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Home My WebLink About14 - C-3548 - San Joaquin Hills Transportation Corridor JPA• CITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. I November 26, 2002 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: City Manager's Office Homer L. Bludau, City Manager, 949 -644 -3000 hbludau @city. newport- beach.ca.us SUBJECT: Proposed Amendments to the San Joaquin Hills Transportation Corridor Agency's Joint Powers Agreement ISSUE: Does the City Council support amending the existing San Joaquin Hills Transportation Corridor Agency's (SJHTCA) Joint Powers Agreement (JPA) in order to consolidate with • the Foothill /Eastern Transportation Corridor Agency in one agency? RECOMMENDATION: Adopt the amendments to the SJHTCA Joint Powers Agreement which will result in the following actions: A. Provide authority to create a new, consolidated agency; B. Establish a 21 member Board of Directors for the new agency; C. Maintain the current 2/3 quorum requirement; D. Establish a supermajority voting requirement; E. Provide for the administration of the Development Impact Fee Program; and F. Apply the indemnity, arbitration, and third -party beneficiary provision of the existing JPA. DISCUSSION: See attached staff report from CEO W.D. Kreutzer. Council Member O'Neil, who is the City's representative on the SJHTCA Board, supports this action. • Proposed Amendments to the San Joaquin Hills Transportation Corridor Agency's Joint Powers Agreement November 26, 2002 Page 2 • Environmental Review: Not subject to CEQA, as the activity is not a project as defined in Section 15378(b)(4). Submitted by: 1; X4 Homer L. BI U)IIIU , City Manager Attachments: Transportation Corridor Agencies Staff Report, dated 11/8/02 (Report includes only Exhibits A, C, E, and F) C1 L1 Son Jcoqu =s Hs C07:dor Age�CV • F- Linda Lindholm Loguna N:aue: November 8, 2002 TRANSPORTATION CORRIDOR AGENCIES Foothill /Eastern Comdor Agency Chairman Scott Diets 5or Oemente Mr. Homer Bludau, City Manager City of Newport Beach 3300 Newport Blvd. Newport Beach, CA 92677 RE: Proposed Amendments to the San Joaquin Hills Transportation Corridor Agency's Joint Powers Agreement Dear . udau, Enclosed you will find a staff report requesting your City Council to amend the San Joaquin Hills Transportation Corridor Agency's Joint Powers Agreement (JPA). The proposed amendments will establish the legal framework for a potential consolidation of the San Joaquin Hills and Foothilnastem Transportation Corridor Agencies. These amendments are permissive and only provide for consolidation • if the TCA Boards make the determination that consolidation is financially feasible next year. Seventy - five percent of TCA member agencies must approve these amendments. The attached staff report explains our request to your city in depth, including background information about the TCA, the consolidation process, the proposed amendments, and future steps. On November 5 and November 6, the Operations and Finance Committees of both TCA Boards approved the JPA amendments. The amendments will be reviewed by the TCA Boards for final approval on November 14. Please note that in order to expedite this information to you for inclusion in your City Council agendas, the attached memo assumes TCA Board approval. If the amendments do not receive Board approval on November 14, we will contact you immediately to notify you of the change. Please contact me at (949) 754 -3413 if you have any questions or concerns. Thank you for your time and participation in this matter. Sincerely, e W.D. Kreutzen Chief Executive Officer • Wolfer D Kreutzen Chief Executive Officer 125 PACIFICA, SUITE 100, IRVINE CA 92618 -3304 • PO. BOX 53770. IRVINE CA 92619 -3770 • 9491754 -3400 FAX 9491754 -3467 www.thetollroods.com Membes Arise Viejo . Anaherm . Costa Mesa . County of 01onge . Dona Point . Irvine . Laguna HiCs . Laguna Niguel . Laguna Woods . Lake Forest Mission Viejo • Newport Beach . Orange ..7onchc Santa Margarita . San Clemente . Son Juan Capistrano . Santa Ano . Tustin . Yorbo Linda �1 TRANSPORTATION CORRIDOR AGENCIES • 125 PACIFICA, SUITE 100, IRVINE CA 92618 -3304 9491754 -3400 FAX 9491754 -3467 MEMORANDUM DATE: November 8, 2002 TO: Newport Beach City Council FROM: W.D. Kreutzen, CEO, Transportation Corridor Agencies SUBJECT: Proposed Amendments to the San Joaquin Hills Transportation Corridor Agency's Joint Powers Agreement The San Joaquin Hills Transportation Corridor Agency (SJHTCA) requests that the City of Newport Beach, as a member of the SJHTCA, adopt the proposed amendments to the SJHTCA Joint Powers Agreement as stated in the "Second Amended and Restated Joint Exercise of Powers Agreements Creating the SJHTCA" (Attachment A). L BACKGROUND • About the TCAs and The Toll Roads The Transportation Corridor Agencies are two joint powers authorities responsible for building and operating Orange County's 51 -mile public toll -road system. The system includes state routes 73, 241, 261 and a portion of the 133. The San Joaquin Hills Transportation Corridor Agency (SJHTCA) oversees the 73 Toll Road, which runs 15 miles from Newport Beach at Jamboree Road to the I -5 in San Juan Capistrano. The Foothill/Eastem Transportation Corridor Agency (F/ETCA) oversees the 241, 261, and 133 Toll Roads, a 36 -mile system that runs from the 91 Freeway in Anaheim Hills and ends in Irvine (26 1) and at Oso Parkway near Rancho Santa Margarita (241). As part of the state highway system, The Toll Roads are owned and maintained by the California Department of Transportation (Caltrans). The California Highway Patrol enforces public safety and toll - payment laws on The Toll Roads. C l 4 TCA Staff Report Page 2 of 8 The Formation of the Joint Powers Authorities isIn the 1970s, county traffic studies identified the need for two major highways -- one near the coast and one in inland Orange County -- to help meet the needs of a fast - growing population and economy. The San Joaquin Hills and Foothill/Eastern Transportation Corridors were sketched out on county road plans as freeways, but with shrinking state and federal transportation funds, local officials needed to find alternative funds for new roads. In the 1980s, local elected, appointed, and business leaders led the effort to form joint powers authorities to plan, design, finance and construct the planned corridors. The San Joaquin Hills Transportation Corridor Agency ( SJHTCA) and the Foothill/Eastern Transportation Corridor Agency (F/ETCA) were created in 1986. Formation of the TCAs required approval by the County of Orange and each city in the area benefited by the corridors to join one or both of the Joint Powers Authorities. In 1986, the County of Orange and 10 cities (Anaheim, Costa Mesa, Irvine, Orange, Newport Beach, San Clemente, San Juan Capistrano, Santa Ana, Tustin, and Yorba Linda) approved Joint Powers Agreements (JPAs) to form the TCAs. Between 1988 and 2001, eight additional cities joined the TCAs (1988 — Mission Viejo; 1989 — Dana Point; 1990 — Laguna Niguel; 1992 — Lake Forest and Laguna Hills; 1999 — Laguna Woods; 2000 — Rancho Santa Margarita; 2001 — Aliso Viejo). • In 1987, the state legislature approved legislation that gave the both agencies the authority to collect tolls. This meant that corridor construction would be funded through bonds backed by future toll revenues or user fees, an important turning point in the way infrastructure projects were funded since traditional tax dollars to fund transportation improvements were not available. Taxpayers and TCA member agencies are not liable for toll road debts. Once the bonds are repaid, the TCAs are mandated by legislation to be dissolved. At that time, the toll roads will become freeways. Eighteen cities and the three County Supervisorial Districts are currently represented on the TCA Boards of Directors. The SJHTCA and F /ETCA Boards of Directors govern policy decisions affecting the toll -road system. A single administrative staff operates the roads as a system and serves both agencies, even though the agencies are legally and financially separate entities. The To[[ Roads Today Today, because of the foresight of local elected, appointed, and business leaders, the 51- mile toll -road network is a critical piece of Southern California's regional transportation system. Nearly 250,000 trips are taken on The Toll Roads everyday, saving toll -road drivers an estimated 21 minutes per trip and significantly alleviating congestion on the I- 5, 405, SR -55, SR -91 freeways as well as major arterial roads. Seventy -five percent of the toll -road system is completed, with the final 16 -mile segment of the 241, Foothill- South, in the environmental planning stages. TCA Staff Report Page 3 of 8 Toll revenue bonds to fund construction of the San Joaquin Hills (73) Toll Road were • issued in 1993. The 73 Toll Road opened in 1996. In 1997, the SJHTCA exercised its only opportunity under federal tax law to refinance a majority of the debt on a tax - exempt basis. This financing took advantage of changes in the project's risk profile and a historically low interest rate environment. The result was more than $220 million in cash - flow savings and a stronger credit profile. After the 1997 refinancing, revenue and transactions continued to grow by more than 10% per year, but not at a sufficient level to keep pace with projections and an escalating debt service structure. The TCAs closely monitored the road's revenue performance, made changes to the marketing program, and kept rating agencies and investors apprised of the situation. In response, to further strengthen the SJHTCA's financial picture, the Board adopted a Revenue Stabilization Plan that included: • Defeasing $45 million in debt with funds received from the Orange County bankruptcy