HomeMy WebLinkAbout11/17/1999 - STAFF REPORTS (10) DATE: November 17, 1999
TO: City Council
FROM: Director of Finance&Treasurer
BUDGET AMENDMENT TO FUND ADDITIONAL LEGAL FEES ON ASSESSMENT
DISTRICT NO. 155 POTENTIAL LITIGATION
RECOMMENDATION:
It is recommended that the City Council approve a$75,000 transfer from the General Fund to the
AD 155 Series A Fund to cover additional legal expenses relative to potential litigation.
BACKGROUND:
The original $7.8 million AD No. 155 bond issue paid for street and utility One improvements
centered on Gene Autry Trail and Ramon Road. The bonds were to be repaid by assessments on
property owners and leaseholders. About half the district was comprised of leases on Indian-
owned land. Those leases, unfortunately, went into default and were canceled by the Bureau of
Indian Affairs. The assessments associated with those leases have not been paid.
The bonds that were to be repaid from those assessments would have had a partial default.
Normally,that would not have had an effect on the City since the bonds were not secured by the
City's General Fund. However,the largest single holder of the bonds alleged that the risks
associated with the bond issue were not properly disclosed in the Official Statement. The City,
the underwrite, and the bond counsel all had various degrees of legal exposure. To forestall a
bondholder lawsuit,the City and the underwriter eventually agreed to a refinancing of the bonds
that resulted in a significant liability for both parties. Since the bond counsel declined to
participate in the costs of the refinancing,the City and the underwriter agreed to jointly pursue
legal remedies against the bond counsel.
Both parties contributed $25,000 to an account controlled by the City. All of those funds were
expended on the initial legal discovery process. An additional $80,000 has been billed by the City
Attorney and by the attorneys for the underwriter, and remains unpaid. To proceed to the next
decision point, the City Attorney estimates that an additional $70,000 is needed. That would
make the total additional funding needs$150,000. Of this,the underwriter has pledged to provide
$75,000. The City would provide the remaining$75,000. The table below summarizes the costs.
Phase I litigation expenses billed&paid $ 50,000
Phase I&II litigation expenses billed&unpaid(est.) 80,000
Phase III litigation expenses(est.) 70.000
Total cost through Pase III(est.) $200,000
The City and the underwriter had hoped that the former bond counsel would honor its ethical
obligations to shoulder some of the financial burden imposed by the AD 155 workout. However,
It is clear that the bond counsel will not voluntarily contribute funds. Litigation appears to be the
only course open to the City and underwrite. There is, of course, no guarantee that the City will
prevail in a lawsuit. The City Attorney's office is sensitive to the need to hold down legal costs as
much as possible and to be open to a reasonable settlement offer from the bond counsel.
4 D J.FOcek Thomas M. Kanarr 7
Interim City Manager Director of Finance&Treasurer
Attachments: Budget Amendment
OiIE �.
f._d 1�49C1.3US1D
RESOLUTION NO. 19687
OF THE CITY COUNCIL OF THE CITY OF PALM
SPRINGS, CALIFORNIA, AMENDING THE BUDGET FOR
THE 1999-00 FISCAL YEAR.
WHEREAS Resolution 19541, approving the budget for the fiscal year
1999-00 was adopted on June 16, 1999; and
WHEREAS the City Manager has recommended, and the City Council
desires to approve, certain amendments to said budget;
NOW THEREFORE BE IT RESOLVED that the Director of Finance is
authorized to record inter-fund cash transfers as required in
accordance With this Resolution, and that Resolution 19541,
adopting the budget for the 1999-00 fiscal year is hereby amended
as follows:
SECTION 1. ADDITIONS
FUND Activity Account Amount
No. 316 7862 43220 $75,000
Title:
AD 155 Series B Debt Service Contractual
Legal Service
Purpose: To provide funds for additional litigation costs related
To AD 155
SECTION 2. SOURCE General Fund reserves
FUND Activity Account Amount
No. 001 29349 $75,000
Title:
General Fund Reserve for
Contingencies
Adopted this 17th day of NevemhPr , 1999.
AYES: Members Barnes, Hodges, Oden, Reller-Spurgins•and Mayor Kleindienst
NOES: None
ABSENT: None
ATTEST: CITY OF PALM SPRINGS, CALIFORNIA
By
City Clerk City Manager
REVIEWED AND APPROVED AS TO FORM