained that during the downturn in real estate the City did financial work-outs to get things back on track, and indicated that with his understanding of the obligations, the future looked very promising. He clarified that debt financing was an important part of municipal government, as it allowed for infrastructure development and the healthy growth of a community. He provided statistics on the recent bond issuances statewide and noted that there were about 60 to 70 bond issuances every day, averaging $27 million for each issuance. He commented that the investors had a choice as to what they would invest in, and stressed the importance of maintaining a good reputation and having a strong financial team in place. He indicated that the City has a great finance team including Rod Gunn, who could not be present at this meeting, but had been involved in conference calls much of the day; Mr. Tony Weatherby representing Hunter Southwest Securities, who serves as the underwriter; and Bond Counsel Mr. Don Hunt who makes sure all transactions are legal. He stressed that the financial team was protecting the City on new issuances to assure they were feasible for the City and the City was not left holding the bag or faced with more difficult work-outs. He indicated that the presentation would address the 1990 series A Bond issuance, which was $55 million and was known nationally, as it took about eight years to work out. - Administrative Services Director Pressey indicated that he would present a powerpoint presentation of the current debt, debt management best practice used by municipalities and a history of the City's transactions, followed by a period for questions. The power point presentation included: - Page Three - City Council Study Session - March 4, 2004 Slide 1 - Executive Summary of Bond Debt as of June 30, 2003, being $16,260,936 for the City which was mostly a variable rate bond; $72,587,617 for the Redevelopment and $60,375,000 for the Public Finance Authority. He explained that the RDA was mostly bonds, and stressed that the RDA exists to issue debt; because if there were no debt, there would be no tax increment revenue for the Redevelopment Agency. He advised that the PF A debt was related to Community Facilities Districts and Assessment District, because they incurred bonds secured by the land. Slide 2 - Summary of City Administered Bonds including Community Facilities District and Assessment District Bonds, noting that the land and property owners were paying this money back via a lien on the land. He stressed that they were not obligations of the City or its agencies, because they were secured by the property owners. Slide 3 - Summary of Secured Revenue Sources, Debt Service and Reserve Funds, and stressed that each entity was in compliance with the bond covenants. He noted that every year he would review the status of each year with regard to these issues. Slides 4-5 - City Debt which included a loan of Measure A dollars payable to RCTC, a capital lease for vehicles, and Revenue Bonds in 2000 related to the Stadium. Slide 6 - History of 2000 Revenue Refunding Bonds Series A including the Bond issuances which were part of the refunding, being 1993 PFA Tax Allocation Notes Series B, 1997 Revenue Refunding Bonds and 2000 Revenue Refunding Bonds Series A. Slide 7 - Continued History of 2000 Revenue Refunding Bonds. He noted that the bonds were guaranteed via Motor Vehicle License Fees, Page Four - City Council Study Session - March 4, 2004 - which were AAA rated by Standards & Poor's. He clarified that the State Controller would be directed to pay the trustee directly if the City did not pay. Slide 8 - Continued History of 200 Revenue Refunding Bonds. He explained that the bonds carried a variable rate, which was below 1 % most of last year. He further explained that there would be interest only payments until 2005, with the full issuance maturing on February 1,2032; but noted that the City planned to call certain bonds early based on the current savings from low interest rates. Slide 9-10 - Public Financing Authority Debt. He advised that there were two types of Public Financing Authority Debt, with one being related to the Redevelopment Agency and the other related to the CFD and Assessment District bonds and noted the balances as shown. He explained that the PF A was a conduit for the financings. - Slide 11- 14 - PF A/RDA Debt Relationship. He clarified the relationship between the two agencies with regard to the issuance of debt. Slides 15-16 - Redevelopment Agency Debt. He advised that there were loans payable to EVMWD, an Owner Participation Agreement for the Outlet Center, a loan payable to the County, the Disposition Development Agreement for Walmart, general fund advances over a six year period, due to struggles, and loans payable to the Public Finance Authority. Slides 17 - 18 - Sources Security Redevelopment Agency Debt Service. He explained the calculation of the base year assessed valuation, the negotiation of tax sharing agreements and the issuance of bonds to incur debt to develop the area. He further explained the 20% State set aside requirement for low and moderate income housing, the pass-through agreements with other agencies and the - Page Five - City Council Study Session - March 4, 2004 balances available to pay the debt service. Slide 19 - Projects Funded by the RDA Debt. He detailed the projects including the Outflow Channel, Bridges over the Outflow Channel, Temporary Boat Ramp, Collier Avenue, Main Street and the Stadium, and noted the difficulty in isolating the debt attributable to each proj ect. Slide 20 - Graph of RDA Debt History from 1990 to 2003. Slide 21 - Chart detailing Agency Debt from fiscal year 1989/90 to 2002/03. Slide 22 - Debt Issues in 1992. He noted that part of this was used to start the Stadium, but the scope of the project later increased. Slide 23 - 24 - Chart depicting Redevelopment Agency Debt