20-0121_SANTA MARGARITA WATER DISTRICT_F1a_Agenda Report1t21t2020
F1a
TO
FROM
SUBMITTED BY
DATE
SUBJECT
City of San Juan Capistrano
Agenda Report
Honorable Mayor and Members of the City Council
Mnj^ iH Siegel, City Manager
Ken Al-lmam, Chief Financial Officerâ¿
Steve May, Project Manager¿¿ 6/o- s:-z'
January 21,2020
Resolution Approving Annexation Agreement Pertaining to Transfer
of the City's Water and Sewer Utility Systems to the Santa Margarita
Water District
RECOMMENDATION
Adopt a Resolution (Attachment 1) approving an Annexation Agreement that sets forth
the terms associated with transfer of ownership and operation of the City's water and
sewer utility systems to the Santa Margarita Water District and making a determination of
exemption under the California Environmental Quality Act (CEQA).
EXECUTIVE SUMMARY
On August 20, 2019, the City Council approved a Memorandum of Understanding that
addressed the major deal points associated with the transfer of ownership and operation
of the City's water and sewer utility systems to the Santa Margarita Water District
(SMWD). Since that date, the staff of the City and SMWD have worked together to
develop an Annexation Agreement that sets forth the terms associated with the proposed
utilities reorganization. Pending City Council approval, the attached Annexation
Agreement would be submitted to Orange County Local Agency Formation Commission
(LAFCO) staff for review, and ultimately presented to the LAFCO Board of
Commissioners. lmplementation of the Annexation Agreement will involve the preparation
of several additional agreements pertaining to the transfer of water rights, real property,
equipment and other matters which, when completed, will be brought back to the City
Council for approval. The SMWD Board of Directors is scheduled to consider approval of
the Annexation Agreement at its meeting of January 17,2020.
City Council Agenda Report
January 21,2020
Page 2 of 6
DISCUSSION/ANALYSIS
The majordealpoints of the utilities reorganization are substantially unchanged from what
was reflected in the Memorandum of Understanding previously approved by the City
Council and the SMWD Board of Directors. The structure and substance of the
Memorandum of Understanding has been retained and appropriately reworded to
conform to the form required for an Annexation Agreement.
Terms of the Annexation Agreement provide for the following
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 ;
Provision that, on average, there will be a moderate initial rate reduction in the total
amount (water and sewer combined) charged for service;
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 the City's water rights as provided in water right transfer
agreements to be prepared;
City to transfer to SMWD other assets (real property and equipment) used
exclusively in connection with operation of the City's water and sewer systems;
City to transfer the rights and obligations of joint venture agreements with, and
memberships in, third party governmental entities, 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;
SMWD provided a list identifying 16 anticipated new positions that would result
from the Annexation. Based on the list developed, SMWD to extend initial offers
of employment to City employees of the utilities systems in positions deemed
comparable by SMWD. Offers of employment to be contingent upon the following:
(a) re-verification of minimum qualifications; and (b) pre-employment background
check and medical examination;
No exchange of property tax revenues between the Parties in connection with the
utilities systems transfer;
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January 21,2020
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SMWD to assume the rights and obligations of existing utility-related settlement
agreements 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 which are covered under the City's risk pool insurance.
Additional details that have been addressed in the Annexation Agreement include the
following:
Section 3.2 - A commitment by the City to assist in the execution of all agreements
necessary for the reorganization and the providing of responses to SMWD's
questions regarding historical information about the utility systems to the extent such
information is known to City employees and not subject to attorney-client privilege;
Section 6.1 - A more detailed section that sets forth the assets that will be transferred
as a part of the reorganization;
Section 6.5 - Clarification that real property interests will be transferred by means of
a grant deed or quit claim deed, as mutually agreed by the Parties;
Section 9.4 - City staff will assist SMWD in the defense of litigation, as needed, after
the transfer without seeking recovery from SMWD for the applicable salary costs of
such personnel;
Section 12.2 - Clarification that communication of major capital project spending by
the City prior to the transfer date will be made at the onset of those capital projects
that are expected to result in total project costs of $25,000 or more;
Section 14.1 - Clarification that SMWD will form a new lmprovement District No. 9,
which will encompass only the portion of the service area for water and sewer service
that is contained within City limits;
Section 16.2 - Clarification that the initial moderate overall reduction in the customer
bill for utility services is only applicable to Tier One commodity charges for potable
(suitable for drinking) water deliveries and that this moderate initial overall reduction
does not extend to charges for the delivery of recycled water; and,
Section 16.4 - Clarification acknowledging the potentiality of future debt issuances
when needed to address the capital needs of SMWD and that the customers of
lmprovement District No. 9 will only be responsible for their pro rata share of the costs
of future capital improvements and facilities.
The Annexation Agreement acknowledges that certain additional details, particularly
those involving real property interests, water rights and interagency agreements will be
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City Council Agenda Report
January 21,2020
Page 4 of 6
attended to by staff prior to completion of the reorganization. Any necessary agreements
in connection therewith will be brought back to the City Councilfor subsequent approval.
SMWD personnel are expected to be at the City Council meeting to provide an overview
of long-term financial projections for the service area and impact of the same upon long-
term water and sewer rates. SMWD has indicated that after the initial moderate reduction
in the average customer bill (water and sewer combined), future rate studies will likely
result in annual rate increases of roughly 5o/o per year for water and sewer service on a
combined basis, which is significantly less than what would be expected if the City had
retained the utility systems and did not realize the efficiencies and economies of scale
that are associated with SMWD's absorption of City systems into its operations. The
projections provided by SMWD reflect SMWD's current understanding of system costs
and are subject to adjustment to reflect actual costs that will need to be addressed by
future rate studies (e.9., changes in operations, additional capital needs, etc.). SMWD will
perform an extensive ongoing review of system infrastructure to ascertain any additional
capital needs that need to be addressed.
The Annexation Agreement is scheduled for consideration by the SMWD Board of
Directors on January 17.
SMWD is responsible for drafting the LAFCO application. Sections of the application are
being submitted by SMWD to LAFCO as they are completed over the months of January
and February. LAFCO staff will then review the application and Annexation Agreement
and prepare for presentation of the same to the LAFCO Board of Commissioners, which
is expected to occur in Spring 2020. Once the LAFCO Board of Commissioners has
approved the application and Annexation Agreement, state law requires a thirty-day
reconsideration period, followed by the scheduling of a protest hearing and a 21 to 60 day
protest period. After expiration of the 21 to 60 day protest period, a certificate of
completion will be issued. Sixty days after the issuance of the certificate of completion,
the transfer will be effective. Barring unforeseen difficulties or setbacks, and dependent
on the preparation and approval of all necessary and related agreements, the
reorganization is expected to be completed in the Summer or Fall of 2020.
FISCAL IMPACT
There is no fiscal impact associated with the recommended action of adopting a resolution
approving the Annexation Agreement. Each party will be responsible for its own costs
associated with the reorganization, and each party has the right to cancelthe Annexation
Agreement at any time after providing thirty days written notice to the other party. In 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.
City Council Agenda Report
January 21,2020
Page 5 of 6
ENVIRONMENTAL IMPACT:
City staff reviewed the Annexation Agreement with respect to applicability of the California
Environmental Quality Act (Public Resources Code Section 21000 ef seg.) ('CEQA").
