19-0820_SANTA MARGARITA WATER DISTRICT_F1a_Agenda Report8t20t2019
F1a
TO
City of San Juan Capistrano
Agenda Report
Honorable Mayor and Members of the City Council
Ær ^in Sieget, City ManagerFROM
SUBMITTED BY: Ken Al-lmam, Chief Financial Officer Ø
Steve May, Director of Public Works and Utilities
DATE: August 20,2019
SUBJECT:
.Å,Y1--
Memorandum of Understanding Pertaining to Transfer of the City's
Water and Sewer Utility Systems to the Santa Margarita Water
District
RECOMM ENDATION
Adopt a Resolution (Attachment 1) approving a Memorandum of Understanding that sets
forth the major deal points associated with transfer of ownership and operation of the
City's water and sewer utility systems to the Santa Margarita Water District, and makes a
determination of exemption under the California Environmental Quality Act (CEQA).
EXECUTIVE SUMMARY
On February 19, 2019, the City Council selected the Santa Margarita Water District
(SMWD) for further negotiation to be the successor agency to provide water and sewer
service to City utility customers. Since that date, the staff of the City and SMWD have
worked to develop a Memorandum of Understanding (MOU) that addresses major deal
points and provides a framework for a future annexation. Approval of the attached MOU
would allow the agencies to continue to work together to develop a comprehensive
annexation agreement and an application to the Orange County LocalAgency Formatíon
Commission (LAFCO).
ION/ANALYSIS
The major deal points of the MOU are as follows
SMWD to use best efforts to invest $25 million over the next ten years in
infrastructure rehabilitation and improvement for the direct benefit of San Juan
Capistrano ratepayers ;
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City Council Agenda Report
August 20,2019
Page 2 of 5
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Provision that, on average, there will be a modest initial rate reduction in the total
amount (water and sewer combined) charged for service;
Long-term service charges to be determined by rate studies that take into account
all costs associated with the delivery of utility services, as required by law;
San Juan Capistrano ratepayers to participate in at-large elections for SMWD
board members. Should SMWD transition to by-district elections, SMWD commits
to drawing voting district boundaries in a manner that will not dilute the voting
power of San Juan Capistrano residents, to the extent allowed by law;
City to transfer to SMWD all assets (including water rights) and related liabilities
associated with the City's water and sewer systems;
City to transfer the rights and obligations of joint venture memberships to SMWD;
SMWD assumption of water and sewer related pension costs by making either a
lump sum payment or a series of payments to the City to reimburse the City for
such costs that are due to the Orange County Employees Retirement System;
Continued cooperation between the two agencies as a comprehensive annexation
agreement is developed and a LAFCO application prepared. This includes
continued sharing of information, providing access to records, developing a list of
assets to be transferred to SMWD and discussing capital expenditures over
$25,000 with SMWD management prior to expenditure;
City to transfer 16 of 20 fulltime employees to SMWD. Four full-time Utilities
employees are anticipated to be laid off as part of the transfer. Details regarding
the impacts of the transfer are currently under discussion with SMWD and the
City's employee associations;
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a Provision for local payment of utility bills at City Hall, the continued need for which
is to be reevaluated after two years;
a No exchange of property tax revenues in connection with the utilities systems
transfer;
SMWD to assume the rights and obligations of utility-related settlement
agreements in effect as of the date of the transfer;
SMWD indemnification of the City, commencing on the transfer date, with respect
to any and all obligations, claims and liabilities stemming from the utilities systems,
except for those that arose from the City's operation of the utilities systems before
the transfer and are covered under the City's risk pool insurance.
City Council Agenda Report
August 20,2019
Page 3 of 5
The MOU is scheduled for consideration by the SMWD Board of Directors on August 23.
lf the City Council and SMWD Board approve the MOU, the City and SMWD will work
together to develop an annexation agreement that would accompany an application to
LAFCO to transfer ownership and operation of the water and sewer systems to SMWD.
All efforts are being made to complete the development of these documents by late
falllearly winter. The annexation agreement will be presented to the City Council and the
SMWD Board before it and the LAFCO application are submitted to LAFCO staff for
review and subsequent submission to the LAFCO Board. lf approved by the LAFCO
Board, the reorganization will be submitted to voters and property owners within the
service area for an opportunity to protest transfer of the utility systems to SMWD. Barring
unforeseen difficulties or setbacks, the reorganization is expected to be completed iñ
Spring 2020.
FISCAL IMPACT:
There is no fiscal impact associated with the recommended action of adopting a resolution
approving the MOU. Each party will be responsible for its own costs associated with the
reorganization, and each party has the right to cancelthe MOU at any time after providing
thirty days written notice to the other party. ln the event of such cancellation, neither party
will be required to make any reimbursement to the other agency, except for City
reimbursement to SMWD for costs incurred to create a comprehensive register of real
property interests, which record would have continuing value to the City in the event that
the reorganization did not move forward.
ENVIRONMENTAL IMPACT
City staff has reviewed the recommended action in accordance with the California
Environmental Quality Act (Public Resources Code Section 21000 et seq.) ('CEQA").
Pursuant to the State CEQA Guidelines (14 Cal Code Regulations 15000 et seq.), City
staff believes that the approval of the MOU is not a project pursuant to CEQA and is
exempt from CEQA because it is an organizational or administrative activity of
government that will not result in direct or indirect physical changes in the environment
(CEOA Guidelines Section 15378(bX5)). The MOU constitutes a pre-approval
agreement. ln accordance with CEQA Guidelines Section 15004, the MOU does not bind
any party, or commit any party to any definite course of action that may result in a direct
or indirect change in the environment. Further environmental review will be performed as
part of the parties' consideration of the transfer and annexatíon before any party takes
any action that binds any party or may result in direct or indirect change in the
environment. City staff recommends that the City Council adopt the resolution which
includes a finding that approval of the MOU does not constitute a project and is exempt
under CEQA.
City Council Agenda Report
August 20,2019
Page 4 of 5
PRIOR CITY COUNCIL REVIEW:
February 19, 2019: City Council selected SMWD for further consideration and
negotiation of terms related to the potential transfer of the City's water and sewer
utility system.
February 5, 2019: City Council received presentations from the three qualified
special districts as well as input from the public with respect to the selection of one
of the districts for further consideration and negotiation of terms related to the
potential transfer of the City's water and sewer utility system.
December 5, 2017: City Council appropriated $50,000 from the Water Fund to
supplement funding for the LAFCO Municipal Services Review.
August 2, 2016: City Council approved the "Criteria for Evaluating a Potential
Change in Utility Organization" and directed staff to fonruard to LAFCO an
application for a focused Municipal Service Review for the City's water and sewer
utility.
April 5, 2016: City Council concluded the reorganization study, appropriated
$150,000 for costs associated with the Municipal Service Review, and directed
staff to convene one or more workshops with the Utilities Commission and the
public to develop specific criteria that should guide the City's consideration of a
potential change in organization.
