Resolution Number 16-06-21-09RESOLUTION NO. 16-06-21-09
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF SAN JUAN CAPISTRANO TO AMEND THE TERMS
OF THE SEWER ENTERPRIS'E FUND'S INVESTMENT IN
A PROMISSORY NOTE OF THE SAN JUAN
CAPISTRANO WATER ENTERPRISE FUND AND
AUTHORIZING THE EXECUTION OF THE AMENDED
PROMISSORY NOTE BY THE WATER ENTERPRISE
FUND
WHEREAS, in 2015 the City Council of the City of San Juan Capistrano settled
the water rate case, Capistrano Taxpayers Association v. City of San Juan Capistrano,
Case No. 30-2012-00594579 ("CTA Lawsuit"); and ,
WHEREAS, in the CTA Lawsuit, the Court of Appeals concluded that the City's
tiered water rates were not supported by evidence of increased costs for the upper tiers,
and as a result, on June 16, 2015, the City Council authorized a process for refunding
water rate overcharges to the City's water rate payers; and,
WHEREAS, the City of San Juan Capistrano's Water Enterprise Fund ("Water
Fund") did not have the funds available to pay for the costs of the CTA Lawsuit
settlement, including the costs of settlement and of refunding of the overcharged water
rates; and,
WHEREAS, the City of San Juan Capistrano's Sewer Enterprise Fund ("Sewer
Fund") had available funds to loan such amount to the Water Enterprise; and,
WHEREAS, in order to meet the obligations involved in the resolution of the
CTA Lawsuit, the Water Enterprise issued a Promissory Note (the "Promissory Note")
payable to the Sewer Fund; and,
WHEREAS, Section 53601 of the California Government Code provides that,
subject to the limitations specified therein, the legislative body of a local agency
(including a local agency such as the City) having money in its treasury not required for
the immediate needs of the local agency, may invest any portion of the money that it
deems wise or expedient in bonds, notes, warrants or other evidences of indebtedness
of any local agency within the State of California (including a local agency such as the
Water Fund); and,
WHEREAS, the Sewer Fund invested in the Promissory Note by advancing to
the Water Fund the principal amount thereof; and,
WHEREAS, such advance was used by the Water Enterprise to meet the
obligations cause by the CTA Lawsuit, including the refund of overcharged water rates
as authorized by the City Council; and,
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WHEREAS, the City Council authorized the investment by the Sewer Fund of
moneys in its treasury in the form of a Promissory Note and the performance of such
acts by or on behalf of the City as may be necessary or desirable to effect such
investment.
WHEREAS, the Water Fund is expected to experience higher than expected
expenses in Fiscal Year 2016-17, including higher than normal legal expenses, an
increase in the costs of imported water, reduced revenue as a result of the City's water
conservation program, and the delayed full financial benefits of the City's five-year
phase-in of the water rate increases that began on July 1, 2014.
WHEREAS, as a result of these conditions, the City Council finds it
advantageous to extend by one year the commencement of the payment of principal by
the Water Fund to the Sewer Fund.
WHEREAS, these conditions are expected to be sufficiently mitigated in Fiscal
Year 2017-18 to allow for the commencement of principal payments to the Sewer Funds
at that time.
WHEREAS, this one year delay in repayment of the loan will not interfere with
the ability of the Sewer Funds to fund the projects and activities needed for Fiscal Year
2016-17 because of the sufficiency of reserves that have been accumulated in the
Sewer Operations Fund and the Sewer Capital Improvement Fund to provide for these
needs.
NOW, THEREFORE, BE IT RESOLVED, that the City Council of the City of San
Juan Capistrano does hereby resolve as follows.
SECTION 1. The due date of the Promissory Note authorized on August 4, 2015
between the Water Enterprise Fund and the Sewer Enterprise Fund is hereby extended
from June 30, 2019 to June 30, 2020. All other terms pertaining to the Note remain
unchanged.
SECTION 2. The City Council hereby finds and determines that the Sewer
Enterprise Fund has sufficient funds to meet its operating and capital needs to allow for
the one-year extension of the due date of the Promissory Note.
SECTION 3. The City Council hereby approves the Amended Promissory Note
attached to this resolution.
Signature Page Follows
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PASSED APPROVED, AND ADOPTED this 21st day of June 2016 .
ATTEST:
L
M
APPROVED AS TO FORM :
Jeff Ballinger, City Attorney
STATE OF CALIFORNIA )
COUNTY OF ORANGE ) ss .
