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HomeMy WebLinkAbout1987-08-26HUNTINGTON BEACH PUBLIC FACILITIES CORPORATION MINUTES SPECIAL MEETING OF AUGUST 26, 1987 The Special Meeting of the PFC was called to order by President Garafaloat the City of Huntington Beach Central Library, Huntington Beach, California at 4:05 P.M. on aforementioned date. Roll call was: taken: as recorded below. There were present from the Board. - Thomas West Melvin Carpenter Joseph Garafalo Absent: Lorraine Faber Also attending were: Dan Villella, Assistant Secretary Shari Donoho, Recording Secretary Dr. Don Shipley, Member of the Patrons Foundation & Library Board Marguerite Davenport, President- Patrons Foundation Rosie Barry, Member - Friends of the Children's Library Board Lyn Scott, President - Friends of the Children's Library Board Susan Baldi, Member - Friends of the Children's Library Board Donna -Kavanagh, Member -. Friends of the Children's Library Board Barbara Locke, Member - Library Patrons Foundation Nancy Zeleznikar, Chairman - Library Board Hal McDonald, Member - Library Board Buck Perkins, Member - Library Patrons Foundation Dorothy Boesch, President - Friends of the Library Diane Adams, Member - Library Patrons Foundation Mr. Garafalo indicated to those in attendance that Mr. Stephen Wight had resigned his post as President and that subsequent elections had transferred the duties of President of the Public Facilities Corporation Board to Mr. Garafalo. Mr. Garafalo indicated that at the meeting of July 29, 1987, the Board had decided to write a letter to the Mayor describing the position of the Public Facilities Corporation Board and the Board's desire to work cooperatively with the City Council in realizing future goals pertaining to the Central Library Facility. Mr. Garafalo explained to those present that after the meeting he had reconsidered sending the letter to Mayor Kelly and chose instead to have a meeting with Mr. West, Mr. Villella, Mrs. Finley and Mr. Green in an attempt to clarify the position of the Board and open lines of communication with the City Council. Mr. Garafalo read Mayor Kelly's June 5, 1987.1etter to those in attendance: "Directors: As you are aware, the City Council acted in December of last year to request the PFC to provide all excess funds to the City. The City's intent was (and is) to hold such funds pending the outcome of the Library Needs Assessment Project. Your response of April 15, 1987 indicated that instead of responding affirmatively to the City's request, the PFC had decided to hold such funds in the PFC Construction Fund. The purpose of this letter is to reiterate the City Council's formal position on these matters. We request that the PFC forward all excess funds to the City without further delay. I understand from your letter and discussions with staff that you are transferring money from one account to another, but I find it difficult to understand how the arbitrage problems can be resolved with a transfer of money from one account to another. The City's decision to not request funding for the needs assessment project is related to your rejection of the City's request for all funds. The City's intent was to use a portion of the excess funds for the needs assessment project. Upon completion of the assessment, the City would then determine how • to proceed, including the critical question of how to utilize the excess funds from the PFC. The excess funds belong to the public. The City believes that the elected City Council members have the duty and responsibility to determine how the excess PFC funds are used. To submit item by item funding requests, such as the needs assessment project, would place the PFC in the role of deciding how the excess PFC funds should be used. This is not consistent with our belief that the City Council has that duty and responsibility. Therefore, we are proceeding without the PFC funds that we requested." Mr. Garafalo wished to make it clear that the PFC cannot spend monies from the PFC accounts without City Council approval, and the City Council could not spend these monies without the PFC's approval. These governing bodies must work together. Mr. Garafalo opened the meeting to Mr. West and Mr. Carpenter for their comments. Mr. West indicated that he had no further comment at this time and deferred the meeting to Mr. Carpenter. Mr. Carpenter indicated that he had completed extensive research with regards to the Charter and indicated that he disagreed with Mr. Garafalo's statement that the City Council must agree with the PFC Board as to expenditure of funds. Mr. Carpenter went onto state that the Board could redeem bonds with the excess funds without Council approval. Mr. Carpenter referred back to a letter prepared by the PFC's legal counsel regarding four ways in which the