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HomeMy WebLinkAboutMinutes - City Council - 1996-08-26 2 22 1 City Council, Adjourned Regular Meeting City Hall Conference Room A 760 Parkview Avenue Redding, California August 26, 1996 5:00 p.m. The meeting was brought to order by Mayor McGeorge with the following City Council Members present: P. Anderson, R. Anderson, Kehoe, McGeorge and Murray. Also present were City Manager Warren, Assistant City Manager Perry, City Attorney Wingate, City Treasurer Linville, Administrative Services Director Starman, Finance Officer Strong, and City Clerk Strohmayer. CHURN CREEK ROAD EXTENSION #1 ASSESSMENT DISTRICT NO. 1989-5 CHURN CREEK ROAD EXTENSION #2 ASSESSMENT DISTRICT NO. 1990-5 (A-170-120-100 & A-170-120-101) City Attorney Wingate referenced the Reports to City Council dated August 23, 1996, incorporated herein by reference, concerning the advancement of funds for debt service payments on Churn Creek Road Extension#1 Assessment District No. 1989-5 and Churn Creek Road Extension #2 Assessment District No. 1990-5. Mr. Wingate reviewed the lots where he felt potential problems may exist. Mr. Wingate explained'that the interest and principal payments for Churn Creek Road Extension#1 Assessment District No. 1989-5 ($63,170)and Churn Creek Road Extension #2 Assessment District No. 1990-5 ($23,684)are due to be transferred to the Trustee at the end of August for the September 2 payment. Of the $63,170 due in Extension #1, there is $16,048 in reserve and redemption funds, leaving a shortfall of$47,122. As Extension#2 has no cash available to make this payment, there is a shortfall of$23,684. The City Treasurer's and Administrative Services Department's Reports to City Council pointed out that the bonds are limited obligation bonds, therefore, the City is not obligated to advance the funds needed by the assessment district to cover the debt service payment. If the City does not advance funds to the district, the bonds will be in default. The source of payment to the bondholders must then come from foreclosure sale proceeds. While the City is not legally obligated to advance funds to prevent a bond default, the City Council needs to consider whether it is willing to allow the City's name to be associated with a bond issue in default. The reports indicated that such an occurrence could result in a heightened concern regarding the stability of the economy and growth pattern of the Redding area. Bond analysts and bond rating agencies would look closer at Redding the next time the City issues bonds or the City's rating is otherwise reviewed. As long as there is no substantiation of weakness, there should be no adverse results from their analysis or with experienced investors. The casual investor, on the other hand, may continue to have diminished confidence in the credit quality of the City's bonds. Council Member R. Anderson questioned whether there were any lienholders behind the City on the subject property and asked the status of the foreclosure proceedings. Mr. Wingate stated that staff was obtaining updated title reports, due to there being separate trustee holders on different portions of the property. He related that as soon as the information is received, the necessary notices can be sent to the property owners who, in turn, have 30 days to respond. He explained that if a response is not received, the City can obtain a judgment and conduct the necessary sale. He indicated, however, that if a response is received, it would mean approximately seven months from the date the action is filed until the matter is resolved. Council Member R. Anderson asked whether the procedure could have been started sooner. Mr. Wingate replied that the procedure could have been initiated quite some time ago. Council Member Murray inquired as to how the assessments are allocated to the various properties. Mr. Wingate explained that a developer is usually the driving force behind the establishment of an assessment district. He related that an engineer spreads the assessment based on a number of different factors: property values, lot front footage, number of units, etc. He stated that the City's 08/26/96 222 main concern in forming an assessment district is whether there is sufficient property value to cover the assessment. With the case of these assessments, he indicated that at the time the district was formed, there was ample property value. Council Member R. Anderson questioned whether the City could require the developer to guarantee the bonds. Mr. Wingate replied that he would have to research the matter further before he could provide a response. Council Member Murray asked staff to look into whether the bonds could be proportioned based on the lots' desirability and their ability to be sold. Mr. Wingate believed these issues could, in fact, be considered when assessing the property. Council Member Murray noted that these types of assessments are common. He stated he did not have a particular problem issuing these types of bonds given the fact that the proceeds are used to improve City infrastructure. He noted, however, that one issue that needs to be considered at the time an assessment district is formed is whether it is infrastructure which the City, in fact, wants to improve and whether the bonds are for onsite or offsite work. Council Member R. Anderson believed the City should have some voice in how the assessments are allocated and requested staff to research whether the City could require a personal guarantee from the developer. City Manager Warren stated that staff could bring back an amendment to the City Council's policy which incorporates the issues discussed this evening, i.e., a personal guarantee from the developer, assessment allocation, foreclosure issues, etc. He recommended that the City Council consider increasing the administrative fee associated with assessment districts. Given what he knows today, Council Member R. Anderson stated that if he had the opportunity to vote again on the waiver of the Tierra Oaks Assessment District penalties, he would oppose the waiver. Council Member Murray asked whether the phasing of subdivisions are known at the time the funding is acquired. Assistant City Manager Perry responded that the developer submits a proposed phasing, however, the information is subject to change. He related that if the phasing was predetermined, the developer could always request an amendment. Council Member Murray suggested that subdivision phasing could be part of the problem. He envisioned situations, whereby property value is determined by the project's phasing. In response to Council Member P. Anderson, Mr. Wingate explained that there had been adequate monies in the trust fund to make last year's payments. Council Member R. Anderson suggested that the amended policy stipulate that foreclosure proceedings on assessment districts begin as soon as possible and that all delinquent assessments be brought before the City Council for consideration. Administrative Services Director Starman clarified that the City has previously advanced funds for Churn Creek Road Extension #2 Assessment District No. 1990-5. City Treasurer Linville assured the City Council that the current assessment district policy requires all delinquent assessment districts to be brought before the City Council for consideration. She added that assessment district foreclosures are ongoing and considered by the City Council on an annual basis. Ms. Linville noted that there are currently problems in six assessment districts, five of which have been addressed. She indicated that there is a high delinquency factor in the Clover Creek Assessment District, but it is not to the point where the credit reserve fund has been depleted. 