14-1118_BLENHEIM FACILITY MANAGEMENT_CC_D14_correspondence_16November 3, 2014 2, 2014 D14
City of San Juan Capistrano
32400 Paseo Adelanto
San Juan Capistrano, CA 92675
Dear City Council
Item 47.4 on the November 4, 2014 City Council Agenda proposes to adopt a two year extension
of the Riding Park Management Agreement for 2015 and 2016.
f find a number of things to dislike about this proposed agreement.
1. The lease is a no -bid itern that gives the incumbent terms that are not competitive,
2. The lease is: for approximately $240,000 per year. The Nenhiem Company earns more
that $1 million per year in revenue from this lease while the taxpayers pay the bond
principal and interest charges on our property tax bill of over $2 million per year.
3. The Measure Y ballot statement says,,
MEASURE Y
Qj2 LYL
,,Natura� Areas and Clean Water Protection andPrese�yzflon lyleasure.
o acquire and improve €and to protect and preserve open space, natural areas, oree-ks and
strcams- historic areas, undcveloptd hillsides and nwural riclgcq frona Potential residential
and
J cofri.werclal (levOoprnent and to provide additi.o.n.al recreariorml. arnOT11TICS SUch, as
loOko and walking ItTails, equestrian Eacififies, panks and sports fields.,. shall the City of San
iFULLM Capistrano issue 310nillhon dol lars :in bonds, at lqY,-,fl rates, vdflh P..,uaranteed aairiaal
independent audifs„ public e�,,penditure review and no �-.noney for City admi.T'dstrator's
salaries:�
No vAicre does the ballot moosure indicate the property will be 'leased a, rd that the piiblic will be
eNcluided from ase of the publically owj.ied property.
4 The().fficial Statcmcnt attached to tN, bond disclosurke says:
OFFICIAL STXFOVIENI"
The Cltv intends to use amroxiniateh, 527.5 mfllhon iii Bord Droc-eds to acciuire 132
acres of Jand locawd at La pa ui and—kntordo Park -way in south Oran.Qe Ccunt�7 known as
th'C', Rancho 10ission Vicio RidinLy Park" fthe "RldlnPark."),The City has Qntel7ed into a
v,archase and sale aueement Co acciuh:Q t1ae Ridina Park for $27.5 million froin its Ourrent
owners, R_1MV Comi3�unitv Development. LL.0 and DYUB San.huan ffivestment'Nordi,
LLC (tovether. the "Seller"'). The Riding Park inchides eouestrian, recreational arid
ar_,ricultural areas and approximately 42 acres of mpen si-Tace/creek habitat. The Riding
Park is a. well-known venuc for oven sa,ace ev(nnts in south Oran,�: Countv such. as
Endish horse sbows, Western horse shows, rodco cvenls. soccer touriiaments, antilque car
shows. doi� slows. and various odder youth athletie, events. U -Don comvletion of the
acquisition of Ridim, Park
dhe Chv hvwnds to re -name the Ridin� Park -d)e "Rancho
N4issjon Viek) Ridin� llari at San, Jinn Additional.N. Lenon commleVon of the
acquiF,ition of the Riding Park, Cae City inteads to restrict the Riding Park to uses
2
consistentwithMeasure Y, which includeits current uses. The Ridim 'ark is not
curre.,a.tly within the City lln-dts. With the cooDeration of the Selle=r. the City has initiated
-fie orocess to annex the Ridim:,, Part, into tlie. City limits, and. cxDeets to co,,rplete the
annexatio:'a 1srocess in January 211104 Boad Droc eeds will be exoended for the acquisition
c:sfthe Riding g Parr ri iy following i�conliifia r.�icn- procoss.
The Gtv intends to use any rernainine, balance of the Bond noceeds to acouire or
construct inatsrovC ergs to o erl smloe: ira the Nort uxest area of ifle C;i.ty acouired last
,lever from I R Shea known as the '!Northwest T)arlti Area." 'The C av is -Droc eedini� with
all elements of tile Proiec:t conQ'InTcntiv_ but Is<,611 in the design aid rAanninLy stage.
Final Pi-gje t costs gelated to tho Northwest Park Area ha-ve not been. detetnnined.
The Official Staternert neglects to mention that the entire, " idL p. Park" will be lease=d to the
Ble hiem Corriimn-�l and that the publics who pays for the property cannot use the propetaty
during equestrian events.
5 'l: he nr000sed lease allocates a rtaaicarity of Lhe revenue aencrated by the public Drooerty
to the Blenheim Company. Is this a gift of public funds under the California State
La's,`]
The ooinion of Citv attonievs indicated the: Orsen SDac< Bonds of 2009B are tax
ex.ernDt. The amnion seers to be in conflict with the. IRS regulations of Public
Purpose Bonds and Private purpose Boaads.