settlement (Feb. 2000) • Implementing a $1 transponder maintenance fee for accounts that did not attain $25 in monthly tolls (July 2000) • Implementing an unscheduled toll increase at all ramp plazas (July 2000) • Transitioning toll operations from Lockheed Martin IMS (Dec. 2000) • Implementing a scheduled toll rate increase at the mainline plaza (July 200 1) • Implementing an unscheduled toll increase at the mainline toll plaza for cash • customers and FasTrak peak -hour pricing (Feb. 2002). In addition, the TCA's CEO has been implementing agency -wide cost - cutting measures since FY 2000 while continuing to be mindful of maintaining customer service. Today, revenue from the 73 Toll Road is at 77% of the revenue projections set during the 1997 refinancing. Phases of the Foothill and Eastern Toll Roads opened between 1993 and 1999. In late 1999, the Foothil]/Eastem Transportation Corridor Agency exercised its only opportunity to refinance to also take advantage of an improved risk profile and lower interest rates. The Foothil]/Eastem Corridor is currently running at approximately 107% of revenue projections established in 1999. This positive performance is due, in part, to the fact that the F/ETCA benefited from the experiences and lessons learned from the SJHTCA. In February 2002, Fitch Investor Services, one of the three ratings agencies that rates TCA's bonds, downgraded a portion of the SJHTCA's bonds to a non - investment grade rating. Moody's Investors Service and Standard & Poor's have maintained their rating of SJHTCA's bonds as investment - grade. Immediately following the downgrade, the SJHTCA Board of Directors hired two independent financial consultants to work with staff and to independently evaluate all financial options available to the agency to establish long -term financial stability. • TCA Staff Report Page 4of8 II. DISCUSSION: • Consolidation: The Proposed Solution In early 2002, a group of TCA finance staff, bond underwriters, legal counsel, and the board's independent financial consultants analyzed more than a dozen financial options -- including seven ways to restructure the SJHTCA's debt, consolidating the agencies, requesting financial help from an outside government agency, or not pursuing any financial restructuring (keeping the status quo). (Attachment B, Consolidation Briefing Packet, pg. 7 and 10.) Based on the analysis, which assumes that the SJHTCA's revenues increase at a conservative 4% annual growth rate, the agency would not generate enough revenue to meet debt - service coverage requirement past 2005 and would likely default on a portion of the annual bond payments in 2012. As a result, the SJHTCA Board could lose control of its ability to set toll rates as early as 2005. Toll rates would be required to be set as high as necessary to maximize revenue. Toll -road patrons would be forced to bear the burden of higher tolls. A downgrade and ultimate default by the SJHTCA could also have a negative effect on other government agencies regionally. Default by a public agency makes the market skeptical about the willingness or ability of other local government agencies, especially related entities such as TCA member cities, the County, etc. to repay debt. Ultimately, a • default by the SJHTCA could cost the F/ETCA and related jurisdictions access to the market, additional interest costs, or require other costly credit enhancements. The financial analysis also examined the possibility of a grant, loan or acquisition by an outside government entity, but concluded that such action would be highly unlikely. A loan or grant of at least $680 million would be needed to avoid a debt - coverage violation and default. A buyout would require the purchasing entity to pay off the SJHTCA's entire $1.8 billion outstanding debt, a significant amount for any state or local government agency to bear in this environment of tight tax revenues and budget shortfalls, especially for a road that is already constructed and operating. Furthermore, a default by SJHTCA would greatly impair F/ETCA's ability to finance Foothill- South, the final segment of the 241 Toll Road. Assuming the construction of that project required an $800 million financing, the F/ETCA could face interest rate penalties between $10 million and $20 million per year for 40 years, a cost that would likely make the project infeasible to finance. After exhaustive analyses, the conclusion was that consolidating the SJHTCA and F/ETCA into a single agency was the only viable option for establishing long -term financial stability for the toll -road system and ensuring market access for the Foothill - South project. Consolidation allows the two agencies to restructure debt payments on a tax -free basis, streamline operations to reduce costs, diversify the revenue base, and • strengthen the Agencies' ability to complete the toll -road system. TCA Staff Report Page 5 of 8 In April 2002, the SJHTCA board unanimously agreed to ask that the F /ETCA • consolidate into a single joint powers authority (Attachment Q. In June 2002, the F /ETCA Board of Directors unanimously voted to proceed with the potential consolidation of the agencies as a way to ensure long -term financial stability for The Toll Roads and completion of Foothill -South (Attachment D). The Consolidation Process A number of steps must occur before the TCA Boards make a final decision on whether or not to consolidate. The TCA Boards took a major step in October 2002, by selecting a 21- member board structure to govem the consolidated agency, if it is created. The 21- member structure ensures that one representative from each city and County jurisdiction currently represented on the existing TCA Boards will have a seat on the new board (Attachment E). The remaining steps toward a final decision on consolidation are as follows: SJHTCA & F /ETCA Member SJHTCA & NewJPA Review Agencies F /ETCA Votes to Amendment Approve JPA Create Acquire to Exisiting Amendments Consolidated Agencies JPAs JPA Nov2002 Nov2002 -Jan 2003 May2003 May2003 Along with approving a board structure in October 2002, the TCA Boards also authorized TCA legal counsel to draft amendments to the agencies' existing Joint Powers Agreements that would specifically allow for the consolidation of the Agencies. III. PROPOSED AMENDMENTS TO THE JOINT POWERS AGREEMENTS On November 14, 2002, the TCA Boards reviewed the proposed amendments to Joint Powers Agreements that would specifically authorize the creation of a new, consolidated transportation corridor agency (Attachment A). The TCA Boards unanimously recommended that TCA member agencies, including the City of Newport Beach, adopt the amendments (Attachment F). The amendments are designed to be simple and to leave the existing JPA provisions in place to the maximum extent possible. Amendments to the original JPAs must be approved by three - quarters of each TCA's member agencies. The proposed amended JPAs includes new language to do the following: • C� 4 TCA Staff Report Page 6 of 8 • a. Specifically authorize the Boards of Directors of the SJHTCA and F/ETCA to join together to form a new joint - powers transportation corridor agency. Section 5.1 of the existing Joint Powers Agreements state that the `Board is authorized to make or perform any agreement to join with said agencies (other major thoroughfare and bridge agencies) in the planning and implementation of said thoroughfares and bridges, when for any purpose otherwise permitted by law, the Board deems it appropriate" While it appears with this language that the Boards have the authority to create a new consolidated JPA, the TCA Boards and staff considered it appropriate to request specific authorization from the member agencies because of the required changes in the voting structure. The specific language providing for this authorization is included in Section 2.3(m) of the amended JPAs (Attachment A and B). This added language specifically cites Government Code Sections 6500 et. Seq. as the legal authority (other than the existing agreements) for joining of the two JPA's. Section 6500 et. Seq. of the Government Code simply defines public agencies. In 1999, the state Legislature amended the Joint Exercise of Powers Act ( "JPA Act ") to include JPA's in the definition of public agencies. Section 6502 gives specific authority for JPAs to contract with each other. b. Establish a 21- member Board of Directors, maintain the current two- thirds quorum requirement for board meetings, and establish a voting requirement of the lesser of 16 or 77% of the board members present to approve an item. • Section 2.3 (m) of the amended JPA also establishes the board structure, maintains the use of alternates, and specifies voting requirements of the proposed consolidated agency. Both Boards unanimously approved this structure in October. The supermajority voting requirement is necessary to ensure that the consolidated agency is not controlled by either existing agency as required by federal tax law. As stated in Section 2.3 (m): "A Joint Transportation Corridor Agency Agreement shall provide that: (i) the board of directors of such Joint Transportation Corridor Agency shall be composed of one (1) voting member appointed by the legislative body of each city that is a party to either or both this Agreement and the F/E Agreement from time to time, and three (3) voting members from the County of Orange, said members to be the duly elected supervisors for the Third, Fourth, and Fifth County of Orange Supervisorial Districts, (ii) each such board member shall also have an alternate appointed by the legislative body of the relevant City or the County appointing such board member consistent with this agreement, (iii) not less than two- thirds (2/3) of the members of such board shall constitute a