Board may utilize excess funds; 1) purchase bonds, 2) call and redeem bonds, 3) make changes, alterations and/or additions to the project, 4) reimburse the City for any rent or additional rent previously paid. Further, Mr. Carpenter indicated that it was his belief that the excess funds did not belong to the public. Mr. Carpenter stated that after the payment . of rents, he believed the excess funds -2 87.004/3391j belonged to the PFC and not to the public in general. Mr. Carpenter could see no reason whatsoever that the PFC should not take steps to redeem bonds or purchase bonds and indicated that he did not feel the Board was carrying out the intent of the Charter. Further that he felt,the impetus of the Charter was to redeem the bonds. He shared that he had read in the newspaper that removing the First Issue (Civic Center) from the PFC's dnd the action of issuing Certificates of Participation is now being challenged in court. Mr. Carpenter felt that there is a possibility that excess funds from the First Issue may be soon returned to the PFC. He felt that no further action should be taken at this point in time. Mr. Garafalo turned to PFC's legal counsel, Ms. Joan Arneson, for her comment regarding her December 22, 1986 letter. Mr. Garafalo called for a clarification of his previous statement that the Council cannot do anything with the excess funds without the PFC's approval, and the PFC cannot proceed without the Council's approval. Ms. Arneson indicated that this interpretation is correct when the Board is dealing with the subject of construction, due to the ownership and the lease, not because of the indenture. Mr. West inquired of legal counsel if the City could proceed with construction to the Second Issue (Central Library Facility) without the consent of the PFC. Ms. Arneson indicated that she was uncertain and had not considered the situation from such a perspective. The Board requested that Ms. Arneson research this issue and provide the Board with her opinion at the 4 next regular meeting of the Board. Mr. West wished to clarify through legal counsel that the PFC is not obligated to return the monies to the City, but are obligated to proceed with one of the four recommendations as outlined. previously, as well as an legal obligation to insure that the Board is not in conflict with arbitrage laws. Ms. Arneson indicated that this was correct. Mr. West indicated that at the meeting with the Council liaisons, Mrs. Finley and Mr. Green, the viability of having future discussions with the City Council was reviewed. Mrs. Finley and Mr. Green are taking this subject under advisement and will inform the board as to whether or not initiative shall be taken on the part of the Council to hold such further discussions. Dr. Shipley indicated that he felt history was important. He stated that the City Council's intent at the time of establishing the PFC was to pay off the Civic Center and Central Library Facility, which is the primary objective of the PFC. The Central Library and the park system, in a general election of the people of the City of Huntington Beach voted 60 % in favor of constructing and establishing of the Library and park system. Dr. Shipley (who indicated he was speaking as a Huntington Beach citizen and not as a member of the Patrons Foundation or Library Board) feels that the Library is the most heavily utilized building by the public. Money should be retained for use at the Central Library. Dr. Shipley indicated that if this money is returned to the General Fund that it could be utilized to fund any number of current pity projects. -3- 87.004/3391 j Mr. Perkins inquired if bonds were to be redeemed if it would require the entire amount of excess funds Mr. West advised that in the months that followed legal counsel's opinion as to alternatives for disposition of funds, that the Board did in fact look at bond redemption. The market is not such that this option is a viable alternative. Therefore, the other alternatives were more closely reviewed. The Board then moved, by 'fay of resolution, to realign the excess monies to the construction fund in anticipation of the Needs Assessment Study which is currently being conducted. It was the Board's firm belief that upon completion of the Needs Assessment Study recommendations of the study would result in the PFC financing various projects from the construction fund. The other option is to turn the money back to the City. These are the two options open to the PFC Board. Mr. West went onto state that it is his understanding that if in fact the City takes a position not to support the .Library, regardless of the Needs Assessment Study, the Board would then be under some obligation to return the funds if for no other reason than to avoid the arbitrage issue. This is the dilemma that the Board