and the Performance of the Tax Increment, Debt Service and coverage ratios for the Housing Set-Aside Fund, and Project Areas 1 through 3. He noted the Project Area I had its struggles, but was very healthy as of 2003. He further noted that Project Area II was the healthiest Project Area, but they would all grow as the City moved forward. Slides 25-27 - Assessment Districts and Community Facilities Districts. He detailed the five existing Assessment Districts, each having related bond issuances. He further detailed the nine existing Community Facilities Districts and their related bond issuances. He eXplained the purchase of bonds and the repayment of the principle and interest to the bond holders. Slide 28 - Risk to the City. He stressed that the bonds were issued by the PF A and were not obligations of the City. He further stressed that there was a requirement of full disclosure when the bonds were sold. Page Six - City Council Study Session - March 4, 2004 - Slide 29- 33 - Special District Administration. Administrative Services Director Pressey indicated that Dennis Anderson of Harris & Associates was the District Administrator. Mr. Anderson commented on the role of the Special District Administrators to calculate the special tax levies and assessments each year; and make sure there is enough to cover the debt service payments for each year. He indicated that they also monitored delinquencies as part of their annual report; and prepared pay-off quotes when requested. He advised that over the last five years, the delinquency rates had been significantly reduced due to development and detailed the status of the CFD's. Administrative Services Director Pressey stressed that administering the district was very important in the case of CFD's and Assessment Districts. He further stressed that the City was following procedures, and making sure that the fiduciary responsibilities were being fulfilled. He noted the requirement for annual disclosures on each bond, and explained that the investors were interested in monitoring the debt and receiving reports. He advised that there was also a requirement for an annual independent audit report to confirm the principle and interest payments on each debt, confirm the balance of the debt outstanding and confirm the balance of the assets held. - Bond Counsel Don Hunt explained the 1990 series of bonds issued by the Public Finance Authority; in the amount of $55 million, for CFD's. He clarified that at that time, none of the current financial team were involved; but were brought in to deal with the problems that issuance created. He explained that at that time all of the districts were pooled, as there was some uncertainty as to which districts would be purchased by the bonds. He commented that as a result of the problems, the previous bond underwriter was investigated by the Securities and Exchange Commission, the Department of Corporations and the Internal Revenue Service; and was no longer in business. He noted that there was a similar story in many California cities at that time, as the prior issuances were based on very aggressive assumptions of growth. He further noted that the 1990's did not - Page Seven - City Council Study Session - March 4, 2004 have strong growth and the general area was hard hit; so by 1995, the bond issue was headed for default, so the City loaned the districts $500,000 to keep from going into default. Unfortunately in 1996, the issuance did default; so in 1996-97, the current finance team began working on restructuring the 1990 issue, which took eight years to refinance. He noted that only one district remained that was not performing strongly, and the debt was held by the PFA. He indicated that there were no delinquent or defaulted bonds in the City of Lake Elsinore, all bonds were performing and had adequate sources of payment to continue to perform. He stressed that the City had adopted a plan in 1996 and followed the plan to its completion, so all of the issuances were performing strongly, current and in full compliance. Underwriter Toney Weatherby addressed the issues of marketing bonds in Lake Elsinore, starting in 1997. He indicated that marketing the bonds for the refunding was a difficult situation which required a lot of planning, explaining and marketing efforts. He noted that each issuance since 1997 had been difficult, but each was getting a little easier; and the latest issue for the Canyon Hills Development had no penalty associated with the issuance of prior debt and the City had mostly recovered from the liability of the events in 1990. Administrative Services Director Pressey commented that it looked like the City was in a similar position to that of 1990, with healthy growth and construction underway. He stressed that the City had come through a lot and a lot of homes had been built; and noted that Summerhill would not have been built without the restructuring efforts. He indicated that looking forward, the City had a lot going for it, and strategically all of the debt issuances make sense and future ones would not be issued, unless there was an underlying source to pay for them. He noted the additional material provided to the Council including a summary of each debt since 1990, a sample official statement and an example of ongoing disclosures and fiscal agent statements. Page Eight - City Council Study Session - March 4, 2004 - Mr. Arnold inquired with respect to the slides and the emphasis that there were not underlying obligations to the City; but there was a point when the land was about to default and the City made the payment to avoid the default. He questioned at what point that would become the risk of the bond holders and people who bought the homes, to pay back the money. Bond Counsel Hunt indicated that the obligation was always secured by the real property, but the City stepped up with a loan, in hopes that the foreclosures would occur in time to bring