Loading...
04-01-85 v MINUTES OF THE SPECIAL CALLED MEETING OF THE ATLANTIC BEACH CITY COMMISSION HELD AT CITY HALL ON APRIL 1 , 1985 AT 7:00 P.M. The meeting was called to order at 7:00 p.m. by Mayor William S. Howell for the purpose of further discussion on some questions that were raised at the last meeting. Those present included Mayor William S. Howell, Commissioners Robert B. Cook, Sr. , William I. Gulliford, Jr. , John W. Morris, Jr. , and Catherine G. Van Ness; City Attorney Claude L. Mullis, City Manager Richard C. Fellows, Jerry Strayve, Bob Braid, and Mel Hurwitz of Buccaneer Utility Co. , Richard Gordon and Wayne Middleton of Touche Ross, and Robert Stubbs, Financial Advisor. Mayor Howell expressed the opinion that some of Commissioner Morris's questions and concerns at the last meeting should be addressed first, and if possible, answered publicly. He stated that he had asked Mr. Strayve and Mr Middleton if they had made notes from the last meeting relative to respond- ing to Commissioner Morris's concerns. They both answered in the affirmative. One. The projection of cut-ins that would be expected through 1985 if we had no other cut-ins in the future. There were some questions about the present connections. Mr. Strayve commented on the subject. He reported on March 25, 1985 there were 1,669 connected units. There are signed agreements which would increase the total to 2,492. Difference of 823 which are under con- struction. He stated to date they have averaged 165 connections per month which meant for the remainder of 1985, they would need to average 91 per mo. to reach 2,492 and he felt that was within their forecast. Commissioner Morris said he had mentioned in his comments Buccaneer would have to average 126 hook-ups per month for the next 20 months to go from 1200 to 3737, not what they had to do in 1985. Mr. Strayve noted that developer agreements for connections showed that they are building more than 165 per month at the present time. The impact fees have already been realized by Buccaneer and Atlantic Beach would be receiving this money in the package as assets in the ground. Commissioner Morris asked if the assets in the ground would be what the city considered lines dedicated for maintenance by the city. Mr. Strayve replied they were not by deed in all cases, but rather dollars. Commissioner Morris said the city's policy is for the developer to pay all costs and dedi- cate the lines, etc. to the city for maintenance. Mr. Strayve added that all the lines outside the gate have been paid for by Buccaneer. Two Another question discussed at the last meeting was the terminology of "Book value". Why was Atlantic Beach talking about $3.9 million as a possible purchase price and why was Gee & Jensen's appraisal $4.4 million, and yet a book value as shown by Hurwitz indicate $2.2 million. Mayor Howell quoted from Prentiss Hall the definition of "book value"- the net amount that which an asset or asset group appears on the books of an account as distinguished from it's market or intrinsic value. Gross book value is the amount appearing in an asset account, while book value or net book value is the gross book value less any applicable portion of a reserve for depreciation or other valuation account." Mayor Howell expressed the opinion the bottom line of the meaning of book value meant that amount of the value of the assets as shown on the books of a corporation, company, private business, and the main reason for showing that value was from the beginning of the purchase of the item you have been depreciating for purposes of saving income taxes. He felt that was the only reason for keeping book value on the books. PAGE TWO MINUTES APRIL 1, 1985 Mr. Hurwitz explained their practice was to book only those items for which they had received money, and have bills. They have never booked any of the dedicated lines referred to such as the developer would come in, build the subdivision and then dedicate it to Buccaneer. None of those items were ever booked. Commissioner Morris asked if they could go to the bank and borrow on the dedicated lines, and Mr. Hurwitz replied in the affirmative. For the record, Commissioner Morris read from Mr. Hurtwiz's cover letter of January 21, 1985. The second paragraph "Our compilation was limited to pre- senting information that is the representation of management. We have not audited or reviewed the financial statements referred to above and accord- ingly do not express an opinion or any other form of assurance on them." He asked for an explanation. Mr. Hurwitz replied that was standard accounting terminology as required by the American Institute of CPA's. An audit would require an independent study that is expensive and time consuming. He was asked if that was the study Touche Ross did and Mr. Hurwitz stated no, Touche Ross did an analysis of the projections that were put forth by the Utility. They independently confirmed where his assumptions came from. Hurwitz stated something and Touche Ross verified where the figures came from. Mr. Hurwitz added from a compilation standpoint of the financial statement, probably 95% of all financial statements prepared in the United States would have exactly that same paragraph in it. Commissioner Gulliford asked if they did in fact audit any part of the statement. Mr. Hurwitz commented Buccaneer only had one note to the Ocean State Bank which they requested a copy of the bank's liability ledger saying "as of this date this is the balance and accured interest on it". As to payables, the utility paid their bills every two weeks and the total accounts payable at any one time probably would not exceed $10,000 which would be paid within two weeks. He added if he was ever un- comfortable he would certainly go over it. Commissioner Gulliford stated his company had been in business since 1954, and had never had their CPA firm produce an audited statement, but had taken many of the steps necessary to produce an audited statement. They did not have to assume the expense in order to conduct business and therefore they had not required an audited statement as is the case with many small businesses, both in the city and country. He expressed the opinion that many, many times that is not a reflection, and felt what they represented as book value, also the entire statement is in fact true, perhaps understated because of depreciation,etc. Commissioner Morris expressed his concern in evaluating the value for the purposes of dickering a selling price. He said he saw $2. 1 million in the figures, not $3.9 million, and challenged that. Touche Ross came back with a letter dated March 28th in which he listed the Touche Ross rendition of the net book value.Figures: $2,142,282 which was the figure from Mr. Hurwitz's report; on site water lines cost $378,051; on site sewer lines cost $687,004; projected assets for February 6th to December 31, 1985 was $660,500; land for tank #4 at $32,000. That brought Touche Ross's rendition up to $3,899,000. Commissioner Morris was under the assumption that values shown for under- ground lines were items that had been dedicated by the builders, and he also understood the PSC took the same view on that. He said although Mr. PAGE THREE SPECIAL CALL APRIL 1, 1985 Hurwitz listed them as assets, when they become the property of Atlantic Beach, then they become a liability the city must take care of. The City's policy with developers provides for the developer to build the lines and dedicate them to the city, and also pay an impact fee. The impact fee is put into an interest bearing account for repair and replacement. Commissioner Morris expressed concern if the city paid $3.9 million for the utility and assumed approximately $1.7 million of liability to take care of problems 15 or 20 years from now, where would the city get the impact fees for those repairs. Commissioner Gulliford disagreed with Commissioner Morris on the impact fees going to future repairs and maintenance cost. He considered the impact fees, as he saw it, that the developers were buying a capacity and a distribution. The maintenance and repairs of those lines, regardless of whether they were the citys, someone else, or Buccaneers, had to come out of some portion of the operating revenues of the system. If Commissioner Morris was talking of expansion, that would be different than repairs and mainten- ance. Mr. Strayve stated Buccaneer received impact fees to build lines, tanks, towers, etc. They also have revenue, part of which is called basic facility charge. That is used to keep up and repair tanks, pipes, replacement, etc. In addition to that revenue, they have a user charge. That is utilized to pay the electric bills, chemical fees, employees, etc. (three terms of revenue) . Three. Mayor Howell said one of the questions that came up at the last meeting was the city would be purchasing duplicated services: purchasing a building we don't need,and purchasing a water plant the city did not need. He remembered well when the city sunk its first well in 1956, designed by Smith & Gillespie and went down 1200 ft. Everyone thought the city would never have any more problems with water, because all the water at that time came from the Atlantic Beach Hotel. It was not too many years after that the city found that well was not producing enough water, and they had to drill another well of approximately 1000 ft. in the location of the sewer plant. That was tied into the system at 11th. A few years later, the city received a million dollar grant and built, along with other things, a third water