faces in the sense that they may maintain funds in the construction fund but only in anticipation of future construction. Construction would not be viable if the City Council takes negative action toward the wishes of the Board and the Needs Assessment Study. Redemption of bonds is not currently a viable alternative. Ms. Baldi inquired as to who is conducting the Needs Assessment Study. Mr. West indicated that the City is conducting the Needs Assessment. Ms. Baldi inquired as through what vehicle the study was being conducted. Mr. West indicated that it is 'an internal staff activity, a consultant' was hired and there is an advisory board. Ms. Baldi asked if this consulting firm was an objective group. Mr. West answered that he was not an active participant and would assume that the consulting firm was objective. Mr. Villella stated that the consulting firm is HBW and Associates from Dallas, Texas. The study is somewhat behind schedule, but the first draft of the report is estimated mid -September, with expectations that the final report would be completed by mid -October. Mr. Garafalo inquired of legal counsel if the PFC currently had an arbitrage problem. Ms. Arneson indicated "that the Board has had the problem for a long time. Ms. Arneson went onto state that at the time the bonds were issued the Internal Revenue Service was asked what their opinion was as far as holding the money. The IRS indicated that the Board would not be able to hold excess monies. Toward that end, the PFC Board placed the excess funds in the construction fund. A simple transfer of funds does not cure the arbitrage problems, but the Board's intention was to go ahead and spend the funds, but the current situation arose after that time. The arbitrage simply means investing money to make more money than is currently paid on the borrowed funds. Ms. Arneson clarified that the Board has been faced with the unusual situation where the Directors are attempting to resolve the problem through one of the avenues as previou:31y stated, but are unable to do so because of situations which are currently in existence. -4 - 87.004/3391 j Ms. Arneson, simplified arbitrage for the audience. When the bonds were sold,; one of the provisions in the governing documents, the main document being the indenture which serves as the agreement between the PFC and the bondholders. Ms. Lyn Scott inquired who were the bondholders., Ms. Arneson stated. that the public are the bondholders. , Ms. Scott then inquired if she personally was considered a bondholder. Ms. Arneson indicated that Ms. Scott would be a bondholder only if she had invested in these particular bonds. Ms. Scott inquired whether it would be feasible to approach each bondholder to ascertain their desire in the disbursement of the PFC funds. Ms. Arneson indicated that it would not be feasible. Ms. Arneson continued, one of the provisions in the documents stipulated the way in which bonds could be paid off (principal and interest would be paid on these bonds) is that rent would be paid from the City. That money was to be taken by the Corporation and placed in a certain fund with the Trustee (which is a bank that is the Trustee for this financing) and payback to the bondholders when the various bonds fell due. Bonds come due a certain amount each year with interest. Generally speaking, when bonds are sold by a public agency, one of the features incorporated into the governing documents is that the interest is tax exempt to the people who own those bonds. Tax exemption cannot be maintained if certain conditions of the Internal Revenue Code are violated. One of those things is to borrow money just to invest to make more money. If public agencies are conducting such practices, that means that the bonds are not going to be tax exempt. At the time the bonds were issued, the Internal Revenue Service was asked their opinion as to whether or not these bonds would be tax exempt and it was determined that they would indeed be tax exempt. However, one of the stipulations was that if excess monies came in the rental (via higher interest earnings on the money than anticipated, etc.) excess rentals should not be accumulated, otherwise these bonds could be considered not tax exempt. Ms. Arneson stated that this is the subject being discussed today. The Board does currently hold such excess funds at this time. Ms. Boesch indicated that the excess funds have been held for quite sometime todate and wondered if the IRS had not approached the Board regarding the arbitrage situation. Ms. Arneson stated that as far as the Board is aware, the IRS does not know of the current arbitrage situation being experienced by the Board. Mr. West stated that everyone should go away from this meeting understanding that the Board has four ways in which it may spend the excess funds. There are two primary ways the Board reviewed several months ago and the consensus was the neither alternative was a cost effective method. The Board then had two secondary alternatives; 1) go toward construction, 2) return the excess funds to the City. It is at this point that there is a conflict between the two parties. 