the bonds current. He stressed that the City did not have a legal liability and did not have sufficient resources to make the debt payment; and explained that there was no development going on at that time in the City or the surrounding area. He further explained that the City made the decision that it could not make all of the payments, but wanted to keep the bonds from going into default. Underwriter Weatherby further explained that the City was not liable, but had some responsibility to protect the bonds with the City's name on them. He indicated that much of the benefit from the bonds, was only possible by curing the defaults in the _ specific areas. Edith Stafford indicated that she was disturbed about the bond situations, specifically the one with Friedman homes, where the public was told that the City had not obligation, but when it failed the City picked it up to protect the City's credit. She questioned the truth of the matter, noting if there was no obligation there should be no reason to bail it out. Bond Counsel Hunt clarified that there was no legal liability to advance the money to prevent the default, but there was a legal liability to take every step possible to protect the bond holders and assure they were paid. He indicated that they were repaid in full on the last leg of the restructuring. Mr. Weatherby compared the situation to the financing associated with the purchase of a home; while there was no liability to repay a mortgage, as it is secured by the value of the house. However, if the payments stop, there will be a foreclosure; so there is an incentive to make payments to protect the investment. A gentleman in the audience inquired how much of the Stadium debt was - Page Nine - City Council Study Session - March 4, 2004 held by the Redevelopment Agency. Administrative Services Director Pressey indicated that at this point the amount was $15,600,000, with a lease agreement, where the Stadium has lease payments made by the Finance Authority, with the City paying the authority and the authority paying the debt. He explained that the Recreation Authority was a joint agreement between the RDA and the City. The gentleman suggested that the Stadium cost a lot more than the $15,600,000 when it was built. City Manager Watenpaugh clarified that there were RDA funds in the bank when the Stadium was built. Bond Counsel Hunt indicated that additionally one of the 1992 notes issued was for the Stadium. Mayor Buckley indicated that there was about $12 million in RDA funds spent and $15 million borrowed to cover the costs and refinancing, so the total was about $27 million. City Manager Watenpaugh indicated it was about $22 million when it was done. Bond Counsel Hunt clarified that there were some debt balloon payments which needed to be refinanced. The gentleman in the audience requested clarification that the only liability for the City was to pay the $500,000 payment; so if a homeowner were to default now, the remedy would be to foreclose on the property. He questioned the decision to pay the $500,000. Bond Counsel Hunt clarified that the property was in bankruptcy at the time, but then the foreclosure proceeded. The gentleman further questioned the foreclosure. City Manager Watenpaugh explained that the foreclosure was on the entire site. Mr. Weatherby noted that in every case, the new landowners ultimately developed the sites. A gentleman in the audience questioned the refunding/refinancing in 1999 for his CFD into the series H bonds. He questioned the justification for rolling the cost of the bonds for multiple CFD's into CFD 98-1. He suggested that the work out meant the homeowners incurred higher payments. He indicated that the City's financial statements showed a gain, but for the citizens it was a loss. He questioned why the costs were not spread over all of the districts, and how it was believed to be a good deal. Bond Counsel Hunt clarified that the costs were not all allocated to one Page Ten - City Council Study Session - March 4, 2004 - issuance, but three separate bond issues starting in 1997, with each taking care of a piece of the problem. City Manager Watenpaugh explained the City's fiduciary responsibility was to the bond holder. Bond Counsel Hunt indicated that when the bonds were issued, the agreement set forth the legal responsibility of the bond holders, and the City is obligated to follow procedures. City Manager Watenpaugh indicated that when an organization goes through a default and work out, if the result is not positive, nothing gets built. Bond Counsel Hunt clarified the default, and noted that in this case a payment was never made since the bonds were issued in 1990. Mr. Weatherby indicated that North Lake Elsinore was freed up to be developed with a viable plan, but without the restructuring it would not be free to develop. A gentleman in the audience addressed the work out, and indicated that the result for his CFD 98-1, was that the group of homeowners needed to pay about $25 million more than they would have before the work out. He questioned why the Marks-Roos requirements for significant financial benefit would not apply in this case. Bond Counsel Hunt indicated that the original issue had been done aggressively, and was not the structure that would be used for CFD financing now. He explained that the City had a policy in place since 1996 regarding land based obligations of CFD's and Assessment Districts. He stressed that the same type of program that was done in 1990 would not be allowed, as each district is required to be in a stand-alone pool. He stressed that the pool was part of the program, and Marks-Roos was not used in the restructure. City Manager Watenpaugh noted that efforts were underway to find sources of funds to reduce the debt on that CFD, which was mentioned at the meeting with the CFD 98-1 property owners. He indicated that there was no guarantee, but it might be possible through the work