Loading...
Minutes 10-26-95MINUTES OF THE SPECIAL CITY COMMISSION WORKSHOP MEETING AND EXECUTIVE SESSION, HELD IN THE UNITED WAY SERVICE AND CONFERENCE CENTER BOARD ROOM, 2600 QUANTUM BOULEVARD, QUANTUM PARK, BOYNTON BEACH, FLORIDA, ON THURSDAY, OCTOBER 26, 1995, AT 4:00 P.M. PRESENT Gerald "Jerry" Taylor, Mayor Matthew Bradley, Vice Mayor Lynne Matson, Mayor Pro Tem Shirley Jaskiewicz, Commissioner Sidney Rosen, Commissioner Carrie Parker, City Manager James Cherof, City Attorney Sue Kruse, City Clerk CALL TO ORDER Mayor Taylor called the meeting to order at 4:28 p.m. RESIDENTIAL APPEARANCE REGULATIONS Commissioner Jaskiewicz stated that she has been interested in improving Boynton Beach Boulevard since the first day she was on the City Commission. She commended Jim Zengage for organizing the Boynton Beach Boulevard Association, which brought about tremendous results. She advised that there had been a goal setting workshop at which enforcing the residential appearance codes to improve the image of the City was discussed. She pointed out that it is difficult to get a uniform appearance code because many of the homes and businesses in Boynton Beach are very old. She stated that the code does not address roofs and painting. She asked for the residents' input regarding what they would like included in the code to improve the appearance of Boynton Beach. Mayor Taylor opened the floor for discussion. He advised the audience that no vote will be taken this evening. If a consensus is reached, it will be placed on the City Commission agenda for a vote. Jerry Broening, 820 North Road, is a member of a neighborhood organization. His neighborhood organization is concerned about the City having too much control and interfering too much with their lifestyles. They live in a very old waterfront community. They support beautification, but would appreciate it if the code took into consideration their community's distinct nature, like many of the older communities have. For example, being a waterfront community, many of the residents park their boats on their property. Mayor Pro Tem Matson pointed out that many of the old neighborhoods have deteriorated. She would like to see a satellite code enforcement office in the north end of the City. She MINUTES SPECIAL CITY COMMISSION WORKSHOP MEETING BOYNTON BEACH, FLORIDA OCTOBER 26, 1995 stated that we need to educate the people and offer them assistance because many of them are foreigners, and many of them have never owned a home before. She also felt that we need to take into consideration that some people cannot feed their children, never mind sod their lawns. She said perhaps we can set aside funds for those people who cannot afford to maintain their properties, and maybe they can pay it back in increments. She pointed out that our City is diverse economically, politically, and socially, and we have to take into consideration every single community. Each community has different concerns. What is good for one community may not be good for another community. She asked City Attorney Cherof if there is a way that certain sections of the City can be addressed in an ordinance, or if we can break the City down into quadrants. City Attorney Cherof advised that there are many different ways to break down specific zones, specify what those zone boundaries are, and deal with the kinds of issues Mayor Pro Tem Matson is talking about within those zones only. Mayor Pro Tem Matson stated that the need for neighborhood organizations was discussed at the neighborhood revitalization workshop. She said once more neighborhood associations are in place, and we have geographic boundaries, perhaps we can form the basis for the associations and stipulate the City Codes. Mr. Broening said parking of boats is not his community's only concern. His organization is concerned about crime, quality of life issues, and property values. They would like the code to be sensitive toward the older neighborhoods that have a unique character of their own. They would not like to see anything in the code that would be restrictive or expensive because there are many retired residents in their community who are on a fixed income. Commissioner Jaskiewicz felt the general consensus among many of the homeowners in Mr. Broening's area was that they did not want to see the neighborhood deteriorate. They felt that property values were decreasing. What created a lot of the problems in that area were renters who were not taking care of the property in the same standard that perhaps a homeowner would. They also would like some sensitivity on what is permitted to go into Yachtsman's Plaza. Joy Currier asked about the law regarding renters in a development like Sierra Heights. She said this development is going to ruins. There are 30 people in one house, and people are parking on the cement walkways and bike paths. MINUTES SPECIAL CITY COMMISSION WORKSHOP MEETING BOYNTON BEACH, FLORIDA OCTOBER 26, 1995 Commissioner Jaskiewicz advised that Scott Blasie, the Code Enforcement Administrator, had an excellent suggestion that would address this concern, which was to implement rental licenses for one-family houses. She explained that the City is not permitted to enter a house to see how many people are living there. However, if they were licensed, the City could enter the house. Mr. Blasie said City Attorney Cherof could build into the Code the parameters for inspections, and what would happen if you fail inspections. He said licensing provides a tool to enter a house. Dee Zibelli represented the NBCIA. She commended Code Enforcement for doing a wonderful job in her neighborhood. She said the rental units in her area are in disrepair. She would like the health code to require screen doors. She said a lot of renters complain that they have bugs in their houses, but they leave their doors wide open without a screen door. She said there is no money for the paint-up, fix-up program. She has been trying to get businesses to donate paint and volunteers to do the painting. She also advised that people are repairing automobiles in her neighborhood. Also, there is not much activity for the children in her neighborhood. Mayor Pro