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March 3,2015: City Council approved an agreement with Brownstein Hyatt Farber
Schreck to study the potential benefits and optíons for a utility reorganization.
OMMITTEE/BOARD REVIEW AND
Not applicable
NOTIFICATION
Daniel R. Ferons, General Manager, Santa Margarita Water District
Carolyn Emery, Executive Officer, Orange County LocalAgency Formation Commission
Utilities Commission
Chamber of Commerce
Roger Butow
Thomas Whaling
Richard Gardner
Joanne Marquez
Management and Professional Em ployees Association
Classified Employees Association
Utilities Employees
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City Council Agenda Report
August 20,2019
Page 5 of 5
ATTACHMENTS:
Attachment 1 - Resolution Approving Memorandum of Understanding
RESOLUTION NO. 19.08-20-XX
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN JUAN
CAPISTRANO, CALIFORNIA, APPROVING A MEMORANDUM OF
UNDERSTANDING WITH THE SANTA MARGARITA WATER DISTRICT
REGARDING THE WATER DISTRICT'S PROPOSED ANNEXATION OF
THE CITY'S WATER AND SEWER SYSTEMS, MAKING A
DETERMINATION OF EXEMPTION UNDER THE CALIFORNIA
ENVIRONMENTAL QUALITY ACT, AND TAKING RELATED ACTIONS
WHEREAS, the City of San Juan Capistrano (the "City") owns and operates utilities
systems (the "Utilities Systems") consisting of (i) a potable water system and a recycled
water system and (ii) a wastewater system;
WHEREAS, in 2015, the City began to evaluate options to re-organize the Utilities
Systems;
WHEREAS, based on such evaluation, in August 2016, the City submitted an
application to the Orange County Local Agency Formation Commission ("OCLAFCO")
pursuant to Government Code Section 56430 for a Municipal Service Review, to assess
the potential transfer of the operation and facilities of the Utilities Systems to another public
agency;
WHEREAS, OCLAFCO received and filed a final Focused Municipalservice Review
report on October 10,2018 (the "MSR");
WHEREAS, the MSR assessed the potential transfer of the Utilities Systems to one
or a combination of two or three independent special districts with service boundaries
adjacent to the City: Moulton Niguel Water District ('MNWD'), South Coast Water District
("SCWD") and Santa Margarita Water District (the "SMWD");
WHEREAS, after additional discussions with MNWD, SCWD and SMWD, the City
expressed its intention on February 19, 2019, to proceed by focusing its negotiation with
SMWD with respect to the transfer of the Utilities Systems while leaving other options
open, until the negotiation with SMWD has concluded in accordance with the terms of a
Memorandum of Understanding (the "Memorandum");
WHEREAS, the transfer of the Utilities Systems to SMWD will require an annexation
of the service area of the Utilities Systems to SMWD (the "Annexation"), which will
constitute a reorganization and/or change of organization within the meaning of the
Cortese-Knox Hertzberg Local Government Reorganization Act of 2000, California
Government Code Section 56000 et seq.;
WHEREAS, the Annexation will require SMWD to submit to OCLAFCO an
application and a plan for services for a sphere of influence amendment and annexation
(collectively, the "LAFCO Application"), and OCLAFCO may impose terms and conditions
as part of any such re-organization and/or change of organization;
ATTACHMENTl-Page1of3
WHEREAS, the City and SMWD contemplate that, before the submission of the
LAFCO Application to OCLAFCO, the City and SMWD will enter into an agreement (the
"Annexation Agreement") which will set forth: (i) certain key terms to be incorporated into
the LAFCO Application, and (ii) certain agreements pertaining to matters after the
Annexation;
WHEREAS, the City and SMWD intend for the Memorandum to memorialize the
parties' mutual understanding with respect to certain terms to be incorporated into the
Annexation Agreement and the LAFCO Application, and other related matters; and,
WHEREAS, the Memorandum, in its substantial final form, is attached to this
Resolution as Exhibit A.
NOW, THEREFORE, BE lT RESOLVED, by the City Councilof the City of San Juan
Capistrano that:
1. The above recitals are true and correct and are a substantive part of this
Resolution.
2. The Memorandum has been reviewed by City staff and the City Councilwith
respect to the applicability of the California Environmental Quality Act (Public Resources
Code Section 21000 et seq.) ("CEQA'). Pursuant to the State CEQA Guidelines (14 Cal
Code Regs 15000 et seq.)(the "Guidelines"), the City Council has determined that the
approval of the Memorandum is not a prolect pursuant to CEQA and is exempt from CEQA
because it is an organizational or administrative activity of government that will not result in
direct or indirect physical changes in the environment (Guidelines Section 15378(b)(5)).
The Memorandum constitutes a pre-approval agreement for the purposes of CEQA and
the CEQA Guidelines. ln accordance with Section 15004 of the CEQA Guidelines, the
Memorandum does not bind any party, or commit any party to any definite course of action
that may result in a direct or indirect change in the environment.
3. City Staff is hereby directed to prepare and post a notice of exemption
pursuant to Guidelines Section 15062.
4. The Memorandum, in the form attached as Exhibit A, is hereby approved.
The City Manager is hereby authorized to execute and deliver, for and in the name of the
City, the Memorandum, in substantially such form, with changes therein as the City
Manager may approve (such approval to be conclusively evidenced by the execution and
delivery thereof).
5. The officers of the City are hereby authorized, jointly and severally, to do all
things which they may deem necessary or proper to effectuate the purposes of this
Resolution and the Memorandum, and any such actions previously taken are hereby
ratified and confirmed.
6. This Resolution shall be effective upon adoption
ATTACHMENTl-Page2of3
PASSED, APPROVED AND ADOPTED this 20th day of August, 2019
BRIAN L. MARYOTT, MAYOR
ATTEST
MARIA MORRIS, CITY CLERK
STATE OF CALIFORNIA
COUNTY OF ORANGE
CITY OF SAN JUAN CAPISTRANO
l, Maria Morris, appointed City Clerk of the City of San Juan Capistrano, do hereby certify
that the foregoing Resolution was adopted at a regular meeting of the City Council of the
City of San Juan Capistrano, held on the 20th day of August, 2019, by the following vote:
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SS
AYES:
NOES:
ABSENT:
ABSTAIN
COUNCIL MEMBERS
COUNCIL MEMBERS
COUNCIL MEMBERS
COUNCIL MEMBERS
Maria Morris, City Clerk
ATTACHMENTl -Page3of3
A.
B.
C.
MEMORANDUM OF' UNDERSTANDING
This Memorandum of Understanding, dated as of 2019 (this
"Memorandum"), is entered into by and between the City of San Juan Capistrano, a municipal
corporation duly organized and existing under the laws of the State of California (the "City"), and
the Santa Margarita \ilater District, a water district duly organized and existing under the
California Water District Law (California Water Code Section 34000 et seq.) ("SMWD"). The
City and SMWD are, together, referred to in this Memorandum as the "Parties" and, individually,
as a "Part5/."