Staff determined that approval of the Annexation Agreement qualifies as exempt from
additional review under CEQA because the activity to be undertaken by the Annexation
Agreement qualifies under various exemptions to CEQA, including the Class 19
Categorical Exemption (State CEQA Guidelines Section 15319(a)), as the Annexation
Agreement is to facilitate the annexation of existing City-owned and operated utility
systems infrastructure into the boundaries and operations of SMWD, and the Class 20
Categorical Exemption (State CEQA Guidelines Section 15320) because the annexation
constitutes a change in organization of the utility systems rather than the development of
new or additional utility systems. City staff has also determined that no substantial
evidence exists to find that exceptions to these exemptions apply. City staff recommends
that the City Council adopt the resolution which includes a finding that approval of the
Annexation Agreement does not constitute a project and is exempt under CEQA.
PR]OR CITY COUNCIL REVIEW:
August 20,2019: City Council approved a Memorandum of Understanding with
SMWD that set forth the major deal points associated with SMWD's potential
annexation of the City's water and sewer utility system.
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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.
August 2, 2016: City Council approved the "Criteria for Evaluating a Potential
Change in Utility Organization" and directed staff to fonvard 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.
March 3,2015: City Council approved an agreement with Brownstein Hyatt Farber
Schreck to study the potential benefits and options for a utility reorganization.
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January 21,2020
Page 6 of 6
COM M I SS I ON/COMM ITTEE/BOARD REVI EW AN D RECOMMEN DATI ONS
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
M anagement and P rofessional Employees Association
Classified Employees Association
Utilities Employees
ATTACHMENTS
Attachment 1 - Resolution Approving Annexation Agreement
RESOLUTTON NO. 20-01-21-XX
A RESOLUT¡ON OF THE CITY COUNCIL OF THE CITY OF SAN JUAN
CAPISTRANO, CALIFORNIA, APPROVING AN ANNEXATION
AGREEMENT 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 QUAL¡TY 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 ("LAFCO")
pursuant to the Cortese-Knox Hertzberg Local Government Reorganization Act of 2000,
set forth in California Government Code Section 56000 ef seq. (the "Reorganization Act")
for a Municipal Service Review, to assess the potential transfer of the operation and
facilities of the Utilities Systems to another public agency;
WHEREAS, LAFCO received and filed a final Focused Municipal Service 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;
WHEREAS, the transfer of the Utilities Systems to SMWD will require a
reorganization or change of organization within the meaning of the Reorganization Act;
WHEREAS, SMWD will submit to LAFCO an application and a plan for services
for a sphere of influence amendment and annexation (collectively, the "LAFCO
Application"), and LAFCO may impose terms and conditions as part of any such
annexation;
1 0306-0006\2374075v5.doc
ATTACHMENT 1 - Page 1of 4
WHEREAS, the City and SMWD entered into a Memorandum of Understanding,
dated as of August 23, 2019 (the "MOU"), which memorialized certain key understandings
between the parties with respect to the annexation and other related matters;
WHEREAS, the City and SMWD nowwish to enter into an Annexation Agreement,
which will supersede the MOU; and
WHEREAS, the Annexation Agreement, in its substantial final form, is attached to
this Resolution as Exhibit A.
NOW, THEREFORE, BE lT RESOLVED, by the City Council of 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 Annexation Agreement has been reviewed by City staff and the City
Council with respect to the applicability of the California Environmental Quality Act (Public
Resources Code Section 21000 ef seq.) ("CEQA'). The City Council has determined that
approval of the Annexation Agreement qualifies as exempt from additional review under
CEQA because the activity to be undertaken by the Annexation Agreement qualifies
under various exemptions to CEQA, including the Class 19 Categorical Exemption (State
CEQA Guidelines Section 15319(a)) because the Annexation Agreement is to facilitate
the annexation of existing City-owned and operated Utility Systems infrastructure into the
boundaries, and operations, of SMWD and the Class 20 Categorical Exemption (State
CEQA Guidelines Section 15320) because the annexation constitutes a change in
organization of the Utility Systems rather than the development of new or additional utility
systems. The City Council has also determined that no substantial evidence exists to find
that the exceptions to these exemptions apply. The City Council makes these
determinations in the exercise of its independent judgment.
3. City Staff is hereby directed to prepare and post a notice of exemption
pursuant to Guidelines Section 15062.
4. The Annexation Agreement, in the form attached as Exhibit A, is hereby
approved. The Mayor (or in the Mayor's absence, the Mayor Pro Tem) is hereby
authorized to execute and deliver, for and in the name of the City, the Annexation
Agreement, in substantially such form, with changes therein as the Mayor (or the Mayor
Pro Tem) may approve (such approvalto be conclusively evidenced by the execution and
delivery thereof).
5. The officers of the City are hereby authorized, jointly and severally, to
negotiate, prepare and present to the City Council for its approval all necessary or proper
collateral or supplemental agreements required to carry out and implement the
Annexation Agreement and to do all other things which they may deem necessary or
proper to effectuate the purposes of this Resolution and the Annexation Agreement,
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ATTACHMENT 1- Page 2of 4
including the preparation of documents, and any such actions previously taken are hereby
ratified and confirmed.
6. This Resolution shall be effective upon adoption.
PASSED, APPROVED AND ADOPTED this _ day of January, 2020.
TROY A. BOURNE, MAYOR
ATTEST
MARIA MORRIS, CIry 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 day of January, 2020, by the following
vote:
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SS
AYES:
NOES:
ABSENT:
ABSTAIN
COUNCIL MEMBERS
COUNCIL MEMBERS
COUNCIL MEMBERS
COUNCIL MEMBERS
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Maria Morris, City Clerk
ATTACHMENTl -Page3of 4
EXH¡BIT A
Annexation Agreement
between the City of San Juan Capistrano and Santa Margarita Water District
(substantial final form attached)
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ATTACHMENT 1- Page 4of 4
A.
B.
C.
ANNEXATION AGREEMBNT
This Annexation Agreement, dated as of 2020 (this "Agreement"), 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
Water 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 Agreement as the "Parties" and, individually, as a "Part5/."
RECITALS
The City owns and operates utilities systems (the "Utilities 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").
In 2015, the City began to evaluate options to re-organi ze theUtilities Systems.
Based on such evaluation, in August 2016,the City submitted an application to the Orange
County Local Agency Formation Commission ("LAFCO") pursuant to the Cortese-Knox
Hertzberg Local Government Reorganization Act of 2000, set forth in California
Government Code Section 56000 et seq. (the "Reorganization Act") 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,
LAFCO 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:
(i) Moulton Niguel Water District ("MNWD"), (ii) South Coast Water District ("SCWD")
and (iii) SMWD.
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.
The transfer of the Utilities Systems to SMWD willrequire areorganization and/or change
of organization within the meaning of the Reorganization Act.
SMWD will submit to LAFCO an application and a plan for services for a sphere of
influence amendment and annexation (collectively, the "LAFCO Application"), and
LAFCO may impose terms and conditions as paft of any such annexation.
The Parties entered into a Memorandum of Understanding, dated as of August 23, 2019
(the "MOU"), which memorialized certain key understandings between the Parties with
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respect to the annexation and other related matters, including the development of this
Agreement.
J. This Agreement shall supersede the MOU in all respects.
NOWO THEREFORE' IN CONSIDERATION OF THE MUTUAL COVENANTS AND
CONDITIONS CONTAINED HEREIN, AND OTHER VALUABLE CONSIDERATION,
THE ADEQUACY OF \ilHICH ARE HEREBY ACKNOWLEDGED, THE PARTIES
AGREE AS FOLLOWS:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this Agreement shall have the
meanings set forth in Exhibit A
2. PURPOSE
The Parties intend that this Agreement: (i) set forth certain key terms to be incorporated into the
LAFCO Application, and (ii) address how other matters pertaining to the Annexation will be
carried out by the Parties.
