I've tried to focus attention on our Mello-Roos payments and fees; how the tax revenue is being spent and managed by the Beaumont Finance Authority (BFA); and, how our debt is being retired. I was concerned and I wanted to educate my neighbors that the financial strategy the City Council is following would require that our payments extend beyond our agreed upon term of 30 years. I was aware that the BFA was issuing bonds that matured in 2042, long after any of the current CFD areas are contracted to make their payments.
When I first started this process I knew there was much more to the story than what I was trying get my neighbors to focus on but this is a very complex issue and I knew we needed to walk before we could run. In the beginning, with our first baby steps, the City Manager, Alan Kapanicas, and the Mayor at the time, Roger Berg, focused on my claim that the debt extended beyond our payments and promised us that our payments wouldn't change in the length or amount of the payments homeowners had already authorized. However, no one disputed my assertion that the debt obligations of our improvement areas were being extending beyond our maturity dates.
Think of the Mello-Roos laws, this tool our state legislators provides to cities to fill the revenue void created by Prop 13 as an onion with many layers, our first step peeled back the outer layer.
Now for the next layer.
The original property owner, our developer Corman Leigh, authorized the Beaumont Finance Authority to use Mello-Roos financing to issue Limited Tax Obligation Bonds (LTOB). These are the bonds that are governed by the agreement between the property owner and the BFA. Mr. Kapanicas is correct in his statement that these cannot extend beyond the 30 year term and that homeowners won’t have extended repayment terms.
THE BFA purchases the district bonds, LTOBs, in their entirety by issuing concurrent Local Agency Revenue Bonds (LARB). The BFA’s new LARBs do not have the same restrictions from Mello-Roos laws as the LTOBs, The BFA, by purchasing the district bonds in their entirety, are acting as underwriters and most likely receiving steep discounts. These LARBs are the debt of the BFA but they are assigned to the Improvement Areas. The LARBs are also the primary tool the BFA uses when the refund/refinance existing LTOBs.The LARBs represent a much larger amount of the debt than the original LTOBs.
A large percentage of the debt the BFA has refinanced the last few years have maturity dates in 2042. This is years after the homeowners' original 30 year CFD payment term is scheduled to end. The term that Mr. Kapanicas and Mr. Berg promised would not be extended. The debt refinancing occurred after the property owners had been paying on the bonds for a number of years and is clear will not be retired according to the BFA's original agreement with the property owners.
Following is an analysis of two recent refinancings by the Beaumont Financing Authority concerning two improvement ares - #17b Tournament Hills refinanced in December 2011 and #8c Sundance refinanced in 2012. These are not the most recent issues refinanced but they are old enough that my two sources EMMA (Electronic Municipal Market Access) and the California Treasurer' Yearly Mello-Roos Fiscal Report has data to analyze.
- Area 8c Sundance property owners' Mello-Roos mature in 2038 but $4,475,000, 68% of their total debt ($6,520,000) doesn't come due until 2042. 4 years after the CFD payments stop.
- Area 17b Tournament Hills property owners' Mello-Roos mature in 2039 but $8,920,000, 73% of their total debt ($12,145,000) doesn't come due until 2042. 3 years after the CFD payments stop.
If it is true that the BFA is issuing debt maturing years beyond the payment terms from the CFD homeowners and you recognize that the BFA has no other income source other than the Mello-Roos fees, you have to ask: How is BFA going to pay these debt obligations? I worry about the assessment the BFA makes when establishing our payments. I wonder if they are setting excessive payments to cover BFA debt that exceed the district’s legal constraints.
What concerns me the most is - what is the plan? Where will the future financing come from? What happens when the city focuses on developing homes while postponing the economic development to support the needs and wants of its residents? Well, at some point in the future, Beaumont is no longer a place people want to live. The new home buyers and their CFD payments disappear. Then how do we deal with the large balloon payments.
To say it doesn't matter because most of us won’t be around in 30 years, is irresponsible and is burdening our children and grandchildren with our debt. Many of us are critical of our Federal and State governments strategy of borrowing on our children’s future but we believe there’s nothing we can do about it. I believe there is still something we can do about our local governments mortgaging our children’s futures.
I have heard a well presented argument that Mello-Roos are a valuable tool to build necessary infrastructure. Without this tool, I know some of my neighbors worry that Beaumont will never develop into the thriving city we all want. Whether or not you believe that the $300 million dollar in infrastructure the city is planning should be paid with the Mello-Roos fees you have to recognize this is an unsustainable strategy.
I hope these concerns will be addressed in the City's letter to the Stetson property owners. You can follow our progress by visiting the StetsonCFD.org website. Check out the "Latest News" section for the most recent updates.