RECITALS
The City owns and operates utilities systems (the 66Utilities Systems") consisting of (i) a
potable water system and a recycled water system (together, the "Water System") and
(ii) a wastewater system (the "Wastewater System").
In2015, the City began to evaluate options to re-organizethe Utilities Systems.
Based on such evaluation, in August 2016,the City submitted an application to the Orange
County Local Agency Formation Commission ("OCLAFCO") pursuant to Government
Code Section 56430 for a Municipal Service Review, to assess the potential transfer of the
operation and facilities of the Utilities Systems to another public agency.
After a period of study and the undertaking of a study session and then a public hearing,
OCLAFCO received and filed the final Focused Municipal Service Review report on
October 10, 2018 (the "MSR").
The MSR assessed the potential transfer of the Utilities Systems to one or a combination
of two or three independent special districts with service boundaries adjacent to the City:
Moulton Niguel ìWater District ("MNWD"), South Coast Water District ("SCWD") and
SMWD.
F.After additional discussions with MNWD, SCWD and SMWD, the City expressed its
intention on February 19,2019, to proceed by focusing its negotiation with SMWD with
respect to the transfer of the Utilities Systems, while leaving other options open until the
negotiation with SMWD has concluded in accordance with the terms of this Memorandum.
G The transfer of the Utilities Systems to SMWD will require an annexation of the service
area of the Utilities Systems to SMWD (the "Annexation"), which will constitute a
reorganization and/or change of organization within the meaning of the Cortese-Knox
Hertzberg Local Government Reorganization Act of 2000, California Government Code
Section 56000 et seq.
The Annexation will require SMWD to submit to OCLAFCO an application and a plan for
services for a sphere of influence amendment and annexation (collectively, the "LAFCO
Application"), and OCLAFCO may impose terms and conditions as part of any such re-
or ganization and/or change of organization.
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The Parties contemplate that, before the submission of the LAFCO Application to
OCLAFCO, the Parties will enter into an agreement (the "Annexation Agreement")
which will set forth: (i) certain key terms to be incorporated into the LAFCO Application,
and (ii) certain agreements pertaining to matters after the Annexation.
This Memorandum memorializes the Parties' mutual understanding with respect to certain
terms to be incorporated into the Annexation Agreement and the LAFCO Application, and
other related matters.
NOW, THEREF'ORE, IN CONSIDERATION OF THE MUTUAL COVENANTS AND
CONDITIONS CONTAINED HEREIN, AND OTHER VALUABLE CONSIDERATION,
THE ADEQUACY OF' WHICH ARE HEREBY ACKNOWLEDGED, THE PARTIES
AGREE AS F'OLLOWS:
1. PURPOSE
The Parties intend that the provisions of this Memorandum: (i) will form the basis for the
development of the Annexation Agreement and (ii) address how other matters pertaining to the
Annexation will be carried out by the Parties.
2. DEFINITIONS
Unless the context otherwise requires, the terms defined in this Section shall for all purposes of
this Memorandum have the meanings herein specifìed:
2.1. "20-14-S.lB-Bonds" means the $20,361,090 (original principal amount) San Juan
Basin Authority Lease Revenue Bonds (Ground Water Recovery Project), Issue of
2014.
2.2."20144 Refundine Boú" means theSl9,922,77l (original principal amount) City
of San Juan Capistrano Water Revenue Refunding Bonds, Series 2014A.
2.3. "2017 Installment Purchase Agreement" means the Installment Purchase
Agreement, dated as of December 1,2017, by and between the City and the Public
Property Financing Corporation of California, pursuant to which the City is
obligated to make certain Installment Payments (as dehned therein, with an original
principal component of $8,4 I 0,000).
"Aunex4tþn" means SMWD's annexation of the Service Area, as contemplated
herein.
"Annexation Aereemffi" means the agreement to be entered into by the City and
SMWD, which will set forth: (i) certain key terms to be incorporated into the
LAFCO Application, and (ii) certain agreements pertaining to matters after the
Annexation.
2.4.
2.5.
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2.6. (cAssets" means the assets owned by the City that are accounted for in the Asset
Register and that are used in connection with and for purposes of operating the
Water System or the Wastewater System, as applicable, including but not limited
to the City Water Rights, physical facilities, real property interests, personal
property, cash or cash equivalents or other funds.
2.7."Asset Register" means a database or registry that documents all of the Assets of
the Water System or the Wastewater System, as applicable.
2.8.*ÇEQA" means the California Environmental Quality Acq set forth in California
Public Resources Code Sections 21000 et seq.
"ÇEQA_Guidelineg" means regulations implementing CEQA, set forth in Title 14
of the California Code of Regulations Sections 15000 et seq.
2.10. (6çi1y" means the City of San Juan Capistrano, California.
2.9.
2.13. "CitylMatq ßlghlg" means all water rights controlled, exercised, applied for or
held by the City, including, without limitation, pueblo, appropriative, riparian,
overlying, or prescriptive right, or any other right, allocation or entitlement to
divert, produce, or use surface water or groundwater, whether existing at common
law or pursuant to any permit, agreement, contract, adjudication, or any judicial or
administrative action.
2.14. "City Water Rights T " means the agreement between the City
and SMWD regarding the transfer of City Water Rights developed pursuant to
Section 7.1.
2.15. "Çeunjy" means the County of Orange, California
2.16. "Çu$e!qe$" means ratepayers of the Service Area.
2.11.
2.12.
2.17.
2.18.
2.19.
"City Council" means the City Council of the City.
"Çily_X4glgge¡" means the City Manager (or in the absence of the City Manager,
the Assistant City Manager) of the City.
"GWIUt" means the Groundwater Recovery Plant operated by the City
"G.]ilRP Land" means the City-owned land on which the GWRP is situated.
6(ID 9r' means the new improvement district (currently contemplated to be
designated "Improvement DistrictNo. 9") proposed to be formed by SMWD, which
will consist of only the Service Area and until the formation of such new
improvement district, UID 9" shall refer to the teritory currently served by the
City's Utilities Systems.
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2.20. 'oJoint Venture" means a joint powers authority or joint venture to which the City
is member for the operation of the Water System or the Wastewater System.
2.21. "LAFCO Application" means the application and plan for services for a sphere of
influence amendment and annexation to be submitted to OCLAFCO with respect
to the Annexation.
2.22. "LAFCO Approval" means the action to be taken by the OCLAFCO Commission
to approve the Annexation.
2.23. "Litigation Disclosure List" means a list of all litigation which affects the Utilities
Systems and which is: (a) on-going and of which the City is a party, or (b)
threatened and actually known to the City.
2.24. "MSR" means the fìnal Focused Municipal Service Review report received and
filed by the LAFCO Commission on October 10, 2018, assessing the potential
transfer of the operation and facilities of the Utilities Systems to another public
agency.