3. LAFCO APPLICATION; COOPERATION
3.1. LAFCO Application.
(a) As soon as practicable upon the Parties' execution of this Agreement (by
March 31,2020, unless otherwise agreed upon in writing by the Parties), SMWD shall submit the
LAFCO Application (in form and substance acceptable to the City) to LAFCO. Prior to
submission, a copy of the LAFCO Application shall be provided to the City.
(b) The City agrees to supportthe LAFCO Application so long as it is consistent
with this Agreement and take all reasonably necessary action for such support, including, but not
limited to, providing letters, documents or statements of support if necessary, and attending public
hearings.
3.2. Cooperation in Good Faith; Target Date.
(Ð The Parties shall cooperate in good faith to pursue the LAFCO Approval
and complete the Annexation, so long as they are consistent with the terms of this Agreement and
the Collateral Agreements and Documents.
(b) Until the earlier of: (l) the Annexation Effective Date, or (2) the
termination of this Agreement pursuant to Section 20.2:
(i) The City shall not engage, negotiate with, or solicit or accept
proposals from, any third party regarding the transfer of the Utilities Systems.
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(ii) 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 would materially adversely affect the principal
financial elements of the Utilities Systems to be transferred to SMWD as contemplated herein.
Notwithstanding the limitations of this paragraph, nothing herein sllall preclude the City from
entering into agreements or undertaking projects before the Annexation Effective Date that are
reasonably necessary as determined by the City for the safe and effective operation of the Utilities
Systems.
(c) The Parties agree that the Annexation Effective Date shall be no earlier than 60
days after the issuance of the LAFCO Certificate of Completion (which is the expiration of the
period to challenge the LAFCO Approval under California Civil Code of Procedure Section 860
et seq.); plqv¡_dgd, if a legal challenge to this Agreement or the LAFCO Approval has been filed
on a timely basis, then unless otherwise required by law, the Annexation Effective Date shall take
place after the final resolution of the legal challenge(s) in a manner that results in this Agreement
and Annexation remaining valid and enforceable with terms consistent with this Agreement and
the Collateral Agreements and Documents.
(d) The City shall cooperate with all reasonable requests by SMWD to implement the
terms, or to effectuate the intent, of this Agreement and the Collateral Agreements and Documents,
so long as the same do not impose any liability or additional costs on the City beyond that
contemplated in this Agreement and the Collateral Agreements and Documents. Such cooperation
shall include, but not be limited to: (i) the execution of documents and instruments that are
reasonably required for such purposes, and (ii) with respect to any request by SMWD regarding
historical information about the Utilities Systems (which request shall be coordinated with the City
Manager or the City Manager's designee), the provision of written or verbal responses by City
employees involved in the operation of the Utilities Systems to the extent that the information is
known to such employees; provided, in no event shall the City be required to disclose any
information subj ect to attorney-client privilege.
3.3. SMWD Work PIan. To ensure the continuous and efficient provision of services
to the Customers and operation of the Utilities Systems, SMWD shall prepare the SMWD'Work
Plan and shall present the SMWD Work Plan to the City Manager by March 31,2020, or such
later date as agreed upon in writing by the Parties. It is acknowledged that the implementation of
the SMWD Work Plan will be subject to applicable law and the availability of funding.
3.4. Regulatory Permits. SMWD shall be solely responsible for obtaining all
necessary regulatory permits for SMWD's operation of the Utilities Systems on and after the
Annexation Effective Date.
4. REPRESENTATIONS REGARDING AUTHORITY, VALIDITY
4.1. City Representations. The City represents and warants as follows
(a) The City is a municipal corporation duly existing under the laws of the
State.
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(b) The City has full legal right and power to enter into this Agreement.
(c) The City's execution and delivery of this Agreement has been authorized
by all necessary action on the part of the City.
(d) Assuming SMWD's due authorization, execution and delivery, this
Agreement constitutes the legal, valid and binding agreement of the City, enforceable in
accordance with its terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, moratorium, reorganization, fraudulent conveyance or other laws affecting the
enforcement of creditors' rights generally and the application of equitable principles, to the
exercise ofjudicial discretion in appropriate cases and by the application of equitable principles if
sought and by the limitations on legal remedies imposed on actions against public entities in the
State.
(e) No action, suit, proceeding or investigation at law or in equity before or by
any court or governmental agency or body is pending and notice of which has been received by
the City or, to the City's knowledge, threatened in any way contesting or affecting the validity or
enforceability of this Agreement, or contesting the powers of the City with respect to this
Agreement.
4.2. SMWD Representations. SMWD represents and warrants as follows:
(a) SMWD is a water district duly organized and existing under the California
Water District Law (Water Code Section 34000 et seq.).
(b) SMV/D has full legal right and power to enter into this Agreement.
(c) SMWD's execution and delivery of this Agreement has been authorized by
all necessary action on the part of SMWD.
(d) Assuming the City's due authorization, execution and delivery, this
Agreement constitutes the legal, valid and binding agreement of SMWD, enforceable in
accordance with its terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, moratorium, reorganization, fraudulent conveyance or other laws affecting the
enforcement of creditors' rights generally and the application of equitable principles, to the
exercise ofjudicial discretion in appropriate cases and by the application of equitable principles if
sought and by the limitations on legal remedies imposed on actions against public entities in the
State.
(e) No action, suit, proceeding or investigation at law or in equity before or by
any court of governmental agency or body is pending and notice of which has been received by
SMWD or, to SMVy'D's knowledge, threatened in any way contesting or affecting the validity or
enforceability of this Agreement, or contesting the powers of SMWD with respect to this
Agreement.
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s. CEQA
5.1. SMWD to be Lead Agency for CEQA Compliance. 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 1505 I (d) of the CEQA Guidelines (14 Cal.
Code Regs. 15000 et seq).
5.2. CEQA Determination. The Parties have determined that approval of this
Agreement qualifies as exempt from additional review under CEQA because the activity to be
undertaken by the Agreement qualifies under various exemptions to CEQA, including the Class
l9 Categorical Exemption (State CEQA Guidelines Section 15319(a)) because the Agreement is
to facilitate the annexation of existing City-owned and operated Utility Systems infrastructure into
the boundaries, and operations, of SMWD and the Class 20 Categorical Exemption (State CEQA
Guidelines Section 15320) because the annexation constitutes a change in organization of the
Utility Systems rather than the development of new or additional utility systems. The Parties have
also determined that no substantial evidence exists to find that the exceptions to these exemptions
apply and that these determinations constitute the independent judgment of each of the Parties to
this Agreement.
6.ASSETS INVENTORTES, CONTRACT LISTS, ACCOUNTTNG RECORDS;
TRANSFER OF'ASSETS AND CONTRACTS
6.1. Asset Register; Contract Lists; Accounting Records.
(a) SMWD acknowledges that it has reviewed the following
(i) databases containing descriptions of the infrastructure assets of the
Utilities Systems (including but not limited to pump stations, reservoirs, connections, wells, mains
and pipes, and lift stations, but excluding the real property),
(iÐ a list of the current capacity agreements and interconnection
agreements and a copy of each such agreement;
(iii) a list of the current contracts with third party vendors and
professional services consu ltants (except City Attorney Agreements)
pertaining to the Utilities Systems, and a copy of each such contract;
(iv) a list of agreements with other utilities agencies, including those
pertaining to the City's membership or cooperation with each of
SJBA, SOCWA, MWDOC, JTM Joint Venture, and the ETM Joint
Venture; and
accounting records of the Utilities Systems, including: (A) current
customer balances; and (B) current account balances of the Water
Fund and the Sewer Fund.