Tern Matson asked Ms. Zibelli to send her a copy of the NBCIA's charter. Deborah Tornello is from Mangrove Walk Homeowners' Association. A lot of her community's problems stem around two apartment complexes that are always in an upheaval. The grass is never cut. There is always garbage and trash outside. There are a lot of empty lots where there is constant dumping. There is also a big drainage problem. There is standing water, and the mosquitoes are horrendous. Mrs. Currier advised that there are old cars without tags parked on the grass in her neighborhood. Mr. Blasie advised that they are required to be licensed. He stated that he has one employee who works full-time on removing unlicensed vehicles. Elizabeth Jenkins advised that there is nowhere to park in her community. She has to park her car on the grass. She said she has a very small lawn, and when she has visitors, there is no place for them to park their cars. There is also a drainage problem in her area. Mayor Taylor stated that you cannot pass a rule that fits everybody. Commissioner Jaskiewicz pointed out that some communities have waivers in extenuating circumstances. One of the gentleman in the audience suggested allowing only the owners of boats to park them on their own property. He said in his neighborhood, some of the boats do not belong to MINUTES SPECIAL CITY COMMISSION WORKSHOP MEETING BOYNTON BEACH, FLORIDA OCTOBER 26, 1995 the people who live in those houses. Mr. Blasie said this is already addressed in the Code. The boat has to be owned or used by the resident of the premises. Mayor Taylor asked if it is possible to automatically £me a person after already being cited a couple of times. City Attorney Cherof advised that the City could implement a direct citation method of dealing with code violations, which would have a set fee schedule that would increase gradually. Mr. Blasie asked him if we would still have to give violators time to take care of the violation before giving them a citation. City Attorney Cherof stated that on a direct citation method, you could eliminate, after the first occurrence, any notice at all, other than the citation itself. It works a lot like a parking ticket where the individual has the opportunity to pay the fine that is set forth on the face of the citation. If they do not pay it, then it triggers a court proceeding. Mr. Blasie asked if we can do this on vacant lots as well. City Attorney Cherof answered affirmatively. Commissioner Jaskiewicz stated that there was discussion about tightening the Code Enforcement rules. She said perhaps this is one of them that needs to be tightened. With regard to Mrs. Currier's earlier statement that 30 people are living in one house, Mayor Taylor was sure there are some rules to address this matter. Mr. Blasie said we use the Standard Building Code. It is based on square footage and is pretty generous. For example, seven to ten people are allowed to live in a 2,000 square foot house. City Manager Parker added that the people have to be related. City Attorney Cherof advised that six months ago there was a U. S. Supreme Court case that completely undermined the concept of many city codes which state that it has to be a family unit. Under some Federal regulations relating to HUD provisions, etc., it said that the requirement that the people be related is unconstitutional. In addition, the whole concept of family has changed radically over the last 30 to 40 years. Lloyd Powell, Chairman of the Community Redevelopment Advisory Board, pointed out that one of the pitfalls is that in certain cultures, "family" may extend beyond blood relatives. Mayor Taylor believed that one of the reasons the Community Appearance Code failed before is that the Commission could not come to an agreement regarding parking in swales. He asked those present how they felt about parking in swales. Mayor Taylor explained that friends of his live on a small lot and have two cars. They park one car in the driveway and one in the swale because they have nowhere else to park. 4 MINUTES SPECIAL CITY COMMISSION WORKSHOP MEETING BOYNTON BEACH, FLORIDA OCTOBER 26, 1995 Mr. Powell stated that if you are not allowed to park on the swale, the only alternative is to park on the street. He was hesitant to park his car on Boynton's narrow streets. Furthermore, if cars on parked on both sides of the street, an emergency vehicle might not be able to get through. Vice Mayor Bradley pointed out that if people park on the swale on a regular basis, the grass is going to die. Also, the permeability of the ground to absorb the water will be ruined. In addition, the sprinkler system will be affected with a car pulling in and out of the swale. He said it is a tough problem because there obviously is not enough parking at any of our homes. Most people do not have a large enough driveway to handle three to six cars when people come to visit. Mayor Pro Tem Matson stated that parking in the swales could damage City property and drainage. Mayor Taylor pointed out that in some cities, the residents are responsible for maintaining the swales. Vice Mayor Bradley suggested putting a time limit on parking in swales so that guests can park in the swale, but not overnight. City Manager Parker pointed out that the family with the one car garage or driveway use the swale, not just guests. Commissioner Jaskiewicz asked for input on exterior paint and roofs. She advised that the code does not address rotted exterior wood and painting. She would like this addressed in our code. She pointed out that almost all of the communities that we surveyed have something in their codes to address this. She also asked for input about parking trucks in residential areas. She said a few people have brought to her attention that when the 3/4 ton was in effect, they did not have the problem that they do now with regard to bringing commercial vehicles home. They said that problem has increased greatly since the ordinance was changed two or three years ago. She said we need to discuss how we want to address trucks, if it is necessary to change the tonnage, and how to regulate commercial vehicles in residential areas. One of the ladies in the