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Six North development properties owe almost $650,000 in bond payments and penalties for the community’s water treatment plant, the Community Services District’s Finance Committee was told Thursday. Since the end of 2017, the developers have paid only 12 percent of their bond bills, CSD staff reported. A development representative called the situation “a short-term delinquency” and said he expects a portion of the debt will be addressed by the end of June.

A memo from Mark Martin, the CSD’s general manager, said he heard in February from the bond administrator, a government consulting firm named NBS, which expressed concern about the delinquency, which totals $539,756 in unpaid bills and more than $100,000 in penalties. 

Days later, NBS issued delinquency letters on land parcels tied to the bond, issued in 2014 under the auspices of the CSD for the developers’ share of the water plant costs. Last month, Martin wrote, he got a call from a bondholder who was worried about the delinquency.

Martin stressed at the meeting that the CSD has not lost any money. Despite the delinquency, CSD is being paid through the state’s Teeter Plan, which allows Sacramento County to collect delinquent property taxes on behalf of local governing bodies. These bonds payments are collected twice a year, in April and December.

Even with the Teeter safety net, Martin said this is a concern for CSD.

“Counties can choose to remove (land) parcels from their Teeter program,” Martin said. “They can also choose to discontinue their Teeter program. San Joaquin County did that. ... So it can occur where the county can choose to no longer, basically, be the backstop for delinquent payments, and then that liability would fall toward the district.”

CSD attorney Richard Shanahan, an unusual presence at a committee meeting, said he was involved in a case in another county where the county told the government agency it was on its own to collect delinquent funds. 

“That’s county by county,” Shanahan said of Teeter Plan involvement. “Sacramento’s a pretty good place to be for this stuff ... whereas smaller counties may not have that wherewithal.”

Director John Merchant, one of two committee members, asked if CSD staff can review Sacramento County’s Teeter Plan rolls to see where the CSD’s exposure ranks on the list. He said he wants to make sure the community is aware of the CSD’s risk status, good or bad.

Shanahan suggested the CSD can protect its financial situation by making sure the debt remains tied to the special tax on those parcels of land to safeguard its ratepayers and general fund. His suggested approach to maintain that status is to diligently enforce all bond covenants, disclosing the delinquency issue as appropriate and to foreclose on the land if need be. 

Given the Teeter payments, there’s no need to pursue foreclosure at this time, he said, but if that were to change, “you need to vigorously, diligently pursue foreclosure” under the bond covenants.

It’s important to protect the CSD’s credit rating, Shanahan said, adding, “Somewhere down the road you’re going to want to borrow money again ... and you’re going to be going back into the public debt market....”

Speaking briefly after the director and staff discussion, a subdued John Sullivan, the development representative, said the development process has gone more slowly than expected, leaving the developers at least 18 months behind plan.

He said he wants to discuss possible solutions with CSD management, adding that the developers have $500,000 of uncommitted bond money on deposit with the CSD for the possible future expansion of the water plant.

He said he expects the bond accounts will be paid up through the end of 2018 – but not be fully current – by the end of the CSD’s fiscal year on June 30.

The Murieta Gardens development, the residential/commercial property south of Jackson Road, is not delinquent in its payments, Sullivan said, and in fact houses being built there are producing “significant cash flows.”

“As long as that keeps moving forward in a timely clip, which it looks like, we should be in significantly better shape to be as close to current as we can by the end of the district’s fiscal year,” he said.

Sullivan said there’s a “lot of strength right now” in builder interest in Rancho Murieta, adding that a group has taken the remaining 62 lots of the Retreats development. “It looks like there’s a lot of pent-up demand for lots, and that’s good,” he said. “...We expect we’ll be in much better shape in June, because of what we’ve got going on everywhere else.”


Mac Hamel's picture
Joined: 08/27/2007
Posts: 127
Post rating: 264

Cash Flow Problems

Should you really be in the development business when you are relying on cash flow to fund your bond obligations?  Remember what doesn't get paid by the developers on the bonds becomes our responsibility to pay.  Great neighbors!!

Bobbi Belton's picture
Joined: 07/30/2007
Posts: 275
Post rating: 442

Scary

Irrelevant that Murieta Gardens is “raking in the cash.” The debts being discussed can negatively affect the District’s overall credit rating. 

Bobbi Belton

Scott Rau's picture
Joined: 07/24/2011
Posts: 7
Post rating: 5

Remind me again...

Remind me again why these homes are a good idea?  How do these "developers" exepect to compete with all the new construction in Folsom?  After all these years, the Murieta Gardens, like the Retreats before them are a development concept idea that is clearly half baked and motivated only for profit to the developers.  How well has that worked out for them?  

"pent-up demand", give me a break.

Jerry Pasek's picture
Joined: 12/13/2007
Posts: 135
Post rating: 191

Water Plant and Bond funding

To the best of my knowledge, CSD is not on the hook should the bond default as these are not general obligation bonds but rather securities backed by the land so that ownership is what the bond holders would fall back on. Further, these bonds are very closely held so it is possible that those involved in originating the bond would be affected. The Gardens Development is a separate entity so its success is not a driving factor here.

Jerry Pasek

Richard P. Margarita's picture
Joined: 05/22/2010
Posts: 13
Post rating: 49

Cash Flow Problems? Give Me A Break

Can someone tell me how SULLIVAN et al can continue to play games with this Community and get away with it. Pent up demand? This is the Murieta housing market really getting  walloped by the new Folsom developments, not Stormy Daniels.  Non compliance seems to be the norm, not the exception. Then what, try to negotiate a reduced payment? The whole thing smells like Bacala!

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