2.25. "New Easements" means easement or access licenses, or other similar real property
interests to any Retained Property or any other City-owned property, which are
proposed to be created in favor of SMWD, to enable SMWD's operation of the
Utilities Systems after the Transfer Date.
2.26.
2.27.
2.31.
2.32.
2.28. "QÇERS-QþLgatien" means the additional payment required to be made as the
result of the Annexation, pursuant to the OCERS 6/17/19 Determination.
2.29. "OCLAFCO" means the Local Agency Formation Commission of Orange County,
California.
2.30. "Outstandine Bond Oblisations" means, collectively, the 2014 SJB Bonds, the
2014A Refirnding Bonds and the 2017 Installment Purchase Agreement.
"OCEB$" means the Orange County Employees Retirement System.
"OCERS 6/17119 Det " the determination by the Board of Retirement
(which administers OCERS) on June 17,2019 regarding the OCERS Obligation.
6(ruy" means, as context requires, either the City or SMWD.
"Pending SCWD Comp 'means the complaint to the SWRCB filed by SCWD
on August 13,2015, against the SJBA and the City regarding the City's diversion
and use of water pursuant to SWRCB Permit No. 21074 and all related matters,
which complaint is pending.
2.33. "Post-Transfer Liab " means all obligations, claims and liabilities stemming
from the Utilities Systems, unless such obligations, claims or liabilities arose during
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the City's operation of the Utilities Systems prior to the Transfer Date and are
covered under the City's risk pool insurance.
2.34. "Prosþective Emplo " means current City employees of the Utilities Systems
who become SMWD employees upon Annexation.
2.35. "Real Propert)¡ Inventor)¡ Report" means the report regarding real property interests
to be prepared pursuant to Section 5.a(a).
2.36. "Retained means all of the real property interests identified in the Real
Property Inventory Report that are proposed to be retained by the City after the
Annexation.
2.37.
2.38.
2.39.
2.46.
2.47.
2.40. "South Coast Farms R " means all payments payable by South Coast
Farms, Inc., or Ecocenter, Inc. (d/bla The Ecology Center) (or their successors or
assigns) to the City under the Agreement Establishing a Payment Schedule for
Outstanding Water Charges, dated as of February 7,2017, as previously amended,
and the LetterAgreement, dated August2l,2018, by and between the City and
Ecocenter, Inc.
2.41.
2.42.
2.43.
"Sj4lg" means the State of California.
"SWRCB" means the California State Water Resources Control Board
"Transfer Date" means the date on which the Utilities Systems are transferred to
SMWD as specified in the OCLAFCO Certificate of Completion for the
Annexation or as otherwise agreed to by the Parties.
2.44. "Transferred Properties" means all of the real property interests that are proposed' to be transferred by the City to SMWD in connection with the Annexation.
2.45.
"SCWD" means the South Coast Water District.
(($JBA" means the San Juan Basin Authority, a California joint powers authority.
"SeIvjce Area" means the territory served by the City's Utilities Systems, and as
described in the MSR.
"ËeIvQL_Eund" means the fund established and held by the City for Wastewater
System (identified as the "Municipal Sewer Enterprise Fund" in the City's most
recent audited financial statements).
"SMWD" means the Santa Margarita Water District.
"SMWD Board" means the Board of Directors of SMWD.
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2.48. "SMWD Representati " means, with respect to a specified purpose, the person(s)
(which may be employees, agents or consultants of SMWD) designated by SMWD
General Manager, in writing, as authorized representatives of SMWD.
2.49. "SMWD General Manaqer" means the General Manager (or in the absence of the
General Manager, the Deputy General Manager) of SMWD.
2.50. "Utilities S)¡stems" means, together, the Water System and the Wastewater System.
2.51. "Wate1-Sptelq" means the potable water system and the recycled water system of
the City, to be transfemed to SMWD.
2.52. "Watel-Eu4fl" means the fund established and held by the City for Water System
(identified as the "Water Enterprise Fund" in the City's most recent audited
financial statements).
2.53. "WaslgwatelSy$gm" means the wastewater system of the City, to be transferred
to SMWD.
3. ANNEXATION AGREEMENT; LAFCO APPLICATION
3.1. Cooperation in Good Faith; Target Date.
(a) Each Party shall proceed in good faith to cooperate with the other Party to
develop the Annexation Agreement, in a manner consistent with this Memorandum. During the
term of this Memorandum, City shall not engage, negotiate with, solicit or accept proposals
regarding the transfer of the Utilities Systems from, any third party.
(b) Until the termination of this Memorandum, the City shall continue to
operate the Utilities Systems in a reasonable manner consistent with past practices. The City shall
not engage in any transaction outside of the ordinary course of business that materially adversely
affect the principal financial elements of transfer of the Utilities Systems to SMWD as
contemplated herein. All Assets of the City shall be conveyed in their "as-is" condition. In
addition, and notwithstanding the limitations of this paragraph, nothing herein shall preclude the
City from entering into agreements or undertaking pro.jects during the term of this Memorandum
that the City, in its sole independent judgment, determines to be necessary for the safe and effective
operation of the Utilities Systems.
(c) The Parties shall strive to have a frnal draft of the Annexation Agreement,
presented to the City Council and the SMWD Board, respectively,by January 2020.
(d)Conditions in Agreement.The Annexation Agreement shall
include customary conditions precedent generally applicable to an acquisition of the nature and
size of the transfer of the Utilities Systems contemplated by this Memorandum, each of which
must be satisfied or waived prior to the Transfer Date. In general, the transfer and the obligations
of each Party under the Annexation Agreement will be subject to the satisfaction or waiver of
EXHIBITA-Page6of20
certain conditions precedent, which shall include the following general concepts with specific
terms and provisions to be specified in the Annexation Agreement:
Satisfactorl¿ Results of Due Dilisence. The satisfactory completion of due
diligence investigation and acquisition audit by SMWD showing that the
Assets and any actual or contingent liabilities against those Assets, and the
prospective business operations of the Utilities Systems by SMWD are
substantially the same as currently understood by SMWD as of the date of
this Memorandum.
ll.Compliance. Satisfactory determination by SMWD that the acquisition and
prospective operations of the Utilities Systems by SMWD will comply with
all applicable laws and regulations, including, but not limited to approval
by OCLAFCO.
Consents and Approvals. The approval of the Annexation Agreement by
the SMWD Board and the City Council and the receipt of the approvals
from all governmental entities, including OCLAFCO, and other parties that
are necessary or appropriate to the City's transfer of the Assets by SMWD.
lv.Ahsence of Meferial I.ifiocfinn nr Àd VETSE f-hqn cp There must be no
pending, notice of which has been received by the City, or to the City's
knowledge, threatened material claims or litigation, other than those claims
disclosed by City in this Memorandum or disclosed to SMWD outside of
this Memorandum, involving City's Utilities Systems, and no material
adverse change in the Utilities Systems, which shall be further defined in
the Annexation Agreement.
