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HomeMy WebLinkAboutCC Min 1995-04-03 3-27-95 / 4-3-95 ADJOURNMENT . It was the order of the Chair, with consent of the Counc1l, to adjourn the meeting until Monday, April 3rd at 6:30 p.m. By unanimous consent, the meet in was adjourned at 8:48 p.m. C~ty/Clerk and ex-of ctty of Seal Beach of the I Approved: ~ ayor Attest: Seal Beach, California April 3, 1995 The city Council of the City of Seal Beach met in regular adjourned session at 6:33 p.m. with Mayor Brown calling the meeting to order with the Salute to the Flag. ROLL CALL Present: I Mayor Brown Councilmembers Doane, Forsythe, Hastings, Laszlo Absent: None Also present: Mr. Bankston, City Manager Mr. Barrow, City Attorney Mrs. Yeo, city Clerk APPROVAL OF AGENDA Brown moved, second by Hastings, to approve the agenda as presented. AYES: NOES: Brown, Doane, Forsythe, Hastings, Laszlo None Motion carried CLOSED SESSION The City Attorney announced that the Council would meet in Closed Session to discuss the two items listed on the agenda, one potential case of initiation of litigation pursuant to I Government Code Section 54956.9(c), and existing litigation, the Sierra Club/City of Seal Beach versus Bolsa Chica Land Trust, pursuant to Government Code Section 54956.9(a). By unanimous consent, the Council adjourned to Closed Session at 6:34 p.m. and reconvened at 6:56 p.m. with Mayor Brown calling the meeting to order. The City Attorney reported the Council had discussed the items previously announced, that no action was taken other than giving direction with respect to the item of litigation. ORAL COMMUNICATIONS There were no Oral Communications. I I I 4-3-95 PLANS and SPECIFICATIONS - CONSTRUCTION OF WATER SYSTEM I UTILITY UNDERGROUNDING - SURFS IDE COLONY The city Manager presented the staff report, noted the previous acceptance by the Council of a petition submitted by Surfs ide Colony to commence proceedings to form an assessment district for the purpose of undergrounding existing overhead utilities and since that time, through negotiations with the current water provider, the installation of a new water system has been included. It was explained that all costs associated with the improvements and the sale of bonds will be included in the assessment, no costs to be incurred by the City. Doane moved, second by Hastings, to approve the plans and specifications for construction of a new water system and installation of conduits to underground existing overhead utilities within Surfs ide Colony, and authorize the advertisement for construction bids. AYES: NOES: Brown, Doane, Forsythe, Hastings, Laszlo None Motion carried SETTLEMENT AGREEMENT - ORANGE COUNTY INVESTMENT POOL The City Manager presented the staff report, noting Seal Beach as a depositor with the Orange County Investment Pool, bankruptcy filed on that Pool on December 6th, 1994, the securities as of that time have been liquidated, are now in short-term securities, which has produced a reduction in the assets from $7 billion to $5.7 billion. The Manager explained that the Settlement Agreement is the result of negotiations with the Pool Participants Committee, the Agreement, if accepted by eighty percent of the Pool depositors, which is one hundred eighty nine, and the eighty percent accounts for ninety percent of the total funds, the Agreement will then be presented to the court, the court may either agree with the provisions of the Agreement or may make modifications thereto, may order the Agreement as a settlement proposal, which is then a plan of adjustment in bankruptcy Chapter 9 terms. At this point the Agreement is anticipated to be presented to the court, if approved by the eighty percent, sometime ~uring the week of "April 20th and, if ordered by the court, eleven days thereafter it becomes an implementing document. He once again explained that there are two bankruptcies, the Pool bankruptcy in which the city was a participant, and the County bankruptcy filed as a result of a deficit from Pool losses and the interest that had been anticipated and budgeted as an operational revenue. The Manager offered that should the Settlement Agreement receive Council approval a second action will be necessary to select one of the three settlement options. He reviewed the options as: option A) eleven days following a court acceptance, cash would be available to Seal Beach, resulting from the transfer of securities presently held in the Pool, equalling 76.35 percent of the amount that was on deposit on the date of the bankruptcy filing, there would then be a series of notes and claims carrying different interest rates, coming due at various times, secured by differing means, from which interest will be generated, and through the cash, notes and claims, the City would receive, plus o~ minus one hundred percent of the monies on deposit on December 6th, to Seal Beach "Option A would generate approximately one hundred four percent of that deposit, approval of Option A will accept the notes and claims, and forgo any legal rights to a litigation action against the County; Option B) the cash withdrawal would be the same as Option A, and would retain most of the rights to litigate or negotiate with the County for the re~ainder, an attempt to recover more than the settlement under Option A, or faster than with A, the litigation right not allowed is that of the trust principle; Option C) allows for litigation for the full amount without receiving the cash return under Options A or B. Through the display of graphics, the Manager further explained that as of 4-3-95 the date of bankruptcy, December 6th, the Pool balance was $2,060,644.82; under Option A, again eleven days following a court acceptance of the Agreement, Seal Beach would realize a cash disbursement of $1,573,902.37 less the previously withdrawn amount of approximately $618,000, recovery notes would be issued in the amount of $75,297.99, these being marketable notes carrying a relatively high interest rate, a taxable issue, I pursuant to the Settlement the issue must be redeemed by June 5th, or other options, such as the City determining to hold the - notes dependent upon the interest rate and degree of security at that time, these notes will most likely be sold by the County, and at that point the City would have about eighty percent of its deposit; there would then be a secured claim of approximately 9.63 percent for Seal Beach, this being a claim against