quorum for the purposes of transaction of business relating to the Joint Transportation Corridor Agency, and (iv) such board may adopt any motion, resolution or order and take any other action they deem appropriate by a vote of the lesser of (a) sixteen (16) such board members, (b) seventy -seven percent (77 %) of those board members present and qualified to vote, or (c) such lesser • number or percentage of votes (but not less than a majority) that is the requisite TCA Staff Report Page 7 of 8 vote necessary to maintain the tax- exempt status of debt issued by the Joint Transportation Corridor Agency, as supported by an opinion of a nationally • recognized bond counsel selected by such board. c. Provide for administration of the Development Impact Fee program by the consolidated agency if the existing agencies decide to delegate such duty to the consolidated agency. Development Impact Fees are an important source of revenue that will continue to be used by the consolidated agency, if created, to repay construction debt already issued and to fund toll -road improvements. The amendment, as stated in Section 4, does not change the current Development Impact Fee program, but clarifies that the consolidated agency will be responsible for the program if the amended JPAs are adopted. Simply stated, the amended JPA allows the joint Transportation Corridor Agency to manage the funds collected pursuant to the fee program. d. Apply the indemnity, arbitration, and third -party beneficiary provisions of the existing Joint Powers Agreements to the consolidated agency. This means that member agencies will continue to be protected from debts, liabilities, and obligations of the joint transportation corridor agency, and that arbitration provisions outlined in the existing JPAs will apply to the consolidated agency. The indemnity provisions are stated in Section 8.2. The arbitration provisions are stated in Section 11.4. and the third -party beneficiary provisions are stated in Section 11.9. IV. NEXT STEPS Three- quarters of the member agencies of the SJHTCA and F/ETCA must approve the proposed amendments to the JPAs. Approval by member agencies would allow the SJHTCA and F/ETCA Boards to move forward with the consolidation process. Approval by TCA member agencies does not create the consolidated agency, but it establishes the legal groundwork for the creation of a new, consolidated agency only if the Boards vote to proceed with consolidation next year. Before consolidation can occur, TCA staff must develop a viable financial plan based on the results of the traffic and revenue study, which is currently in progress. The traffic and revenue study will evaluate future projected traffic levels based on the latest socio- economic data, land -use plans, and historical toll -road traffic data to determine projected revenue for the agencies. The study will also take into account recent major land -use planning decisions such as the reuse of the El Toro base, the donation of Irvine Co. land in east Orange to permanent open space, and the development of the Rancho Mission Viejo property. • Once the traffic and revenue study is completed next spring, TCA staff will determine if a viable financial plan can be developed for a consolidated agency. Once a viable finance plan is developed, the SJHTCA and F/ETCA Boards will then make the final decision on whether or not to form a new, consolidated agency. The board of the consolidated TCA • 0 TCA Staff Report Page 8 of 8 • will then consider the finance plan and decide whether to acquire the assets of the existing SJHTCA and F/ETCA. The rating agencies and financial markets are watching the TCAs for progress toward a long -term financial solution. While downgrades in and of themselves don't immediately affect toll -road drivers, they signal a loss of confidence by the market and can ultimately negatively impact the ability of the TCAs and possibly its member agencies to access the market to finance future projects. By approving the proposed amendments to the JPAs, member agencies are sending a strong signal to the markets that they are committed, along with the TCAs, to a long -term financial solution for the toll -road system. Approving the amendments now ensures that the consolidation process moves on schedule. It is important that TCA knows now whether the amended JPAs are acceptable by the member agencies before funds are spent on financial consultants needed to perform due diligence on the financial plan and acquisition of the existing TCA's assets. V. CONCLUSION Adopting the amendments to the existing SJHTCA and F/ETCA Joint Powers Agreements specifically provides the existing TCAs the authority to create a new, consolidated agency, establishes a 21- member Board of Directors for the new consolidated agency, maintains the current 2/3 quorum requirement, establishes a supermajority voting requirement, provides for the administration of the Development • Impact Fee Program, and applies the indemnity, arbitration, and third -party beneficiary provisions of the existing JPAs. Adopting the amendments does not create the consolidated TCA, but establishes the legal groundwork for the creation of a new, consolidated agency, only if the SJHTCA and F/ETCA Boards vote to proceed with consolidation next year. • EXHIBIT A GTRCTSECOND AMENDED AND RESTATED JOINT EXERCISE OF POWERS AGREEMENT CREATING THE SAN JOAQUIN HILLS TRANSPORTATION CORRIDOR AGENCY 222571 ; -7,DOC iDraf7.11/ 7/02310: =L:24 LAa AM 0 L� 11 IZ TABLE OF CONTENTS Page - — - ------------------ --- --------------------------------------- I. DEFINITIONS ..................... ................................. 3 II.-PURPOSE AND,POWERS ..... . . . .. . . . ... . ............................................... ..........— ::_._.._..._.......4 2.1 Agency ....... . ........................................................................ 4 Crqabed.._��r_ ........... = ..... 0., 2-.2 PprnQsc of the_Agreement Common Powers to be Exercised_ ....,___.__ .................... 4 2.3 Powers........._ . ..... ...... . . ........ . ............ III. ORGANIZATION ........................................................ . .................................. . .............................. 6 • 3.6 Powers and Limitations Thereon ..................................................................................... 8 3.7 Minutes ................................................................................................................................ 8 3.8 Rules ......... . . . . ........... . ....................................................... . ...... ........................... 8 3.9 Vote or Assent of Parties .......... . . .. . .............. . ...... ...... . .. . ............................... 8 3.10 Officers ..... .. ...... ........ . .............................................................................................. 3.11 ............................................................................................................................. 9 -Committees 112 Additional Officers ................... . . ..................... ................................ 9 3.13... Bonding Rcqqiljlc nt .. ............... . . .. . . ... . ..... . ...... . ...... . .. . .... . . ...... . ........._... : :___...9 3.14 Status of Officers and Irgployces ....................................................................................... 9 IV. FEES ........................................................................................................................................... 9 4.1 Imposition of Major Thoroughfare and Bridge Construction Fee by Parties ..................9 4.2 AnnuaI Review of Fees .......... ............................ 10 • 4.3 Payment .................... ............................................. 10 -I- TABLE OF CONTENTS (cont'd) Page 4.4 Compensation of Agency for Acquisition of Rights -of -Way .. .. .............................11 V. RELATIONS WITH OTHER MAJOR THOROUGHFARE AND BRIDGE FEE • - -- - -- - - - -- - - -. —. _ ... - - -- - -- - -- .. -.. - - - - -- - ...... - - - AGENCIES................................................................................................. .............................11 5.1 _ Joint Action with Other Agencies ................................................... .............................11 5.2 Communications Between Corridor Agencies ............................................................... 11 5.3 Lending and Borrowing Funds Between Agencies 12 VI. BUDGET AND DISBURSEMENTS ......................................................... .............................12 VII. SECURITIES .................................................................... ............................... .. 13 7.1 Securities ........................................................................................... .............................13 • VIII. LIABILITIES ................................................................................. ............................... 13 8_._1._Liabilities__...... -- :__ - . -.... _.._........... 13 8.2 Hold Harmless and Indemnify ....................................................... .............................13 IX. ADMISSION AND WITHDRAWAL OF PARTIES 14 9.1 Admission of New Parties ............................................ ............................... 14 9.2 - Withdrawal. _ -_:-_ :.............. .............................14 X. TERMINATION AND DISPOSITION OF ASSETS ................................ .............................15 10.1 Terminat ion ....................................................................................... .............................15 10.2 Distribution of Property and Funds .................................................. .............................15 XI. MISCELLANEOUS ........................ _ _ -............... . ..........._- _....._.........._ -, -.16 11.1 Amendments ..................................................................................... .............................16 11.2 Not ice ................................................................................................ .............................16 • -ii- TABLE OF CONTENTS (cont'd) Page 11.3 Effective Date ......................... . ..... ...... ......... _,.— . .... 16 • 1 IA --Arbitration ............. ............................... . .... . ..................... . : .... . �.. 1 ....16 E 11.5 Partial ... .. ._, �. ............._,..,17 . .. 11.6 Successors . . . . . . . . . . . . . .. . ................................... . . ...... . ..... . ...... 17 ent .......... -- --- ---- ....... -------- ----------- ............................................................. Wom- 17 11.8 ........... Execution ................................ ........ .................................... ____..17 119- -Third Poy.Beneficiary .......................................... ........................... 17 -iii- FIRSTSECOND AMENDED AND RESTATED JOINT EXERCISE OF POWERS AGREEMENT • CREATING THE SAN JOAQUIN HILLS TRANSPORTATION CORRIDOR AGENCY THIS €-1 STSECOND AMENDED AND RESTATED AGREEMENT is made and entered into, pursuant to Sections 11.1 and 11.3, by and among the following public agencies as of the ' ;�. day ofOi�te�+, ' � .200 the date on which si-xtgn or more of the following public agencies executed this ?Second Amended and Restated Joint Exercise of Powers Agreement Creating the San Joaquin Hills Transportation Corridor Agency: a. County of Orange b, City ofAliso Viejo . C. 4-City of Costa Mesa d. City of Dana Point C. c--City of Irvine f. City of Laguna Hills g_ City of Laguna Niguel h. City of Laguna Woods i. E1 —City of Mission Viejo e-City of Newport Beach k. City of San Clemente 1. L,—City of San Juan Capistrano m. 4—.City of Santa Ana RECITALS A. The California State Legislature adopted Chapter 708, Statutes 1984, adding Section 66484.3 to the Government Code authorizing the County of Orange and any city within the County of Orange to require by ordinance the payment of a fee as a condition of approval of a final map or as a condition of issuing a building permit, for the purpose of defraying the actual or estimated cost of constructing bridges over waterways, railways, freeways, and canyons or constructing major thoroughfares. • B. The Parties to this Agreement have territorial jurisdiction within the Area of Benefit of the San Joaquin Hills Transportation Corridor, and desire to impose such a fee • 222571.._TDOC tC' pursuant to Government Code Section 66484.3 in order to finance the planning, acquisition and • construction of major thoroughfares and bridges in the SAN JOAQUIN HILLS Transportation Corridors. The Parties hereto have the common power to conduct such transportation planning, financing and construction. C. It has been determined by the Parties hereto that it is in the best interests of the respective Parties to join together to administer the funds provided by these fee programs, and to plan, acquire and -R•* *construct said thoroughfares and bridges. D. Each of the Parties is authorized to contract with each other for the joint exercise of any common power under Article 1, Chapter 5, Division 7, Title I of the Government Code of the State of California- (the "Joint Powers Act"). With the adoption of Chafer 649, Statutes 1999, the California State Legislature amended the Joint Powers Act to authorize -any. joint - -- — powers _- authority formed pursuant tothe Joint Powers Act to enter_into an agreement with other " ublic agencies" (as defined in the Joint Powers Act) to Jointly_ exercise any ower common to the contracting Parties_ E. The Parties have determined that is in their best_ interest_ to authorize the Agency - _ -- formed_pursuant to this Agreement to exercise the authority provided lbKthe Joint Powers Act to enter into agreement with other pubic agencies for the nurose,ofJointly exercisin any..po_.wer common to the Agenev and another such public agencies. F. J The Parties hereto recognize that, in order to serve the purposes stated herein, the imposition of fees in excess of the above- described fees should not be required or • recommended as a condition to any annexation, incorporation or other reorganization involving territory claimed or controlled by the Parties hereto. G. ! —The Parties hereto recognize that, in order to serve the purpose stated herein, additional funding other than that received -from the above- described fees must be obtained. Each Party has agreed to cooperate in obtaining additional financing, including, but not limited to, debt financing, assessment districts, special legislation, toll revenue financing, Arterial Highway Financing program funds and other forms of governmental grants -in -aid. H_ .. j(;—The Parties hereto entered into this Agreement with the express understanding that the acquisition of rights -of -way and similar property interests necessary for the construction of transportation facilities pursuant to this Agreement shall be accomplished at little or no expense to the members hereto or to the Agency created hereunder. However, it is recognized by the Parties hereto that prior to the execution of this Agreement, the County of Orange, as the sole responsible Party for the administration of the Orange County Major Thoroughfare and Bridge Fee Program, assumed the right and obligation to acquire a certain right of way located in the City of Laguna Beach ( "Sycamore Hills ") in the area of Tentative Tract Map No. 8965 not available for dedication in addition to certain other property, and such right and obligation shall be assumed by the Agency but only to the extent of the aliquot value of such right of way. I. 44 The Parties hereto recognize that in accordance with the principals of sound community planning, future land use decisions should not upset the balance between land use • intensity and adequate transportation facilities. -2- L I—It is anticipated by the Parties hereto that any major thoroughfares or bridges constructed pursuant to this Agreement shall comport with those standards for scenic highways • set forth in Streets and Highways Code Section 261. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the Parties hereto agree as follows: l! DEFINITIONS 1.1 For the purposes of this Agreement, the following words shall have the following meanings: a. "Agreement" means this 4 it Second Amended and Restated Joint Exercise of Powers Agreement, as amended from time to time. b. "Agency" means the SAN JOAQUIN HILLS TRANSPORTATION CORRIDOR AGENCY. "Annual Budget" means the approved budget applicable to the expenses of administration of the Agency. d. "Board Members" means those persons serving as members of the Board or their alternates. • C. "Board" means the governing body of the Agency. f. "Ex Officio Members" means Board Members who do not have a vote in Agency matters and whose presence shall not be counted in determining whether a quorum sufficient to transact Agency business exists. g. "Chief Executive Pit ee?ui- Officer" means the chief operating employee selected by the Board to manage the day -to -day activities the Agency, including, but not limited to, the appointment and removal of all employees of the Agency except W'44 4,q those described in Section 3.11 below. The Chief Executive uOfficer shall not be an employee of any individual Party. h. "F /E Agency" means the Foothill/Eastern Transportation Corridor Agency formed by the parties to the F/E Agreement, i. "F /E Agreement' means that certain Second Amended and Restated Foothill/Eastern-Transportation Corridor Agency Agreement. L. !- "Fiscal Year" means July 1 st to and including the following June 30th. k, "Joint Transportation Corridor Agency" has the meaning ssigned such term in Section 2.3(ml. • -3- iq I. "Joint Transportation Comdor Aeenc Agreement'_' has the meaning • assigned_ such term in Section 2.3( In. +— "Party" means each of the public entities which becomes a signatory to this Agreement, accepting the rights and obligations of the Agency hereunder, including any public entity executing an amendment of the original agreement as hereinafter provided. n._ }- "Quarter" means July I st to and including September 30th, October I st to and including December 31 st, January I st to and including March 31 and April I st to and including June 30th. II. PURPOSE AND POWERS 2.1 Agency Created. There is hereby created a public entity to be known as the "SAN JOAQUIN HILLS TRANSPORTATION CORRIDOR AGENCY." The Agency is formed by this Agreement pursuant to the provision of Article 1, Chapter 5, Division 7, of Title I of the Government Code of the State of California. The Agency shall be a public entity separate from the parties hereto. 2.2 Purpose of the Agreement; Common Powers to be Exercised. • Each Party has the common power to plan for, acquire, construct, maintain, repair, manage, operate, and control facilities for one or more of the following purposes: a. The financing of and the imposing of fees for the planning and construction of major thoroughfares and bridges; b. The power to plan for, acquire, and construct environmentally - sensitive thoroughfares and bridges to conform to the technical standards of the California Department of Transportation (CALTRANS) and the Federal Highway Administration (FHWA) whenever possible. The purpose of this Agreement is to jointly exercise the foregoing common powers to undertake such studies and planning relative to the `�4 1O `Q!'!'