out. He noted that this matter would be back to Council very soon. A lady in the audience questioned the foreclosure, noting that the property transferred to Abaccy Holding Corporation. She inquired if there was any - Page Eleven - City Council Study Session - March 4, 2004 type of revenue received from the sale of the land. She suggested the revenue from the property could pay the bond holders, but it seemed like a step was skipped. Bond Counsel Hunt indicated that the intent was to sell to the highest bidder, but it was difficult to sell this property when there were no bidders. He stressed that the City took an aggressive stand to find someone interested in developing, but most found that it would be more expensive to develop the properties. He indicated that the Abaccy payment, up front, was $2.9 million, which went to the trustee for debt payment on the bonds. He stressed that the City tried to get as much out of the restructuring as possible. City Manager Watenpaugh stressed that it was much less than par; and the bondholders/trustees forgave a large part of the penalties and interest. Bond Counsel Hunt stressed that the bondholders were impacted as well; and indicated that in 1997, about $15 million in bonds were repurchased at an average price of 62%, with the balance being a loss to the bond holders. Chris Hyland questioned what Abaccy paid in the foreclosure. City Manager Watenpaugh indicated that it was close to $2.9 million, but he could get the exact number. Mrs. Hyland questioned the price per lot. City Manager Watenpaugh indicated he was not certain of that information, but 27 lots were taken out with some 400 lots in the balance. Mr. Anderson indicated that there were 425 residential lots in addition to commercial lots. Mrs. Hyland commented that at the time it was a very small amount of money. Bond Counsel Hunt indicated that the $2.9 million was the only buyer the City could find that was even interested. Councilman Hickman suggested that the amount was about $7,250 per pad. Mayor Pro Tern Kelley indicated that there were back taxes as well as infrastructure included. A lady in the audience noted that it sold for $2.9 million, and inquired if it applied to the principle in any way, or if it was only penalties and interest. Bond Counsel Hunt indicated that all of the money went to pay principle and interest on the bonds, because the City was working with the trustee and bondholders committee, and they approved the sale at the suggested price. Page 1\velve - City Council Study Session - March 4, 2004 - He stressed that the committee participated in the process and approved the sale as the best price they could obtain. City Manager Watenpaugh stressed that the trustees and bond holders had the final say in the sale. The lady further questioned the $2.9 million to the City. City Manager Watenpaugh indicated that the money came through the City and went straight to the trustee. The lady inquired why the initial amount was refunded. Bond Counsel Hunt indicated that the property had not made a single payment after the capitalized funds ran out, so there was accrued interest and penalties. He clarified that it was due to the failure of the Abaccy and Elsinore Hills districts, which depleted the reserve fund. Mr. Arnold inquired with respect to the details of the refinancing, noting that an entry showed reimbursement to developers of about $2.1 million. Bond Counsel Hunt indicated that the entry mentioned was with the workout for Abaccy; as there were several millions of additional infrastructure improvements to b e provided so they refunded as much as _ could be advanced. He noted that at the time of renegotiation with Abaccy, they agreed to take the $2.1 million and forgive the remaining balance from the bond issues, and they were entitled to a portion of the infrastructure cost reimbursement. He advised that they did not get anything near what they had advanced. He reiterated that at the time there was no one else interested in the property. City Treasurer Weber noted the 2003 H Bond underwriter costs. Mr. Weatherby compared the costs to those of a home loan, where there were two fees being the origination costs which deal with the cost of putting the loan together, and the other cost being the points that are paid. He clarified that points were part of the interest rate to the people who buy the bonds. City Treasurer Weber questioned the $789,000 for the final bill. Mr. Weatherby indicated that was the final compensation for purchasing the bonds and noted that the underwriter takes the responsibility of selling the bonds. He stressed that if the issuance had not closed, it would have been a disaster for the restructuring plan. He further stressed the difficulty of - Page Thirteen - City Council Study Session - March 4, 2004 selling Issue H, as they were only able to sell less than $10 million of the $33 million issuance, but they decided to underwrite the issuance and take the risk of advancing the money. He noted that it turned out that part of the reason it was difficult to sell those bonds was that many of the potential buyers had lost in prior Lake Elsinore issues, so they were not ready to come to the table and loose more money. He reiterated that many were not willing to commit to buying the bonds. He stressed the risk for loses the underwriter took. City Treasurer Weber thanked everyone for being present and for the RDA debt representation. He indicated that Chapter 5 of the material regarding CFD's was really good. He highlighted the past bond issuances and indicated that the final amount owed on the 1990 bonds was about $16,955,000 or a total reduction of about $1 million. He inquired if this reduction was good financial management, or just fixing the previous bad management. Bond Counsel Hunt reiterated that a lot of work in the early 1990's was done on aggressive assumptions of development and growth that did not occur; and