18-0116_BLENHEIM FACILITY MANAGEMENT_F1a_Correspondence 31/16/2018
Fla
January 16, 2018
City of San Juan Capistrano (via e-mail)
City Council Members,
I write to you in my personal capacity as a resident of San Juan Capistrano and a friend of each
of you. My comments below in no way reflect views or positions of the school district.
I have examined the agenda materials for your meeting today, January 16, 2018. Two items,
A4i (closed session) and Fla are related to operations at the "Rancho Viejo Riding Park at San
Juan Capistrano" including the appropriation of more than $750,000 in public money for this
purpose.
Relying on the Executive Summary, the city finds itself in a relationship Blenheim that
purportedly violates IRS "regulations and guidelines", pertaining to use of tax-exempt bonds to
finance a private business activity. The Blenheim relationship has existed in its present form
since the city acquired the Riding Park eight years ago without IRS enforcement action.
The Fla recommendation of city staff is to alter the relationship with Blenheim for the next 18
months, until such time that the tax-exempt bonds can be called in August 2019, after which it
is implied that they be replaced with new taxable bonds. However, the fundamental logic of
the recommendation is faulty, since the proposed agreement is offered as a solution to the tax
problem that would make replacement bonds unnecessary. In other words, the proposed
agreement is not "interim" at all. It is a new form of long-term relationship with Blenheim and
should be evaluated on that basis alone.'
The implications of the proposed agreement go far beyond IRS issues and replacement bonds.'
The new agreement seeks to establish Blenheim as a mere contractor to the city and the staff
recommendation describes this (page 2, paragraph 5:
"The IMA provides that the City pay a base management fee of $750,000 per calendar year to
BFM for management of the Riding Park under the direction and control of the City. In
addition, consistent with the re uirement for the City to have direct financial res onsibilit for
operations, the City will also pay for certain event expenses and operating costs including
monthly utility costs."
' The convoluted justification for the proposed agreement appears to be an effort to create a
sole -source justification for awarding the city's concession to Blenheim.
2 Will replacement taxable bonds be obtained in 2019 at interest rates comparable to that of
the existing tax-exempt debt?
By creating this new relationship, the public will incur new financial obligations of unknown
magnitude in connection with the events managed by Blenheim. The staff recommendation
identifies $1.26 million in annual expenditure (or $1.89 million for the term of the agreement),
to be offset by uncertain event revenue (i.e., an estimate). Frankly, the idea of risking more
than $100,000 per month in public funds to perpetuate private equestrian events at the riding
park is objectionable by itself. The calculation of a "net operating profit" described in the staff
report excludes the utilities expenditures (paid by the city) and depends entirely on the number
of events, the financial success of each event, and the financial integrity of those handling the
money.
What is worse, once this agreement takes effect, the city will be solely liable for the
consequences and behavior of Blenheim and event participants. While the agreement provides
for a small liability insurance policy (insufficient to protect the city from claims made by event
participants), there is no protection against environmental damage or administrative fines
arising from events on the site. Will the city now hire additional staff to monitor the event
activities? At what cost? How is the public purse protected from these obvious consequences
of Blenheim and event participants?
While the structure of the agreement contains many good elements, several are missing or just
erroneous:
1. A cap or limit on the amount of money that may be advanced to Blenheim under the
agreement,
2. A performance bond to ensure that events planned by Blenheim and underwritten by
taxpayers will actually take place (i.e., that Blenheim will perform),
3. The indemnification clause (paragraph 5.1) is insufficient protection for the public under
present circumstances, and the second -to -last sentence is either a typo or nonsense
("..Company waives all claims and demands against..." itself?
4. The concessioner is to handle all funds constituting income from the events without
practical oversight.
In summary, this agreement creates a new city concession without competition. It offers
generous and unlimited financing the concessioner. Finally, it establishes for the first time that
the city is solely responsible for environmental consequences of arising from operation of the
Riding Park.
I believe the whole matter should be sent back to staff for further consideration.
Sincerely,
Jim Reardon