any settlement or proceeds of litigation that the County successfully enters into against any of the bond holders or bond houses that were involved in the initial sale of collateral, the proceeds of such settlement would be distributed sixty-five percent to the Pool p3rticipants and thirty-five percent to the County, and in a case where litigations are not totally successful there would then be a reduction of the county share of the proceeds to add back to the other participants to equal the 9.63 percent in the case of Seal Beach, timing would be dependent upon the time frame of any settlements, there appears to be on-going negotiations to settle rather than go to litigation, and although there is no assurance, it is understood there is a commitment that within five days of proceeds from any settlement going to the County they will be distributed back; as to the withheld proceeds, $33,841.09 in the case of Seal Beach, he explained that about December 4th First Boston sold collateral to cover a note they were holding of the County which started a process of others doing likewise, the collateral that I was sold actually netted more money than the obligation against that collateral, in other words there was a profit made, now those institutions are in the process of coming forward with the additional monies recognizing that they sold a Pool collateral and that the proceeds above and beyond the liability does belong to the participants, at this time the estimated amount of proceeds is about two cents, one cent is in the process and deemed available to be distributed back, one cent is continuing to be discussed and negotiated with First Boston with an uncertainty as to the time frame for resolution thereof; it is anticipated that by June 5th the City should receive the 76.35 percent cash return, 3.65 percent recovery notes, one cent of the withheld with another 9 percent shortly thereafter, which lowers the repayment claim, estimated at 11 percent POOl-wide, 10.55 percent for Seal Beach, or $217,550.34, that becoming a claim against the County that is not as secure as the other vehicles, and it would come from the Pool into the county bankruptcy, the county must develop a plan of adjustment for their bankruptcy which they have been unable to do until there is a settlement of the Pool, at that point the county will be in a position to clearly identify its liabilities and can then develop its own plan of adjustment, that plan needing to address the eleven cents that is identified as a repayment claim and will be part of any court ordered readjustment. If or at such I time as each of the various payment vehicles have been made to the City, the City should have $2,098,950.91 or one hundred percent of the principle, four percent of the withheld, and some of the interest as interest continues to be earned, and dependent upon the time frames of when the recovery note is redeemed, the settlement claims are redeemed and repayment is made, that final amount could rise somewhat. As to option B he again explained that the cash return would be a like amount to Option A, with all legal rights retained as to litigation and/or negotiation, with one exception, the time frame and success rate to gain a one hundred percent or more return can not be I I I . 4-3-95 estimated, there could be loss of interest, legal costs, etc., and that could potentially be at least a two to three year litigation, there is a lack of court cases relating to Chapter 9 bankruptcy, also a potential of being a Supreme Court issue, etc. Option C takes no cash return and reserves all legal rights against the County. He offered that in reviewing the Settlement Agreement and particularly Option A, as a practical matter, the County, in even agreeing to the presentation of an option that would potentially generate one hundred percent plus, is clearly recognizing that there was a trust relationship, even though they will not admit to that as it could invite another action of litigation with a potential of more damages to the County, also because there were transactions going on in the Pool with the Treasurer's office as to knowledge and direction that were not being disclosed, as well as non-disclosure of certain investment vehicles that were being used, thus it is believed that the County has accepted the-fact that the Pool participants were misinformed directly and intentionally therefore there is both a legal and moral-obligation to disperse assets and proceeds b~ck to the Pool participants in at least an amount equal to their deposit. In response to Council inquiries, the Manager explained that about eighty-two percent return would be anticipated by June 5th, the amount the sum of $1,573,902.37 and $75,297.99, or approximately $1.7 or 1.8 million, those monies will most likely be placed in the State Investment Pool, the State Investment Policy being much different from the County as to investments, percentage of investments, reporting, etc., and explained that in the case of Seal Beach there are not actual set-aside reserves, reserves are being built as a result of actions of the Council over the past three years, the city needs liquidity, the ability to draw down and accrue interest until those monies are needed, and no other investment gives as much in both of those areas as does the State Pool. He noted that discussions are also being held with some of the banks that will serve in a trustee relationship for investment purposes to investigate if there are other means that have such liqu~dity yet would still draw an equal or higher interest and have a clearer trust relation. The Manager responded in the positive to a $100,000 insurance limitation as it relates CD's, some cities having a number of such investments, however said he had raised the question to the FDIC that in the event that a bank or savings and loan defaulted as to whether the insurance is $100,000 or is it the investor, to which no acceptable answer resulted, therefore could pose a potentially worse situation than investing with the State Pool. Councilmember Forsythe made reference to comments within the staff report that indicated a lack of trust, that information was not received, was not as complete or as accurate as was felt to be required to make the appropriate decision regarding this issue, the receipt of the additional information might have affecte4 the negotiations or the final terms of the agreement. She offered her opinion that