CITY OF SAN JUAN CAPISTRANO )
I, MARIA MORRIS, appointed City Clerk of the City of San Juan Capistrano, do hereby
certify that the foregoing Resolution No. 16-06-21-09 was duly adopted by the
City Council of the City of San Juan Capistrano at the Regular meeting thereof, held the
21st day of June 2016, by the following vote:
AYES: COUNCIL MEMBERS: Reeve, Perry, Allevato, Ferguson and Mayor Patterson
NOES: COUNCIL MEMBERS: None
ABSENT: COUNCIL MEMBERS: None
I C ITY CLERK
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AMENDED PROMISSORY NOTE
Initial Principal Amount: not to exceed: $4,420,000.00
Estimated Accreted Value at Maturity: $4,550,200.00
San Juan Capistrano, California
June 30, 2015
FOR VALUE RECEIVED, the San Juan Capistrano Water Enterprise Fund (together
with any and all of its successors , the "Water Enterprise ") hereby promises to pay to the City of
San Juan Capistrano Sewer Enterprise Fund (together with any and all of its successors and
assigns, the "Sewer Fund "), starting on December 31, 2017, and paid semi-annually on
December 31 and June 30, until June 30 , 2020 (the Maturity Date") principal and any accrued,
unpaid interest, in lawful money of the United States of America , at 32400 Paseo Adelanto , San
Juan Capistrano , California , or at such other address as may be specified by the Sewer Fund ,
the principal amount of $4 ,420,000, together with interest accrued thereon from June 30, 2015
to the Maturity Date at the rate of 0.78% per annum, compounded semiannually on December
31 and June 30 in each year, commencing December 31, 2015 (each such date an "Interest
Accrual Date") calculated on the basis of a 360-day year comprised of twelve 30 -day months
(the "Accreted Value "). This Promissory Note, and any renewals or extensions hereof and as
the same may be amended, restated or supplemented from time to time, is referred to herein as
this "Note."
Section 1. Authority; Nature of Obligation . On June 16 , 2015 , the City Counc il of
the City of San Juan Capistrano authorized the refund of water rates to ratepayers who overpaid
water rates during the period of August 28, 2013, to June 30, 2014 . This was done following the
Court of Appeals decision in Ca pi st ran o T axp ayers Asso cia ti on v. City of Sa n Juan Ca pist ra no
(the "CTA Lawsuit"). Based on the City 's estimates, the amount of potential refunds , when
combined with the attorneys' fees paid to the plaintiff's attorneys in the CTA Lawsuit and
accrued interest , are estimated to total Four Million Four Hundred Twenty Thousand Dollars
($4,420,000.00). The Water Enterprise does not currently have such funds available, and in
order to meet the refund obligations, the Water Enterprise needs an inflow of cash totaling
$4,420,000.00. The funds provided from the Sewer Fund as consideration for this Promissory
Note will provide the cash necessary to meet the water rate refund obligation and plaintiff's
attorneys' fees .
The obligations of the Water Enterprise under this Note, including the obligation to make
all payments of the Accreted Value hereof when due or upon prepayment hereof, are
obligations of the Water Enterprise imposed by law and are absolute and unconditional, without
any right of set-off or counterclaim. This Note does not constitute an obligation of the Water
Enterprise for which the Water Enterprise is obligated to levy or pledge any form of taxation or
for which the Water Enterprise has levied or pledged any form of taxation, and neither this Note
nor the obligation of the Water Enterprise to make payment of the Accreted Value hereof
constitutes an indebtedness of the Water Enterprise or the State of California, or any of its
political subdivisions, in contravention of any constitutional or statutory debt limitation or
restriction.
Section 2. Prepayment. The Water Enterprise may voluntarily prepay this Note, in
whole or in part (including interest), on any date, by paying to the Sewer Fund , in lawful money
of the United States of America, at 32400 Paseo Adelanto, San Juan Capistrano, California, or
at such other address as may be specified by the Sewer Fund, an amount equal to all or a
portion of the Accreted Value hereof as of such prepayment date . Upon any such prepayment,
the Accreted Value hereof as of the date of such prepayment, shall, ipso facto, be reduced by
an amount equal to the amount of such prepayment and , as of such prepayment date, interest
shall accrue on such reduced Accreted Value, and shall be compounded, as described above.
The Water Enterprise shall endeavor to give the Sewer Fund written notice of its intention to
prepay all or a portion of this Note not less than ten days prior to the applicable prepayment
date; provided that any prepayment shall be valid as of the actual date of such prepayment
even if such notice is given late.
Section 3. Events of Default and Remedies. The failure of the Water Enterprise to
pay the Accreted Value hereof, as and when due, shall constitute an event of default under this
Note (an "Event of Default"). If an Event of Default shall occur and be continuing, the Sewer
Fund may, at its option, without prior notice or demand, and is hereby authorized and
empowered by the Water Enterprise, at any time and from time to time, exercise all or any one
or more of the rights, powers or other remedies available to the Sewer Fund against the Water
Enterprise under applicable law. Upon the occurrence and during the continuance of an Event
of Default, interest shall accrue on the Accreted Value hereof at the rate of 0.78% per annum,
and shall be compounded, as described above.