stressed that it was not financing the current team would have recommended or done. He indicated that only paying down $1 million was not a wise way to structure, but it was the best the Agency could do during that period. City Treasurer Weber questioned the potential for reissuing the 1999 issue. Mr. Hunt indicated that there were no plans for that at this time. City Treasurer Weber noted that it would be six or seven years before the larger payments were due and the refinancing would start. Mr. Hunt indicated that there was no refinancing scheduled or contemplated because all of the revenue sources were in place, stable and adequate to cover the outstanding debt. He indicated that it should only be refinanced if there was a savings with better interest rates. City Treasurer Weber commented that the 1999 series was sound, but expressed concern with the bigger payments which would be starting soon. Mr. Hunt indicated that the increment was increasing nicely and it should not be a problem. Page Fourteen - City Council Study Session - March 4, 2004 - City Treasurer Weber questioned the 1996 Series E Bonds for City Center, and suggested that it might have been better to take a loan, as it was a small amount of Bonds for a CFD. Mr. Hunt indicated that the developers found it to be a more attractive form of financing. City Treasurer Weber noted that there would be a bond for the apartment complex. Mr. Hunt indicated that the developer did not have Mello Roos available, so they would have to fund it out-of-pocket and would need to raise the prices. City Treasurer Weber noted that the tax increment cost twice as much after 30 years. Mr. Hunt clarified that there was always the ability to prepay at the close of escrow or during the life of the ownership of the property. He noted that a lot of people needed this arrangement to qualify for financing. He indicated that most people did not prepay. City Treasurer Weber noted that banks looked at the entire package. Mr. Hunt indicated that they did not take this type of financing into account when calculating someone's ability to pay. Mr. Weatherby noted that in the early days ofMello-Roos, homeowners did not have the right to prepay special tax obligations, but that has not been the _ case for several years. He indicated that experience showed that virtually no one paid more to reduce their future tax allocation. He addressed the Canyon Hills issuance, noting that the 30 year fixed rate was 5.82%, and the home rates were attractive, so it was still very attractive for 30 year permanent financing. He commented that it was a pretty effective way to pay it as part of the purchase of the home. City Treasurer Weber inquired who did the reports to go to the investors. Administrative Services Director Pressey indicated that the annual disclosure was done by Rod Gunn Associates. City Treasurer Weber suggested that this meant Mr. Gunn was checking his own work. Administrative Services Director Pressey clarified that the fiscal agent statement was issued by Union Bank of California. City Treasurer Weber inquired if the report was sent out to the homeowners, so they could see where their money was going, suggesting it was not a tax, but a loan. Administrative Services Director Pressey indicated that he was not aware of annual reporting to the homeowners. Bond Counsel Hunt indicated that no City in the State sent out an annual notice; but when property was purchased they were provided information on the special tax and its maximum potential cost. He further indicated that otherwise they _ Page Fifteen - City Council Study Session - March 4, 2004 received an annual tax bill with the actual tax for the district for the year. He commented that every City in the State did it the same way. City Treasurer Weber inquired if there was an audit with regard to refinancing. Mr. Hunt indicated that the City Auditors review the information annually on each and every bond issue, for sources and uses of bonds, etc., as part of the annual audit. Councilman Hickman noted the need for a correction on page 3.25, City Council, as he was not the Mayor Pro Tern as designated. He addressed the RDA Section on Page 4-3, with the computation of 10 pages. He inquired if the Council would see just the current one in the future. Mr. Pressey confirmed. Councilman Hickman requested that future reports include more identification than just the bond series. Councilman Hickman addressed pass-throughs on page 4-27 of the redevelopment information; noting that there was the County, Flood Control, EVMWD, Cemetery District, etc. He questioned if they received a percentage of the increment. Mr. Hunt explained that previously State law allowed for a challenge of the adoption of a redevelopment plan based on the financial impact, so Agencies were allowed to negotiate with the project area for some share of the increment. Mr. Hunt indicated that it was for all of the taxing agencies that get a portion of the general property tax. Councilman Hickman inquired if the pass-throughs could be eliminated when the areas were renegotiated. Mr. Hunt clarified that the existing agreements would remain in place, as they were negotiated many years ago. Councilman Hickman indicated that he was attempting to save money for the RDA. Mr. Hunt clarified that the pass-throughs were now statutory, with set formulas. Councilman Hickman questioned page 4.33, table No. 10, and ifit was a duplication of 4.30. Administrative Services Director Pressey confirmed that it was the same table, but clarified that it was for a different project area. Councilman Hickman indicated that the information was very interesting and requested that the RDA committee get the complete section on the RDA, to allow them to plan for future growth. City Manager Watenpaugh indicated that staff would share the complete breakout in April. Councilman Hickman questioned page 4.30, section no. 2 regarding the cap Page