system. They all felt at that time they would never have to drill another well. That remains to be seen. Mayor Howell said he did not deny for one minute the city did not need Buccaneer's office building at the moment. However, he did not know what the future held. He added the office building , in his opinion, would be the only duplication in the proposed purchase. Commissioner Morris stated that office building amounted to $350,000. Mr. Strayve advised Buccaneer would accept a delineation of the building from the offer if the city felt that was proper. If they did not buy the building they would not need the equipment inside such as desks, etc. Also the inventory items ($66,000) . He had asked Touche Ross to give him the P&I at $3.5, those numbers he felt very safe with. That would be $396,505. If the city wanted the inventory or office equipment, either/or, it would go up to $3,550,000. Then put the P&I statements down, it would be $402,169. Commissioner Gulliford asked what they would do with the building if the city elected to take that option. Mr. Strayve said they knew they could sell the PAGE FOUR MINUTES APRIL 1, 1985 building as it happened to be the only commercial building on the street and the only commercial building that is going to be that street. Commissioner Gulliford asked Commissioner Morris to consider the possibility the property might be worth more than the book value. Commissioner Morris replied that was getting a little out of hand - they were talking about crossing the city lines to buy into a private utility business, and taking the assets and getting into something else. He said he would prefer to see financing on bonds at the very lowest possible cost. Not buy the building and then turn around and sell it. He added there were covenants and restrictions there and said the city would be much better off to cut the purchase down to the bare bones and finance based on the lowest figure possible. Mr. Strayve said they would cut the fuel system out and give the city an easement to that tank, or they could cut out a piece of the land if it would make the city feel more comfortable. Mr. Baird was asked what the Mayport widening project was. The project required in some cases, that they physically move the entire water system in one area. What they did instead of moving it over five feet, was to redesign it and started a portion of what they called the old Lake Elizabeth area, which is now brand new. Another portion of the project was they had to physically re-do the entire sewer lines in a specific area due to the road widening crew that thoroughly mangled the lines. Mr. Baird told the Commis- sion the name Mayport Widening didn't mean a thing to them. It did to the PSC because they were the people Buccaneer was currently working with. Com- missioner Morris said it only meant to him $36,000 of assets, and said he didn't feel like buying that. Mr. Alan Potter explained that some of the lines were put across the road by the contractor at Buccaneer's expense so they would not have to bore under the road at a later date at a greater ex- pense. A lengthy discussion followed on the projected replacement time and cost. Commissioner Gulliford asked if the engineering drawings and plans on future projects were set up as an asset or were they expensed off. Mr.Baird said they were set up as an asset. The Mayor called a three minute recess at 8:00 p.m. Mayor Howell called the meeting back into session at 8:03 p.m. Four. Mayor Howell said there were other discussions as to the extent of the liability of the City of Atlantic Beach in the proposed purchase. It was his understanding in discussions with Buccaneer from the very beginning that at no time was there ever to be any financial responsibility within the corporate limits of the City of Atlantic Beach in the purchase of the system. Any and all bond payments had to come solely from the income from that system, and if the income was not there, then they don't get paid. At no time would the city have to raise its rates, reach into another pocket, or raise other taxes to assess its citizens in order to run that operation and/or pay for its purchase. He added that was what the Ordinance said. Mayor Howell recognized Mr. Dan Livermore, Bond Attorney. Mr. Livermore confirmed what the Mayor had said. There would be no financial liability except from the revenues of the Buccaneer system. Commissioner Morris asked about the lien PAGE FIVE SPECIAL CALL APRIL 1, 1985 shown in the gross revenues of the city to back up that bond. Mr. Livermore stated not the gross revenues of the city - it said the gross revenues of the district system. Commissioner Morris expressed the opinion the gross revenues of the city were a covenant guaranteeing the payment, and as a matter of fact those bonds would be senior in the revenues and if the city came into some financial straits, they would have to go for a subordinate issue that would probably cost considerably more interest to borrow, if we were in a bind and needed the money. That gave Commissioner Morris some heavy concerns if the city was locking up the assets or the gross revenues in such a manner that it would cause the city grief later on ten years down the road. Mayor Howell asked if he referred to gross revenues of Buccaneer system or was he talking about the City of Atlantic Beach, which was already pledged to the 1 1/2 million dollar bond issue that is working now for the State. Com- missioner Morris commented on the Ordinance page 2 - Sect. 2(E) "Estimated annual gross revenues will be sufficient to pay the principal and interest" (But if they are not sufficient) (page 3 - Sect. 2(F) "Bonds shall not constitute a lien upon any property of or in the City,except Gross Revenues." Page 14 - sect. 15 "Until payment has been provided for as herein permitted, the payment of the principal and of interest on the Bonds shall be secured forthwith equally and ratably by an Irrevocable Lien on the Gross Revenues Prior and Superior to all other Liens or Encumbrances on such Gross Revenues and the City does hereby Irrevocably pledge such Gross Revenues to the payment of the principal of and interest on the Bonds, the reserves therefore, and for all other required payments under this Ordinance." Mr. Livermore said page six said "Gross Revenues means all income derived by the city from the operation of the District I system." District I system meant the Utility system to be acquired under the purchase agreement plus any other expenses made in District I. He explained that Gross Revenues of the city meant gross revenues of the system only. The only thing that is pledged in the agreement is the gross revenues generated from the operations of Sewer District I. Mayor Howell asked Mr.Livermore if he could be repetitious in the Ordinance & everywhere that it said "the gross revenue" perhaps insert the words "of the District I". Mr. Livermore replied of course. Mr. Mullis added they had defined the gross revenues in the definition. Commissioner Morris asked Mr. Livermore to explain the covenant. Mr. Livermore explained there was a covenant that the city agreed to raise the rates of the District I system to generate sufficient revenues to make the payments. Commissioner Morris asked what happens to the citizens of Atlantic Beach if the rates were raised. Mr. Livermore said those who were in District I would have to pay the higher rates. Those were the only rates they would have to raise according to the covenant and it would not affect anyone except those served by the system. The question was asked could the rates be raised outside of the system without raising rates in the city. Mr. Livermore said there was a statute that says you can up to a certain point - 150%. Commissioner Morris said if the District I system wasn't meeting the bond payments, then the covenant would mean the city would have to raise rates of all users of the system in PAGE SIX SPECIAL CALL APRIL 1, 1985 order to meet the bond payments. Everybody would have to come as you could not earmark District I users. Commissioner Morris asked Mr. Livermore if he was representing Mr. Strayve or the City, and he answered the city. Commissioner Morris said he was only trying to protect the citizens of Atlantic Beach from any increase in rates in case something went wrong in District I. Mr. Fellows was asked to advise the Commission on the problem in the City of Stuart. Mr. Fellows said the City of Stuart raised the rates 150% and were taken to court and had to come up with justification for charging 50% outside the city and were unsuccessful. The Court ordered them to reduce it to 25%. These were some of Commissioner Morris's grave concerns about 150% rates and when the day may come that the city would be challenged and have to cut back on those rates, then the city had better be prepared. Discussion followed on the case and other cases around the state. Mr. Mullis explained, at the request of the Mayor, the meaning of a letter from him that was delivered to the Commission earlier in the evening. He said after the last meeting he met with Mr. Livermore and apprised him of Commissioner Morris's apprehensions and they both concluded in their view, the Ordinance said what he wanted it to say, and that was of course, it was only the revenues of that system, but in order to eliminate any possible doubt they had prepared and suggested for the Commission's approval that in Section 17 (e) page 21 add the following sentence at the end of section 17 e: "However, nothing in this Ordinance shall ever require the City to raise rates or charges for utility services provided to areas outside District I". Commissioner Morris asked to review section 17. He said the Ordinance was a cost plus Ordinance that says we will raise rates to 110% to cover the bond payments that will be required in District I. In order to raise rates in District I you have to raise rates throughout the system. He asked if he was incorrect in that, and Mr. Mullis replied yes. Commissioner Gulliford asked Mr. Strayve to repeat the mechanics of his offer. Mr. Strayve stated the revenues and impact fees from what they now referred to as District I shall solely cover the expenses of operating District I and reimburse the bond holders for the P&I on those bonds, which was exactly what he said the first time he spoke to the Commission. Commissioner Gulliford asked to assume the worst, based on what he just said, what was the mechanics of that. Mr. Strayve commented that once before he said he would guarantee that but if there was any overage he would get it. Commissioner Morris suggested they re-open negotiations. Mr. Strayve made the statement that they expect the revenues of District I to carry the expenses of operating (consistent with what Buccaneer does) plus the compensations the city has such as retirement, health programs, etc. and said they believed their forecasts that say the expenses and P&I will be covered by revenue. And if you don't make it, defer the payment until the year 16.Discussion followed on the proposed amendment to the Ordinance re the above points and what would happen if District I should have to go into receivership. Mr. Livermore expressed the opinion the court would not raise the rates outside the system. PAGE SEVEN SPECIAL CALL APRIL 1 , 1985 Commissioner Van Ness asked what district Section H would be in when a sewer system is tied in there, and what happens to the funds. Those customers would be served outside District I. Mr. Livermore stated the hypothetical was that you decided to expand the District I system so that it served customers out- side District I. Without expanding the boundaries, they would be considered outside District I. In some instances, you could use an accounting separation without a physical separation which would differentiate between the cost of service to those outside the District I boundaries. A lengthy discussion followed. Mayor Howell expressed the opinion in all probability there would never be a need that the city would want to hook up anything currently within the city limits of Atlantic Beach to Buccaneer because the city is already building a system to take care of that. Mr. Potter said the city now has customers outside the city limits which could be transferred to the District I system. The Mayor said if we did not buy Buccaneer, we would not be hooking into their system. Motion: Commissioner Gulliford moved to adopt the proposed amendment to Ordinance 80-85-26 relating to the purchase of the Buccaneer Utility relating to Section 17(e) page 2 and add the following sentence: "However, nothing in this Ordinance shall ever require the City to raise rates or charges for utility services provided to areas outside District I. Commissioner Cook seconded the motion. Commissioner Morris asked if you could legally do that according to our rules and regulations for procedures of Ordinances. Mr. Mullis replied yes, under the State Statutes for adopting Ordinances that would be the appropriate time to do this would be at a meeting of this type. Commissioner Morris stated that under rule 15 of the City Code, Commissioners are to be given three days to study over any proposed action. Commissioner Gulliford said the Ordinance had already been passed on first reading. Commissioner Morris said he did not receive it three days prior. He received the proposed Ordinance on Friday and if the rule is three days prior,they missed it by one day. He questioned the motion to amend when the motion for passage on first reading was not done through proper procedures. He reminded them he had objected at the last meeting to the swiftness of the entire procedures, and he continued to object. Mayor Howell said Commissioner Morris was right on the three days. There is a provision in the Rules of the City Commission that Ordinances will be delivered three days prior to passage by the City Commission. Commissioner Gulliford asked if that applied to Resolutions as well as Ordinances. Mayor Howell said it strictly addressed itself to Ordinances. Commissioner Gulliford raised a point of order on his motion that was seconded and said thus far the discussion had been out of order relative to the motion. He asked for that to be addressed. Commissioner Morris said he was very well aware that the Commission had indulged him longer than five minutes at the last meeting, and he was raising the question, not for a point of order in its stumbling block to going ahead with the procedure, but, if in fact they were to vote and someone raised the point, they would have to address it, and it would better to do it now. Mr. Mullis advised the Ordinance could not be adopted until after forty (40) days have expired from the time you pass the Resolution that was adopted last week. The Public Hearing can be held PAGE EIGHT SPECIAL CALLED APRIL 1, 1985 next week, but the Ordinance cannot be adopted until sometime in May. For the benefit of the Commission, Commissioner Morris read Rule 15 of the Code and asked for a legal opinion. Mayor Howell called for a five minutes recess at 9:00 p.m. The Mayor called the meeting back in order at 9:05 p.m. Commissioner Gulliford withdrew his motion and Commissioner Cook withdrew his second. Mayor Howell announced the previous motion to approve the amendment to the Ordinance had been withdrawn. Commissioner Gulliford then proposed Ordinance No. 80-85-26, AN ORDINANCE ACCEPTING THE OFFER OF THE STOCKHOLDERS OF BUCCANEER SERVICE COMPNAY, INC. TO SELL ALL OF ITS ISSUED AND OUTSTANDING CAPITAL STOCK TO THE CITY FOR THE PURPOSE OF ACQUIRING THE WATER AND SEWER SYSTEM OWNED AND OPERATED BY BUCCANEER SERVICE COMPANY, INC. DESCRIBED IN SAID OFFER FOR THE PURCHASE PRICE SET FORTH IN THE ATTACHED STOCK PURCHASE AGREEMENT;ESTABLISHING WATER AND SEWER DISTRICT I OF THE CITY WITHIN WHICH THE CITY WILL PROVIDE WATER AND SEWER SERVICES THROUGH THE SYSTEM PURCHASED; AUTHORIZING THE ISSUANCE OF WATER AND SEWER DISTRICT I REVENUE BONDS FOR PAYMENT OF A PORTION OF THE PURCHASE PRICE OF THE STOCK; AUTHORIZING PAYMENT OF THE BONDS FROM THE GROSS REVENUES OF THE UTILITY SYSTEM SERVING WATER AND SEWER DISTRICT I; AUTHORIZING AND DIRECTING CERTAIN OFFICERS OF THE CITY TO EXECUTE THE STOCK PURCHASE AGREEMENT AND OTHER DOCUMENTS, AND TAKE CERTAIN ACTION I CONNECTION THEREWITH; DIRECTING THAT BUCANEER SERVICE COMPANY, INC. BE COMPLETELY LIQUIDATED AND DISSOLVED IMMEDIATELY AFTER PURCHASE AND PROVIDING FOR ALL NECESSARY ACTION THEREFOR; AND PROVIDING AN EFFECTIVE DATE. Motion: Commissioner Gulliford Moved for passage of Ordinance No. 80-85-26 on first reading. The motion was seconded by Commissioner Cook During discussion, Commissioner Morris asked if State Statutes required in an Ordinance you address only one subject. Mr. Mullis stated that was basically true. In that Ordinance all subjects are relating to water and sewer District I and the acquisition thereof. Commissioner Morris asked if that had to be re-advertised and Mr. Mullis said no, it was advertised ten (10) days before the Public Hearing which is what the Statutes requires. Mr. Livermore confirmed Mr. Mullis statement. They also confirmed it would be legal to hold the Public Hearing on April 8, 1985. The question was called and the motion passed with a three to two vote. Com- missioners Morris and Van Ness voted nay. * * * * * * * * * * * * * * * * * * * * * * * * * * * * Commissioner Gulliford offered a proposed amendment to Ordinance No. 80-85-26 relating to purchase of Buccaneer Service Company, Inc. In Section 17E, page 21, add the following sentence at the end of Section 17E: However, nothing in this Ordinance shall ever require the City to raise rates or charges for utility services provided to areas outside District I. PAGE NINE SPECIAL CALL APRIL 1 , 1985 Commissioner Gulliford moved for passage of the proposed Amendment to Ordinance No. 80-85-26. The motion was seconded by Commissioner Morris. During discussion before the vote, Commissioner Morris commented that he did not think that was enough clarification and asked that it be tabled until later in the meeting. He later withdrew his request. The question was called and the motion carried unanimously. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Commissioner Gulliford moved to offer another amendment to proposed Ordinance No. 80-85-26 relating to purchase of Buccaneer Service Co. , Inc. : In Section 17(0) , page 25, delete the last sentence in Section 17 (0) , and amend the next preceding sentence to read as follows: In the event that such annual report reflects that the rates and charges for services are insufficient to protect the rights of the Bondholders then the City shall take such steps as are required by law to raise the rates and charges for services pursuant to Section 17E hereof. The motion was seconded by Commissioner Cook. Commissioner Morris asked if they were not going to insert some section for District I wordage. Mr. Mullis asked him to look at Section 17E which they were amending, it only referred to charges for the services and facilities of District I. The question was called and the motion carried unanimously. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * The floor was then turned over to Commissioner Morris for additional concerns. He asked Mr. Livermore how obligated was the city going to be with the lien on the gross revenues. Mr. Livermore replied it was like a first mortgage as far as revenues are concerned. There is a provision in the Ord. in which you could issue more bonds that would rank equally with the other bonds, providing you meet certain tests that are set forth. If you wanted to expand the District I system and wanted to finance that, it could be an equal issue with their bonds, provided the tests written in the Ord. were met. If those tests were not met, you would have to issue those bonds in a junior issue of gross revenues, or you would have to get the four bondholders to agree to the financing notwithstanding that you did not meet the tests. Commissioner Morris expressed the opinion that Buccaneer wrote the Ordinance and said he had never seen so many things stacked in favor of the seller, and he had a problem with it. He would like to see more slack cut for the city if the Ordinance goes through. Mr. Livermore said he wrote the Ordinance and put in with respect to the particular point, a typical provision which is common found in bonds that are publicly sold, in the absence of any direction from anybody to put in anything different. He said if Commissioner Morris and the sellers of the system wanted to negotiate a different term so that they can issue additional bonds on a parity with their bonds, there would be nothing to say you can't re-negotiate that. If you want to have an earnings test that is less than 125%, say 120% or 101%, if the sellers agree, fine. Where the section came from, and he had not written anything on that point at Mr. Strayve's direction or the city's either, that type of section was typical. PAGE TEN SPECIAL CALL APRIL 1, 1985 Mayor Howell asked if he was acquainted with the current bond issue the city is obligating itself to through the State issue. Mr. Livermore said he was familiar with the State program. He said the State is more stringent on the city than on that proposal. The earnings test to incur additional debt under the state bond program is 133% of earnings, and is 133% of earnings in every year throughout the life of the bond issue. His earnings test is 125% in the past year, and is more liberal than what the State requires for the state bond program. Percentages vary, but they are very rarely less than 125%. Commissioner Morris introduced Mr. Robert Stubbs, financial advisor, who handled the bond placements for the city on the expansion, and asked him to comment on the differences of the state bond issue versus the proposed bond issue for the city to accept on Buccaneer. He added he had taken the liberty of talking with Mr. Stubbs in relation to the bond issue as he is a recognized expert in his field, as is Mr. Livermore, etc in their fields. He asked Mr. Stubbs to give his opinion for the record. Mr. Stubbs said he did not feel the comparison with the state bond issue was material. He listed comments on the Bond Ordinance which might be of interest. 1) He noticed it was a gross revenue pledge, which he found extraordinary in local government finance, though it does happen. The flow of funds required under the bond ordinance requires that principal and interest payments be made first followed by O&M payments, which was contrary to his experience in local government finance. In the case of parity issue, if the city were selling a tax exempt issue, he thought the gross revenue pledge on the first issue would seriously weaken the credit worthiness of a parity issue. For the record, Commissioner Morris asked Mr. Strayve to say he would be willing to re-negotiate the issues of the Bond Ordinance, because he would certainly like to do that. Mr. Strayve suggested they get all the points down. Point 1. Gross revenues was an extraoradinary. Also, parity issued to that would be seriously weakened by the initial bonds having first claim on the revenue. The new bond holders are going to be worried about the operation and maintenance of the system. He said it should be a net revenue pledge. He asked if the price was still in the negotiating stage and the answer was yes. Commissioner Morris said they had the real properties, the executive offices Mr. Strayve was willing to negotiate on, and the Bond Ordinance wording that inserts the words District I that he is willing to negotiate on, inventory and equipment. Commissioner Gulliford said a statement had been made earlier to pledge net revenue to reduce debt as compared to gross. Commissioner Morris said the Ordinance does not say that and he wanted to make sure it was listed. Mr. Livermore stated the order in which you make the payments, page 14 and 15 would be the place in the Ordinance you should find it. He added that Mr. Stubbs was right, that was the way the Ordinance was written, that out of the receipts of the money, you first pay the bonds and then you second pay the operation and maintenance expenses. Commissioner PAGE ELEVEN SPECIAL CALL APRIL 1, 1985 Morris asked that portion be written in the amendment to be voted on. Mr. Livermore commented there would be a lot of places where that concept would have to be changed. Commissioner Gulliford asked if he couldn't just propose to amend the intent to reflect a net revenue pledge in lieu of gross revenue. Commissioner Gulliford moved to instruct Mr. Livermore to change the Ordinance to reflect throughout a net revenue pledge in lieu of a gross revenue pledge. The motion was seconded by Commissioner Morris and carried unanimously. Mr. Strayve noted the 0 & M is to be paid first, or that was the intent. Commissioner Morris questioned very severely enough 0 & M in Touche Ross's report. Another problem Commissioner Morris had was the five year study. He thought they should in fact go out a bit farther than five years, as far as the city was concerned on what was going to happen six, seven, ten or fifteen years. Mr. Strayve said the city would have over 1 1/2 million coming in on revenues. Commissioner Morris asked if Mr. Stubbs had any other comments. Mr. Stubbs stated he did not feel qualified to comment on purchase price, but if the matter was still negotiable, it should be negotiated just on a common sense basis. He added that he had reviewed the financial projections prepared by Touche Ross and they were very, very blue sky. The City of Atlantic Beach, as the potential purchaser of the utility has to take a worse case scenario. Just for prudent financial planning purposes. He ran one of those through based on Touche Ross numbers and increasing the 0 & M rather significantly and felt in a worse case scenario the purchase did not look unattractive but he felt that in the event that impact fee revenue was not generated rapidly enough to do the projected expansions on schedule, then you would have to long term finance. Mr. Strayve said if you don't have expansion, you don't need impact fees. Mr. Stubbs agreed, but the impact fees don't always come on schedule in time for a required expansion, particularly in the case of waste water where you have permitting requirements. His problem was that it seemed very difficult under the Bond Ordinance to issue a parity financing. Commissioner Cook asked Mr. Stubbs to repeat what he said about his worse case scenario not looking unattractive. Mr. Stubbs corrected that and said he did not run a worse case scenario. They took a more restrained growth rate of 10% which is rather rapid in the normal utility, but doesn't sound unreasonable for the Buccaneer service area, and ran the numbers out. They did not feel that under 10% per year you can pay as you go. You can do the capital improvements for expansion on a pay as you go basis, therefore they felt it probably would be necessary to issue a long term financing for the capital improvements. Commissioner Morris said they would have to go back for more bonds at some foreseeable point in time. Mr. Stubbs agreed. PAGE TWELVE SPECIAL CALL APRIL 1, 1985 Commissioner Morris asked Mr. Livermore if they had cleared up the senior bond question. Mr. Livermore said he didn't know there was anything to clear up. He said you could issue additional debts providing you met the earnings test every year. Commissioner Morris asked Mr. Stubbs what interest rate would they be looking at on the second issue. Mr. Stubbs said they would be looking at a much higher rate than 71/2%. Commissioner Morris commented "if they went back to the well to draw some more water, the more water would cost some more money". Mr. Middleton addressed the "blue sky" forecast Touche Ross had issued. They sent confirmations to the different developers and contractors for 1986 and the responses were sent to Mr. Fellows, City Manager for distribution to the Commissioners. For instance, the development of Mayport Village Apartments was estimated at 225 units. Even though the developer wanted 320, they used 225 to stay conservative. However, in more correspondence back and forth and talking to the engineers, actually they should have used 320 because the developer is going to go with the three story and for that amount of land, according to the engineers, Touche Ross was understated in 1986 by 100 connections. Following, Lake Side Two for 1986 they estimated at 250 connections, and the Stokes & Co. crossed through the 250 and wrote in 350 for 1986. There was another 100 connections understated. For 1987, the estimate was for 125 connections. They struck