When this item last appeared on the Council agenda, CUSD Board President Ellen Addonizio and I spoke to request a delay until such time that the impact of the assignment could be determined. President Addonizio was concerned about the impact an assignment on rights and claims held by CUSD. I expressed a similar concern for rights and claims held by other agencies such as the City and County. The Council generously agreed to continue this matter for one month to provide time for more in-depth consideration of these issues.
Last week there was a new development in this story.
On Tuesday, January 12, the CUSD Board of Trustees was presented with a proposed Settlement Agreement and Mutual Release between the school district and the Whispering Hills developers. This Agreement has been secretly negotiated by school district staff and the developers since last summer. Nevertheless, the actual text of the Agreement was quietly slipped into the previously posted Board agenda after 4:00 PM on Friday night in order to minimize the public opportunity for review.
The Agreement has wide-ranging impact on the SJHHS school site, the relationship between CUSD and the developer, and the City. Should the proposal be accepted by the school district, the financial interests of the City and city taxpayers will be sacrificed for worthless property line adjustments being sought by CUSD.
From the City perspective, I’ll summarize the issues here:
“Effective Date” of the Development Agreement -
The Development Agreement becomes effective when the Whispering Hills Community Facilities District (CFD, or Mello-Roos district) is formed. This CFD has been defined in a School Mitigation Agreement between CUSD and the developer but the CFD has not yet been formed. Thus, the Agreement that the developer seeks to transfer is not yet effective, even though it was written and accepted by the City almost four years ago.
Joint Community Facilities Agreement -
The Settlement Agreement proposed to CUSD directly and negatively effects the City’s rights under a Joint Community Facilities Agreement between the City and the developer dated July 1, 2005. The purpose of the JCF Agreement was to appoint CUSD as lead agency in managing the Whispering Hills CFD, issuing bonds and collecting taxes, in part on behalf of the City. In the JCF Agreement, the City has agreed to receive certain infrastructure improvement costs and fees related to Whispering Hills through the CFD instead of collecting them from the developer.
Impact of the proposed Settlement Agreement on the City -
Should the CUSD Board of Trustees accept the developers’ proposed Settlement Agreement, the City’s rights in the JCF Agreement will be diminished. The Settlement Agreement provides that the first $12.8 million dollars in CFD proceeds will be turned over to the developer for disbursement at his discretion. This is in direct conflict with the terms of the JCF Agreement that call for approximately half of this money to be deposited to a City Facilities sub-account according to a defined formula.Potential Legal Conflict -
Still worse, the proposal also provides the developers with the exclusive option to dissolve the CFD altogether! This would leave the JCF Agreement and the City without an assured source of development funds to complete infrastructure improvements in the area.
Should the CUSD Board of Trustees accept the developers’ proposal, this would appear to be a breach of the contract created by the JCF Agreement with the City.
The issues outlined above can be confirmed by careful reading of the documents. In light of the proposed Settlement Agreement, the San Juan Capistrano City Attorney and Council should take additional time to consider the entire relationship with this developer.
In the larger picture, one has to question the viability of the Whispering Hills development. The transfer of the Development Agreement, coupled with the proposed Settlement Agreement, provide the developers with an opportunity to use public money to finance the transfer of the property, to “cash out” of the development leaving the local taxpayers, the City and the school district to deal with the long term deficits.
For this reason, I have urged the Council seek development guarantees or other financial assurances from the developers and to inquire more deeply into the financial viability of any party to the Development Agreement. This information, being critical to the deliberation of this subject matter by council, should be available to the public. Mere verbal assurances from the developers relayed by the City Attorney are insufficient.
Council members must keep in mind that while the Development Agreement is appurtenant to the land on which Whispering Hills is to be built, the JCF Agreement and the Mitigation Agreement are not. Most importantly, the cash proceeds of the CFD in the hands of the developers would far exceed the value of the undeveloped land and may be lost to the public forever.
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