Tax Matters
In the oi)iniori of SLradliiiv Yocca Carlson Ratith. a Professional. Co€,norai.ion
i°Ica z-)ort.BeHc;l , C.at.ifomia, ("Bond Counsel"), -tinder exzstinv, statLAc S, M4LdatiOns, r l rt y
and iudicial de=cisions, mid. asswni,, a certain remesentations and. compliance with certain
covemuits and reciairements desci`bed lrereia, interest (and ori6rta.I issue discounO oil the
Series 2009A Blonds is exultided 'IiOR1. U05saclortae For federal incona�,tax t nooses and
r.i.oi an IIt?' E_4i I x m—cference I'oF w7amo,,,,'s of cal€ ulatina the federal al3.C:1rii tive
minimum tax imoosed on individt a�[s G d cori7or��:tions. In the further ouinicm of Bond
Counsel, interest fand: nn inal issue d:iscou A) on the Series 2009A 13onds is exem.pt froin.
State cif California Personal income tax, Seg; "T: \XA "M " he>rcin with respect to
tax consequences relatlmg to the Se,�•ies 2009A Bonds.
T11 Hle furille'r nDinhm of Rond Uolmqel- (,ml i nri4-incl T',—,sucii,-,counti on
ft.}es s€ rie-c ?�hE�) Rc� d, ,, i-, e-e:mni r't'm Tnt-a € - (-"Iflfnnli;l ill(uIrnE? tax,
!;ee "`T AN" M F F .S'5 herein with respect to tax consequences rclating to tl,e
Series 2009D &mds.
The de-finitions of wvhat is a Public Pumose Bond and a. Private PL>rt ose Bond are attached to
this letter. It would aooear to me that since more than 10% o1 the net revenue Lyoes to the
Blenheim Company; the Bonds in question: are clearly private Purpose Bonds and are not Tax
Exempt.
My question is;
Does this Citv Council really want toieoDardire the Tax E:YeMM stn tr.Is of the Bonds now
hold by thousands of Irivestoj:s by a.mroving this agreenrcnt`? Think about the lawsuits that
could be g=enerated by your actions tonight.
John Perry
Capistrano Taxpayers Association
What it is:
A pubfic-purpm;e bond is a municipal bond that is used to fund projects that benefit the general
public rather than private groups or individuak. Public -purpose bonds contrast with private -purpose
bonds, which use a significant amount.their proceeds to fund private activities or benefit private
parties.
How it works/Example:
Let's assume ABC Town wants to open a new public, library but does not have the money to fund the
construction.. One option may be to issue municipal bonds. Because the bonds will -fund a project that
benefits the general public, the municipal bonds will probably be considered public -purpose bonds.
Although determining what projects truly benefit the general public may be controversial, the
threshold for deciding whether a municipal bond is private -purpose or public -purpose is usually
whether private entities receive rnore than 10 of the proceeds and whether the project has broad
social value.
The Tax Reform Act of 1986 created the distinctions between public -purpose and private -purpose
bonds in an effort to limit the tremendous temptation municipalities faced to essentially act as
commercial bands for private entities with projects, that lacked substantial social benefit. The Act,
which made the private -purpose bond a taxable investment, quelled much of this temptation. Today,
there are many kinds of public -purpose bonds (Le., general obligation bonds, revenue bonds, tax
anticipation notes, etc.), but overall, these bands fund projects such as roads, libraries, and
infrastructure systems.
Why it Matters:
One of the largest advantages of investing in municipal bonds is that the interest is usually exempt
from federal taxes (and most state and local taxes if the investor lives in the state or municipality
issuing the debt), but this exemption only applies to public -purpose bonds, and even then the IRS can
apply the alternative minimurn tax (AMT) to the interest income in certain
circumstances. Thus, every municipal bond investor must take the time to read his bonds' offering
statements, learn whether his bonds are public -purpose or private -purpose, and understand his
individual tax situation.
Municipal bond offering statements must carry the opinion of a qualified tax attorney stating whether the
interest on the bond is taxable or tax-exempt according. to the Tax Reform Act of 1986 and other related laws.
Municipal bond funds should also receive
the same scrutiny, because if any of a fund's bonds are private -purpose, investors cauW be subject to taxes
there as well.
Private Purpose Bond
DEFINIT ION of'Private Purpose. Bond�
A type of municipal bond that is issued to finance a project for which at least 10 of the benefit
will go to a private sector entity. Municipal bonds are usually associated with tax-free income.
However, the Tax Reform Act of 1986 requires municipal bonds to be categorized as either
public purpose or private purpose, and makes the interest payments that investors receive
frcm private purpose bonds taxabie unless the bonds are specifically (27€e.mpted,
NNE STOPEDXA EXPLAMS 'Private Purpose E30nd'
A bond used to finance a sports stadium woWd be considered private purpose because
rnuch of the incorne generated by the stadium wil[ go to sports team owners. Public
purpose bond ircorne is tax free at the federal level, and often at the state level If the
individual resides in the state where the bond was issued.