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HomeMy WebLinkAbout9/6/2000 - STAFF REPORTS (14) DATE: September 6, 2000 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 transfers from the General Fund to the AD 155 Series A Fund to cover additional legal expenses relative to potential litigation for FY 99-00 of$15,000 for costs already incurred, and $50,000 for FY 00-01 for estimated costs. BACKGROUND: The original $7.8 million AD No. 155 bond issue paid for street and utility line 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 underwriter, 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 in Fiscal Year 1998-99 to an account controlled by the City, and an additional $75,000 each in Fiscal Year 1999-2000. The total expenditures through June 30, 2000, including an estimate for the June legal bills, will be about $230,000. Negotiations with the former bond counsel, mediated by a former State Supreme Court justice resulted in a tentative settlement that would have given the City and Stone & Youngberg $75,000 each, and a piece of any settlement with the former bond counsel's insurance carrier. However, acceptance of the offer was predicated on proof that the bond counsels were, in fact, without the means to contribute substantially more. The City's Director of Finance and the lead attorney on the case from Rutan & Tucker were eventually given access to the financial data. It appeared that the City had received less than total disclosure of the former bond counsels' income and assets at the mediation session. Council gave direction at a closed session to reject the settlement offer, to continue negotiations to seek a higher payment and, if necessary, to continue the litigation. /;t A As noted above, the additional cost to date is $30,000. Half of that amount has or will be billed to Stone &Youngberg. A budget amendment for FY 99-00 for$15,000 (the City's half) is attached. The additional legal expenses for FY 00-01 could range anywhere from an additional $10,000 if the matter is settled quickly to as much as $500,000 if the case goes to trial. The attached budget amendment for FY00-01 would authorize a $50,000 transfer from the General Fund to the Assessment District No. 155 Fund. This should be sufficient to fund the legal effort at least through the Motion for Summary Judgment. That motion will decide the question of whether a statute of limitations applies. If the case is settled quickly, we may be able to return to the General Fund a portion of the $50,000 transfer. If it appears to case is headed to trial, an additional and substantial appropriation will be needed. Submitted by: Thomas Kanarr, Director of Finance &Treasurer Approved: David H. Ready, Cit anager Attachments: FY 99-00 Budget Amendment FY 00-01 Budget Amendment RESOLUTION NO. 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 $ 15,000 Title: Contractual AD No. 155 Series B Legal Services Purpose: To cover the costs of litigation expenses relative to Assessment District No. 155, City of Palm Springs vs. Brown & Diven SECTION2. SOURCE General Fund via Budgeted Transfers Out. FUND Activity Account Amount No. 001 29349 $15,000 Title: Reserve for General Fund Contingencies /a h Resolution No. Page 2 Adopted this day of .12000. AYES: NOES: ABSENT: ATTEST: CITY OF PALM SPRINGS, CALIFORMA By City Clerk City Manager REVIEWED AND APPROVED AS TO FORM /aA2 RESOLUTION NO. OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS, CALIFORNIA, AMENDING THE BUDGET FOR THE 2000-01 FISCAL YEAR. ------------- WHEREAS Resolution 19817 approving the budget for the fiscal year 2000-01 was adopted on June 21, 2000; 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 19817, adopting the budget for the 2000-01 fiscal year is hereby amended as follows: SECTION 1. ADDITIONS Fund Activity Account Amount No: 316 7862 43220 $50,000 Title: CLontrl a�tual AD No. 155 Series B ega ervices Purpose: SECTION 2. SOURCE Fund Activity Account Amount No: 001 29349 $50,000 Title: Reserve for General Contingencies Adopted this day of , 2000. AYES: NOES: ABSENT: ATTEST: CITY OF PALM SPRINGS, CALIFORNIA By City Clerk City Manager REVIEWED AND APPROVED: