How can a town of 35,000 with no revenue stream legally obtain $284 million in long term debt? Legally, it can not.
In the last 20 years the City of Beaumont has perverted the legal loophole California Government Code 53311 – better known as 'Mello-Roos Community Facilities Act of 1982'. This law was designed to allow local governments to circumvent Prop 13 and incur debt on existing property owners. However the law clearly states:
53345.8 (a) The legislative body may sell bonds pursuant to this chapter only if it determines prior to the award of sale of bonds that the value of the real property that would be subject to the special tax to pay the debt service on the bonds will be at least three times the principal amount of the sum of the following:
- The principal amount of the bonds to be sold.
- The principal amount of all other bonds outstanding that are secured by a special tax levied pursuant to this chapter on property within the community facilities district or special assessment levied on property within the community facilities district.
The State of California requires the following Checks and Balances:
Underwriter – This guarantees the Securities. The State Treasurers' Office lists the underwriter for Beaumont as O'Connor & Company Securities, Inc, also known as 'Southwest Securities' and 'Chilton & O'Connor'. Their website boosts of being experts in Mello-Roos and states: “William O'Connor has underwritten more mortgage revenue bonds in California than any other individual.”
Bond Counsel – This Attorney writes an official opinion stating that a local government is legally permitted to issue the bond. The City of Beaumont has used only one Bond Counsel in the last 20 years – McFarlin & Anderson. Their website advertises their expertise in Mello-Roos and affiliation with Southwest Securities.
Financial Advisor – This is another layer of oversight required by the State to protect the people's money. Ron Gunn Associates, Inc is listed as Beaumont's Financial Advisor. This person/company has no website. An address for an office space in Huntington Beach can be found. I know this person exists because I have emails from Ron Gunn to Alan Kapanicas requesting money transferred into the Union Bank Account for the “Cash Flow Management Fund”.
I had requested from the City of Beaumont copies of all banking and financial accounts held by the city, but this account was not released. I have requested it again with the specific account number. It is disturbing that there is a hidden account with the financial institution that is the Trustee for the City's debt.
Trustee – This is the Financial Institution that holds the loans. Beaumont's bond debt is held by three institutions: BNY Western Trust Co. holds debt incurred from 1993- 2000. Debt incurred from 2001 – 2008 is held by Union Bank of California. Debt from 2009 – Present is held by Union Bank NA.
Union Bank is fully aware of the City of Beaumont's financial problems because this bank has wired money back into the General Fund when the City's Bank Account was overdrawn. This is also the same bank account that has numerous deposits like $515,000 on 07/26/12 that was charged to the employee expenses as Worker's Comp.
Section 5 of Resolution No. 2012-23 lists additional consultants: 'Urban Logic' as Project Engineer and 'General Government Management Services' as special tax consultant. We already know that Urban Logic is not an independent company, and I can find no proof of life for a business called General Government Management Services.
Twice a year the City makes payments to Union Bank for the bond debt. The September payment was $8 million; $3 million paid on the principal and $5 million paid on the interest. In March the $5 million payment was for interest alone.
In December, 2010 the General Fund Bank Account was overdrawn, so the City withdrew $1million from LAIF – Local Agency Investment Fund to replenish the account. In January the City withdrew another $3 million from LAIF to cover daily expenses in the General Fund. The LAIF account went from $9.8 million on 12/01/10 to $5.8 million by 01/31/11. Authorized Caller that withdrew the funds from LAIF: William K. Alyward.
Resolution No. 2012-23 funding was to develop 'Area 17C', which is located northeast of town. Beaumont is surrounded with unfinished development sites. There are vacant lots remaining on most of the previous areas developed. Looking at the Beaumont area through 'Google Earth' it's hard to believe there's not environmental and erosion concerns. The Town is surrounded by developments that were never finished.
The City sells the projects to the citizenry on the theory that they will not be paying for the debt themselves, the property taxes collected will pay for the debt. But Section 8 of Resolution 2012-23 creates a clause that taxes will not start until the parcel is 'used for private residence purposes'. Because there are no houses on these properties; there is no tax revenue collected to pay for the debt. All of the property in Area 17C is owned by Pardee Homes, Inc. They list another development site they are selling houses on and a 'coming soon' area that looks like it's been sitting for years, so Pardee will not be developing this property in the near future.
Taxes are collected for the basic needs of the community. Page 63 of the 2011 Financial Report lists total Property Taxes collected at $2,839,632. The City of Beaumont paid $13.4 million for bond debt - $10 million more than was collected through property taxes.
With the collaboration of of the Checks and Balances that are paid to protect the People's money; the City of Beaumont has placed 35,000 people in $284 million debt with payments until 2042.