08/26/96 223 In response to Council Member R. Anderson, Ms. Linville explained that the property owners receive two notices prior to any foreclosure action and are provided an opportunity to respond. The next step following these two letters is to serve the property owners notifying them of the pending foreclosure action. Ms. Linville added that unless the property owners make the required payments, there is no guarantee that the City will not have to also consider whether to make the March 2, 1997, bond payment. Mr. Wingate explained that once the foreclosure action is complete, the property is sold on a per lot basis. The buyer purchases the property for the bid amount, which has to equal at least the amount owed to the City, including interest and penalties, and assumes the remaining assessment on the property. If a lot does not receive a bid, the City must ask the Court's permission to sell it for an amount less than what is owed. He explained that in foreclosure proceedings, the City never takes actual ownership of the property. In response to Council Member Murray, Mr. Wingate stated that the City can select the order in which the lots are marketed, and the City would add its attorney's fees on a per lot basis. Council Member R. Anderson questioned whether there would be an advantage to taking a deed in lieu of foreclosure. Mr. Wingate advised against this, as the City would lose its priority position. In response to Council Member Murray, Mr. Wingate explained that with the property owners' consent, the City can buy back the bonds that currently exist and reallocate the assessments. Council Member Murray requested a financial analysis showing what the net down side is by March 1997. He expressed concern about doing anything that might negatively impact the City's bond rating, given the fact that it may be necessary to do a major refinancing for the Modesto-Santa Clara- Redding (MSR) Power Agency. Mr. Wingate stressed that advancing monies for the September 2 debt service payment does not obligate the City to make future payments. Mayor McGeorge determined that Jordan Taylor was not in the audience. Mr. Taylor is the President of Chase and Taylor, Inc., a partner in Redwood Shasta Investors, who owns 78 percent of the land within Churn Creek Road Extension #1 Assessment District, No. 1990-5. In response to Council Member R. Anderson, Mr. Wingate stated that if the lot sells for more than what is owed to the City, any excess funds would go to the developer. With regard to Churn Creek Road Extension #2 Assessment District, No. 1990-5, Mr. Wingate explained that following the district's formation, a substantial amount of the property was located within the Boulder Creek and Churn Creek floodplains. Approximately 86 percent of the land within the district is owned by BHS Investments. BHS Investments is a partnership with its principal office in Redding. Members of the partnership are Rudy V. Balma, Clair A. Hill, Alan T. Hill, Malcolm Hill, and Davis C. Stathem. Evelyn A. McCallum is also mentioned as a person who holds a beneficial interest in the property owned by the partnership. BHS Investments has not paid assessments (or property taxes) on essentially all of its parcels for two years. He indicated that there are a lot of unknowns covering these lots, however, based on conversations with Mr. Hill, Mr. Wingate did not believe the property values were sufficient to cover the amounts owed on the assessment. Mr. Wingate stated that Mr. Hill has indicated that they do not plan on redeeming these lots. Council Member P. Anderson expressed her disappointment that people who are considered leaders in the community have been negligent in their financial obligation, thus forcing the City to assume their responsibility. Council Member Kehoe noted that the General Fund has already advanced $51,635 for the Churn Creek Road Extension#2 Assessment District. Mr. Starman related that all three times monies were advanced on this district, the decision was made at the staff level. 08/26/96 224 Council Member Kehoe questioned whether the property owners who have, in fact, paid their assessment would be impacted if the City opted not to pay the September 2 debt service payment. Ms. Linville added that the City cannot foreclosure on those property owners whose assessments are current. Council Member R. Anderson believed the key to resolving the problems surrounding assessment districts was the debt allocation. Council Member Murray believed the suggested policy amendments will prevent problems of this type in the future. He also recommended that the City review the possibility of shortening the amount of time between letters which are sent to the property owners. Council Member P. Anderson requested that all partners be individually notified. Council Member Kehoe asked Mr. Warren's opinion as to whether not advancing the monies would be detrimental to the City's position in the bond market. Mr. Warren stated that many factors are considered, i.e., the City's financial record, and bond defaults would impact the basis points and interest rating. He related that there would be a record of the default regardless of the ultimate reason for the decision. Mr. Starman added that there would be a minimal impact of approximately 10 or 20 basis points. MOTION: Made by Council Member Murray, seconded by Council Member P. Anderson, to approve the advance of funds in the amount of$47,122 for the Churn Creek Road Extension #1 Assessment District, No.1989-5, September 2 debt service payment from the following funds: General Fund - $26,624; Water - $10,838; and Storm Drainage - $9,660. The Vote: Unanimous Ayes MOTION: Made by Council Member Murray, seconded by Council Member P. Anderson, to approve the advance of funds in the amount of$23,684 for the Churn Creek Road Extension #2 Assessment District, No. 1990-5, September 2 debt service payment from the following funds: General Fund - $13,074; Water - $995; and Storm Drainage - $9,615. The Vote: Unanimous Ayes ADJOURNMENT There being no further business, at the hour of 6:01 p.m., Mayor McGeorge declared the meeting adjourned. APPROVED: -/� Mayor / ATTEST: ple-14/City Clerk 08/26/96