Sixteen - City Council Study Session - March 4, 2004 - of $8 million, and indicated that it was imperative that the cap be raised. He indicated that the RDA Committee needed to work on that, and give consideration to Area 2 with an $8 million cap. He noted the potential for Increases. City Attorney Leibold indicated that the cap in Area 2 was much higher than $8 million annually; and clarified the amount discussed was under the pass-through. Mr. Weatherby clarified the cap and debt service, noting that in 2033, the Agency would have twice the money needed to pay the debt service. Councilman Hickman stressed that he wanted a higher cap to keep money in the City's pockets. City Treasurer Weber addressed page 4-2, Rancho Laguna III and questioned what was being done to fix it. Administrative Services Director Pressey indicated that it was fine, but they were the struggling project area; noting that in 2003, they had a coverage ratio of .1.11, but were on track to becoming healthy. Councilman Hickman indicated that he was anxious to see the advances payable from the general fund to the RDA. He indicated that he would follow that process very closely and look at administration costs very carefully. City Attorney Leibold noted that tables 7 and 10 should be checked as there seemed to be some duplication. Councilman Hickman questioned how the funding would be protected in the future. Mr. Hunt noted the City's finance policy today vs. the old days when they allowed very large projects to issue all of the bonds up front for the entire project. He stressed that the current policies would not allow for a District to be processed until the property owner had the entitlements. He noted that in the past the bonds were issued before the entitlement process; but no grading had to be underway and construction either imminent or underway. He further noted that it was generally done in much smaller increments. - Councilman Hickman questioned the distinction between a CFD and an Assessment District. Mr. Hunt indicated that they were established under completely different statutes. He explained that Assessment Districts were under the 1913 act, which was fairly rigid based on the per lot division of the total amount; and noted that they were designed for very small projects or infill projects, and based on the actual benefit, as determined by an - .:~ Page Seventeen - City Council Study Session - March 4, 2004 engineer. He indicated that CFD's provided more flexibility. Councilman Hickman noted that the CFD was determined by Harris & Associates as the engineer, and inquired if it was related to the specific plan. Mr. Anderson explained the rate and method of taxation, and the current policy which requires a 3 to 1 ratio of value to property. Councilman Hickman inquired if there were slush funds in the CFD's. Mr. Anderson indicated that there were not slush funds in a CFD, and further clarified the appraisals and process. Mayor Buckley requested clarification that there would be no formations until it was known what would be built. Mr. Anderson confirmed that there would need to be a review of the materials presented. Mayor Buckley inquired when the engineers would look at a proj ect. Mr. Anderson indicated that they would generally look at during the tentative map process. Bond Counsel Hunt noted that in addition to the appraisal, they would look at reasonable costs to be sure there is an absorption review vs. the value of the property. He stressed that there were a number of safeguards. Mr. Weatherby clarified that with the rate and apportionment, it was important to have the final maps for processing, and noted that even final maps can expire or be modified. He indicated that it was important to look at the planned development or anything which could occur on the site. Mayor Buckley clarified that the CFD would not be set up until there was an approved map. City Manager Watenpaugh indicated that the Council had done so. Mr. Hunt confirmed that they might if they had a development agreement that was pre-approved. Mayor Buckley questioned if development agreements had requirements for formation of a CFD, why they would go into the details of a CFD if they did not know what would be built. Mr. Weatherby indicated that they evaluated each issuance on its own merits; but every property considered had some level of entitlement. He clarified that the current methodology was to do the issues much later in the development process. He stressed the importance of looking at the big picture and the potential benefits for the community. Mayor Buckley inquired in general if consideration of a CFD prior to any map would be back-sided. Mr. Weatherby indicated that they would not look at a CFD Page Eighteen - City Council Study Session - March 4, 2004 - without any maps or plans for a project. City Treasurer Weber inquired how many CFD's would be considered this year. City Manager Watenpaugh indicated that there were a few in the works right now. Mr. Weatherby indicated that he doubted there would be Canyon Hills deals this year. City Manager Watenpaugh indicated that he foresaw Costco, DEH, Laing Homes, Corman-Leigh and the City Center Townhomes. Councilman Hickman stressed he wanted to make sure the RDA committee got the information, noting that the new cap was his number one priority. Councilman Schiffner commended Administrative Services Director Pressey on his work, noting that he came to the City with an illustrious background, but had only been here a short time. He indicated that he was impressed by the specific knowledge he had gained on the City's financing to date. He commended him on his efforts. Councilman Magee also commended Mr. Pressey on his work on the material presented, noting that it was very thorough and comprehensive. He noted the availability of the document at City Hall and distribution to the RDA committee, and suggested making it available for review at the