�' zf1r 1 SSan Joaquin Hills Transportation' ;' � Corridor as may be necessary to establish Areas of Benefit, to recommend to the Parties the adoption of local ordinances and the undertaking of all acts necessary for the imposition of fees by the Parties pursuant to Government Code Section 66484.3 and to fund, plan, acquire, and construct the major thoroughfares and bridges in the San Joaquin Hills Transportation Corridor. Except for maintenance of the facilities relating to collection of tolls and insuring that the major bridges or thoroughfares constructed pursuant to this Agreement comport to those design elements incorporated into Interstate 280 near the San Francisco Bay Area, the Agency shall not maintain or operate, or incur liability for the maintenance or operation of the facilities constructed pursuant to this Agreement, except as • otherwise provided herein. -4- Board planning policy has and shall continue to respond to those various memoranda of understanding, resolutions, minute orders and policy statements of Parties, • attached as Exhibit "A" to the prior form of this Agreement and collectively incorporated in the "Issues Inventory Manual" adopted by the Board on August 13, 1987. 2.3 Powers. The Agency shall have the power in its own name to do any of the following: a. To exercise jointly the common powers of the Parties in studying and planning ways and means to provide for the financing, and construction of the San Joaquin Hills Transportation Corridor; To make and enter into contracts; C. To contract for the services of engineers, attorneys, planners, financial consultants, and separate and apart therefrom to employ such other persons, as it deems necessary; To appoint agents; C. To lease, acquire, construct, manage, maintain and operate any buildings, works or improvements; f. To acquire, hold, or dispose of property by any lawful means, including • without limitation, gift, purchase, eminent domain lease, lease purchase or sale; g. To incur debts, liabilities, or obligations subject to limitations herein set forth; h. To receive gifts, contributions and donations of property, funds, services and other forms of financial assistance from persons, firms, corporations and any governmental entity, i. To sue and be sued in its own name; j. To apply for an appropriate grant or grants under any federal, state, or local programs for assistance in developing any of its programs; k. To adopt rules, regulations, policies, by -laws and procedures governing the operation of the Agency; 1. To exercise those powers authorized in Chapter 5 (commencing with Section 31100) of Division 17 of the Streets and Highways Code in accordance with Government Code Section 66484.3(f); and m To enter into a joint powers agreement with any public agency authorized by Government Code Section 6500 et seg for the purpose of jointly exercising common powers • -5- LO u under Government Code Sections 6500 et seq. and 66484.3. Anv such agreement with the FT authority (a "Joint Tra_n-spo-rtationCorr od Agency_ ") to carry out thew- rposeS of suc_.h Join_ t Transportation Corridor Agency Agreement Such Joint Transportation Corridor Agency Agreement shall provide that (i) the board of directors of such Joint Transportation Corridor Agency shall be composed of one 1 voting member appointed by the legislative body-of each cit ,Lthat is arty to either or both this Agreement and the F/E Agreement from time to time, and three3Zvoting_members from the _County of Orange, said members to be the duly ele_eted supervisors for the Third, _Fourth _and _Fifth County of Orange Supervise a] D_ist-ricts ii each such board member shall also have an alternate -_ op inted� the legislative body of the relevant Cit y or the__=pr appomtmg, such board member consistent with_this agreement nt not less board may adopt any motion, resolution or order and tape any other action the deem a pr ate by a vote of the lesser of (al sixteen -Ctdipch board members ]b) seventy seven pSw - nt 77 1/o) of those_ board_ members- resent and qualified to vote or c such lesser number of votes but not less than -a ma ri that is the requisite vote necessaryao maintain the tax - exempt status of debt issued b tY he Joint Transportation Comdor Aeep -a-as upported.by an opinion of - — =_ a nationally recognized bond counsel selected by_such board. +gin. To the extent not herein specifically provided for, to exercise any powers in the manner and according to the methods provided under applicable laws. • III. ORGANIZATION 3.1 Membership. The Parties to the Agency shall be the public entities which have executed or hereafter execute this Agreement, or amendment- thereto, and which have not, pursuant to the provisions hereof, withdrawn therefrom. 3.2 Board. a. The Board shall consist of the following: (i) one voting Board Member appointed by the legislative body of each of the following Parties pursuant to Section 3.1 above: The cities of Aliso Vieio, Costa Mesa, Dana Point Irvine, Laguna Hills, Laguna Niguel, Laguna Woods Mission View Newport Beach, San Clemente, San Juan Capistrano,- a V= and Santa Ana. (ii) two voting Board Members from the County of Orange, said members to be the duly elected supervisors for the Third and Fifth • County of Orange Supervisorial Districts. U (iii) The Board may, from time to time, appoint additional ex officio members. • b. Except for ex officio members, each Board Member shall be a current member of the legislative body of the Party each member represents. C. Each Board Member shall also have an alternate appointed by the legislative body of the Party represented by such Board Member. With the exception of the alternates to the Board Members representing the County of Orange, an alternate Board Member must also be a current member of the legislative body of the Party such alternate represents. An alternate Board Member shall assume all rights and duties of the absent Board Member. d. Each Board Member and alternate shall hold office from the first meeting of the Board after appointment by the city council or Board of Supervisors until a successor is named. Board Members and alternates shall be appointed by and serve at the pleasure of their appointing body and may be removed at any time, with or without cause, at the sole discretion of the legislative body of the Party such Board Member represents subject, however, to the provisions of Section 3.2 a.(ii). C. A Board Member shall receive only such compensation from the Agency for his/her services as may be approved by not less than two- thirds (2/3) of the Board Members. f A Board Member may be reimbursed for expenses incurred by such Board Member in the conduct of the business of the Agency. 3.3 Principal Office. • The principal office of the Agency shall be established by the Board and shall be located within the County of Orange. The Board is hereby granted full power and authority to change said principal office from one location to another in the County of Orange. Any change shall be noted by the secretary of the Board under this Agreement but shall not be considered an amendment to this Agreement. 3.4 Meetings. The Board shall meet at the principal office of the Agency or at such other place as may be designated by the Board. The time and place of regular meetings of the Board shall be determined by resolution adopted by the Board; a copy of such resolution shall be furnished to each Party. Regular, adjourned, and special meetings shall be called and conducted in accordance with the provisions of the Ralph M. Brown Act, Government Code Section 54950 et- seq., as amended. 3.5 Quorum. Not less than two- thirds (2/3) of the Board Members shall constitute a quorum for the purposes of the transaction of business relating to the Agency. -7- • „2 • 3.6 Powers and Limitations Thereon. All of the powers and authority of the Agency shall be exercised by the Board, subject however, to the reserved rights of the Parties as herein set forth. Unless otherwise provided herein, each Board Member or participating alternate Board Member shall be entitled to one vote, and except as otherwise provided herein, a vote of the majority of those present and qualified to vote may adopt any motion, resolution, or order and take any other action they deem appropriate. is • 3.7 Minutes. The secretary of the Agency shall cause to be kept minutes of regular, adjourned regular and special meetings of the Board, and shall cause a copy of such minutes to be forwarded to each Board Member and to each Party. 13 3.8 Rules. • The Board may adopt from time to time rules and regulations for the conduct of its affairs consistent with this Agreement. 3.9 Vote or Assent of Parties. The vote, assent, or approval of Parties in any matter requiring such vote, assent or approval hereunder shall be evidenced by a certified copy of the action of the governing body of such Party filed with the Agency. It shall be the responsibility of the Chief Executive -t,;; Officer to obtain certified copies of said actions. 