Bonds. SMWD must obtain approval from OCLAFCO and the holders of
the Outstanding Bond Obligations in order to assume the Outstanding Bond
Obligations.
vl.Environmental. An environmental inspection by SMWD's staff or
consultant must show the Assets and Transfered Properties to be free from
significant environmental liabilities. SMWD shall be given access during
normal business hours or other times acceptable to City, with advance
notice, to the property of City and documents as necessary for SMWD and
its agents to conduct the inspection and prepare any necessary
environmental reports. The Assets and Transferred Properties will be
transferred in their "as is" condition.
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3.2. LAFCOApplication.
(a) SMWD shall submit the LAFCO Application to the LAFCO Commission
as soon as practicable after the Parties' execution and delivery of the Annexation Agreement.
(b) The LAFCO Application shall be consistent with the Parties' agreements
set forth in this Memorandum and the Annexation Agreement. The City agrees to support the
LAFCO Application and take all reasonably necessary action in support of the LAFCO
Application, including, but not limited to, providing letters, documents or statements of support if
necessary, and attending public hearings.
4.CEQA
4.1. SMWD to be Lead Agency for CEQA Compliance.
(a) SMWD shall be the lead agency for purposes of any CEQA compliance in
connection with the Annexation and the LAFCO Application, pursuant to Section 15051(a) and
Section 15051(d) of the CEQA Guidelines.
(b) SMWD shall comply with CEQA and the CEQA Guidelines before
committing to undertake any action that will result in .a direct or indirect change in the
environment, as required by CEQA. This Memorandum shall not restrict SMWD, if required to
do so, from considering any feasible mitigation measures and alternatives, at SMWD's cost,
including the "no project" alternative, nor restrict SMWD from denying any "project" altogether.
4.2. Pre-Approval Agreement for CEQA Purposes.
(a) This Memorandum constitutes a pre-approval agreement for the purposes
of CEQA and the CEQA Guidelines. In accordance with Section 15004 ofthe CEQA Guidelines,
this Memorandum shall not bind any party, or commit any party to any definite course of action
that may result in a direct or indirect change in the environment.
(b) In light of the foregoing, the Parties agree that this Memorandum will not
have an impact on the environment, and is not a "project" for CEQA purposes.
5.ASSET REGISTERS; DUE DILIGENCE; TRANSFER WORI( PLAN; TRANSFER
OF ASSETS
5.1. Asset Registers.
(a) The City will develop an Asset Register for each of the Water System and
the Wastewater System. The Asset Registers shall include the real property interests identified in
the Real Property Inventory Report prepared pursuant to Section 5.4
(b) The City shall continuously review and update each Asset Register before
the Transfer Date.
EXHIBITA-Page8of20
(c) To the extent that an item (or a category of items) on an Asset Register is to
be excluded from the transfer ofthe Utilities Systems to SMWD, such exclusion shall be specified
in the Annexation Agreement.
5.2. Review by SMWD; Due Diligence.
(a) The City shall promptly notify SMWD General Manager upon the
completion of the Asset Registers and, thereafter, make the Asset Registers available to SMWD
Representatives for review.
(b) Upon reasonable notice and subject to any legal or public safety restrictions,
the City shall allow SMWD Representatives access to the facilities and records of the Utilities
Systems for inspection and due diligence purposes.
(c) From the date of this Memorandum until the termination of this
Memorandum, City will give SMWD Representatives full access and opportunity to inspect,
investigate, and audit the books, records, contracts, and other documents of City as they relate to
City's operation and management of the Utilities Systems and all of City's assets and liabilities
(actual or contingent), including, without limitation, inspecting City's property and conducting
additional environmental inspections of property and reviewing financial records, contracts,
operating plans, and other business records for the purposes of evaluating issues related to the
operation of the Utilities Systems. The City further agrees to provide SMWD Representatives
with such additional information as may be reasonably requested pertaining to the Utilities
Systems, Transferred Properties and Assets. Any such access shall be subject to the provisions of
paragraph (b) ofthis Section related to reasonable advance notice and shall not include access to
attorney-client privileged communications, which communications shall not be subject to access
or inspection by SMWD.
5.3. Work Plan for Operational Transfer.
(a) SMWD shall specifr to the City any mechanical, software or other
incompatibilities which would cause an interruption to continuous and efficient operation and
upgrading of the Utilities Systems upon their transfer to SMWD.
(b) A draft work plan shall be prepared and completed by SMWD by October
l, 2019, with a final plan completed by SMWD by Decemb er 17, 2019. The work plan shall
include, but not be limited to, the following matters:
Proposed Water System Capital Improvement Program (CIP), 5
year and 10 year;
ll.Proposed Wastewater System CIP, 5 year and l0 year;
Proposed South Orange County rüastewater Authority (SOCV/A)
CIP, 5 year and 10 year;
I ll.
iv. Proposed Recycled Water System CIP, 5 year and l0 year;
EXHIBITA-Page9of20
Integration Plan for City employees transitioning into SMWD;
Integration Plan for including Customers into SMWD's billing
system;
Plan for transfer of City owned property, easements, and Water
Rights to SMWD; and
vlll.Plan for City assigning licenses, permits, agreements and contracts
to SMWD.
(c) The City agrees to cooperate with SMWD in SMWD's development of a
work plan to avoid or minimize any such intemuptions.
5.4.Real Property Inventory Report; Title Review and Environmental
Assessment.
(a) SMWD shall retain a consultant acceptable to the City to prepare the Real
Property Inventory Report, which shall identi$r: (i) all of the City's real property interests which
are cunently part of the Utilities Systems; (ii) the Transferred Properties, (iii) the Retained
Properties and (iv) the New Easements.
(b) The City or the consultant shall prepare the draft Real Property Inventory
Report and the list of Transferred Properties. The City shall review the accuracy of the Real
Property Inventory Report and the list of Transferred Properties and shall provide SMWD with
information as to any material deficiencies or omissions, known to City staff, in that Report or list.
(c) The property currently identifred by the City as the "Utilities Administration
Builcling" shall be one of the Retained Properties.
(d) The Real Property Inventory Report shall be finalized only when it has been
reviewed by the City and is in the form acceptable to both Parties.
(e) With respect to each Transferred Property, the City shall provide to SMWD
copies of the following materials to the extent the same are in the City's possession: (i) the deed
or othcr instrument showing City's ownership or other interest in such property, (ii) the most recent
title report, and (iii) the most recent environmental and physical condition report (e.g., Phase I
Environmental Site Assessment) and notices. The City shall cooperate with SMWD and provide
any information or other documentation related to the Transferred Property, that is currently in the
possession of the City and which is not otherwise subject to the attorney-client privilege, for
purposes of evaluating the Transferred Property.
(Ð SMWD may, at its own expense, obtain one or more title reports or conduct
environmental reviews with respect to the Transferred Property, provided, that SM.WD shall obtain
the City's prior written consent in accordance with Section 5.2 (b).