audience said when she moved into her neighborhood, her husband did not have a commercial vehicle. Her husband changed jobs within the same company he works for, General Electric, and is now a service technician. Now he drives a commercial vehicle. It does not fit into the garage because it is about six inches higher than the garage. She hopes there will not be any extreme regulations for small commercial vehicles. She pointed out that 5 MINUTES SPECIAL CITY COMMISSION WORKSHOP MEETING BOYNTON BEACH, FLORIDA OCTOBER 26, 1995 a neighbor of hers has three pickup trucks in his driveway. They are not commercial vehicles, but his front yard is messier than hers because of them. Another neighbor of hers has a recreational vehicle that is too high to fit in a standard size garage, so he parks it in the driveway and puts a cover on it. The cover looks ridiculous. Around the corner from her house, a man has six vehicles in his driveway, three of which are covered. None of them are commercial vehicles, but they look worse than her commercial vehicle. Vice Mayor Bradley said tonnage really does not apply here. He advised that the ordinance addresses capacity, the amount that a vehicle is rated to haul. A Holsum truck is a large vehicle, but because it is hauling bread, it has a low capacity. It probably is a half ton truck. Therefore, we do not want the capacity to be the determining factor. He suggested allowing a van or a pickup truck that is not too high (perhaps 6 1/2 or 7 feet) to be parked in residential areas. Mayor Pro Tem Matson said perhaps we need to look at types of vehicles, such as cement trucks and tow trucks. She agreed that the General Electric truck is a lot less offensive than the three pickup trucks in the driveway. Mr. Broening was concerned about the appearance of the areas surrounding his community, including the Water Management District and commercial properties on Federal Highway. Vice Mayor Bradley felt perhaps we need to focus first on health, safety, and severe appearance problems. He suggested letting the commercial vehicles park where they are parking now and at some point readdress that issue. He did not want to prohibit small commercial vehicles from parking in residential areas. Commissioner Jaskiewicz pointed out that the concerns we have today are a result of the City not having codes in effect many years ago. Almost all of the communities we surveyed have codes in place relating to the Rems we are discussing today. It is very difficult to try to implement something new. She did not think there will be a major change. She was sure it will be something that will improve our City. She felt it will have common sense and flexibility, and be something that everybody can live with. Mayor Pro Tem Matson suggested addressing one section of the appearance code at a time. Vice Mayor Bradley agreed. He felt we should put boats, commercial vehicles, and RVs on hold for now and address the paint, roofs, and swales. In response to someone in the audience, he advised that there are already codes in place for trash. Mayor Taylor said this is MINUTES SPECIAL CITY COMMISSION WORKSHOP MEETING BOYNTON BEACH, FLORIDA OCTOBER 26, 1995 where the neighborhood associations have to come in. They need to speak to these people and ask for their cooperation. Vice Mayor Bradley felt perhaps part of the problem is that we have a limited staff and this should be addressed. Ms. Tornello explained that garbage is being left out for two or three days in her neighborhood. Mr. Powell pointed out that most homeowners trim their yards on the weekends and put their debris out on Saturday afternoon or Sunday. Commissioner Jaskiewicz stated that they should put it in a bag and put it on the side of their house out of view. Mr. Powell said it is difficult to put tree branches in a bag. He stated that one of the businesses on Federal Highway closes on Saturday at noon and puts his trash out to be picked up on Monday morning. He has no alternative because he cannot have a dumpster. Commissioner Jaskiewicz said perhaps the pickup day can be changed. City Manager Parker pointed out that everybody has this same problem, and we cannot pick up the entire City on the same day. Mr. Powell asked if there has been any effort made to determine which units are renter occupied and which are owner occupied so that we can ascertain if the landlords are not maintaining their property. Vice Mayor Bradley stated that we should treat the homeowner and the landlord the same, and that there should be a code violation for the landlord if he does not maintain his property. Commissioner Jaskiewicz reiterated that other cities have codes regarding peeling paint, leaky roofs, and mildew. They do not permit peeling paint or mildew on roofs. Mayor Pro Tem Matson pointed out that Lantana subsidizes some of the work and felt we should look into doing the same. Commissioner Jaskiewicz was concerned with aesthetics. Mayor Pro Tem Matson pointed out that aesthetics are arbitrary, and she wondered how it would hold up in Court. She felt some guidelines would be needed because one person's view of aesthetics might not be the same as another person' s. Stanley Dub6, Chairman of the Planning and Development Board, asked how difficult it would be to have a rental license ordinance. City Attorney Cherof said it would not be difficult at all. Mr. Dub6 suggested taking everything out of the appearance code that deals with appearance of the house and yard and put it in a rental code. City Attorney Cherof stated that 7 MINUTES SPECIAL CITY COMMISSION WORKSHOP MEETING BOYNTON BEACH, FLORIDA OCTOBER 26, 1995 it makes no difference where the code department finds the standard, so long as the standard is clear enough for them to make a judgment call on it, and so long as it does not involve a degree of discretion or interpretation on their part. If the standard is clear, it does not matter if you find it in a rental ordinance section or property maintenance section. Mr. Dub6 stated that the rental code could address the number of people allowed in one house and make it easier for enforcement, as opposed to the square footage enforcement. Certain things can be