3.10 Officers. There shall be selected by the Board from its membership, a chairman and a vice chairman. The Board shall appoint a secretary who may be a Member. The Board shall appoint an officer or employee of the Board or an officer or employee of a Party to hold the offices of treasurer and auditor for the Agency. Such offices may be held by separate officers or employees or may be combined and held by one such officer or employee, as provided by the Board. Such person or persons shall possess the powers and the duties of, and shall perform the treasurer and auditor functions for the Agency and those functions required by Government Code Sections 6505, 6505.5, and 6505.6, including any subsequent amendments thereto. The chairman, vice chairman, secretary, treasurer and auditor shall hold office for • a period of one year commencing July 1 st of each year. Except for the Chie Executive lµOfficer, any officer, employee, or agent of the Board may also be an officer, employee or agent of any of the Parties. The appointment by the Board of such a person shall be evidence that the two positions are compatible. WA • • 3.11 Committees. The Board may, as it deems appropriate, appoint committees to accomplish the purposes set forth herein. Any meeting of such a committee shall be deemed to be a meeting of the Agency for compensation purposes only and all such meetings shall be open to all Board Members, unless the presence of Board Members who are not members of such committee would violate the provisions of the Ralph M. Brown Act, Government Code Section 54950 et seq., as amended. is • 3.12 Additional Officers. The Board shall have the power, upon the approval of not less than two - thirds (2/3) of the Board Members, to appoint such additional officers as may be appropriate. Such officers may also be, but are not required to be, officers and employees of a Party. -]0- 3.13 Bonding Requirement. • The officers or persons who have charge of, handle, or have access to any property of the Agency shall be so designated and empowered by the Board. Each such officer or person shall be required to file an official bond with the Board in an amount which shall be established by the Board. Should the existing bond or bonds of any such officer or persons be extended to cover the obligations provided herein, said bond shall be the official bond required herein. The premiums on any such bonds attributable to the coverage required herein shall be appropriate expenses of the Agency. 3.14 Status of Officers and Employees. All of the privileges and immunities from liability, exemption from laws, ordinances and rules, all pension, relief, disability, workers compensation, and other benefits which apply to the activities of officers, agents, or employees of any of the Parties when performing their respective functions shall apply to them to the same degree and extent while engaged in the performance of any of the functions and other duties under this Agreement. None of the officers, agents, or employees appointed by the Board shall be deemed, by reason of their employment by the Board, to be employed by any of the Parties or, by reason of their employment by the Board, to be subject to any of the requirements of such Parties. IV. FEES • 4.1 Imposition of Major Thoroughfare and Bridge Construction Fee by Parties. On or before the effective date of this Agreement (or, in the case of a new Party, on or before the date on which that Party becomes signatory to this Agreement), each Party shall require by ordinance the payment of a fee as a condition of issuance of a building permit within the Area of Benefit, for the purposes of defraying the actual or estimated cost of constructing major thoroughfares and bridges, in accordance with California Government Code Section 66484.3. Said fee shall be in the form, and in those amounts set forth in the "Major Thoroughfare and Bridge Fee Program For the San Joaquin Hills Transportation Corridor and Foothill/Eastern Transportation Corridors," attached hereto as Exhibit "A" and incorporated by reference herein. The imposition of said fee by each Party shall be a condition precedent to that Party's participation in the Agency, and each Party covenants to continue the imposition of such fees as required herein and as required by provisions of any applicable bond indentures. 4.2 Annual Review of At least once annually, the Board shall undertake a review of the above - described fee program and may, upon approval of not less than two - thirds (2/3) of its Members, modify the fee to be imposed by the Parties hereto. Each Party shall impose said revised fee within one hundred twenty (120) days, and if a Party fails to impose said fees, repeals the enabling ordinance or fee requirement or otherwise disables itself from the collection and remittance of said fees to the Agency, on the effective date of any such action or upon expiration of the • aforementioned time period, whichever is sooner, such action shall be deemed the withdrawal of • that Party from the Agency, subject to the conditions specified in Section 9.2 below. If the Agency has entered into a Joint Transportation Corridor Ageney Aereem..ent pursuant to which a.Joint Transportation Comdor AZcv has been formed_ as _authorize Seaton 2.3 — - of Corridor Agreement, such Joint Transportation Codor A en Agrecment may --- -- provide that the board of directors of the Joint Transportation Corridor Agency shall be Les ponsible for undgq&JR &the annual or more freouent review of the above- described fee — — - -- program, and _shall have the power to modrfy the fees to be imposed by the Parties hereto upon a roval of such modification by such board of directors in accordance_ with the terms of the Joint Transportation Corridor Agency Agreement. In such event each Party shall impose_s.aid revised fee as provided herein . as if such revised fee had been approved, by th_e_Board_ in accordance with this Section 4.2. 4.3 Payment. Each Party agrees to hold said fees in trust for the Agency, and to pay said fees to the Agency in quarterly payments, within sixty (60) days after the end of each quarter. The Board may authorize an audit of any Party to determine whether said payments of fees accurately reflect each Party's obligations under this Agreement. Unpaid fees shall bear interest at a rate to be determined by the Board. In the event that any Party fails to remit said fees to the Agency, said failure may be deemed by the Board to be a withdrawal of that Party from the Agency subject to the conditions specified in Section 9.2 hereof. • In the event that any dispute arises as to the amount of fees assessed any person under the fee program, any aggrieved person may appeal the decision of a Party hereto regarding the appropriate amount of the assessment to the Agency, in accordance with the rules and regulations established by the Agency, which decision shall be final. In the event that any Party hereto becomes a Party to litigation regarding the legality of the fee program, the Board, where it deems appropriate, may defend such action or lend other assistance to said Party in said action. • If the Agency has entered into a Joint Transportation Corridor Agency Agreement pursuant to which a Joint-Transportation Comdor Agency has been formed as authorized by Section 2.3 of this Agreement such Joint Transportation Corridor Agency Agreement may authorize the Joint p Transortation Corridor cted _Agency to manage the funds colleursuant to said fee program. In-such-event, each Party agrees (i) to hold said fees in trust for the Joint Transportation Corridor A�eney. Lii) to pay such fees to the Joint_Transoortation Corridor Agene as provided herein with respect to the Agency, (iii) to permit the Joint Transportation - -- -- Corridor AMney to audit such Party as provided herein with respect U-1 o the A Ythat in the event any dispute arises as to the amount of fees assessed any person under the fee programjt he Joint —Transportation-Corridor Agency Agreement so.provide_.s, such dispute shall be managed by the Joint Transportation Corridor Agency and its board of directors in the same manner as described in the third paragraph of this Section 4.3 with respect to the Agent 4.4 Compensation of Agency for Acquisition of Rights -of -Way. -12- When it is within its power to do so, each Party shall be individually responsible for the preservation and acquisition by dedication pursuant to Title 7, Divisions �1 and =2 of • the Government Code of rights -of -way and similar property interests within its territory which are necessary to accomplish the purposes of this Agreement. Except as provided in Recital 44H of this Agreement, in the event that a Party fails to acquire these rights -of -way by the above - mentioned means after the route ^'i a^ -aliynmcnt for the San Joaquin Hills Transportation Corridor is established and accepted by the Agency, or fails to preserve such rights -of -way and property interests by the above - mentioned means which were established by the County of Orange prior to such establishment and acceptance by the Agency, that Party shall compensate the Agency for all costs (including attorneys' fees) incurred by the Agency in acquiring said rights -of -way and property interests. If the Agency has entered into a Joint Transportation Corridor Agency Agreement pursuant to which a Joint Tr" atio ortn Corridor Agency has been formed as authorized by Section 2.3 of this Agreement, the Joint Transportation Corridor Agency shall be entitled to enforce the respective obligations of each Party, arising pursuant to this Section 4.4. V. RELATIONS WITH OTHER MAJOR THOROUGHFARE AND BRIDGE FEE AGENCIES 5.1 Joint Action with Other Agencies. In the event that other major thoroughfare and bridge fee agencies are formed for the purpose of planning, coordinating, acquiring, financing, constructing, maintaining, repairing, managing, operating and controlling major thoroughfares and bridges in the Foothill and Eastern • Transportation Corridors or other transportation corridors, the Board is authorized to make or perform any agreement to join with said agencies in the planning and implementation of said thoroughfares and bridges, when for any purpose otherwise permitted by law, the Board deems it appropri ate. 5.2 Communications Between Corridor Agencies. In the event that the agencies described in Section 5.1 above (other than the Joint Transportation Corridor Agenc are formed, the chairman or his designate shall meet with the chairmen, or their designates, of said agencies at least quarterly, for the purpose of coordinating the planning, financing and construction activities of the various agencies. 