(g) The City and SMWD shall jointly review the encumbrances identified on
title reports for Transferred Property. With respect to any encumbrance which the Parties agree
V
vi
vll.
EXHIBIT A - Page 10 of 20
should and can be removed before the transfer of the property to SMWD, the City will provide
such assistance (including the execution of instruments) as SMWD reasonably requests to remove
the encumbrance.
(h) The City and SMWD shall cooperate to develop the forms of instrument to
effect the transfer of the Transferred Properties and the creation of the New Easements. To the
extent that, after the Transfer Date, SMWD proposes to create a new easement, an access license
or a lease with respect to any City-owned property in order to effectively operate the Utilities
Systems, the City shall cooperate with SMWD in good faith to consider, and develop the
appropriate instruments for, such creation.
(Ð SMWD shall provide notice to the City of any work performed on the
Utilities Systems within City limits by SMWD. The City shall not impose any permit or
application fees andlor costs that the City charges to other utility operators, which fees or costs
relate to SMWD's operation of the Utilities Systems, including but not limited to, encroachment
permits and historic, archaeological and paleontological resource permits.
C) SMWD will accept City's current standard trench paving requirements that
City applies to other utility operators for any Water System or Wastewater System related work
within City right of way, including any additional paving requirement beyond SMWD standards.
5.5. Utilities Systems Accounts Payable and Receivable. The City and SMWD agree
that, effective on the Transfer Date, SMWD shall acquire all Utilities Systems accounts payable
and receivables, including, but not limited to, South Coast Farms Receivables, receivables related
to loans paid to the City's redevelopment agency and any other accounts receivables pertaining to
the City's Utilities Systems.
5.6. Acceptance of Assets "As-Is." Except as specifically identified in the Annexation
Agreement, SMWD shall accept all facilities, properties and other Assets of the Utilities Systems
on an "as is" basis as of the Transfer Date.
6. CITY PROPERTY TAX RETENTION
6.1. The Parties agree that there will be no exchange of property tax revenues in
connection with or arising from the Annexation.
6.2. The Parties shall cooperate to take such action as necessary or appropriate to
effectuate Section 6. l.
7. CITY WATER RIGHTS
7.1. The Parties shall cooperate to develop the City Water Rights Transfer Agreement,
pursuant to which SMWD shall obtain the City Water Rights or the right to use the City's Water
Rights, individually and collectively, as applicable and as may be permitted by law. The Parties
acknowledge that it is their intent that SMWD receive all of the City Water Rights.
EXHIBIT A - Page 11 of 20
7.2. The City Water Rights Transfer Agreement may be: (i) a stand-alone document or
(ii) in the form of identifiable provisions of the Annexation Agreement.
7.3. The City agrees that after the Transfer Date all water service or water rights within
the City will be provided by SMWD and that SMWD will exercise and manage, to the extent
permitted by applicable law, all of the City's water rights for the benefit of the City or its residents,
except as otherwise identified in the City Water Rights Transfer Agreement.
7.4. SMWD will exercise best efforts to protect, maintain and fully exercise each and
all of the City's Water Rights for the benefit of City Customers.
7.5. Riding Park. The parties agree to continue to discuss water service for the Riding
Park and agree to memorialize such discussions in the Annexation Agreement.
8. PAYMENT OF CITY RETAINED PENSION COSTS
8.1. Recognition of City Retained Pension Cost. The Parties recognize that, because
of the Annexation, the City will incur the OCERS Obligation.
8.2. Payment by SMWD. To address this retained cost, SMWD agrees to pay the
OCERS Obligation and shall, in its discretion, pay the OCERS Obligation in either a lump payment
or in level annual installments as prescribed by the OCERS 6l17l19 Determination.
9. CITY RESERVES AND CAPITAL EXPENDITURT,S
9.1. All unexpended cash balances in the Water Fund and the Sewer Fund shall be
transferred to SMWD on the Transfer Date.
9.2. Notwithstanding the provisions of Section 9.1 above, nothing contained herein shall
preclude the City from using City reserves related to its Utilities Systems during the term of this
Memorandum consistent with Section 3.1 (b). In addition, prior to the Transfer Date, the City may
use City reserves related to its Utilities Systems to pay any valid claim, demand, liability or
judgment relating to or otherwise arising out of the City's operation of the Utility Systems. The
City agrees that during the term of this Memorandum, no capital expenditures related to the
Utilities Systems in excess of $25,000 per project shall be made without at least five (5) calendar
days advance notice to SMWD General Manager.
EXHIBIT A - Page 12 oT 20
10.OUTSTANDING BOND OBLIGATIONS
10.1. Transfer of Outstanding Bond Obligations.
(a) SMWD acknowledges that the City has provided such documents as
SMWD has deemed necessary for its review ofthe Outstanding Bond Obligations. The City agrees
to provide any additional documentation, except attorney-client privileged communications,
SMWD may deem reasonably necessary for purposes of evaluating and understanding the
Outstanding Bond Obligations.
(b) The Parties agree to jointly negotiate with the respective holders of the
Outstanding Bond Obligations to accomplish the successful transfer of such bonded debt to
SMWD. SMWD shall pledge the revenue necessary for such transfer. SMWD shall retain its own
Bond Counsel and the City shall be included as an addressee of each of such Bond Counsel's
opinions, except attorney-client privileged communications, regarding no adverse effect ofthe tax-
exempt status of the Outstanding Bond Obligations created by the transfer of the Outstanding Bond
Obligations. SMWD shall indemniS' the City for any non-compliance with applicable laws
(including but not limited to federal tax law) and debt covenants arising on or after the Transfer
Date. SMWD may choose to retire such Outstanding Bond Obligations by other means, including,
but not limited to, the issuance of bonds (or incurence of other debt) secured by SMWD's
fevenues.
10.2. No Outstanding Wastewater System Bond Obligations. The City represents and
warrants that there is no outstanding bond debt secured by a lien on or pledge of Wastewater
System revenues.
10.3. No Additional Bonds Without SMWD Consent. The City shall not incur any
additional debt secured by a lien on or pledge of any funds or assets of the Utilities Systems without
SMWD's prior written consent.
11. ASSUMPTIONOF LIABILITIES; INDEMNIFICATION
11.1. Settlement Agreements Obligations.
(a) As part ofthe Annexation, and effective on the Transfer Date, the City shall
delegate to SMWD, and SMWD shall assume, all of the City's rights and obligations underthe
stipulated judgments and related settlement agreements pertaining to the following:
(i) SanJuan Hills Golf Club, LP, v. City Of San Juan Capístrano, et al.
(Orange County Sup. Court Case No. 30-2014-00742347-CU-CO-CJC) filed 08/28/2014;
stipulated judgment entered 06/21/2016); and
(ii) Jrffr"y Cotton und Shannon Cotton, As Trustees Of The Cotton
Family Trust Dated September 9, 2002 v. The City Of San Juan Capistrano, et al. (Orange County
Sup Court Case No. 30-2015-00778655) filed 03/23/2015; stipulated judgment entered
r r/03/2016).