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(b) SMWD has conducted such inspection as it deems necessary or appropriate
of the infrastructure assets of the Utilities Systems.
(c) The Pafties agree that, except for the vehicles to be identified in the
Assignment Agreement, none of the vehicles currently used by the City in connection with the
Utilities Systems (regardless how they are reflected in the cument City records) shall be included
in the Assets to be transferred to SMV/D.
(d) Unless an item is specifically identified by the City as among the Retained
Assets, all computer equipment and SCADA systems associated with the GWRP and the
operation of all pump stations shall be transferred to SMWD on the Annexation Effective Date.
6.2. Transfer of Assets and Contracts Generally.
(a) The Cify and SMWD shall enter into the Assignment Agreement, to become
effective on the Annexation Effective Date. The Assignment Agreement shall provide for the
City's transfer of all of its rights, title and interest in and to all Assets, contracts and accounts
related to the Utilities Systems, except for: (i) the Retained Assets and the Retained Properties, (ii)
the City Attorney Agreements, (iii) the SCWD Water Services Agreement, (iv) the City Water
Rights, and (v) to the extent the Parties, in consultation with respective legal counsel, choose
another form(s) of instrument (collectively, "Other Assignment Instruments") to effect such
transfer: (A) real property interests, (B) settlement agreements, and (C) such other matters as
agreed upon by the Parties.
(b) SMWD shall accept the assignment, and assume all obligations and
liabilities transferred to it pursuant to the Assignment Agreement and the Other Assignment
Instruments.
(c) SMWD shall accept all facilities, properties and other Assets of the Utilities
Systems transferred to it on an "as is" basis as of the Annexation Effective Date.
(d) With respect to the contracts to be assigned to SMWD, the City shall not
extend the term of any agreement identified in the Assignment Agreement without SM'WD's
written approval which approval shall not be unreasonably withheld.
6.3. SCWD 'Water Services Agreement. SMWD agrees to engage SCWD in
discussions regarding the disposition of the SCWD Water Services Agreement prior to the
Annexation Effective Date. SMWD shall not enter into any agreement with respect to the
disposition of the SCWD Water Services Agreement without the City's written consent.
6.4. Water Rights Transfer Agreement. The Parties shall negotiate in good faith and
enter into the Water Rights Transfer Agreement with respect to the City's Water Rights no later
than the Annexation Effective Date (with the agreement to become effective as of the Annexation
Effective Date). Pursuant to the Water Rights Agreement, as may be necessary, appropriate or
beneficial to SMWD's provision of water service to the City and existing and future customers
within the Teritories, and as may be permitted by law, the City will transfer to, or otherwise
provide SMWD with the right to exercise, the City's Water Rights, and SMWD will agree to
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exercise reasonable efforts to protect and maintain each and all of the City's Water Rights first for
the benefit of existing and future customers within the Territories.
6.5. Real Property
(a) Each Party shall confirm its acceptance of a Real Property Inventory Report
to be prepared by a consultant retained by SMWD and acceptable to the City, which shall identiS:
(i) all of the City's real property interests, including easements, which are currently part of the
Utilities Systems; (ii) the Transferred Properties, (iii) the Retained Properties, and (iv) the New
Easements. The City shall review the accuracy of the Real Property Inventory Report and the lists
of Transferred Properties and Retained Properties and shall provide SMWD with information as
to any material defìciencies or omissions, known to City staff, in that Report. The property
currently identified by the City as the "Utilities Administration Building" shall be one of the
Retained Properties. The Real Properfy Inventory Report shall be finalized only when it has been
reviewed by the City and is in the form acceptable to both Parties.
(b) The Parties agree that the real property interests shall be transferred by City
to SMWD either by grant deed or quitclaim deed, as mutually agreed to by the Parties.
(c) 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 other instrument showing the City's ownership or other interest in such property, (ii) the most
recent title repoft, 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.
(d) SMWD may, at its own expense, obtain one or more title reports or conduct
environmental reviews with respect to the Transferred Property, provided, any access to the
properfy shall be subject to the advance notice and legal or public safety restrictions pursuant to
Section 6.6(b).
(e) The Cify and SMWD shall jointly review the encumbrances identified on
title reports for the Transferred Property. With respect to any encumbrance which the Parties agree
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.
6.6. Periodic Updates and Further Access Before Annexation Effective Date. Prior
to the Annexation Effective Date or the termination of this Agreement, whichever is earlier:
(a) City Representatives and SMWD Representatives shall conduct periodic
meetings, either in person or via teleconference, to provide updates regarding acquisitions,
dispositions or other changes, if any, to the Assets, contracts and obligations to be transferred to
SMWD, and the status of ongoing operations of the Utilities Systems, including updates regarding
the finances of the Utilities Systems and its fund reserves.
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(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 purposes.
(c) The City shall give SMWD Representatives full access and opportunity to
inspect, investigate, and audit, as they relate to the City's operation and management of the Utilities
Systems, the books, records, contracts, and other documents of the City and all of the City's assets
and liabilities (actual or contingent), including, without limitation, inspecting the City's property
and conducting additional environmental inspections of property and reviewing financial records,
contracts, operating plans, and other business records for the purposes ofevaluating 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) of this Section related to reasonable advance notice and legal and
public safety restrictions; and nothing in this Agreement shall require the City to disclose or
provide access to attorney-client privileged communications.
7. CREATION OF NE\il EASEMENTS; ADDITIONAL COOPERATION
REGARDING ACCESS AND WORI( WITHIN CITY
7.1. The City and SMWD shall enter into an Easement Agreement for the creation of
the New Easements (which shall be identified in the Real Property Inventory Report). The
Easement Agreement shall become effective as of the Annexation Effective Date. SMWD shall
cause the Easement Agreement to be recorded in the Orange County Official Records. Once
SMWD receives confirmation of such recordation, it shall cause a copy of such recorded Easement
Agreement to be provided to the City.
7.2. To the extent that, after the Annexation Effective Date, SMWD proposes to create
a new easement, an access license or a lease with respect to any Cify-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 at no charge to SM'WD for
City stafftime or administrative cost; provided that, upon the City's request and SMWD's approval
of said request, SMWD shall either pay directly, or reimburse the City for any expenses that are
payable to third parties.
7.3. SMWD shall provide advance 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 or costs (including but not limited to, encroachment permits and historic,
archaeological and paleontological resource permits) that the City charges to other utilify
operators, which fees or costs relate to SMWD's operation of the Utilities Systems.
7.4. SMWD will accept the City's current (as of the date this Agreement is executed)
standard trench paving requirements that the City applies to other utility operators for any'Water
System or Wastewater System related work within City right of way, including any additional
paving requirements beyond SMWD standards.
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8. OUTSTANDING BOND OBLIGATIONS
8.1. Transfer of Outstanding Bond Obligations.
(a) SMV/D 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, that
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 bond 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 on the tax-exempt
status of the Outstanding Bond Obligations created by the transfer of the Outstanding Bond
Obligations. SMWD shall indemniff 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 Annexation
Effective Date. SMWD may choose to retire such Outstanding Bond Obligations by other means,
including, but not limited to, the issuance of bonds (or incurrence of other debt) secured by
SMWD's revenues.
8.2. 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.