written into it to make enforcement easier. City Attorney Cherof agreed. With regard to parking in swales, Mr. Dub6 pointed out that if there were sidewalks, people could not park there. Commissioner Jaskiewicz pointed out that some sidewalks have swales in front of them. She said unfortunately, everyone does not take pride in their homes and in the aesthetics of their property. We could address this with a rental code; however, we cannot exclusively address renters. Jeanne Heavilin, a member of the Community Redevelopment Advisory Board, asked if there are funds or assistance available for people who cannot afford to maintain their property. She felt people's personal and financial situations need to be taken into consideration. Commissioner Jaskiewicz felt the homeowner associations would be a great tool in addressing this situation. One association was able to get paint donated and volunteers to do the work. Commissioner Jaskiewicz asked if we still have a paint up/fix up program. City Manager Parker advised that we only have about $20,000 and it only applies to people who are at the poverty level or below. The majority of the people would not meet the criteria. The City puts on new roofs, replaces broken windows, paints the entire house, and sods and irrigates the front lawns. However, we do not clean roofs or pressure clean walls. Unfortunately, the neighborhoods that are being discussed, in all likelihood, would not meet the poverty guidelines. Commissioner Jaskiewicz stated that this is where the neighborhood groups could get involved. Mayor Pro Tern Matson stated that the communities she is talking about are not organized and probably would not be organized, i.e., Martin Luther King Boulevard and the area behind Hester Center. These people are not going to form groups because they do not care. We have to offer them some assistance. She suggested finding out how Lantana subsidizes and if there is grant money available. She also suggested calling the cities that we surveyed and find if they have funds or if they have a source of funds that we do not know about. 8 MINUTES SPECIAL CITY COMMISSION WORKSHOP MEETING BOYNTON BEACH, FLORIDA OCTOBER 26, 1995 Commissioner Jaskiewicz advised that when an ordinance is put in final form, the public will still have an opportunity to give their input when it goes before the City Commission on second reading. Commissioner Rosen advised that this Commission is making every effort and hopes to succeed. However, without community cooperation, we cannot do it. He said it also takes pride and peer pressure. Mayor Taylor wants to beautify our community with the least possible government involvement. He wants people to maintain their property, but he does not want the government telling him how to live. He felt a lot can be accomplished through neighborhood associations and peer pressure. He advised that we have someone who is going to be working with the neighborhood organizations and trying to help set them up. He felt we have to keep emphasizing neighborhood organizations. He is in favor of a standard type of ordinance that we can all live with and that does not infringe on people's personal rights. He heard businesses do not want to paint their buildings because if they do, they have to spend thousands of dollars to bring their buildings up to code. He felt we need to change this and make it possible for businesses to make the outside of their businesses look nice without having to spend thousands of dollars to bring their buildings up to code. Jim Zengage asked about the time frame that all of this will be accomplished in. Vice Mayor Bradley advised him that we need to workshop each issue. Mayor Taylor thanked everyone for their input. Mr. Zengage asked if there will be a workshop regarding the business community. Mayor Taylor would like to have another workshop to focus on the business community. Mr. Blasie stated that the neighborhood associations have .helped Code Enforcement tremendously and, in turn, have helped themselves. Mayor Taylor declared a recess at 6:00 p.m. The meeting resumed at 6:15 p.m. CLIPPER COVE FINANCING OPTIONS Mark Raymond of Moyle, Flanigan, Katz, FitzGerald & Sheehan, P.A. is the City's bond counsel. He distributed an outline on the Clipper Cove financing. He gave a general MINUTES SPECIAL CITY COMMISSION WORKSHOP MEETING BOYNTON BEACH, FLORIDA OCTOBER 26, 1995 overview of industrial revenue bonds. He said this is one of the primary functions that the City will perform in connection with the Clipper Cove project. An industrial revenue bond is a way of obtaining lower interest rate financing. When you issue general obligations bonds, water and sewer bonds, or recreation bonds, you get a lower interest rate on those bonds than a commercial borrower or corporate borrower would get on that same kind of financing. This is because the Internal Revenue Code says that people who hold bonds that are issued by governmental units, do not have to pay income tax on the interest that they receive. Therefore, your rate can be around 30 percent less than it would otherwise be. There is a way of passing that tax exempt benefit on to certain kinds of private projects. When you issue that kind of a bond, it is loosely called an "industrial revenue bond". He referred to the rough sketch in his outline of how IDBs work. We have a bondholder and we have the City. In reality, there could be one bondholder or thousands of bondholders. It is irrelevant to this discussion. We have one bondholder. The bondholder pays money to the City, in effect, making a loan to the City. In return, the City promises to pay principal and interest at a stated rate on a stated date from a stated source. That is all a bond is. However, the City only promises to pay from water or sewer revenues, or golf course revenues, or half cent sales tax, or money the City receives from Clipper Cove. The next step is that the City receives the money from the sale of the bonds. The City loans the bond dollars to the owner of the project, in this case Cornerstone. In return, the owner promises to repay the City at a rate and on dates that correspond to the bonds. The payments that