EXHIBIT A - Page 13 of 20
(b) The City and SMWD shall cooperate to obtain such consents or approvals
as necessary to accomplish such delegation and assumption.
11.2. Pending SCWD Complaint.
(a) Prior to the Transfer Date, the City shall continue to be responsible for its
defense, from whatever resources the City deems appropriate, with respect to the Pending SCWD
Complaint; provided, that the City shall not enter into any resolution of the matter or agree to a
settlement term that will materially adversely affect SMWD's operation of the Utilities Systems
without consulting SMWD and obtaining SMWD's prior written consent.
(b) After the Transfer Date, SMWD shall assume the City's role with respect
to the Pending SCWD Complaint and become responsible for the defense thereof from resources
of SMWD; provided, that SMWD shall not enter into any resolution of the matter or agree to a
settlement term affecting the City without consulting with the City and obtaining the City's prior
written consent; provided, further, that SMWD shall reimburse the City all liabilities, costs and
expenses incuned in connection with the Pending SCWD Complaint after the Transfer Date
(recognizing that such liabilities, costs and expenses would have been appropriately allocated to
the Water System regardless of the transfer).
11.3. SMWD Assumption of All Other Obligations and Liabilities.
(a) The City agrees to take all reasonable efforts to exhaust any and all available
coverage from the City's risk pool insurance authority as it relates to any claims arising out of the
City's operation of the Utilities Systems prior to the Transfer Date.
(b) On and after the Transfer Date SMWD shall be responsible for all Post-
Transfer Liabilities.
11.4. Indemnification. From and after the Transfer Date, SMWD shall defend,
indemnifr and hold City harmless from all Post-Transfer Liabilities. The intent of the foregoing is
for SMWD to assume responsibility for all Post-Transfer Liabilities and not expand any liability
of SMWD that would not have been the City's liability during the City's operation of the Utilities
Systems prior to the Transfer Date.
11.5. Disclosure of Pending Litigations. The Annexation Agreement shall include a
Litigation Disclosure List. In the Annexation Agreement, the City shall represent and wamant that,
except as disclosed in the Litigation List, no ligation is: (a) on-going and of which the City is a
pafty, or (b) threatened and actually known to the City.
12.JOINT POWERS AUTHORITIES AND OTHER JOINT VENTURT,
MEMBERSHIP; GROUNDWATER RECOVERY PLANT PROPERTY AND
OTHER CITY OWNED ASSETS INVOLVED IN JOINT VENTURE PROJECTS
12.1. Transfer of City Joint Venture Rights and Obligations. The City is a member
of several Joint Ventures for the operation of the Utilities Systems, including SJBA, the South
Orange County Wastewater Authority, the Joint Regional Water Supply System and the Municipal
EXHIBIT A - Page 14 o'Í 20
Water District of Orange County. The City and SMWD agree to jointly negotiate with each Joint
Venture to provide for the transfer of the City's rights and obligations as a member to the Joint
Venture or as a counterparty to any contract with the Joint Venture.
12.2. GWRP Land. The City has leased the GWRP Land, which includes important
facilities which are related to the Utilities Systems and associated with the 2014 SJBA Bonds, to
SJBA for construction of the GWRP. The City and SMWD shall cooperate to negotiate with SJBA
to modifo existing documents to provide for SMWD's operation of the GWRP and account for the
transfer of GWRP Land from the City to SMWD as of the Transfer Date or as soon thereafter as
is practicable.
13. GOVERNANCE
13.1. City Voters Participation in SMWD District-Wide Elections. After the
Annexation, registered voters of the City shall be eligible to vote in any at-large election for
SMWD governing board membership and any other elections involving SMWD district-wide
measures. In the event that SMWD governing board transitions from at-large elections to by-
district elections, the boundaries of each electoral district shall be drawn in a manner that shall not
dilute the voting strength of the voters of the City, except to the extent necessary to comply with
applicable law.
13.2. Proposed Improvement District No. 9. The City understands that SMWD
contemplates a new improvement district, ID 9, which will include only the Service Area.
14. INFRASTRUCTURE INVESTMENT
14.1. Capital Improvement Budget. SMWD shall use its best effort to include in the
budget for its Capital Improvemcnt Program cxpenditures of no less than $25,000,000 over the
next ten years fbr improvements in ID 9 or for the direct and principal benef,rt of ID 9.
14.2. Capital Improvement Projects Already in Progress. After the Annexation,
SMWD shall use its best efforts to timely and efficiently complete the capital improvement
projects relating to the Utilities Systems already in progress before the Annexation.
15. RATE SETTING
15.1. Rate Study. As soon as practicable after the Transfer Date, SMWD shall initiate
a rate study of the water and wastewater rates for the Customers.
15.2. Interim Billing Reduction. For the initial period after the Annexation, before the
completion of the rate study and the subsequent proceedings to establish rates, SMWD will,
consistent with legal requirements and procedures, charge the Customers in a manner that on
average, there will be a modest overall reduction in the charges payable by the Customers that
are billed each month for water and wastewater services (relative to the rates charged by the City
immediately before the Annexation).
EXHIBIT A - Page 15 o'Í 20
15.3. Long-Term Rate Setting. SMWD shall use its best efforts to establish rates and
charges such that the Customers shall pay water and wastewater rates and charges that are no
higher than the rates and charges charged by SMWD to other customers of SMWD outside the
Service Area for their water and wastewater service.
15.4. Contingency Adjustments. Notwithstanding the foregoing, SMWD may adjust
the rates and charges to be paid by the Customers to the extent necessary to cover the payments
for liabilities, costs and expenses made pursuant to Section ll.3(a), Section 11.3(b) or Section
11.4. At the time of the 2020 rate setting process or other rate setting process, the District may
include in the rates an amount to recover any unforeseen and/or uninsurable liabilities that might
arise out of the City's operation of the Utilities Systems. Such will be adopted through and
consistent with the Proposition 218 requirements and process. The City agrees to support SMWD's
effort to address the recovery.of any unforeseen andlor uninsurable liabilities arising out of the
City's operation of the Utilities Systems in the rate setting process.
16. CUSTOMER PAYMENT AT CITY HALL AFTER TRANSFER
16.1. Maintenance of Bill-Pay Presence at City Hall. SMWD and the City shall
cooperate to make available to the Customers a means to pay their water and wastewater bills at
City Hall for a minimum of two years.
16.2. Designated City Employees; SMWD On-Line Access. The City shall make
available one or more designated City employees to assist with the collection of such payments.
SMWD shall provide on-line access to such designated employees in connection with the
processing of such payments.