8.3. 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 ofthe Utilities Systems without
SMWD's prior written consent.
9. ASSUMPTIONOFLIABILITIES;INDEMNIFICATION
9.1. Disclosure of Pending Litigation. The City represents and warrants that, except
as previously disclosed in the Litigation Disclosure List, there is no litigation affecting the Utilities
Systems to which the City is a party that is either: (i) pending and notice ofwhich has been received
by the City, or (ii) threatened and actually known to the City. The City shall promptly provide
SMV/D written updates to the Litigation Disclosure List, if any such new litigation arises before
the Annexation Effective Date. In addition, pursuant and subject to common interest agreements
by and between the City and SMV/D, the City shall provide such documentation concerning the
matters listed on the Litigation Disclosure List (and any updates to the Litigation Disclosure List)
as SMWD may reasonably request in preparation of SMWD's assumption of the defense (or
prosecution) of such litigation.
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9.2. SettlementAgreementsObligations
(a) Effective as of the Annexation Effective Date, the City shall delegate to
SM'WD, and SMWD shall assume, all of the City's rights and obligations underthe stipulated
judgments and related settlement agreements pertaining to the following:
(i) San Juan Hills Golf Club, LP, v. City Of San Juan Capistrano, 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) Jeffrey Cotton and Shannon Cotton, As Trustees Of The Cotton
Family Trust Dated September'9, 2002 v. The City Of SanJuan Capistrano, et al. (Orange County
Sup Court Case No. 30-2015-00778655) filed 03/23/2015; stipulated judgment entered
I r/03/2016).
(b) The City and SMWD shall cooperate to obtain such consents or approvals
as necessary to accomplish such delegation and assumption.
9.3. Defense of SCWD Administrative Complaint and Daneshmand Case Before
Annexation Effective Date. Prior to the Annexation Effective Date, the City shall continue to
be responsible for its defense, from whatever resources the City deems appropriate, with respect
to the SCWD Administrative Complaint and the Daneshmand Case; provided, with respect to each
such matter, the City shall not enter into any resolution of the matter or agree to any settlement
term that will materially adversely affect SMWD's operation of the Utilities Systems without
consulting SMWD and obtaining SMWD's prior written consent.
9.4. SMWD Assumption of 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 or litigation arising
out of the City's operation of the Utilities Systems prior to the Annexation Effective Date.
(b) From and after the Annexation Effective Date, SMWD shall be responsible
for all Post-Transfer Liabilities, including the defense of the SCWD Administrative Complaint and
the Daneshmand Case, from resources of SMWD. With respect to each such matter, SMWD shall
not enter into any resolution of the matter or agree to a settlement term affecting the City without:
(i) consulting with the City, and (ii) obtaining the City's written consent to the sefflement. Il
however, the settlement terms involve only payments for which SMV/D will pay or otherwise
reimburse the City and the settlement does not require the City to take any other action and does
not contain anything else affecting the City, and contains adequate and appropriate releases, the
City's prior written consent shall not be unreasonably withheld. In addition, SMWD shall
reimburse the City for all liabilities, costs and expenses (excluding City staff time) incurred by the
City in connection with the SCWD Administrative Complaint, the Daneshmand Case and any
other Post-Transfer Liabilities after the Annexation Effective Date (recognizing that such
liabilities, costs and expenses would have been appropriately allocated to the Water System or
Wastewater System, as applicable, regardless of the transfer), unless such liabilities, costs and
expenses incurred are covered by the City's risk pool insurance. Subject to the foregoing, the City
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EXHIBIT A - Page 10 of 28
shall cooperate with SMWD in good faith to assist SMWD in SMWD's defense of any Post-
Transfer Liabilities and provide appropriate factual information and staff assistance; provided that
the City shall not be required to disclose any information which is subject to attorney-client
privilege.
(c) 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 Annexation
Effective Date.
9.5. Indemnification. From and after the Annexation Effective Date, SMWD shall
defend, with counsel approved by the City, indemnifu and hold harmless the Cify from and against:
(i) all Post-Transfer Liabilities; (ii) any action or proceeding to attack, review, set aside, enjoin,
void or annul this Agreement or any ofthe Collateral Agreements and Documents, or any provision
hereof or thereof, including the environmental determination and documents prepared and
approved in connection with the approval of this Agreement under CEQA or any of the Collateral
Agreements and Documents; and (iii) any action or proceeding to attack, review, set aside, enjoin,
void or annul the LAFCO Approval, or any provision thereof, including the environmental
determination and documents prepared and approved by LAFCO under CEQA in connection with
the LAFCO Approval. SMWD shall also defend, with counsel approved by the City, indemniff
and hold harmless City offrcials, employees and agents for any matter within the scope of the
indemnification under this Section 9.5, to the same extent, and subject to the same limitations, that
apply to the City's obligations to defend, indemniff and hold harmless such City officials,
employees and agents under California law or applicable City contract with those officials,
employees or agents. SMWD shall not seek reimbursement or contribution from the City for any
costs, expenses or damages for, or related to, matters within the scope of the indemnification under
this Section 9.5.
10. CITY PROPERTY TAX RETENTION
10.1. No Exchange of Property Tax. The Parties agree that there will be no exchange
of property tax revenues between the Parties in connection with or arising from the Annexation.
10.2. Cooperation. The Parties shall cooperate to take such action as necessary or
appropriate to effectuate Section 10.1.
11. PAYMENT OF CITY RT,TAINED PENSION COSTS
11.1. Recognition of City Retained Pension Cost. The Parties recognize that, because
of the Annexation, the City will incur the OCERS Obligation.
1L.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 installments as prescribed by the OCERS 6l17l19 Determination.
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EXHIBIT A - Page 11 of 28
12. USE AND TRANSFER OF'CASH BALANCES
12.1. Transfer of Unexpended Cash Balances. All unexpended cash balances in the
Water Fund and the Sewer Fund shall be transfened to SMWD on the Annexation Effective Date.
12.2. Use of Cash Balances Before Annexation Effective Date. Notwithstanding the
provisions of Section 13.1, nothing contained herein shall preclude the City from using City
reselves related to its Utilities Systems before the Annexation Effective Date consistent with
Section 3.2(bxiÐ. In addition, before the Annexation Effective 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 before the Annexation Effective Date, no expenditure related to any new Utilities Systems
capital project that has a total estimated project cost of $25,000 or more shall be made without at
least five (5)-calendar-days' written notice to the SMWD General Manager before the material
commencement of the project.
13.JOINT POWERS AUTHORITIES AND OTHER JOINT VENTURE
MEMBERSHIP; GROUNDWATER RECOVERY PLANT PROPERTY AND
OTHER CITY OWNED ASSETS INVOLVED IN JOINT VENTURE PROJECTS
13.1. 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, SOCWA, the
JMT Joint Venture, the ETM Joint Venture and MWDOC. The City and SMWD shall cooperate
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.
13.2. 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 jointly negotiate
with SJBA to modifu existing documents to provide for SMV/D's operation of the GWRP and
account for the transfer of GWRP Land from the City to SMWD as of the Annexation Effective
Date or as soon thereafter as is practicable.
T4. GOVERNANCE
14.I. Proposed Improvement District No. 9. The City understands that SMWD
contemplates a new improvement district, ID9, which will include only the Teruitories.
14.2. City Voters Participation in SMWD District-Wide Elections. From and after
the Annexation Effective Date, registered voters within the Territories shall be eligible to vote in
any at-large election for SMWD goveming board membership and any other elections involving
SMWD district-wide measures. In the event that the SMWD governing board transitions from at-
large elections to by-district elections, the boundaries of each electoral district shall be drawn in a
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EXHIBIT A - Page 12 of 28
manner that shall not dilute the voting strength of the voters within the Territories, except to the
extent necessary to comply with applicable law.