5.3 Lending and Borrowing Funds Between Agencies. When it is found to be beneficial to the purposes of the Agency and otherwise permitted by law, and serves the general purpose of improving transportation facilities in Orange County, the Board is authorized to lend and borrow available funds and services to or from the agencies described in Section 5.1 above, upon the approval of not less than two thirds (2/3) of the Board Members. The Board shall specify the date and manner in which the funds or services shall be repaid and may provide for the payment of interest on the loan. VI. -13- 11 `t BUDGET AND DISBURSEMENTS • 6.1 Annual Budget. The Board shall adopt upon the approval of not less than two thirds (2/3) of the Board Members, an annual budget, for the ensuing fiscal year, pursuant to procedures developed by the Board. 6.2 Disbursements. The auditor shall draw warrants upon the approval and written order of the Board. The Board shall requisition the payment of funds only upon approval of such claims or disbursements and such requisition for payment in accordance with rules, regulations, policies, procedures and bylaws adopted by the Board. 6.3 Accounts. All funds will be placed in object accounts and the receipt, transfer, or disbursement of such funds during the term of this Agreement shall be accounted for in accordance with generally accepted accounting principles applicable to governmental entities. There shall be strict accountability of all funds. All revenues and expenditures shall be reported to the Board. 6.4 Expenditures Within Approval Annual Budget. • All expenditures within the designations and limitations of the approved annual budget shall be made upon the approval of the Chief Executive t- lireet-Office_r in accordance with the rules, policies and procedures adopted by the Board. Notwithstanding the above, no expenditures shall be made for the purpose of the acquisition of rights -of -way or similar property interests except upon the approval of not less than two- thirds (2/3) of the Board Members. No expenditures in excess of those budgeted shall be made without the approval of not less than two - thirds (2/3) of the Board Members to a revised and amended budget which may, from time to time, be submitted to the Board. 6.5 Audit. The records and accounts of the Agency shall be audited annually by an independent certified public accountant and copies of such audit report shall be filed with the County Auditor, State Controller and each Party no later than fifteen (15) days after receipt of said audit by the Board. 7.1 Securities. • VII. SECURITIES -14- Upon the approval of the Board, the Parties, or the Agency, may participate in any statutory power for the issuance of securities to finance the fees authorized by Government Code • Section 66484.3, including the power to establish one or more community facilities districts under the Mello -Roos Community Facilities District Act of 1982, Government Code Section 53311, et seq., or any other applicable legislation. Other than the fees specified herein, no funds of a Party shall be utilized as security or as a source for the payment or redemption of any securities of the Agency without the consent of the legislative body of that Party. Upon the approval of not less than two- thirds (2/3) of the Board Members, the Agency may participate in the above - mentioned statutory powers for bond financing of the fees specified herein; provided, however, that the fees collected by any Party may be excluded as security for or as a source for such financing if the Board, upon the approval of not less than two - thirds (2/3) of its Members, so provides. UII! LIABILITIES 8.1 Liabilities. The debts, liabilities, and obligations of the Agency shall be the debts, liabilities, or obligations of the Agency alone and not of the Parties, unless expressly specified herein. 8.2 Hold Harmless and Indemnify. Each Party hereto agrees to indemnify and hold the Agency and the other Parties • harmless from any liability for damages, actual or alleged, to persons or property arising out of or resulting from negligent acts or omissions of the indemnifying Party or its employees. Where the Agency, the Board itself or its Members' agents or employees are held liable for injuries to persons or property, each Party's liability for contribution or indemnity for such injuries shall be based proportionately upon the fees paid by each Party. In the event of liability imposed upon any of the Parties or upon the Board created by this Agreement, for injury which is caused by the negligent or wrongful act or omission of any of the Parties in the performance of this Agreement, the contribution of the Party or Parties not directly responsible for the negligent or wrongful act or omission shall be limited to One Hundred Dollars ($ 100.00). The Party or Parties directly responsible for the negligent or wrongful acts or omissions shall indemnify, defend, and hold the Agency and all other Parties harmless from any liability for personal injury or property damage arising out of the performance of this Agreement. If the Agency enters into a Joint Transportation Corridor Agenc y A reement p po ursuant to which a Joint Transrt.ation_C..omdor Agency is formed, then each Party agrees to hold harmless and indemnify the Joint Transportation Corridor Aeencv, the board of directors of the Joint Transportation Corridor Agency, and the members of such board of directors of the Joint Transportation Corridor Agency, for all matters wi hip the scope of the indemnities_ _ q by the Parties in this Section 8.2 with respect to the Agency, the Board and its Members, to the same extent as such indemnities are made to the Agency, the Board and its Members. IX. CJ -15- ADMISSION AND WITHDRAWAL OF PARTIES • 9.1 Admission of New Parties. It is recognized that public entities, other than the original Parties, may wish to participate in the Agency. Additional public entities may become Parties to the Agency upon such terms and conditions, including, but not limited to, financial contributions, as provided by the Board and upon the unanimous consent of the Parties evidenced by the execution of a written amendment to this Agreement, executed by all of the Parties, including the additional Party. 9.2 Withdrawal. It is fully anticipated that each Party hereto shall participate in the Agency until the purposes set forth in Section 2.2 above are accomplished. The withdrawal of any Party, either voluntarily or involuntarily pursuant to Sections 4.2 and 4.3 above, unless otherwise provided by the Board, shall be conditioned as follows: (i) in the case of a voluntary withdrawal, written notice shall be given one hundred and twenty (120) days prior to the end of a fiscal year, (ii) the fee program established by the Party pursuant to this Agreement shall remain in effect for a period of at least four (4) years after the adoption and for any additional period of time in which the Agency has theretofore made a financial commitment secured by the receipt of such fees, including by way of illustration, but not limitation, bonds which have been issued or authorized for issuance by the Agency, and letters of credit or other reimbursement obligations owed to financial institutions which have secured such bonds or other parties advancing funds to the Agency; (iii) said withdrawal shall not relieve the Party of its proportionate share of any • debts or other liabilities incurred by the Agency prior to the effective date of the Party's withdrawal, nor any liabilities imposed upon or incurred by the Party pursuant to this Agreement prior to the effective date of the Party's withdrawal; and (iv) said withdrawal shall result in the forfeiture of that Party's rights and claims relating to distribution of property and funds upon termination of the Agency, as set forth in Section 10.2 below. • -16- a TERMINATION AND DISPOSITION OF ASSETS 10.1 Termination. The Agency shall continue to exercise the joint powers herein until the termination of this Agreement and any extension thereof as provided in this Section 10.1 or until the Parties shall have mutually rescinded this Agreement; provided, however, that the Agency shall continue to exist for the purposes of disposing of all claims, payment of debt service with respect to bonds which have been issued or which have been authorized for issuance and satisfaction of other covenants contained in the resolution and trust indenture relating to said bonds, reimbursement owed to financial institutions which have secured such bonds or other parties advancing funds to the Agency and satisfaction of other covenants contained in reimbursement agreements with such financial institutions, establishment and collection of tolls and development fees, the maintenance of toll collection facilities and the facility in accordance with the California Department of Transportation agreements, distribution of assets and all other functions necessary to conclude the affairs of the Agency. 0 Termination shall occur upon the written consent of all of the Parties, or upon the withdrawal from the Agency of a sufficient number of the Parties to leave less than six Parties remaining in the Agency, or upon transfer of title to the corridor to the California Department of Transportation and full satisfaction of all outstanding financial obligations of the Agency. However, no such termination shall occur until all reimbursement obligations owed to financial • institutions securing bonds have been paid and all other financial and contractual obligations of the Agency have been satisfied. 