through that number and contemplated 340 units and in the bottom they also would like to add additional commercial development of 42,000 sq. ft. in 1985, 40,000 sq.ft. in 1986, and 38,000 sq. ft. in 1987. None of those were put into the "Blue Sky" forecast in which Touche Ross had given an opinion on. They also wrote to the Harbor Oaks owners- their estimate had 450 sewer connections for one six inch meter and it clearly stated in the confirmation they anticipated no water service at all. They confirmed the 450 connections and they wrote back a note requesting standby water service for emergencies, which was not considered in their estimate. There was one more confirmation, which raised the understated connections to 250 for 1986. He maintained Touche Ross's forecast was an extremely conservative forecast, or in no way was overstated or "Blue Sky" to any stretch of the imagination, but actually was an extremely conservative approach to the actual dollars that will be generated. Mr. Stubbs said the reason it had to be regarded as "Blue Sky" from the standpoint of a local government finance and the City of Atlantic Beach as a potential purchaser, was, suppose there was a serious economic downturn in the next six months. What happens to those numbers out in 1987. Mr. Middleton stated there were sufficient connections, being either in place right now or being constructed by the developers and they have already paid for them. Those connections would pay for the principal and interest for the debt service for the next fifteen years on the bond issue as presented. A lengthy discussion followed on the contracts relative to the impact fees and the city "buying" distribution lines. PAGE THIRTEEN SPECIAL CALL APRIL 1, 1985 Commissioner Morris expressed the opinion that he would like to re-negotiate price and rate. Commissioner Gulliford said the interest rate from 81/2% down to 72% was negotiation in his opinion. Mr. Strayve added other negotiations were agreed on at that meeting, such as: Buccaneer agreed to inter-connect the water systems; divert sewage from Buccaneer Park into the Buccaneer Service System; devise a plan to put two more tanks on; complete the east side lift station; and for he and Mr. Baird to work free for the city through December. Mr. Strayve concluded they came down about $200,000 on the above listed items. Commissioner Gulliford addressed a projection made by Mr. Stubbs some time ago in which he made some projections relative to the city's sewer rates (long before the Buccaneer proposal) . In the projections he reported the city would require some rate increases, he thought 12% every 22 years. Mr. Stubbs said that was correct. Commissioner Gulliford asked if Mr. Middleton could make some kind of a projection as to the impact of the increased revenue on a 12% rate increase over the next 72 years (2 or 3 increases) . Commissioner Morris commented he was sure Commissioner Gulliford was not going to run for re-election. Mr. Strayve asked Commissioner Morris how many dollars the city was investing and he replied they were guaranteeing $6.6 million in payouts. Mr. Strayve said if he looked at it that way, you would have to look at dollars to be earned and that was $32 million. He said they were asking the city to invest no dollars, they are guaranteeing, and they were giving the point that 0&M expenses get first priority, and what was left would go toward P&I. That was decided earlier in the evening. That made it a no risk investment, no invest- ment of dollars, and there was no risk of paybacks. Commissioner Morris commented that a gross of $32,000,000 did not excite him, net pays the bills. For the record, Commissioner Morris read the following: April 1, 1985. In Mr. Fellows memorandum of March 22, 1985, he subjects: "Proposed Purchase of Buccaneer Utilities - Utilities/Conformance with Chapter 166.045." Comment: 166.045 - 1984 Supplement to Florida Statutes 1983 deals with "Proposed Purchase of Real Property by Municipality; - The proper reference is 180.301 (in this same book) "Purchase or Sale of Water or Sewer Utility by Municipality." Paragraph 1: "No Municipality may purchase or sell a water or sewer utility that provides service to the Public for Compensation, until the Governing Body of the Municipality has held a Public hearing on the purchase or sale and made a determination that the Purchase (or sale) is in the Public Interest. In determining if the purchase or sale is in the public interest, the Municipality shall consider, at a minimum, the following:" Comment: In Fla. Statute 180.301 there are 9 points in determining if the purchase is in the public interest-and the Municipality shall consider, at a minimum these 9 points. I will address these points. PAGE FOURTEEN SPECIAL CALL April 1, 1985 Mr. Mullis commented those identical provisions were set forth in the Resolution the Commission adopted previously, word for word. Commissioner Morris addressed the 9 points listed in the Florida Statutes for determining if the purchase is in the public interest. A copy of which is attached hereto and made a part thereof. A lengthy debate followed Commissioner Morris's comments. During the debate, discussion was held on the billing procedures, whether it would be better to bill monthly for commercial, quarterly for residential or cycle billing. Commissioner Morris also commented that Section 17. (K) of the Ordinance was a restricted covenant that perhaps ten years from now citizens would really put bad words on Commissioner Gulliford for not addressing that before the Ordinance was passed. He told Commissioner Gulliford if he was worried about his reputation, then he should cover his reputation by allowing some leeway in (K) "Mandatory Connection". Commissioner Gulliford said he was opposed to changing the Ordinance. Commissioner asked that it be sent back to the attorneys for an over-haul. Mr. Mullis stated one thing he had overlooked as far as Mandatory Connection was a provision in there that had been upheld by the Supreme Court of Fla. It was also to keep people from approving septic tanks and to have a mandatory requirement to connect to the water sewer system. Commissioner Morris asked that something be written in so the City Manager, the Engineers, and the business people of the city , some leeway in their wisdom that they can cross the line where it was economically feasible for the two systems. Mr. Strayve said that would have to be subject to the bond holders approval. Mr. Strayve assumed that Commissioner Morris only wanted to transfer some connections from the east side of the system to the west side of system and vice versa. Commissioner Morris said that was what he was looking for, connection for connection, with no intention of imparing revenues. It would enhance both the city and the bond holders. He felt sure the bond holders would give their approval. Mr. Livermore will write some- thing as an amendment as that will have to voted on separately. Also consider changing the language for billing to quarterly because that was the system the City was accustomed to billing. ADDENDUM: For the record, listed below are a few verbatim comments from the debate: Howell: Mr. Middleton, I would like to ask one quick question, just as a matter of information. In your "blue sky" report, I don't know if if it's been rolled in there either, and I doubt if it has been considered in the "doom's day" report. The funds that are coming in that will be accumulated to make bond payments, they will be invested by the City and draw interest. Have you included any of of those figures. There's none in there at all, are there? Middleton:No Sir, for the record there are none. Howell: Ok, fine. It was just a question I just wanted to know, that is some income that has not been included in the report. PAGE FOURTEEN SPECIAL CALL April 1, 1985 Mr. Mullis commented those identical provisions were set forth in the Resolution the Commission adopted previously, word for word. Commissioner Morris addressed the 9 points listed in the Florida Statutes for determining if the purchase is in the public interest. A copy of which is attached hereto and made a part thereof. A lengthy debate followed Commissioner Morris's comments. During the debate, discussion was held on the billing procedures, whether it would be better to bill monthly for commercial, quarterly for residential or cycle billing. Commissioner Morris also commented that Section 17. (K) of the Ordinance was a restricted covenant that perhaps ten years from now citizens would really put bad words on Commissioner Gulliford for not addressing that before the Ordinance was passed. He told Commissioner Gulliford if he was worried about his reputation, then he should cover his reputation by allowing some leeway in (K) "Mandatory Connection". Commissioner Gulliford said he was opposed to changing the Ordinance. Commissioner asked that it be sent back to the attorneys for an over-haul. Mr. Mullis stated one thing he had overlooked as far as Mandatory Connection was a provision in there that had been upheld by the Supreme Court of Fla. It was also to keep people from approving septic tanks and to have a mandatory requirement to connect to the water sewer system. Commissioner Morris asked that something be written in so the City Manager, the Engineers, and the business people of the city , some leeway in their wisdom that they can cross the line where it was economically feasible for the two systems. Mr. Strayve said that would have to be subject to the bond holders approval. Mr. Strayve assumed that