Cornerstone makes to the City are sufficient to repay the bonds. The bondholder loans money to the City. The money passes through the City to the owner. The owner promises to repay the City. The repayments pass through the City and onto the bondholder. What you really have is the bondholder making the loan to the owner, and the owner paying back the bondholder. The City's involvement is solely as a conduit. The bonds that the City issues are payable solely from money that the City receives from the project. The City cannot be obligated to use other funds of the City. In fact, it would not be legal for the City to become obligated to use other funds of the City. From the borrower' s (Cornerstone's) point of view, it is very much like any other loan that they might get. It will have an interest rate, payment dates, prepayment provisions, and security provisions. It might be secured by a mortgage. In this case, it will be secured by a mortgage. It could be backed by personal guarantees, guarantees from related corporations, and it can have credit enhancement. Simply put, it is just a loan. The City's involvement in 10 MINUTES SPECIAL CITY COMMISSION WORKSHOP MEETING BOYNTON BEACH, FLORIDA OCTOBER 26, 1995 the negotiation of the loan is fairly minimal. There is a little twist to the Clipper Cove f'mancing in that the City has a financial interest in the success of the project. Therefore, we will be a little more involved than normally. Commissioner Jaskiewicz asked if there is any way the owner can default on this loan. Mr. Raymond answered affirmatively. Commissioner Jaskiewicz asked who would then be responsible. Mr. Raymond advised that the owner would be responsible. Ultimately, what will happen is someone will possess a mortgage on the property, and that someone will be acting on behalf of the bondholders. That someone will foreclose on the project, will get a receiver appointed to operate the project, and will advertise the project for sale. Ultimately, someone will hopefully buy that project. In the meantime, the bondholders sit and wait. When the project is sold and money becomes available, the bondholders will be paid. They may be paid 100 cents on the dollars or they may be paid 10 cents on the dollar. At that point, they have no further recourse. They never have recourse against the City. City Manager Parker advised the Commission that Mr. Raymond is basically their attorney. In this transaction, we have the City and Cornerstone. Cornerstone will have their own attorney to look after their interests. Mr. Raymond is only representing the City and the City's interest. All the attorney/client privilege questions, etc., apply to Mr. Raymond as they would apply to City Attorney James Cherof. Mr. Raymond spoke about the parties involved in this transaction. We have the issuer (the City), the borrower (Cornerstone), and the underwriter or bank. It is difficult to f'md a single bank willing to make a loan when you are looking at long term f'mancing. Banks do not like to make fixed rate commercial loans for more than ten years. Home mortgages are different because the banks sell those. However, commercial loans, at a fixed rate for more than 10 years, are very unusual. Therefore, a project like this could not get a fixed rate. Neither Cornerstone nor the City have the wherewithal or the contacts to sell all these bonds. This is what an underwriter does. Stifle Nicholas is the underwriter for this transaction. They have agreed to buy all of the bonds. Their brokers will find people to buy the rest of the bonds. Therefore, the City is really dealing with one entity. The bondholders expect to receive the payments of principal and interest in accordance with the terms of the bonds. The City hires a trustee to watch the money flow back and forth. Banks fulfill this function. The City will assign all of its rights to receive the loan repayments by the underwriter to the trustee. The trustee will receive those payments from the owner and pass them onto the bondholders. If the owner fails to send them the mortgage payment, the 11 MINUTES SPECIAL CITY COMMISSION WORKSHOP MEETING BOYNTON BEACH, FLORIDA OCTOBER 26, 1995 trustee will call them up and find out what is going on, just like a bank would if someone was defaulting on a home mortgage. Ultimately, if the circumstances dictate, the trustee will file a foreclosure action and will take possession of the project, will operate it to the best of its ability, and will try to find someone to take it over so that the bondholders receive all their money. Mayor Pro Tem Matson asked if the City is the one who hires and pays the trustee. Mr. Raymond said the City does not have to pay them. That is part of the obligation in the loan agreement. In the loan agreement, the owner will agree to pay back the bonds, indemnify the City, and pay the fees and expenses of the City. The special one for this deal is the 28 percent interest in the profit. The trustee is enforcing the transaction for the benefit of the bondholders. Mr. Raymond reiterated that the City cannot be compelled to use its own funds. He also mentioned that the legality of this kind of transaction is beyond the shadow of a doubt. It has been tested at the Supreme Court of Florida a number of times. Years ago when this first became a financing vehicle, all kinds of people challenged these on all kinds of grounds and that litigation was always resolved in favor of the legality. The security provisions for this transaction will include a mortgage on the project. It will include an assignment of all of the revenues from the project. Mr. Raymond believes that as rent is collected by Cornerstone's manager, that money will be deposited with First Union periodically, perhaps as often as once a week or twice a month, certainly monthly. First Union will apply that money in accordance with documents that we have prepared to pay debt service and operating expenses of the project, to fund reserves for the bond issue (renewal/replacement/repair type reserves), and to set aside for taxes and insurance on the project. Hopefully, after all of those applications of funds, there will be some money left over. The nice thing