87.004/3391 j Ms. Arneson clarified that in order to redeem bonds or purchase bonds with the excess funds, it is not a prerequisite that it be cost effective. This would be a discretionary part of the Board's role. Mr. West stated that the critical variable now is whether or not the City Council is committed to -doing anything in regard to the Library. If they are, it is appropriate that the monies be placed in the construction fund and follow the Board's intent to have the funds used appropriately. If the Council makes the decision that they are not going to do anything at the Library, then all the signals perceived by the Board during the last several months evaporate. In essence, there would be no place to spend the monies, as the Board cannot spend such funds without the consent of the Council, other than to redeem bonds. The City must make the decision to spend the money on the facility. Ms. Locke inquired as to who was paying for the Needs Assessment Study. Mr. West advised that the City Council is conducting the study, they are paying for the study and they will make the decision. Mr. West indicated that he presumed that there were people in the room who were participating in the evaluation of the study, and to his knowledge the various Boards. were represented in that analysis phase. The PFC Board is not involved in the evaluation of the study as they do not need to be as they serve as a bank only. Ms. Zeleznikar stated that as Chairman of the Library Board that she felt the monies should stay with the Central Library Facility. 1:' Ms. Davenport stated that she understood that the reasoning behind calling a special meeting today was to make a determination on the retention of the excess monies by the PFC or returning the funds to the City. Mr. West indicated that this was correct. Ms. Davenport stated that since there is a study pending, and since the arbitrage problem has been in existence for quite sometime, it was her feeling that there would be no harm in holding off making such a decision until the results of the Needs Assessment Study are known. Ms. Davenport indicated that at this point, not 'even the City Council knows whether they will commit to a Library expansion. The next item on the agenda was review and possible adoption of Resolution 87-02, Return of Funds to City. Motion made to defer the topic to the regular meeting of the PFC Board to be held October 28, 1987. Motion seconded and approved. Mr. Carpenter indicated that his statements as made previously at this meeting were based on his anticipation of the "watch" change at City Hall. Mr. Carpenter advised that no one knows what could happen with regards to the Assessment Study prior to the PFC's meeting in October. Further, that if by the October meeting a determination has not been made as to the PFC's involvement in financing of construction activities at the Library, that he will probably be in favor of giving the money back to the City. He felt that the decision should be postponed, however, until the "watch" change has been made at City Hall and allow the Board to review what the Assessment: Study has provided in the way of information. -6- 87.004/3391j t Mrs. Donoho inquired if the Board would like legal counsel to attend the next meeting. Mr. Garafalo requested Ms. Arneson to attend the October 28, 1987 meeting to review her opinion as was requested earlier in the meeting. Mr. West felt that possible bond redemption should be reviewed once again.. Mr. West inquired if the bond administrator could provide a recommendation on the viability of bond redemption. Mr. Villella felt, as did Ms. Arneson, that bond redemption is a judgment call. by the Board. As far as the current market rate, Mr. Villella can obtain such information from the Trustee. Ms. Arneson stated that she was uncertain that the Trustee is in a position to give financial advice as far as what is economically a good idea and what is not. Mr. West withdrew his request regarding this subject. The meeting was then adjourned to the Regular Meeting of the Board at 4:00 P.M., October 28, 1987 at the Central Library Facility, Balboa Room, 7111 Talbert Avenue, Huntington Beach, California. S. I K. DONCIHO Recording Secretary AN T. VILLELL Assistant Secretary, H.B.P.F.C. Note: Statements referred to hereinabove are noted as being in general only and are not intended to be verbatim quotes. Approved: JOSEPH GARAFALO President, H.B.P.F.C. L0RRAINE FABER Secretary/Treasurer, H.B.P.F.C. -7 87.004/3391 j