Commissioner Morris only wanted to transfer some connections from the east side of the system to the west side of system and vice versa. Commissioner Morris said that was what he was looking for, connection for connection, with no intention of imparing revenues. It would enhance both the city and the bond holders. He felt sure the bond holders would give their approval. Mr. Livermore will write some- thing as an amendment as that will have to voted on separately. Also consider changing the language for billing to quarterly because that was the system the City was accustomed to billing. Following discussion, the Mayor declared the meeting adjourned at 11:59 p.m. William S. Howell Mayor/Presiding Officer ATTEST: Richard C Fellows PAGE FIFTEEN SPECIAL CALL APRIL 1, 1985 Gulliford:While I know those nine points, as far as Mr. Morris is concerned, he's pontificated from his position on them, and I don't know if I am ready to concede everything he has put in there is, in fact, correct because that's conjectural on his part. Just like the "blue sky" projection of revenue and expenses, I'm particularly not ready to concede that, expecially in light of the fact that we have not received Mr. Middleton's response back yet on ---again how are those rate increases that those poor devils in District I are going to have no say-so over-- an impact revenue on that. I think you have to look at that too. Morris: What figure will Mr. Middleton use on operating expenses to run the plant? Gulliford:That's not going to alter that. You can use anything you want to. Gordon: What I was going to ask if you would be the least bit interested in comparing January, February, and March revenues of the Buccaneer system with the revenues for the same period a year ago to see what the percentage increases have been. And really, what is happening. I think they would probably be pretty interesting numbers to every- body here. So far as the cost of maintenance of the plant, obviously we are not engineers, and we don't know what it cost to get out there. We can take all kind of numbers and multiply them and come out with the results. But, we have to sit down and ask the engineers what it cost to do this job, and we know about the peo- ple,and what you have to pay people. That is kind of what we based it on when we went through it. Morris: Well, what really baffles me is that you had Hurwitz' balance sheet to work from. Gordon: We weren't working with his balance sheet. We were asked to do a projected cash flow. Morris: Where did you come up with so low a figure? Gordon: Someone asked us, who asked us for this letter? Was it you, Dick, or was it you, John? Morris: Which one is that. Gordon: The one you keep referring to as our version of the book value. Someone asked us to produce these numbers and it is carefully noted on the side that the three items come from the Gee & Jenson report dated March 12th and they are easy enough to find in that report. It is stated very clearly on here what they are, and I resent you continuing to suggest that these are our numbers. These are the numbers we prepared at someone's request. PAGE SIXTEEN SPECIAL CALL APRIL 1, 1985 Morris: Curly, you are misunderstanding Gordon: Wait, let me finish.I have heard you, about six or seven times today, speak of Touche Ross's determination of book value. Some- one asked us to put this together, get the numbers and explain them. That is what we have done. Morris: What does that have to do with the subject? Gordon: I'm terribly sorry. . . Morris: The subject was the operating expenses, and then you got off on the other. Gordon: Well, I explained, I thought Morris: No, you didn't. You side-stepped. Gordon: All right. The operating expenses came from the projections that we got of people, of utility cost, supply cost from the engineers which we then projected out. Morris: You can sit there and resent. I'll resent your resenting Gordon: When I got through with what I thought I was through explaining, and I wanted to ask, for quite awhile, why this continues to be referred to as Touche Ross's determination of book value, because it is not that at all. Morris: It is on your letter head. Gordon: That's right. It is something that someone asked us to provide to you and that's what we have done. Mayor Howell hit the gavel and recognized Mr. Hurwitz. Hurwitz: First of all, I want to thank Mr. Morris for allowing me to be here and give me this wonderful feel, because I used to think it was the hand that rocked the cradle that ruled the world, and I discovered tonight that it is the hand that pushes the pencil. Morris: Well, of course. Hurwitz: And, as I mentioned to you, it has not been our practice to book on-site facilities - this $1,000,00 of on-site facilities. How- ever, this evening Mr. Strayve told me, and I really wasn't aware of this, that upon completion of the on-site facilities and the PAGE SEVENTEEN SPECIAL CALL April 1, 1985 Hurwitz: proposed dedication by the developers, that Buccaneer receives a bill of sale and a listing of the cost of the on-site development, and if I can get that from Mr. Strayve and look at it, and feel comfortable with it, and I think I would be- cause we've certainly had qualified engineers go through it, that I would be more than happy to make a journal entry and book those figures, and all of a sudden we now have $3,100,000 in book value, which I am sure would make you happy because the difference between $3,900,000 and Hurwitz's figures are going to be much, much closer. And,if that would be of some use to you, I would be more than happy to book those figures and the book value on the March statement will then be be $3, 100,000. Strayve: I have no doubts. Morris: What you have demonstrated is that you can do anything with figures. That's what you have just demonstrated to me. The fact still remains is there are well over $1,000,000 in dis- tribution lines that Mr. Strayve wants to sell this city that have been dedicated to him that if in fact we had developed that system up there, those dedications would have come to us without any cost at all. Mr. Strayve is wanting to sell those to the city. That's where I have a problem with a value of $3,900,000. Hurwitz ? What is the difference, and Mr. Gulliford has asked this question a couple of times this evening, between the develop- er giving the utility the money, and the utility builds the lines or the developer building the lines and giving the city the lines rather than the money. Morris: The difference is that when there is a development done in the city, the city doesn't lay out any money for it. I have no problem with $2, 100,000 book value according to your financials. It's the additional distribution line value that Touche Ross has put in there, and they point it out and earmark it as here it is, it's in the ground, assets that have been dedicated. If it's been dedicated to Jerry, I want Jerry to dedicate it to Atlantic Beach. Following discussion, the Mayor declared the min: . :1'urned a 1:59 p �' �/ ! ' Wil la owell ATTEST: Mayor/Presiding Officer Richard C. Fellows City Manager . April 1, 1985 In Mr. Fellows memorandum of March 22, 1985, He subjects: "Proposed Purchase of Buccaneer Utilities - Utilities/Conformance with Chapter 166 . 045. " Comment: 166 .045 - 1984 Supplement to Florida Statutes 1983 deals with "Proposed Purchase of Real Property by Municipality; - The proper reference is 180 . 301 (in this same book) "Purchase or Sale of Water or Sewer Utility by Municipality. " Paragraph 1: "No Municipality may purchase or sell a water or sewer utility that provides service to the Public for Compensation, until the Governing Body of the Municipality has held a Public hearing on the purchase or sale and make a determination that the Purchase (or Sale) is in the Public Interest. In determining if the purchase or sale is in the public interest, the Municipality shall consider, at a minimum, the following: " Comment: In Florida Statute 180 . 301 there are 9 points in determining if the purchase is in the public interest - and the Municipality shall consider, at a minimum these 9 points . I will address these points . John Morris Commissioner City of Atlantic Beach • `wT � ':p. s,+ i ,a ! ='" -&''-'1.v sC d• s:,, r i S ? JS v s e 2- rdrirs' 5 .i * T�..tt ,f•.. Jr .t u ',# :�'S�y{.rt , r}r� `�[.x -st �•. . . !�.% , j !u e S• .•` •n �1. ' idtv.,, .�.i .Yu,P Pti�4 • W- � ,' --,$ P'4. 9-ki/rr a 1'. �F 4 ,C•• ,b y ,.7-7,....16,,,- t om+` t S 4 `�„t ;i tM ��it. }J '. r-Yf if * 37T's.tf'• Y � -a>. '�` s • -- � }r h�+„- , r-:� < v .r � Y./ sS... 7ba•' - a �. f !•�' .! S�S ,i., t'y,• a ,7 'ba 'r++ .� -.:i 'M A--.741774111.:2 - 'T'�1`5 .r-'�. y.-.-- `` --. ^�l N `' t1rn-7 i4; 7- : a;�4. s4.+14,, r'"'-'. r �,�_�yyS,3`w' , c. ,--...% i '+{.� ` ,+.- .T'' '' t�i ,? y ar s , t' 'atz y{ t e [!r�'Y xw 4 n s Jf av t t�k 1 •SIC V 9 ! "Jra•.. i4'Vc3 = hI%G Yy, tr . `�ki`a`:��. `�y,� •.. - _ �P .`�'.LN. - a b t of . l 35 E 180.135 1984 SUPPLEMENT TO FLORIDA STATUTES 1983 s. 186.002 the pro- - 1s, as re mens of service charges incurred by a former occu- 186.003 Definitions. I use - pant of the rental unit; and any such unpaid service 186.004 Governor; chief planning officer of the charges incurred by a former occupant will not be the to be basis for any lien against the rental property except 186.005 Designation of departmental planning offi- t to the extent that the present tenant or owner has the mu- i benefited directly from the service provided to the 186.006 Powers and responsibilities of Executive annexed t former occupant. This section applies only when the thin anthnexed former occupant of the rental unit contracted for 186.007 StaOtetcomprhen ce of the iverplan;preparation; re- thiically, : such services with the municipality. nor. • 8i,tory.