15. INFRASTRUCTUREINVESTMENT
15.1. Capital Improvement Budget. SMWD shall use its best efforts to include in the
budget for its Capital Improvement Program expenditures of no less than $25,000,000 over the
next ten years for improvements in ID9 or for the direct and principal benefit of ID9.
15.2. Capital Improvement Projects Already in Progress. From and after the
Annexation Effective Date, SMWD shall use its best efforts to timely and efficiently complete the
capital improvement projects relating to the Utilities Systems which already have been approved
and in progress before the Annexation Effective Date.
16. RATE SETTING
16.1. Rate Study. As soon as practicable after the Annexation Effective Date, SMWD
shall initiate arate study of the water and wastewater rates for the Customers.
16.2. Interim Billing Reduction. For the initial period after the Annexation Effective
Date, 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 the
Territory in a manner that, on average, customer tier 1 commodity water rate for potable water
services will reflect a modest overall reduction in the charges payable by the Customers that are
billed each month for water services (relative to the rates charged by the City immediately before
the Annexation Effective Date).
16.3. 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 pursuantto Section 9.3, Section 9.4(a), Section 9.4(b) or
Section 9.5. During the rate setting process, SMWD 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 rates and charges shall be adopted consistent with applicable legal
requirements and procedures, including but not limited to 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.
16.4. Potential for Future Bonds. Recognizing the need for future improvements to the
Utilities Systems infrastructure within ID9, the City acknowledges the potential issuance of future
bonds or other financing measures to address future capital costs concerning collections systems,
conveyance systems and distribution systems within ID9 or directly and principally benefitting
Customers within IDg. ID9 Customers shall be responsible for their pro rata share of such costs
of future capital improvements and facilities.
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EXHIBIT A - Page 13 of 28
17. CUSTOMER PAYMENT AT CITY HALL AFTER TRANSFER
17.1. 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. SMWD and the City shall cooperate in addressing SMWD
concerns related to the transition of Customer billing and use all efforts reasonably necessary to
facilitate the transition of the billing system.
17.2. 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. The City shall take all reasonable action requested by SMWD
concerning the transition of the billing system to SMWD including assisting SMWD, when
requested, with the dissemination of information related to the transition of customer billing to
SMWD.
17.3. SM\ryD to Reimburse City Costs and Expenses. SMWD shall reimburse the City
for reasonable costs and expenses 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 Annexation Effective Date).
18. STAFFING
18.1. Personnel to be Transferred. SMWD provided a list to the City identiffing 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) re-verification of minimum qualifications; and (b) pre-
employment background check and medical examination.
18.2. 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 on the Annexation Effective Date. 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.
19. COLLATERAL AGREEMENTS AND DOCUMENTS
19.1. Collateral Agreements and Documents to Effectuate Transfer. The Parties
acknowledge the need to enter into and prepare Collateral Agreements and Documents to further
effectuate the transfer of the City's right, title and interests in the Utilities Systems and the related
transfers contemplated in this Agreement. Such Collateral Agreements and Documents shall
include:
(a)
(b)
the Assignment Agreement (referenced in Section 6.2);
the Other Assignment Instruments (referenced in Section 6.2);
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EXHIBIT A - Page 14 ot 28
(c)
(d)
(e)
the Water Rights Transfer Agreement (referenced in Section 6.4);
the Easement Agreement (referenced in Section 7);
an agreement related to water services at the property known as the "Riding
Park" and other City-owned properties;
(Ð an agreement (or agreements) to effect the transfer of the Bond Obligations
pursuant to Section 8;
such other agreements and documents required by LAFCO or otherwise
determined by the Parties to be necessary or appropriate for the completion
of the Annexation.
19.2. Collateral Agreements and Documents Effective Date. The Parties shall
cooperate in good faith to complete the Collateral Agreements and Documents in a timely manner,
so they will be executed or completed no later than the Annexation Effective Date and, unless
otherwise specified in such agreement or document, will become effective as of the Annexation
Effective Date.
20. MISCELLANEOUS
20.1. Notice. Any notice, request, demand or other communication under this
Agreement shall be given by fìrst 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, electronic mail 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 modiff the address or number to which communications are to be given under
this Agreement:
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
(e)
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EXHIBIT A - Page 15 of 28
20.2. Termination.
(a) This Agreement shall be terminated at any time before the Annexation Effective
Date upon the earlier of the following: (i) upon 30 days' written notice of termination by one Party
to the other Party; or (ii) the official announcement by either Party of its abandonment of the
transfer of the Utilities Systems as contemplated herein.
(b) In the event that either Party decides to terminate the Annexation proceedings 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 MOU, this Agreement and the Annexation; except that the City shall
reimburse SMWD for the cost of the Real Property Inventory Report.
20.3. MOU Superseded; Integration. Upon execution ofthis Agreement by the Parties,
the MOU shall be superseded in its entirety. Except for the Collateral Agreements and
Documents, this Agreement, together with all exhibits hereto, constitutes the entire understanding
and agreement of the Parties with respect to the subject matters hereof, and integrates all of the
terms and conditions mentioned herein or incidental thereto, and supersedes all prior or
contemporaneous negotiations, discussions and previous agreements between the Parties
concerning all or any part of the subject matters of this Agreement.
20.4. Nonliability of City and SMWD Officials, Employees and Agents. No official,
employee or agent 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 Agreement, or for any act or omission on the
part of the City or SM'WD, unless such liability is permitted and provided by either California law
or the applicable City or SMWD contract with that official, employee or agent.
20.5. Interim Operations Agreements. Nothing in this Agreement 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 Annexation Effective Date.
20.6. 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 Agreement are solely for convenience of
reference, do not constitute a part of this Agreement and shall not affect the meaning, construction
or effect of the provisions of this Agreement.
20.7. Not Construed Against Drafter. This Agreement has been negotiated and
prepared by the Parties and their respective counsel. The Parties agree that the rule ofconstruction
that a contract be construed against the drafter shall not apply. In the event of any ambiguity with
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EXHIBIT A - Page 16 oÍ 28
respect to a term of condition of this Agreement, such ambiguity shall not be construed for or
against a Party on the basis that such Party did or did not author the same.
20.8. Governing Law and Venue. This Agreement has been negotiated and executed
in the State and shall be governed by and construed under the laws of the 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 Agreement. Any action at law or in equity brought by any Party
hereto arising out of this Agreement shall be brought in the Superior Court of the State in and for
the County of Orange.
20.9. Severability. If any term of this Agreement 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.
20.10. No Assignment. No part of this Agreement may be assigned by a Party to another
person or entity without the prior written consent of the other Party.
20.11. No Third Party Beneficiary. This Agreement is not intended nor shall it be
construed to create any third-parfy beneficiary rights in any person or entity other than the Parties.
Nothing in this Agreement, expressed 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 Agreement.
20.12. Execution in Counterparts. This Agreement may be executed in counterparts,
each of which, whên the Parties have signed this Agreement, shall be deemed to be an original,
and such counterparts shall constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank. Signatures Follow.]