about this transaction is that 28 percent of that belongs to the City. We have to work out the details of how the City gets that money. City Manager Parker advised that this has been discussed and the City will receive it semi-annually. With regard to credit enhancement, Mr. Raymond said bond insurance is probably the best kind of guarantee that you can get for bonds right now. The City issues bonds and pays back from water and sewer revenues. However, if the water and sewer revenues are insufficient, they do not have to pay back from anything else. The City can buy bond insurance, which is basically a guarantee by a highly credit rated insurance company. If for some reason the City cannot come up with enough money to pay back the bonds, the insurance company will. MINUTES SPECIAL CITY COMMISSION WORKSHOP MEETING BOYNTON BEACH, FLORIDA OCTOBER 26, 1995 When they make that payment, they become the owner of the bonds and will be looking to the City for payment. But they can only get the payment from the water and sewer revenues. This pays off the moms and pops around the country who have bought the bonds and it puts the real risk with the insurance company that is in the business of evaluating that risk and taking that risk. Therefore, when the City buys bond insurance on its bonds, the bonds receive a very high credit rating because it tells the investor that this is not something where you are going to lose your money. It does not tell the City that the bonds are really any better, but it helps the investor. It is possible that the Clipper Cove bonds can have credit enhancement. They will not have bond insurance, but there are other forms of enhancement available from programs run by the Federal Government. Fannie Mae and Freddie Mac both operate programs for guaranteeing mortgages. In general, the way those operate is analogous to private mortgage insurance. Sometimes when you get a mortgage from a bank, you are required to buy private mortgage insurance until you have a certain level of equity in your house. To the bank, that private mortgage insurance means that if the homeowner cannot pay on the mortgage, the private mortgage insurer will pay the bank. This is basically what the Federal Government does. If Clipper Cove cannot generate enough revenues from the project to make its monthly mortgage payments, upon notice, Freddie Mac or Fannie Mae will make that payment to the trustee so that the bondholders are made whole. Fannie Mae or Freddie Mac will have the same rights that the trustee would have had. When Fannie Mae or Freddie Mac make the payment to the bondholders, they acquire the bondholders' rights. Therefore, ultimately, what you could have in this situation is instead of the trustee foreclosing on the project and trying to sell it to someone, you have Fannie Mae or Freddie Mac foreclosing on the project and trying to sell it. Ultimately, the security for everyone is a mortgage on the project. All the credit enhancement does is eliminate the risk to the bondholder and place it with someone else. It is also possible to obtain a rating on the bonds. There is a program that might allow these bonds to be rated. A rating means that some independent organization (companies like Standard and Poors (S&P) or Moody's Investors Service) will evaluate the risk of the project not being able to pay back the bonds. They use a scale of letters and symbols to assign ratings. You can bring one of these entities in to evaluate the risk level of this project. That risk level will be attached to the bonds. When the City issues bonds backed by bond insurance, they are triple AAA. That is the very best you can get. The scale goes all the way down to C, which is something that is very risky. It tells the investor what kind of risk level he is taking. S&P and Moody's is not obligated to make payments on the bonds. They merely evaluate the bonds. 13 MINUTES SPECIAL CITY COMMISSION WORKSHOP MEETING BOYNTON BEACH, FLORIDA OCTOBER 26, 1995 Mr. Raymond stated that private placement and public underwriting involve how the bonds are sold. A private placement involves the sale of all the bonds to one, two, or three investors. For example, they might go to the Fidelity High Income Municipal Bond Fund. Some of them might go to Allstate Insurance Company or State Farm Insurance Company. We are talking about large blocks of bonds going to sophisticated institutional investors. We also have public underwriting, which involves bonds of many denominations, as small as $5,000, being sold to the public at large. No one, including Cornerstone, envisions a public underwriting of these bonds. They are too risky and it would not be appropriate. The most public-like distribution of these bonds that could occur would be sales of hundred thousand dollar demoninations to big boys (people who sign letters that indicate they have a net worth or an annual income level sufficient to bear the burden of loss associated with the bonds, and that they are able to evaluate the risk they are taking). He doubted that this is how these bonds will be sold; however, it is a possibility. Mr. Raymond said the owner in the Clipper Cove situation is going to be a 501(c)(3) organization. A 501(c)(3) is a provision in the Internal Revenue Code that describes charitable, educational, scientific, and like organizations. These are the entities that you can make tax deductible donations to. These entities do not have to pay Federal Income Tax. They include the YMCA, United Way, and Good Will. Mr. Raymond did not yet know the name of the organization that we will be dealing with. It will be a Florida corporation, not for profit. Cornerstone will be filing with the IRS for a Determination Letter. This is a letter from the IRS addressed to the organization that states they are a 501(c)(3) organization and exempt from income tax, and contributions to them are tax deductible. Mayor Pro Tem Matson asked if there is any possibility that the letter might say they do not meet the standards for 501(c)(3). Mr. Raymond said there is a possibility that this can happen. If it happens ahead of time, there will be no bond issue because the basis for tax exemption for this