what the County has done by withholding information was to find a means to return only eighty-two percent by June and that she did not believe the remaining eighteen percent will ever be realized, also a concern is that nothing can be seen being done by the County to correct the situation where their expenditures increase on an annual basis while those of the City decrease, the disclosure by the press of an expenditure of $24 million on public relations during this incident, the manner in which they are handling contracts, the approval of development plans that have sizeable recurri~g deficits are examples, all of which in the midst of this financial crisis. Councilmember Forsythe inquired if there may have been a different Option A if all information had been provided. The City Manager responded in the affirmative, however that would not necessarily be so with 4-3-95 regard to the eighteen cents, the nine cents is a viable security and it will come to the city, the eleven cents another matter, noting that of the four months of negotiation at least half the time had been spent trying to develop something more secure than a repayment claim, a note, as an example, carries a greater liability, has a face and market value, and that was what was attempted to secure, however it seems there was some I element of practical thinking that came into play that has now lead to the present recommendation of the repayment claim over the note. In looking at the County budget, its assets, expenditures, etc., this settlement can be likened to the division of a pie that is smaller than it should be, the cities not responsible for it getting smaller, and should the note have been secured it would have been booked as a very specific liability for the County, would have made it nearly impossible for the County to issue any new notes, which is necessary to pay the bond holders. The Manager said his priority was to first recover one hundred percent of the Seal Beach investment, yet still recognize the more than twenty thousand citizens of Orange County alone that are bond holders, and had the County continued to hold them hostage it is believed that there are several schools that would be at serious risk of State takeover by the end of June. He acknowledged that the settlement is a compromise, the issue of skimming was never brought forward by the County rather it was the Price Waterhouse firm hired by the Pool Participants Committee that discovered that situation, the attempt overall is to protect Seal Beach to the one hundred percent yet not sink the County which in turn would have a negative ripple impact on the city as well. Having worked through this financial crisis with the County, Councilmember Forsythe asked how and what the City can do to halt the frivolous expenditure of County funds that is on-going. The I Manager responded that the Orange County Division of the League has already begun a process of seeking State sanctions from the committee on readjustments for restructuring the County, basically the State would do to the County what the County did to the Pool participants, yet the County needs the State to secure notes to pay the bond holders at least fifty percent of the $1.5 billion and rollover the remainder, and pointed out that the State does have the right to take over a County, unlike cities, in that the County government is an adjunct of State government, is created by the State and can be withdrawn by the State, the State currently threatening to do just that, it is also indicated that the State has scrutinized the budgets closely, they look negatively at an increase of department budgets post- bankruptcy over pre-bankruptcy, all of which sends a message that there is a watchful process going on. He cited as an example the Seal Beach bid to provide lifeguard services to the Sunset Beach area, on a dollar basis Seal Beach was the lowest bid however did not receive the award which went to another firm that on a dollar basis was the highest bid. Councilman Doane asked, making reference to the repayment claim that is not as secure as the other means of settlement, and if the County were to default on that claim within an appreciable period of time, if the City could then enter into litigation to recover that amount. The City Manager explained that the I settlement agreement provides for restrictions on the County that prior to assumption of any new assets, building of any facilities, proceeds from any general obligation bonds, etc., there will be payments made to the repayment claims, and should the County fail to meet any of the settlement terms of the agreement, there would then be a right to litigate based on its failure to honor that obligation, yet the difficulty comes in that there is no deadline for such payment therefore there is no failure to meet the deadline, however if the County fails to meet the conditions set forth in the agreement there is a right to file a violation of the readjustment plan in the federal I I I 4-3-95 / 4-10-95 bankruptcy court, such litigation likely to be short term as the settlement agreement, if approved by the court, becomes a court order. Doane moved, second by Hastings, to approve the Settlement Agreement as presented by the Orange County Investment Pool Participants Committee of the Orange County Investment Pools Bankruptcy. AYES: NOES: Brown, Doane, Forsythe, Hastings, Laszlo None . Motion carried Doane moved, second by Hastings, to authorize the election of option A, described in Section 7(a) of the Settlement Agreement. AYES: NOES: Brown, Doane, Forsythe, Hastings, Laszlo None Motion carried ORAL COMMUNICATIONS There were no Oral Communications. COUNCIL REPORTS Councilmember Hastings extended congratulations to Mrs. Mary Johnson and Mr. Ace Yeam upon being selected as the 1994 Man and Woman of the Year, and wished all a happy Passover and Easter. ADJOURNMENT It was the order of adjourn the meeting to be canceled. the Chair, with consent of the Council, to at 7:47 p.m., the April lOth regular meeting i of the C11YjClerk and ex-off1c C~ of Seal Beach Attest: Seal Beach, California April 10, 1995 . , The city council regular meeting of April lOth, 1995 was cancelled due to lack of quorum and pursu~nt to direction of the City Council at their April 3rd meeting. The April lOth meeting was adjourned until Monday, April 24, 1996 at 6:30 p.m. to meet in Closed Session if deemed necessary. '''l / In / riJ ~k'h' ( , C,' erk / [./