10306-0006\2342077
t7
EXHIBIT A - Page 17 of 28
IN \ilITNESS WHEREOF, the Parties to this Agreement have caused the same to be
executed by each of their duly authorized officers as follows:
CITY OF SAN JUAN CAPISTRANO
By:
Troy A. Bourne
Mayor
ATTEST:
Maria Morris
City Clerk
APPROVED AS TO FORM:
Kevin G. Ennis
Special Counsel
SANTA MARGARITA WATER DISTRICT
Betty H. Olson
President of Board of Directors
ATTEST:
Kelly Radvansþ
Board Secretary
APPROVED AS TO FORM
DeeAnne Gillick
Special Counsel
By
10306-0006\2342077
l8
EXHIBIT A - Page 18 of 28
Exhibit A
Exhibit B
SCHEDULE OF EXHIBITS
Definitions
Maps showing the Service Areas/Territories of the Utilities Systems
10306-0006\234207 7 v 79.doc
EXHIBIT A - Page 19 of 28
EXHIBIT A
DEFINITIONS
"2014_S]EA Èeú" means the $20,361,090 (original principal amount) San Juan Basin Authority
Lease Revenue Bonds (Ground Water Recovery Project), Issue of 2014.
"20144 Refunding Bonds" means the 519,922,771 (original principal amount) City of San Juan
Capistrano Water Revenue Refunding Bonds, Series 2014A.
"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
defined therein, with an original principal component of $8,410,000).
"Agreement" means this Annexation Agreement, as the same may be modified from time to time,
in writing by both Parties.
"Annexation" means SMWD's annexation of the Territories pursuant to the Reorganization Act,
as contemplated in the Agreement.
"Annexation Effective Date" means the date to be agreed upon in writing by the Parties subject to
the terms of the LAFCO Approval, as the date on which the Utilities Systems will be transferred
by the City to SMWD to consummate the Annexation.
('Assets" means the assets owned by the City that are accounted for in the Asset Register and to be
described in the Computer Equipment Report and the Real Property Inventory Report and that are
used in connection with and for purposes of operating the Utilities Systems, as applicable,
including but not limited to the City Water Rights, physical facilities, real property interests
(including easements), personal property, cash or cash equivalents or other funds.
"Asset Register" means collectively, databases, lists and other compilations that document all of
the Assets of the Utilities Systems.
"Assignment Aqreement" means the Bill of Sale, Assignment and Assumption Agreement to be
entered into by and between the City and SMWD pursuant to Section 6.2(a).
"CE1]4" means the California Environmental Quality Act, set forth in California Public Resources
Code Sections 21000 et seq.
"CEQA Guidelines" means regulations implementing CEQA, set forth in Title l4 ofthe California
Code of Regulations Sections 15000 et seq.
r6çiry" means the City of San Juan Capistrano, Califomia.
10306-0006\2342077
A-1
EXHIBIT A - Page 20 of 28
"Cit-v Attorne)¡ Agreements" means, collectively, the agreements that the City has entered into for
the engagement of attorney services, for the representation of the City in any matter peftaining to
the Utilities Systems, including any matter relating to the Annexation.
"City Council" means the City Council of the City.
"City Manager" means the Cify Manager (or in the absence of the City Manager, the Assistant
City Manager) of the City.
"City Representatives" means, with respect to a specified purpose, the persons (which may be
employees, agents or consultants of City) designated by the City Manager, in writing, as authorized
representatives of the City.
"City Water Rights" means all water rights controlled, exercised, applied for or held by the City,
including, without limitation, pueblo, appropriative, riparian, overlying, and prescriptive right, and
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.
"Collateral Aqreements and Documents" means, collectively, the agreements to be entered into by
the City and/or SMWD and other documents to be prepared as contemplated in Section 19.1 to
effectuate the transfer of the City's right, title and interests in the Utilities Systems and the related
transfers contemplated in this Agreement.
"Computer Equipment Report" means the computer equipment associated with the GWRP and the
SCADA systems to be specifically identifìed by the Parties to be transferred by the City to SMWD
on the Annexation Effective Date.
'¡egU!ry') means the County of Orange, California.
"Customers" means ratepayers of the Utilities Systems.
"CVWrD" means the former Capistrano Valley Water District (originally known as Orange County
Waterworks DistrictNo. 4), which was a subsidiary district ofthe City and subsequently dissolved
and merged into the City. The Certificate of Completion of such dissolution issued by LAFCO
was recorded on July 29, 2004, in the Official Records of the County, as Document No.
2004000690271.
"Daneshmand Case" means "Hootan Daneshmand, et al. v. City of San Juan Capistrano, O.C. Sup.
Court Case No. 30-2016-00829167-CU-CXC; App. Ct. Case No. G058394 and all related
matters."
"ETM Joint Venture" means the undertakings pursuant to the Agreement for Joint Construction
and Operation of Water Transmission-Distribution Facilities, dated September ll, 1961, by and
between Moulton Niguel Water District and Orange County Water Works District No. 4
(succeeded by CVWD, and later the City).
10306-0006\2342077
A-2
EXHIBIT A - Page 21 of 28
"GürRP" means the Groundwater Recovery Plant operated by the City
"GWRP Land" means the City-owned land (or the applicable portion thereof) on which the GWRP
is situated.
'rlDg" means the new improvement district (currently contemplated to be designated
"Improvement District No. 9") proposed to be formed by SMWD, which will consist of only the
Territories; provided that until the formation of such new improvement district, "ID9" shall refer
to the geographical area of the Territories.
"Joint Venture" means a joint powers authority or joint venture of which the City is a member for
the operation of the 'Water System or the Wastewater System.
"JTM Joint Venture" means the undertakings pursuant to the Amended and Restated Joint Exercise
of Powers Agreement to Operate and Maintain the Joint Transmission Main Facilities, effective
February 28, 2000, by and among Tri-Cities Municipal Water District, Moulton Niguel Water
District, Irvine Ranch Water District, CVWD (as succeeded by the City), El Toro Water District,
the City of San Clemente, and the SCWD.
"LAFCO" means the Local Agency Formation Commission of Orange County, California.
"LAFCO Application" means the application and plan for services for a sphere of influence
amendment and annexation to be submitted to LAFCO with respect to the Annexation.
"LAFCO Approval" means the action to be taken by the LAFCO Commission to approve the
Annexation.
"LAFCO Certificate of Completion" means the Certificate of Completion to be issued by the
Executive Officer of LAFCO pursuant to California Government Code Section 56658, upon
LAFCO Approval.
Disclosure 'means a list of litigation affecting the Utilities Systems to which the
City is a pary that is either: (i) pending and actually known to the City, or (ii) threatened and
actually known to the City as disclosed to SMWD on January 14,2020.
"MOIJ" means the Memorandum of Understanding, dated August23,2019, by and between the
City and SMV/D.
"MWDOC" means MunicipalWater District of Orange County
"MSR" means the final 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.
Easements" means easements or access licenses, or other similar real property interests to
any Retained Property or any other City-owned property, to be identified in the Real Properfy
Inventory Report, that are proposed to be created in favor of SMWD, to enable SMWD's operation
of the Utilities Systems after the Annexation Effective Date.
10306-0006\2342077
A-3
EXHIBIT A - Page 22 ol28
'cOCERS" means the Orange County Employees Retirement System.
"OCERS 6/17l19 Determination" means the determination by the Board of Retirement (which
administers OCERS) on June 17,2019 regarding the OCERS Obligation.
"OCERS Obligation" means the additional payment required to be paid by the City to OCERS as
the result of the Annexation, pursuant to the OCERS 6/17l19 Determination.
Bond Obl " means, collectively,the2014 SJBA Bonds, the20|4A Refunding
Bonds and the 20lT lnstallment Purchase Agreement
"Yfs_)) means, as context requires, either the City or SMWD.