bond issue is that they are a 501(c)(3) organization. The IRS issued a revenue procedure this year that is a safe harbor. It states that if an organization satisfies certain requirements, a Determination Letter will be issued. Mr. Raymond said he spoke to Cornerstone's lawyer, who is an expert in this area of the law and is nationally known, and they are structuring the corporation to satisfy those requirements. Therefore, he did not think there is any doubt that they can meet the requirements. Mr. Raymond said he will have that letter in hand before the bonds are issued. City Manager Parker asked if there are different kinds of 501(c)(3)s under the Internal Revenue. Mr. Raymond answered affirmatively and explained some of them. City Manager 14 MINUTES SPECIAL CITY COMMISSION WORKSHOP MEETING BOYNTON BEACH, FLORIDA OCTOBER 26, 1995 Parker asked if it matters in terms of the IRS tax exemption, which one of the 501(c)(3)s you are. For example, does an educational organization get the same tax exemption as a charitable organization. Mr. Raymond indicated that the tax exemption would be the same. Mr. Raymond advised that there are two sets of set aside requirements that are going to pertain to this project, set aside requirements that units be set aside for persons with certain income levels. First we have the Internal Revenue Code requirements. There are two tests, a 20/50 test and a 40/60 test. The 20/50 test means that 20 percent of the units have to be set aside for persons at or below 50 percent of the area median gross income. The 40/60 test means that 40 percent of the units have to be set aside for persons at or below 60 percent of the area median gross income. Those tests have to be met from the date we issue the bonds until the later of 15 years, or the date the bonds pay off. So, unless they pay off the bonds early, it will be until the bonds are 20 or 30 years old. However, even if they pay the bonds off in a year, they are stuck with those requirements for 15 years. The second set of requirements are the RTC requirements. By agreement with the City, this is what is being imposed upon this project: We have 50 percent low income, which is 80 percent of area median gross income, and 20 percent very low income, which is 50 percent of the area median gross income. These requirements apply from the date of closing until the later of 40 years, or 50 years after the project was first occupied. This project was financed some time ago by the Housing Finance Authority. Mr. Raymond does not know how long it has been in operation. This means 30 percent of the units are going to be for persons at or below 80 percent of area median gross income, another 20 percent at or below 50 percent of area median gross income, and 50 percent are unrestricted. Depending on how they satisfy the requirements of the revenue procedure to obtain their 501(c)(3) status, they may and probably will have even more stringent requirements imposed upon them. There are also limitations imposed on the borrower by virtue of its 501(c)(3) status on the levels of rent that may be charged and upon the income of the occupants of the project. Mayor Taylor asked if there could be more limitations. Mr. Raymond said it will probably go to 25 percent, unrestricted. Mayor Taylor pointed out that, therefore, it would be more like 75 percent low income. He asked how it is decided who becomes the 501(c)(3). Mr. Raymond said that is the owner, Cornerstone. City Manager Parker asked if we can protest this because we do not want to go to 75 percent. Mr. Raymond said the City does not have any choice. This is the only way you can issue tax exempt bonds. Commissioner Jaskiewicz asked if they were aware of this when they made the presentations. Mr. Raymond said they probably were not. He advised that the revenue procedure is a 1995 revenue procedure. 15 MINUTES SPECIAL CITY COMMISSION WORKSHOP MEETING BOYNTON BEACH, FLORIDA OCTOBER 26, 1995 Commissioner Rosen asked how the 75 percent would stack up. Mr. Raymond would have to put a grid together to show how it would stack up. City Manager Parker asked what our financing options are if we do not do this. Mr. Raymond said the only other financing option is not to have a private owner. The City would have to own it themselves and have a management contract for five years. Mayor Taylor said you need to keep in mind that the project is currently at 40 plus percent low income. Commissioner Jaskiewicz asked if we are currently receiving any City taxes from that property. City Manager Parker answered affirmatively. She added that according to the agreement, one of the payments that Cornerstone has to make, as part of the operating expense above the line, is the payment in lieu of taxes to the City. In response to Commissioner Rosen, Mr. Raymond stated that the Internal Revenue Code test must be met on the day that the bonds are issued. The RTC test may not have to be, and the 501(c)(3) does not have to be. Under the IRS requirements, if someone moves in and their income increases, they do not have to move out. To bring this to closing, the City will have to have a TEFRA (Tax Equity Fiscal Responsibility Act) public hearing and adopt a bond resolution. The City will receive 28 percent of the project revenue remaining after the payment of debt service and operating expenses. Commissioner Jaskiewicz asked if this transaction will affect the City's borrowing power in any way. Mr. Raymond indicated that it will not. Vice Mayor Bradley asked how committed we are. City Manager Parker said she will discuss this further with City Attorney Cherof because she felt this is a substantial deviation from our contract, which has not been signed yet. City Attorney Cherof explained that we signed a Letter of Intent and a Letter of Understanding with Cornerstone. That document requires that a formal contract be signed. That formal contract has not been signed yet, and some of these deviations are going to have to be addressed because they are materially different than what was negotiated. 