Section 4. Costs and Expenses of Enforcement. Upon the occurrence and during
the continuance of an Event of Default, the Water Enterprise agrees to pay to the Sewer Fund
on demand all costs and expenses incurred by the Sewer Fund in seeking to collect this Note or
to enforce any of the Sewer Fund's rights and remedies hereunder, including court costs and
reasonable attorneys' fees and expenses, whether or not suit is filed hereon, or whether in
connection with bankruptcy, insolvency or appeal.
Section 5. Certain Provisions Regarding Payments. All payments made under
this Note shall be made without offset, demand, counterclaim, deduction or recoupment (each of
which is hereby waived) and shall be accepted subject to the condition that any check or draft
may be handled for collection in accordance with the practice of the collecting bank or banks.
Acceptance by the Sewer Fund of any payment in an amount less than the amount then due
shall be deemed an acceptance on account only, notwithstanding any notation on or
accompanying such partial payment to the contrary, and shall not in any way (a) waive or
excuse the existence of an Event of Default, (b) waive, impair or extinguish any right or remedy
available to the Sewer Fund, or (c) waive the requirement of punctual payment and performance
or constitute novation in any respect.
Section 6. General Provisions. Time is of the essence with respect to the Water
Enterprise's obligations under this Note. To the extent permitted by applicable law, the Water
Enterprise hereby (a) waives demand, prest;.ntment for payment, notice of dishonor and of
nonpayment, protest, notice of protest and all other notices, filing of suit and diligence in
collecting this Note, (b) agrees that the Sewer Fund shall not be required first to institute suit or
exhaust its remedies hereon against the Water Enterprise, and (c) consents to any extensions
or postponements of time of payment of this Note for any period or periods of time and to any
partial payments, before or after maturity, and to any other indulgences with respect hereto,
without notice thereof. A determination that any provision of this Note is unenforceable or invalid
shall not affect the enforceability or validity of any other provision and the determination that the
application of any provision of this Note to any person or circumstance is illegal or
unenforceable shall not affect the enforceability or validity of such provision as it may apply to
other persons or circumstances. This Note may not be amended except in a writing specifically
intended for such purpose and executed by the party against whom enforcement of the
amendment is sought. Captions and headings in this Note are for convenience only and shall be
disregarded in construing it.
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Section 7. Notices. All written notices, statements, demands, consents, approvals,
authorizations , offers, designations, requests or other communications hereunder shall be given
to the party entitled thereto at its address set forth below, or at such other address as such party
may provide to the other parties in writing from time to time, namely:
If to the Water Enterprise :
If to the Sewer Fund :
Water Enterprise Fund
City of San Juan Capistrano
32400 Paseo Adelanto
San Juan Capistrano, California 92675
Attention: Finance Director
Sewer Enterprise Fund
32400 Paseo Adelanto
San Juan Capistrano, California 92675
Attention: Finance Director
Each such notice, statement, demand, consent, approval, authorization, offer,
designation, request or other communication hereunder shall be deemed delivered to the party
to whom it is addressed (a) if given by courier or delivery service or if personally served or
delivered, upon delivery, (b) if given by telecopier, upon the sender's receipt of an appropriate
answerback or other written acknowledgment, (c) if given by registered or certified mail, return
receipt requested, deposited with the United States mail postage prepaid, 72 hours after such
notice is deposited with the United States mail, or (d) if given by any other means, upon delivery
at the address specified in this Section.
Section 8. Governing Law. In all respects, including matters of construction, validity
and performance, this Note and the obligations arising hereunder shall be governed by, and
construed in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, the Water Enterprise has duly executed this Note as of the
date first above written.
San Juan istrano Water Enterprise Fund
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AMENDED PROMISSORY NOTE AMORTIZATION SCHEDULE
Sewer Enterprise Fund Loan to the Water Enterprise Fund
Maximum Loan Amoun t: $4,420,000
Interest Rate (Annual): 0.78%
Terms (yrs): 5
1st Principal payment: December 31, 2017
Accrued Interest from June 30, 2015, through December 31, 2020, is $130,200
Interest is compounded semi-annually.
Projected Amortization Schedule*
Year Debt Service Payment Principal Interest Total (FY) Date:
1 2015-2016
2 2016-2017
3 2017-2018 12/31/2017* $700,000 $86,324 $786,324
6/30/2018 $730,000 $14,508 $744,508
4 2018-2019 12/31/2018 $735,000 $11 ,661 $746,661
6/30/2019 $740,000 $8,795 $748,795
5 2019-2020 12/31/2019 $745,000 $5,909 $750,909
6/30/2020 $770,000 $3,003 $773,003
Total: $4,420,000 $130,200 $4,550,200
*includes interest accrued from June 30, 2015, through December 31, 2017 .
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