"Post-Transfer Liabilities" means all obligations, claims, demands, actions, causes of action,
liabilities, losses, costs, damages and expenses (of any nature whatsoever, in law or equity, known
or unknown, foreseen or unforeseen, contingent or non-contingent), in any way related to or in any
way arising out of or in connection with the Utilities Systems, unless such obligations, claims,
demands, actions, causes of action, liabilities, losses, costs, and damages or expenses both:
(i) arose during the City's operation of the Utilities Systems prior to the Annexation Effective
Date, and (ii) are covered under the City's risk pool insurance.
"Prospective Employees" means current City employees of the Utilities Systems who become
SMWD employees upon Annexation.
"Real Property Inventory Report" means the report regarding real property interests to be prepared
pursuant to Section 6.5.
"Reorganization Act" means the Cortese-Knox Hertzberg Local Government Reorganization Act
of 2000, set forth in California Government Code Section 56000 et seq.
"Retained Assets" means all of the assets (to be identified by the City in writing) that are to be
retained by the City after the Annexation Effective Date.
"Retained Propetties" means all of the real property interests (to be identified in the Real Property
Inventory Report) that are to be retained by the City after the Annexation Effective Date.
"SC\^irD" means the South Coast Water District.
..''meanSthecomplainttotheSwRCBfiledbySCWDon
August 13,2015, against the SJBA and the City regarding the City's diversion and use of water
pursuant to STWRCB Permit No. 21074 and all related matters, which complaint is pending.
"SCWD Water Services Agreement" means the Water Services Agreement, dated as of May 2,
2000, by and between the City and SCWD.
..,,meanStheAssignmentAgreementtobeentered
into by and among the City, SMWD and SCWD, to transfer of the City's rights and obligations
under the SCWD Water Services Agreement.
10306-0006\2342077
A-4
EXHIBIT A - Page 23 of 28
"Sen¿ice Area" means the respective geographical area served by the Water System or the
Wastewater System, as applicable, as shown in Exhibit B. "Service Areas" means, together, the
Service Area with respect to the Water System and the Service Area with respect to the Wastewater
System.
"Sewer Fund" means the funds established and held by the City for the 'Wastewater System
(identified as the "Municipal Sewer Enterprise Fund" in the City's most recent audited ftnancial
statements).
ccSJBA" means the San Juan Basin Authority, a California joint powers authority.
('SM\ irD" means the Santa Margarita Water District.
"SM'WD Board" means the Board of Directors of SMWD.
"SMWD General Manager" means the General Manager (or in the absence of the General
Manager, the Deputy General Manager) of SMWD.
..@,,meanS,withrespecttoaspecifiedputpose,thepersons(whichmaybe
employees, agents or consultants of SMWD) designated by SMWD General Manager, in writing,
as authorized representatives of SMWD.
"SMWD Work Plan" means the plan prepared by SMWD with respect to the integration of the
Utilities Systems into SMV/D's operations.
"U\VA" means the South Orange County Wastewater Authority, a California joint powers
authority.
66state" means the State of California.
"SWRCB" means the California State Water Resources Control Board.
"Territory'l means the portion of the Service Area with respect to the Water System or the
Wastewater System, as applicable, within the City's boundaries. "Territories" means, together,
the Teritory with respect to the 'Water System and the Territory with respect to the Wastewater
System.
"Transferred Properties" means all of the real property interests, as identified in the Real Property
Inventory Report, that are proposed to be transferred by the City to SMWD in connection with the
Annexation.
"Utilities Systems"means, together, the Water System and the Wastewater System
"Water Rights Transfer Agreement" means the agreement (or agreements) to be entered into by
the Parties before the Annexation Effective Date to govern the transfer of the City Water Rights.
"Water System" means the potable water system and the recycled water system of the City, to be
transfered to SMWD.
10306-0006\2342077
A-5
EXHIBIT A - Page 24 oÍ 28
"W@Und" means the fund established and held by the City for the'Water System (identifred as
the "Water Enterprise Fund" in the City's most recent audited frnancial statements).
"UAsIew&LSy$enq" means the wastewater system of the City, to be transferred to SMWD.
10306-0006\2342077
A-6
EXHIBIT A - Page 25 of 28
EXHIBIT B
SHOWIN RIES
(see attached)
10306-0006\2342077
EXHIBIT A - Page 26 of 28
WATER SERVICE BOUNDARY
City of San Juan Capistrano
I
\}
Legend
i*] X w"t",s"tice Boundary
fl] situ. t"t"d outs¡de boundary
[j city eornoury
û..
-@'
2
(l) Portion of Dana Point
S€rved by cSJC.
{5) RV Storage lot
serued by CSJc
Water.
The former Schuler-Bathgate
p.operty ¡s served water bY
MNWD. Only part of the
property ¡s ¡n CSJC mter
sêru¡cê afea. lt receives
no serv¡ce from CSJC however,
it does have a private well on
OsoRoad, ¡n CSJC, that serves
¡ts ¡rr¡gat¡on ¡eeds,
{7} MNWD provides serer
seil¡ce to CSJc, providing
ffite¡ seru¡ce for I homes in
the H¡dden Creek Estates
area.
(B) MNWD provides
serer seryice to CSJC,
providing water seru¡ce
for 3 s¡tes in c¡ty's North
Open Space,
(91 The C¡ty provides
Mter and sewer
seryice to one private
home.(4) County green
mste fac¡l¡ties
serued by CSJC
{wter only).(10) The City provides
serer but not water
seruice to two homes
and one lot.
{3) County landf¡ll
offices served by
CSJC {water only).
(2) Portion in Dana Po¡nt ¡n
the old CVWD seryice area,
but not served water. There
arê no City water lines ¡n this
atea.
0.5
Miles
Through a POC
at lh¡s locat¡on
between MNWD
and CSJC, the C¡ty
p.ov¡des so[ìe 1 50
houses w¡th sewer
seruice.
The City ¡s the sewer service
pov¡de. in this area. The C¡ly
operates the sewer collect¡on
system ¡n this area but connects
to an MNWD sewer system for
conveyance to wasle water
treatment plant.
Schuler-Bathgate
property may be on
sept¡c. lt is not clear.
IMNWD prov¡des
sewer serv¡ce to
H¡dden Creek
Estates by
agreement,
MNWD has aqreed
to provide sewer
serv¡ce to Hamilton
Oaks Winery, and up
to 2 restrooms on the
CSJC NOS property.
The C¡ty prov¡des
sewot seru¡ce to
one private home.
The C¡ty has an
aqreement with
IMNWD to provide
serer se¡vice to
four parcels ¡n TPM
93-129, The laterals
on site will be pr¡vate.
lhe C¡ty prov¡des
sewer seruice to
lwo homes and
onê lot.
Sewer sefv¡ce
prov¡ded by South
Coast Water Distr¡ct.
PortÌon ôf the Old CBWD
{Capistrano Beach Water
D¡str¡ct) otfices a¡d
wste water treatment plant.
The area ¡s not in CSJC
sewer seflice area. There
may be sewer provided by
CSJC; based on aerial
¡nterpretation of appa.ent
off¡ce and mob¡le homes
parked in the area and the
histor¡c presence of CSJC
sewer lines nearbY.
SEWER SERVICE BOUNDARY
City of San Juan Capistrano
Legend
j " -*'Í
sewer Service Boundary
ll]] Sit"" r"r"d outside boundary
fJ ciry aounoary
N
0 1 2'@"0.5
Miles