16 MINUTES SPECIAL CITY COMMISSION WORKSHOP MEETING BOYNTON BEACH, FLORIDA OCTOBER 26, 1995 Commissioner Jaskiewicz asked if Cornerstone is going to make any cash investment. Mr. Raymond did not think they have any equity in the project. Mr. Raymond pointed out that there were a couple of ways to qualify for 501(c)(3) status. Mayor Taylor stated that if somebody else took this over, they could do anything they wanted and it could go to 100 percent. Attorney Cherof said another option is that none of this could occur and this property could go back on the market without any housing restrictions on it, since RTC is no longer going to be around to implement the program. City Manager Parker said this is assuming Congress disbands RTC by the end of the year. She explained to the Commission that in the last few months, there has been a move by Congress to disband RTC and turn all the projects that are in the RTC hopper over to other Federal agencies. City Attorney Cherof suggested that City Manager Parker and he discuss the deviations with Cornerstone and tell them that the Commission does not want to negotiate any different percentages. Mr. Raymond felt it is going to be a very difficult task. He said it is one thing to say to someone that 40 percent of those units have to be rented to people who do not make more than $30,000 a year. On the other hand, how can the City tell them, "no more than 40 percent of those units". He asked what they would do then. City Manager Parker stated that the rental market in Boynton Beach is strong enough that the marketplace itself enforces that. If they are going to actually have to search out lower income families to meet the criteria and they have a whole marketing situation devised to do that, the rental demand for people not in this group is such that we will be turning people away. That is the reality today. We have plenty of people in the upper middle income levels needing apartment space, and Clipper Cove is considered an attractive rental unit. City Attorney Cherof pointed out that Cornerstone is our partner in this transaction and we need to talk about these concerns with them. They may have solutions that address all these points. Mr. Raymond said he saw a set of very rough numbers from Terry Green yesterday that showed $248,000 annually. City Manager Parker asked if they knew about the 78. Mr. Raymond assured her that they know more about it than anybody in this room. City Manager Parker asked why we spent five days arguing about it then if they knew it was going 17 MINUTES SPECIAL CITY COMMISSION WORKSHOP MEETING BOYNTON BEACH, FLORIDA OCTOBER 26, 1995 to 78. She asked why they didn't just tell us that. Mr. Raymond said maybe they are going to satisfy it another way. City Attorney Cherof said they are in a better position by reason of their expertise to absorb that differential and find a solution that will not come out of our pocket. City Manager Parker stated that the previous Commission did not feel that this project should be totally a low income project or a significantly low income project. Their main goal was to keep the integrity of the Congress Avenue corridor, and to keep this project a mixed use, while providing some affordable housing. Mayor Pro Tem Matson said that was the intent of this Commission also. Mr. Raymond advised that another way to satisfy the 501(c)(3) test involves a restriction of 50 percent of the units at some level (80 percent of area median gross income or less) and 40 percent (120 percent or 140 percent of area median gross income). So while you still have a rent restriction, they are moving you up out of low income, but there is still a rent restriction on it. In that case, you have 90 percent rent restricted units and 10 that are totally unrestricted. You can have people who make between $60,000 and $80,000 a year in 40 percent of the units. He said maybe that is what they are going to do. Vice Mayor Bradley said if they got their own financing, then we only have the RTC test. City Manager Parker said not necessarily, because Cornerstone itself is a 501(c)(3), and the foundation that they get their equity from is a 501(c)(3). City Attorney Cherof added that our Letter of Understanding with them contemplates that this is how they will operate. Mr. Raymond said the bond lawyer for the Housing Finance Authority for Palm Beach County told him that Cornerstone appears to be dual tracking this. There is a way that they can take advantage of the existing bonds on the project through the Housing Finance Authority. They are doing everything they can to preserve that option. They have been getting documents amended through the Housing Finance Authority, and they have not been telling the Housing Finance Authority about the possibility that Boynton Beach will be doing this project. The lawyer for the Housing Finance Authority was upset about that. Apparently, there are fees that the Housing Finance Authority charges for things that are not being charged on the assumption that the Housing Finance Authority bonds are going to remain outstanding over time. He tried to contact Cornerstone and John Corbitt today, but could not get in contact with anybody. 18 MINUTES SPECIAL CITY COMMISSION WORKSHOP MEETING BOYNTON BEACH, FLORIDA OCTOBER 26, 1995 City Manager Parker stated that the bonds are callable next year, so there is going to have to be a way to address some of those bonds. Mayor Taylor thanked Mr. Raymond for his presentation. EXECUTIVE SESSION City Attorney Cherof announced that the City Commission is going into executive session to discuss the 300 Properties (Meadows) lawsuit, the Bay Club lawsuit, the Tradewinds Development lawsuit, and the estate of Don Jaeger lawsuit. He estimated that the executive session will last approximately 45 minutes to one hour. It will be attended by the members of the Commission, himself, and the City Manager, Carrie Parker. At the end of that meeting, we will come out of the executive session and back into the open public meeting and recess. ADJOURNMENT After the executive session, the Commission returned to the public meeting. There being no further business to come before the City Commission, the workshop meeting was adjourned at 8:45 p.m. CITY OF BOYNTON BEACH ATTEST: ~,~-~. ~'City~Clerk · Recording Secreta (Three Tapes) 19