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GOVERNMENT: Half Moon Bay Faces Daunting $18 Million Lawsuit Settlement

Bay Area News Group, Nov. 11, 2008



By Julia Scott

HALF MOON BAY — City officials took a grim inventory of their options in dealing with an $18 million lawsuit settlement at a public meeting last week, but the list was not long.

Half Moon Bay will owe local developer Chop Keenan more than $18 million on June 30, 2009, if the city does not pass state legislation giving Keenan the necessary permits to build 132 homes on a property known as Beachwood, and a neighboring site called Glencree, according to a settlement the parties reached last April.

The bill that would have made that possible, AB1991, failed soon after. So the best the city can hope for in the new legislative session is a bill that will help them pay down their debt to Keenan when, not if, it comes due.

The $18 million is nearly twice the city's annual budget and would accrue interest at a rate of 6 percent a year if the city cannot pay the entire sum within 60 days of the June 30 deadline. The payments are retroactive to late 2007, so the city would actually owe $19.8 million to begin with.

"It's a very serious impact. Is it something you citizens could afford? Well, I'll let you judge that," said Mark Curran, with the city's financial consultant Piper Jaffray. "It's a lot of money for a city this size in a tough time."

Judging a bailout bill to be a near-impossibility in the next few months in light of the California budget meltdown -- and the fact that the bill would need a two-thirds majority vote to be signed and sealed by late June -- city officials spent most of the meeting talking about buying bonds to help them pay down the debt over several years.

But that plan poses major problems. For one thing, a standard 30-year bond would cost the city more than $37 million over time, and paying it off would gobble up 15 percent of the city's general fund each year, resulting in major cuts to staff and services.

The city has no credit rating, and Curran believes the best the city can earn is a rating of BBB, the lowest Standard & Poor's investment grade rating before a government entity falls into a "junk" rating category. He and John Knox, a lawyer representing the city with Orrick, Herrington & Sutcliffe, are compiling the documents the city will need to start rating agency presentations in March.
"The current credit market conditions are extremely difficult. Thank God we're not tying to sell these bonds today," said Curran.

The city's day-to-day finances are looking especially dire these days, as well. At the same meeting, City Manager Marcia Raines told the public that localized effects of the national economic downturn would force city officials to cut $920,000 from the existing city budget by the end of the year. She said the money would come from freezing open staff positions and cutting programs and services, although she did not say which ones.

Raines did not return a call for comment on Monday.

City Council members were by turns bitter, sad, and shell-shocked as they took in the news.
"This is very real now. We're coming down to payment. We're finding money now," said Councilwoman Marina Fraser.

When Councilman John Muller finally brought up the topic of filing for bankruptcy, Knox shook his head and called it "an absolute, absolute last resort."

"Bankruptcy means protection from creditors while the city tries to work out its problems," he said.
"In the end it doesn't produce any new money. It's not a panacea -- it's a desperation last resort."



Last Updated: Dec 07, 08

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