library. He indicated that he could also make his copy available for review, if it was returned. He indicated that it was very enlightening, but noted that he had a few questions. He addressed page 4-3 and indicated that ifhe was to understand that everything on that page had been retired. Mr. Pressey confirmed, except for the 1995 bond series; and noted that the current outstanding debt was of the PFA and RDA. Councilman Magee addressed the bottom of page 4-6 regarding the DDA for Camelot, noting that he saw the number $93,750 four times. Mr. Pressey explained that the DDA agreement was for the developer to incur costs in developing the K-Mart site and as a reimbursement the Agency agreed to pay them a set amount, similar to the Walmart arrangement over a certain threshold. He further explained that those were actual payments, based on audited financial statements. Councilman Magee clarified that the RDA was paying the $93,000 per year for the infrastructure they put in. Mr. Pressey confirmed. City Attorney Leibold clarified that the agreement had been terminated and - - Page Nineteen - City Council Study Session - March 4, 2004 the Agency had stopped making payments when the owner was in default. Councilman Magee addressed page 4-8, noting six different entries for advances payable-general fund. Mr. Pressey explained that the general funds had been advanced each year after approval by the Council. He explained that in general the RDA needed the funds to make the debt services obligations. Councilman Magee inquired if those funds were to be paid back. Mr. Pressey confirmed. Councilman Magee addressed page 4- 16, noting that the Chairman information should be corrected. Mr. Pressey confirmed, noting that it was part of the 1995 issuance. Councilman Magee questioned page 5-22 and the developer listed in CFD 88-3, noting that Forecast Homes showed a significant delinquency rate. Mr. Pressey confirmed the delinquency rate. Mr. Anderson clarified the developer column vs. the private property ownership, noting that the majority was from private property owners last year. Councilman Magee questioned if the property owners were notified of delinquencies. Mr. Anderson indicated that there were reminder letters to the individual property owners as well as Forecast Homes. Councilman Magee expressed hopes that the number of delinquencies would go down. Councilman Hickman addressed the CFD delinquency rate in Tuscany Hills, and expressed concerns about the future and suggested slowing the process down a bit. Mr. Anderson concurred that was a factor to consider. Councilman Magee noted page 5-30, regarding CFD 95-1, Oak Grove Equities and commented that there was no delinquency rate and it was fully paid back. He indicated that was work done correctly. He addressed page 5-39 and indicated that the breakdown of service providers was a very effective tool and a good addition to the document. He pointed out the chart of delinquency rates on page 5-52, noting that the delinquency rate for 2002/03 was 1.0% and commented that he felt good about that low rate. He thanked staff for their efforts on this comprehensive presentation and commented that it should have been done earlier. He suggested that people could glean a lot of information from the document, and indicated that he Page 1\venty - City Council Study Session - March 4, 2004 - would like staff to use this presentation as a base to be updated and added to in the future. Mayor Pro Tern Kelley thanked everyone involved and particularly Administrative Services Director Pressey for this presentation. She commented to Mr. Hunt that the work out with the financial team actually started after events nearly 14 years ago. She stressed that none of that Council was still involved, nor involved in the work out. She reiterated the 1 % delinquency rate, and noted that the valuation of land had increased by 25%. She addressed the comments by Mr. Arnold regarding concerns with CFD 90-1 and inquired into the timing of potential solutions. Mr. Hunt indicated that the potential assistance would occur when the final bond restructuring phase was complete. He indicated that only one district was in default, but it carried no bonds; and explained that the intent on the North Lake Elsinore part of the pool, would be to turn it around with a developer, so the money could go to reduce the liabilities of 98-1. He commented that it would be a Council decision, but the money would not be obligated for any other purpose. Mayor Pro Tern Kelley inquired of the residents if they had gone back and looked at their documents to find out if the information was included. Mr. Arnold indicated that they went through the documents and interviewed 150 residents, and very few were aware of the district. He noted that they found various factors in their packets, but not all of them included enough to calculate the tax. He further indicated that second buyers of homes were only aware of 90-11, when they got 98-1; and suggested it should have shown up in the title search. Mayor Pro Tern Kelley noted that the City was not responsible for it not being in the title report. She addressed the circumstances of that district and reiterated that there were no other interested buyers for the property. She inquired if there were other options at that time. Mr. Hunt indicated that the options were to do nothing, or institute foreclosure. He further indicated that they brought it up periodically for foreclosure sale, and noted the impacts on the RDA and the ability to develop. Mayor Pro Tern Kelley noted that the Council took action to get the property back on the tax rolls, per the advise of the finance team. She questioned the 20% set-aside, and what was owed to that fund. - Page Twenty-One - City Council Study Session - March 4, 2004 Administrative Services Director Pressey indicated that he was not certain, but believed about $3 million, or more. City Attorney