16.3. SMWD to Reimburse City Costs and Expenses. The Annexation Agreement
shall establish an amount for SMWD's reimbursement to the City for reasonable costs and
cxpcnses relating to the provision of Customers' bill-paying access and assistance including, but
not limited to, half of the personnel cost of one designated full-time City employee providing such
service for no less than two years from the Transfer Date.
17. STAFFING
17.1. Personnel to be Transferred. SMWD provided a list to the City identifying the
sixteen anticipated new positions that would result from the Annexation. Based on the list
developed, SMWD shall extend initial offers of employment to current City employees of the
Utilities Systems in positions deemed comparable by SMWD. Offers of employment shall be
contingent upon the following: (a) final approval of the Annexation Agreement by the City and
SMWD and the transfer of the Utilities Systems; (b) re-verifrcation of minimum qualifications;
and (c) pre-employment background check and medical examination.
17.2. Benefits and Compensation. The starting salary for Prospective Employees shall
be offered at the applicable SMWD salary step for the position that is closest to, but not less than,
their base salary at the City at the time of the Annexation. Prospective Employees shall be
considered newly hired SMWD employees for purposes of SMWD employment terms, benefits
and compensation, except as otherwise expressly agreed to and duly authorizedby SMWD.
EXHIBIT A - Page 16 of 20
18. MISCELLANEOUS
18.1. Notice. Any notice, request, demand or other communication under this
Memorandum shall be given by first class mail or personal delivery to the Party entitled thereto at
its address set forth below, by overnight mail, as a ".pdf' attachment to electronic mail, or by
telecopy or other form of telecommunication, confirmed by telephone at its number set forth
below. Notice shall be effective either (i) upon transmission by telecopy or other form of
telecommunication, (ii) 48 hours after deposit in the United States mail, postage prepaid, (iii) in
the case of overnight mail, upon delivery to the addressed destination, or (iv) in the case of personal
delivery to any person, upon actual receipt. Each Party may, by written notice to the other Party,
from time to time modifr the address or number to which communications are to be given under
this Memorandum:
If to the City:City of San Juan Capistrano
32400 Paseo Adelanto
San Juan Capistrano, CA 92675
Attention: City Manager
Telephone: (949) 443-6315
E-mail: bsiegel@sanjuancapistrano.org
If to SMWD Santa Margarita Water District
26lll Antonio Parkway
Rancho Santa Margarita, CA 92688
Attention: General Manager
Telephone: (949) 459-6590
E-mail: danf@smwd.com
18.2, Termination.
(a) This Memorandum shall be terminated upon the earliest of the following: (i) 30
days after a written notice of termination by one Party to the other Party; (ii) the official
announcement by either Party of its abandonment ofthe transfer of the Utilities Systems, or (iii) the
execution and delivery of the Annexation Agreement by the Parties (at which time, the Annexation
Agreement shall supersede this Memorandum in all respects).
(b) In the event that either Party decides to terminate the Annexation for any reason,
each Party shall bear its own costs and expenses, including professional fees and attorneys' fees,
incurred in connection with all matters related to the preparation, analysis, drafting and evaluation
of the Memorandum, the Annexation Agreement and the Annexation; except that the City shall
reimburse SMWD for the cost of the Real Property Inventory Report.
18.3. No Binding of Party to Any Action Which Would Result in Environment
Change. The Parties do not intend to, and this Memorandum shall not be construed to, create a
commitment by either Party to any action that would result in a change in the environment. This
Memorandum constitutes a pre-approval agreement for the purposes of CEQA and the CEQA
Guidelines.
EXHIBIT A - Page 17 of 20
18.4. Nonliability of City and SMWD Officerso Employees or Consultants. No
official, officer, employee, agent, representative, consultant or independent contractor of the City
or SMWD, acting in his or her official capacity, shall be personally liable to the City or SMWD,
or any successor or assign, for any loss, costs, damage, claim, liability, or judgment, arising out of
or in connection with this Memorandum, or for any act or omission on the part of the City or
SMWD.
18.5. InterimOperationsAgreements.
Nothing in this Memorandum shall be construed to prohibit the City and SMWD from
entering into any limited operations or service agreements, with each other or with other outside
consulting firms and entities, related to the Utilities Systems prior to the execution and delivery of
the Annexation Agreement.
18.6. Construction.
(a) Unless the context otherwise indicates, words expressed in the singular shall
include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for
convenience only and shall be deemed to include the neuter, masculine or feminine gender, as
appropriate.
(b) Headings of sections in this Memorandum are solely for convenience of
reference, do not constitute a part of this Memorandum and shall not affect the meaning,
construction or effect of the provisions of this Memorandum.
18.7. Not Construed Against Drafter. This Memorandum has been negotiated and
prepared by the Parties and their respective counsel. The Parties agree that the rule of construction
that a contract be construed against the drafter shall not apply. In the event of any ambiguity with
respect to a term of condition of this Memorandum, such ambiguity shall not be construed for or
against a Party on the basis that such Party did or did not authored the same.
18.8. Governing Law and Venue. This Memorandum has been negotiated and
executed in the State and shall be governed by and construed under the laws ofthe State, except
that any rule of construction to the effect that ambiguities are to be resolved against the drafting
party shall not be applied in interpreting this Memorandum. Any action at law or in equity brought
by any Party hereto arising out of this Memorandum shall be brought in the Superior Court of the
State in and for the County of Orange.
18.9. Severability. If any term of this Memorandum is held by a court of competent
jurisdiction to be invalid or void, each of the remainder of the provisions shall continue in full
force and effect, unless the rights and interests of a Party under a provision have been materially
altered or abridged by such invalidation or voiding.
18.10. No Assignment. No part of this Memorandum may be assigned by a Party to
another person or entity without the prior written consent of the other Party.
EXHIBIT A - Page 18 of 20
18.11. No Third Party Beneficiary. This Memorandum is not intended nor shall it be
construed to create any third-party beneficiary rights in any person or entity other than the Parties.
Nothing in this Memorandum, expiessed or implied, is intended to give to any person other than
the City and SMWD any right, remedy or claim under or by reason of this Memorandum.
18.12. Execution in Counterparts. This Memorandum may be executed in
counterparts, each of which, when the Parties have signed this Memorandum, shall be deemed to
be an original, and such counterparts shall constitute one and the same instrument.
EXHIBIT A - Page 19 of 20
IN WITNESS WHEREOF, the Parties to this Memorandum have caused the same to be
executed by each of their duly authorized officers as follows:
CITY OF SAN JUAN CAPISTRANO
Benjamin Siegel
City Manager
ATTEST:
Maria Morris
City Clerk
APPROVED AS TO FORM:
Kevin G. Ennis
Special Counsel
SANTA MARGARITA \ryATER DISTRICT
Saundra F. Jacobs
President of Board of Directors
ATTEST:
Kelly Radvansky
Board Secretary
APPROVED AS TO FORM:
DeeAnne Gillick
Special Counsel
By:
By
EXHIBIT A - Page 20 ot 20