—s.I,ch.84-292 vision. 186.008 State comprehensive plan; adoption; and :cent as 180.301 Purchase or sale of water or sewer implementation. :cept i utility by municipality.—No alit 186.021 State agency functional plans. n xesame P y—No municipality may 186.022 State agency functional plan adoption; te cgs are purchase or sell a water or sewer utility that provides irior • to ) service to the public for compensation, until the goy- consistency with state comprehensive erning body of the municipality has held a plan. hearing on the purchase or sale and made a determi- 186.031 Annual report. n exl natiothe n that the purchase or sale is in public inter- 186.501 Short title. ns186.502 Legislative findings; public purpose. ied operty est. In determining it the purchase or sell isin the 186.503 Definitions. tort public interest, the municipality shall consider, at a 186.504 Regional planning councils;creation;mem- the minimum, the following: to the (1) The most recent available income and ex- bership. pense statement for the'utility; 186.505 Regional planning councils;powers and du- bdivi- (2) The most recent available balance sheet for ties. s and the utility, listing assets and liabilities and clearly 186.506 Executive Office of the Governor; powers _showing thg� uat of contributions-in-aid-of- and duties.he of construction and the accumulate &e rec ation ' 186.508 Comprehensive regional policy plans. thereon; p 186.508 Comprehensive regional policy plan adop- ctive (3) A statement of the existing rate base of the tion; consistency with state comprehen- 111 utility for regulatory purposes; sive plan. (4) The physical condition of the utility facilities 186.509 Mediation of conflicts between local gov- r being purchased or sold; ernments. (5) The reasonableness of the186.511 Evaluation of comprehensive regional poli- oce- price and terms; purchase or sales cy plan; changes in plan. the (6) The impacts of the purchase or sale on utilit 186.513 Reports. ired customers, both positive and negative; der ch. 163. y 186.515 Creation of regional planning councils un- . Any additional investment required and the l tad. ability and willingness of the purchaser to make that 186.805 Data Bankldsder Floridians. on O 67'` investment, whether the purchaser is the munici an- ty or the entityP 186.901 Population census determination. ,nicipality; purchasing the utility from the mu- 186.911 Growth Management Trust Fund. ) ives the8potenhial impactt on utilite�ustomersurchase �f ther sale pur-and b 1 Short title.—[Transferred from s. chase or sale is not made; and 23.0111 by the reviser.] a • (9) The ability of the purchaser to provide and maintain high-quality and cost-effective utility ser- 186.002 Findings and intent ec t vice,whether the purchaser is the municipality or the (1) The Legislature finds and declares that: ce entity purchasing the utility from the municipality. (a) Growth and develupment issues transcend the e boundaries and responsibilities of individual units of al The municipality shall prepare a statement showing government, and often no single unit of government 'r that in a purchase or sale is in the public interest, in- can plan or implement policies to deal with these is- st g a summary of the purchaser's experience in sues without affecting other units of government. water and sewer utility operation and a showing of fi- necessary to establish an rote rated len- nancial (b) It is andtg p • Y ability to provide the service, whether the tionng system and to ensure coordinated thoseadpo stra- purchaser is the municipality or the entity porches- of government policies, especially policies mg the utility from the municipality. dealing with land use, water resources,and transpor •- Biatoryy,2 ch 84-84. s talion system development. (c) The preservation and enhancement of the :, -- quality of life of the people of this state require that ` a state comprehensive plan be adopted and imple- CHAP'I ER 186 mented by state and regional agencies. (2) The intent of this act is that the state compre- ST'A 1'E AND REGIONAL PLANNING hensive plan guide state and regional agency policies, especially those policies dealing with land use, water ; 186•°01 Short title. resources,and transportation system development. It 1�'�2 Findings and intent. is intended that state agency functional plans be ef- fectively coordinated to facilitate the orderly, posi- 171 '" °.' '►....• •'r7t!'-t.. ..."01.'.....--..r.".-..,.... •c-.T.._...... 4 -_•.-- .. .r .4 • S e c.t i on I 1) . "The most recent available income and expense statement for the Utility; " Document: Melvin N. Hurwitz, Certified Public Accountant - - Read - (January 21, 1985 Cover Letter) - Study - Balance Sheet December 31, 1984 and 1983 Pertinent Fact: Book Value $2, 142, 282 (Fixed Assets) Asking Price $3, 900 , 000 By Buccaneer for the Purchase. Difference $1, 757, 718 Question: Why would the City pay such a premium for the Fixed Assets? Document: Touche Ross (Letter March 28, 1985) - outlining Net Book Value - They add to Hurwitz Value $2, 142, 282 The following :it "On Site Water Lines" $378,051 - -$ "On site Sewer Lines" $687, 004 - 'Contributed by Developers and Contractors Comment: These two items total $1 , 065, 055 - and would be treated as "Dedicated to the City for Maintenance" on construction within Atlantic Beach. I cannot recall the City customarily purchasng distribution lines from Developers and Contractors . Also Listed by Touche Ross is the following sum as documented by G & J: Document: Gee & Jenson (Page 7) "Projected Facilities 2 -26-85 through 12-31-85" This lists an additional $660 , 500 (estimated Costs) of on site water and and wastewater mains . Comment: This $660, 500 would be treated as "Dedicated to the City for Maintenence " on Construction within Atlantic Beach. Where would the impact fees for the $660, 500 go? - to A.B . ? -They do not show in the Touche Ross "Statement of Forecasted Revenues" . • Document: Touche Ross (Letter March 28 , 1985) The only item that appears to be left in this "Book Value" statement is $32, 000 that shows for acquiring land for Tank #4 (acquired 3-26-85) . Question : Of these "Assets" that have occurred from contributions by developers and contractors , where are the "Impact Fees " that will be used to maintain these "On-Site" Water and Sewer Lines? In Atlantic Beach, Sec. 22-172 "Disposition of Impact Fees " (Page 1298 of the Code of Ordinances) _ Requires that "The money deposited and held in said account and all interests accrued thereto shall be used only for the improvement, expansion and/or replacement of the Wastewater Collection, Treatment and disposal system of the City. " Sec. 22-18 has language similar regarding water connection fees . Comment: If we take the distribution system as "dedicated to the City for maintenence" - We assume the responsibility of maintenence and replacement. Question: Where are the impact fees "to be used only for the improvement, expansion and/or replacement of the Wastewater collection, treatment and disposal system of the City" - Where is the money to maintain $1, 725, 555 of On-Site Water and Sewer Lines? Comment: I cannot see where it is "In the Public Interest" to pay $3, 900, 000 for the Buccaneer Utility when the Book Value of the fixed assets (Hurwitz page 4) is $2, 142 , 282 and the City of Atlantic Beach would have to accept for maintenence $1, 725, 555 of Water and Sewer Distribution Lines - without the impact fees to do it with. , Section II 2 . ) "The most recent available balance sheet for the utility, listing assets and liabilities and clearly showing the amount of contributions -in -aid-of construction and the accumulated depreciation thereon; " Document: Hurwitz Balance Sheet December 31 , 1984 and 1983 Assets - net of accumulated depreciation $2, 234, 227 Liabilities - 763, 969 Contributions in aid of construction 1 , 683, 570 Comment: Contributions in aid of construction - are dedicated Sewer and Water distributions . When they transfer to the new owner they then become a responsibility (Liability - Not Asset) to be maintained. Question: Are impact fees included in this figure? If so, where are they? • 1 Section III . 3. ) "A statement of the existing rate base of the utility for regulatory purposes ; " Comment: I did not receive this schedule - however, I do understand from the projections that a "typical household located outside the City (in the Buccaneer District) would pay approximately 14% less - or at least a $3. 50 per month decrease in rates - according to 1% times the rates charged by Atlantic Beach for out-of-city users . I also understand that this is not a benevolent act, but a regulation. Atlantic Beach cannot increase rates outside the City - without increasing rates for all users . I have mixed emotions on the question of "Public Interest" . - It is in the Public Interest for users of the Buccaneer System outside the City. Their rates will be lowered after the acquistion; however, my primary concerns have to be for Atlantic Beach. I cannot see that it is "In the Public Interest" of Atlantic Beach Citizens to provide the financing - backed by Bonds that pledge the gross revenues of the City, for service outside the City, with no power to increase rates outside the City - without a general, overall rate increase for all users. • Section IV. 4. ) "The Physical Condition of the Utility Facilities being Purchased; " Document: Gee & Jenson (March 13, 1985) Engineer' s Evaluation of Buccaneer Executive Summary - (Fifth Page) - Approximately 738+ connections as of 12-31-84. Capacities (Page 8) - Paragraph 5 - Water System withdrawal permit which presently allows only 883 ERU 's - maximum 552 . Table 1 . (Page 9) Water Treatment 7142 ERU ' s - maximum 4464 - Limiting factor - withdrawal permit 883 ERU' s - maximum 552- Table 1 . (Page 9) Wastewater Treatment - 650 M gallons per day - or 2, 364 ERU ' s - -Limiting factor - St. Johns River outfall 432 M gallons per day or 1, 571 ERU's . Comment: Comparing these capacities with other data - Document: Touche Ross - Statement of Forecasted Revenues - Specifically the top line - "Projected equivalent Connections" 1985 calls for 2 , 492 ERU' s - which will put the wastewater treatment over the 650M GPD maximum (or 2 , 364 ERU' s - see G&J Table 1) and considerably over the outfall line capacity of '432M GPD (or 1571 ERU ' s; This would require Projected Capital Outlays to be moved to earlier years . Comment: I cannot see that it is "In The Public Interest" to purchase a Plant that is at, or near capacity - that • will require extensive investment by Atlantic Beach to increase capacity to serve interests outside the City. 4 Section V. 5. ) "The Reasonableness of the Purchase - Price and Terms" Document: Sales offer to the City of Atlantic Beach Purchase price of $3, 900 , 000 Document: Hurwitz Balance Sheet 12-31-84 (pg. 4) Book Value $2, 142 , 282 Document: 41-Touche Ross Letter 3-28-85 *Book Value $3, 899, 837 *Includes : $2, 142 , 282 - Hurwitz Book Value-Plant & Equipment 378, 051 - On-Site Water Lines-Dedicated 687 , 004 - On-Site Sewer Lines-Dedicated 32 , 000 - Land for Tank #4 Document: Gee & Jenson, 660 , 500 - Projected On-Site Water & Sewer Schedule 3 (pg. 7) Mains - Dedicated Total $3, 899, 837 Comment: Of this total, there are listed $1, 725, 555 Decicated for maintenence distribution lines that the City of Atlantic Beach would be liable for - with no impact fees "for the improvement, expansion and/or replacement" for the system. Comment: With this liability for the distribution lines - and no impact fees I cannot see where it is in the Public Interest to pay $3, 900, 000 for a business that has a book value of $2 , 174, 282. Comment: As to terms - Issuance of Bonds will be the method of payment. Document: "An ordinance accepting the offer of Buccaneer -- Author- izing the issuance of Water and Sewer District/Revenue Bonds for the payment of a portion of the purchase price of the stock; authorizing payment of the- Bonds from the Gross revenues of the Utility System serving Water and Sewer district 1 ." Comment : See page 2 - Sect. 2 (E) "Estimated annual gross revenues will be sufficient to pay the principal and interest" - (But if they are not sufficient) - See page 3 - Sect. 2 (F) Bonds shall not constitute a lien upon any property of or in the City, except Gross Revenues . " See page 3 - Sect. 2 (G) "The City has not issued any other obligations which are payable from the Gross Revenues, and the Gross Revenues are unpledged revenues of the City. " See page 14 - Sect. 15 - "Bonds not debt of the City --- but shall be payable solely from and secured by a prior Lien upon and pledge of the Gross Revenues herein provided. "No Bondholder shall ever have the right to compel the exercise of the Ad Valorem taxing power of the City or taxation in any form of any real property therein to pay such bonds or the interest thereon or be entitled to 4 Section V Continued payment of such principal and interest from any other funds of the City except (Comment: - Because to do so would require a referendum. ) from the Gross Revenues in the manner provided herein. Until payment has been provided for as herein permitted, the payment of the principal of and interest on the Bonds shall be secured forthwith equally and ratably by an Irrevocable Lien on the Gross Revenues Prior and Superior to all other Liens or Encumbrances on such Gross Revenues and the City does hereby Irrevocably pledge such Gross Revenues to the payment of the principal of and interest on the Bonds, the reserves therefore , and for all other required payments under this ordinance . " Comment: See page 14 - Sect. 17 - (For more interesting reading) Covenants of the City. Comment: See page 19 - Sect. 17 - B (5) - Junior Lien Bonds - What would the interest be? See page 21 Sect. 17-E Rate Ordinance - Read It. _ Comment: This ordinance is for the Protection of the Bondholders - and obligates the City to raise rates to 110% of Bond payment to insure Bond payment. See page 21 Sect. 17 - H No Mortgage or Sale of the District 1 System Comment : Who would buy it?? See page 23 Sect. 17-K Mandatory Connection --- Water and Sewer Service in District 1 only for District 1 Comment: This is a restrictive Covenant - in that it could prevent efficient service by the City to areas in District 1 that might be better served by the Atlantic Beach System. See page 24 Sect. 17 - M Remedies -- Any Bondholder -- Trustee -- may enforce and compel the performance of all duties herein required -- nothing herein --- shall be construed to grant to any Bondholders any Lien on any real property of the City. Comment: With all the restrictions and bindings and covenants in section 17 - we would probably be better off to pledge a piece of property. In any event, the Lien on General Revenues of the City is more liquid and easier for the Bondholders to collect. See page 24 Sect. 17 - 0 - City Manager Reports - (Continued on page 25) - Paragraph 2 - "In the event that such annual report reflects that the rates and charges for services are insufficient to protect the rights of the Bondholders , then the City shall take such steps as are required by law to raise the rates and charges for services . In the event that the annual report indicated 1 Section V Continued. • that the rates and charges for services should be increases substantially pro rata as to all classes of service, then, to the full extent permitted by law, the City shall raise the rates and charges for service without notice or Public Hearing. Comment: See page 25 - Sect. 17 - Q - (Read it Carefully) Issuance of other Obligations - What thismeans is, these Bonds would be Senior to any other debt, lien, pledge, assignment, etc. . . . having to do with the Gross Revenues of the City. Any other Bonds would be Junior and Subordinate and would more than likely take a higher interest rate. Comment: As to Terms - I cannot see how these covenants, restric- tions, Liens on General Revenues , etc. . . are "In The Public Interest" of the Citizens of Atlantic Beach. • 1 Section VI. 6 . ) "The Impacts of the Purchase on Utility Customers , both Positive . and Negative. " Comments : For the District 1 Customers - positive - they get a rate reduction. For the Atlantic Beach Citizens - there are many negative possibilities : Pledge of the General Revenues of the City to secure the Bonds ; automatic rate increases for all users if the revenue projections are not met; paying too high a price for a project outside the City that will not benefit the Citizens inside the City. These possibilities cannot be "In the Public Interest" of Atlantic Beach Citizens . Section VII . 7. ) "Any additional Investment required and the ability and the willingness of the purchaser to make that investment --" Comment: The City will Lock up its General Revenues with these Senior Issue Bonds - any Junior Bonds will have higher interest rates . The City is already in process of its own sewer expansion - with a bond issue that will require user rate increases in . the near future. Any moneys within the City that would be applied to this project that serves outside the City cannot be"In The Public Interest" of Atlantic Beach Citizens. 1 Section VIII . ' 8. ) "Alternatives to the Purchase -- and the potential impact on Utility Customers if the purchase -- is not made; " Document: Memorandum March 22, 1985 Richard C. Fellows, City Manager - Item 8 : "The only alternatives are to purchase or not to purchase. If the purchase is not consummated, the utility customers in the Buccaneer service area will continue to pay higher utility rates than the residents of Atlantic Beach. " Comment: (They would anyway - 1% times A.B . rates. ) "Atlantic Beach Customers , on the other hand, will lose the value of additional cash flow which may , in the long run, eliminate the need for increasing utility rates . " Comment: The operating expenses in the projections are drastically low - The Revenue Projections based on forecast are dramatically optimistic. Comment: I cannot see how the purchase of Buccaneer is "In The Public Interest" with the only shred of hope for a benefit to the Citizens of Atlantic Beach is "May, in the long run, eliminate the need for increasing utility rates" . There are more risks for the Citizens of Atlantic Beach if the purchase is made. Section IX 9. ) "The ability of the purchaser to provide and maintain high-quality and cost-effective utility service ---" Comments : Look at our history in the Utility Business . If we were adept in this type of service, we would have kept our own system in good repair and would have already been serving the area that Bucaneer has . Instead, we are under Moratorium. It is "In The Public Interest" of the Citizens of Atlantic Beach that we keep our interests within the City Limits and not speculate and gamble on a Business outside the City that does not benefit our Citizens .