Leibold indicated that her recollection was that the debt was between $7 and $8 million to the housing fund. She explained that the money had accrued because the money was deposited, but those funds were secured and expended to cover debt service. Mayor Pro Tern Kelley thanked the financial team for working the City out of situations from 14 years ago. Councilman Schiffner noted that a friend of his lived in the development of concern and was upset about the taxes, however he said the equity in his house had gone up $200,000 in the same period of time. Mayor Buckley thanked everyone for attending this meeting and addressed the set-aside. He indicated that he did not see the set-aside in the RDA debt. Administrative Services Director Pressey indicated that it was not summarized in this packet, as he had not analyzed the split between project areas and who owed what. Mayor Buckley suggested that the debt was close to $80 million, if the debt to self was included. City Attorney Leibold clarified what would be recognized as debt. Mayor Buckley questioned if Walmart were to close would the City still pay them money. City Manager Watenpaugh clarified that Walmart is reimbursed out of the revenue they generate. Mayor Buckley inquired why there was not a list of specific money owed them. City Manager Watenpaugh clarified that the City knew how much was owed to them, but the agreement would terminate in 10 to 15 years, and at that time if they are not fully paid, the balance would be forgiven. City Attorney Leibold clarified the RDA debt from tax increment. Mayor Buckley commented that the structure was significantly different now, as there is not set amount. Administrative Services Director Pressey clarified that there was about a $2.2 million loan from Walmart and $2.2 from Oak Grove, for a 20 year commitment; so the obligation would end at the 20th year. He explained the payment schedule and the calculation for each year. Mayor Buckley addressed the RDA owing money to the City and suggested it was about $9 million. Staff confirmed. Mayor Buckley commented that it was 1/3rd interest and fees, and inquired if it assisted the Page Twenty-Two - City Council Study Session - March 4, 2004 - City to charge interest and fees, other than showing it as a growing asset. City Attorney Leibold indicated that it depended on the terms, and when or if the City is demanding payment. She reiterated that if the RDA had no debt, it would collect no increment. She indicated that if the City believed that it was better to incur debt and spend it on other project, it would defer payment, but interest would still accrue. Mayor Buckley noted the 2002- 03 fiscal year and the amount of $900,000, he suggested that the related interest and fees was something that should be looked at in the near future. He questioned if the Summerhill residents paid for more than the infrastructure in Summerhill. Mr. Hunt indicated that to his knowledge they did not, but the previous property owner had not paid their share on the 1990 bonds, so those additional costs had to be paid as part of the restructure. Mayor Buckley questioned how much of the $2.9 million was saved in the restructure. Mr. Hunt clarified that the bondholders and trustees believed it was the best deal to sell the property at the proposed price. Mayor Buckley questioned if the money went to pay the debt. Mr. Hunt clarified that it went to debt service, and explained the outstanding debt and the portion of the reserve fund that was drawn down. Mayor Buckley clarified that no other City provided information on an annual basis, so on Summerhill, Lake Elsinore was the first City to advise them annually. He noted that the CFD's were relatively complex, somewhat misunderstood and relatively undisclosed; and commented that everyone needed to know what was going on. Mayor Buckley questioned CFD financing on pages 12 alJd 13, noting that very little principle had been paid on either area. He stressed that at some point principle had to be paid, and questioned plans to pay more on the principle. Mr. Weatherby addressed the slide regarding the Canyon Hills Assessment District and explained the history of that issue. He indicated that the builder had advanced the funding for Railroad Canyon Road. He explained that in 1992 when the issue started the property was appraised at $54 million, but in 1993, the property was reappraised and had dropped in value by 50%, so at that point the land owner decided to sell to regular investors. At that time $9 million in bonds were sold to Pardee Construction for warehousing, which were restricted so they could not sell the bonds until there was an increase in the value and the - - Page 1\venty- Three - City Council Study Session - March 4, 2004 property was developed. He noted that there was no reserve fund for the bonds that were sold internally, but when the bonds were refunded, the reserve was reinstituted and the bond schedule went up. Mayor Buckley addressed the CFD 88-3 Series B bonds, noting the principle had never been touched. Mr. Hunt explained that it was starting now, as when the projects were restructured it had not been built out, and a lot of the issues had no amortization plans. Administrative Services Director Pressey noted pages 3-34 and 3-35, which were amortization schedules, which showed the first principle payment in 2006. Mayor Buckley inquired if the expectation that there would be enough money to cover the debt service', without using the 20% set-aside for debt service. Administrative Services Director Pressey suggested this explanation was best left to the budget study session, when the whole budget for next year was known. Mayor Buckley thanked everyone for attending, and noted that the meeting was helpful and informative. ADJOURNMENT THE CITY COUNCIL STUDY SESSION WAS ADJOURNED AT 9:56 P.M. AT;pEST: 0~'Lj VICKI KASAD, CMC, CITY CLERK! HUMAN RESOURCES DIRECTOR CITY OF LAKE ELSINORE