10.2 Distribution of Property and Funds. In the event of the termination of this Agreement, any property interest remaining in the Agency following the discharge of all obligations shall be disposed of as the Board shall determine with the objective of returning to each Party or former Part a proportionate share of the contributions made to such properties by such Parties, less previous distributions, if any, provided however that said funds also shall be expended to construct major arterial transportation facilities which accomplish the purposes of the San Joaquin Hills Transportation Corridor, to the extent legally possible. In the event of the termination of this Agreement, any funds remaining following the discharge of all obligations shall be disposed of by returning to each Party (excluding withdrawn Parties as provided in Section 9.2 hereof) a proportionate share of such funds equal to the percentage of the contribution made by each Party, less each Party's proportionate share of previous distributions, if any, provided that said funds shall be expended to construct major arterial transportation facilities which accomplish the purposes of the San Joaquin Hills Transportation Corridor, to the extent legally possible. -17- • 2 • XI. MISCELLANEOUS 11.1 Amendments. This Agreement may be amended with the approval of not less than three - fourths (;13/4 of all Parties; provided, however, that no amendment may be made which would adversely affect the interests of the owners of bonds, letters of credit or other financial obligations of the Agency. 11.2 Notice. Any notice or instrument required to be given or delivered by depositing the same in any United States Post Office, registered or certified, postage prepaid, addressed to the Parties, shall be deemed to have been received by the Party to whom the same is addressed at the expiration of seventy -two (72) hours after deposit of the same in the United States Post Office for transmission by registered or certified mail as aforesaid. 11.3 Effective Date. This Agreement shall be effective at such time as this Agreement has been executed by any ,i- ten or more of the Parties enumerated in the introduction of this Agreement. • 11.4 Arbitration. Any controversy or claim between any two or more Parties, or between any such Party or Parties and the Agency, in respect to the Agency's operations, or to any claims, disputes, demands, differences, controversies, or misunderstandings arising under, out of, or in relation to this Agreement, shall be submitted to and determined by arbitration. To the extent not inconsistent herewith, the rules of the American Arbitration Association shall apply. The Party desiring to initiate arbitration shall give notice of its intention to arbitrate to every other Party and the Agency. Such notice shall designate as "respondents" such other Parties as the initiating Party intends to have bound by any award made therein. Any Party not so designated but which desires to join in the arbitration may, within ten (10) days of service upon it of such notice, file a response indicating its intention to join in and to be bound by the results of the arbitration, and further designating any other Parties it wishes to name as a respondent. Within twenty (20) days of the service of the initial demand for arbitration, the American Arbitration Association, hereinafter referred to as "AAA," shall submit simultaneously to the initiating and to all Parties named as respondents or filing a response therein, an identical list of names and persons chosen from the AAA National Panel of Arbitrators which persons shall be, to the extent possible, persons first in the field of transportation as well as public law. Each Party to the dispute shall have seven (7) days from the mailing date in which to cross off any names indicating the order of his or her preference, and return the list to the AAA. If a Party does not return the list within such time period, all persons named therein shall be deemed acceptable. From among the persons who have been approved on both lists, in accordance with the designated order of mutual • preference, the AAA shall invite the acceptance of an arbitrator to serve. If the Parties fail to 1W agree upon one of the persons named, the acceptable arbitrator is unable to act, or if for any other reason the appointment cannot be made from the submitted list, the AAA shall have the power to • make the appointment of the arbitrator from other members of the panel without the submission of any additional list. The arbitrator shall proceed to arbitrate the matter in accordance with the provisions of Title 9 of Part 3 of the Code of Civil Procedure. If the Agency enters into a Joint Transportation Corridor Agency Agreement pursuant to which a Joint Transportation Corridor Agenq3LIs formed as authorized by._ Section 2.3 of this Agreement, then each Party_agrees that the relation to this Agreement. 11.5 Partial Invalidity. If any one or more of the terms, provisions, sections, promises, covenants or conditions of this Agreement shall to any extent be adjudged invalid, unenforceable, void or voidable for any reason whatsoever by a court of competent jurisdiction, each and all of the remaining terms, provisions, sections, promises, covenants and conditions of this Agreement shall not be effected thereby and shall be valid and enforceable to the fullest extent permitted by law. 11.6 Successors. This Agreement shall be binding upon and shall inure to the benefit of the • successors of the Parties hereto. 11.7 Assignment. The Parties shall not assign any rights or obligations under this Agreement without written consent of all other Parties. 11.8 Execution. The Board of Supervisors of the County of Orange and the city councils of the cities enumerated herein have each authorized execution of this Agreement, as evidenced by the authorized signatures below, respectively. 11.9 Third Party Beneficiary. In the event that the Agency enters into a Joint Transportation Corridor Agency Agreement pursuant to which a Joint Transportation Corridor Agency is formed as authorized by Transportation Corridor Agency.. -19- • • IN- WITNESS WHEREOF. this Second Amended and Restated Joint Exercise of Powers Agreement Creating the San Joaquin Hills.Tra_nsnortation C-.omdor Agency shall be effective as of the date that not less than three- fourths 3 /4Zof the Parties listed below have authorized execution hereof, _as_ evidenced _by the authorized . signatures below. respectively. SIGNED AND CERTIFIED THAT A COPY OF THIS DOCUMENT HAS BEEN DEL_IV_ERED TO THE _CHAIRMAN _OF_ THE BOARD: • Name: — - - - - -- - - Clerk of the Board of Supervisors Date: APPROVED AS TO FORM: County Counsel _� DeDUSY Date: • -20- COUNTY OF ORANGE By' - Name: Date: ATTEST: CITY OF Clerk of the City of Aliso Viejo By: Mayor 171, Dated: APPROVED AS TO FORM: By7 _City_Counscl ATTEST: CITY OF COSTA MESA Clerk of the City of Costa Mesa By: Mayor Dated: APPROVED AS TO FORM: • City Counsel ATTEST: CITY OF DANA POINT Clerk of the City of Dana Point By: . ...... - -------- - - ------- - ----- Mayor Dated: APPROVED AS TO FORM: By: City Counsel -21- F_ I L • ATTEST: CITY OF IRVINE Clerk of the City of Irvine By Dated: APPROVED AS TO FORM: By: City Counsel ATTEST:- CITY OF LAGUNA HILLS Clerk of the Ci L��La.gu.najlills-.--- __. By:_ Dated: • APPROVED AS TO City Counsel ATTEST: CITY OF LAGUNA NIGUEL acKk-gf the --Qjy of Laguna Niguel By: - -- =Mayor By: Dated: APPROVED AS TO FORM: By: City Counsel -22- ATTEST: CIT_Y__OF LAGUNA WOODS Clerk of the City of Laguna Woods _ By' • - - — - Mayor By'_ Dated: APPROVED AS TO FORM: By: City Counsel ATTEST CITY OF MISSION VIEJO Clerk of the City of Mission Viejo Bv: -- - -- - ° -- - May.Or Dated: APPROVED AS TO FORM: • Bv. _ City Counsel ATTEST: CITY OF NEWPORT BEACH Clerk of the City of Newport Beach By: Mayor ------ - - - -_- By: Dated: APPROVED AS TO FORM: By: City Counsel fC -23- • ATTEST: __- —PITY OF SAN CLEMEI ITE Clerk of the City of San Clemente By____ -- -- Maw -- B,y:- . ....... .. . Dated: APPROVED AS TO FORM: City. Counsel ATTEST: CITY OF SANTA ANA Clerk of the City of Santa Ana_ _ Bx__ Mayor Dated: • APPROVED AS TO FORM: City_Counsel ATTEST: CITY OF SAN JUAN CAPISTRANO Clerk of the City-of-San Juan Capistrano _____By:_ __ Mayor Dated: APPROVED AS TO FORM: By: City Counsel • -24- 't %} EXHIBIT C TRANSPORTATION CORRIDOR AGENCIES • 125 PACIFICA, SUITE 100, IRVINE CA 92618,3304 9491754 -3400 FAX 9491754 -3467 MEMORANDUM April 25, 2002 TO: San Joaquin Hills Board of Directors FROM: San Joaquin Hills Finance Working Group SUBJECT: Analysis of Options for Long -Term Financial Stability FINANCE WORKING GROUP RECOMMENDATION The Finance Working Group consisting of Senior TCA Finance Staff, Salomon Smith Barney (Underwriters), Stradling, Yocca, Carlson & Rauth (Bond Counsel), Nossaman, Guthner, Knox & Elliott (Agency Counsel), Evensen Dodge (Board's Co- Independent Financial Consultant), Public Financial Management (Board's Co- Independent Financial Consultant) makes the following recommendation: 1. Authorize the Chairwoman to present a formal request to the Foothill /Eastem Board of • Directors to agendize and discuss, at their June Board Meeting, the formation of a new Joint Powers Authority to acquire both the San Joaquin Hills and Foothill/Eastem Transportation Corridor Agencies. 2. Upon approval, in concept by the Foothill/Eastem Transportation Corridor Agency Board, direct staff to: a. Work with the San Joaquin Hills Financing Ad Hoc Committee and the Foothill/Eastem Long Term Financial Planning Ad Hoc Committee to develop options for a new, combined board structure. b. Coordinate the selection of traffic and revenue and socioeconomic consultants between the two agencies. c. Prepare the necessary legal documents to effect the formation of the new Joint Powers Agency ( "JPA "). d. Develop a viable plan of finance with updated traffic and revenue, development impact fee, and operating expense forecasts that addresses and implements long- term financial stability for the new JPA. e. Present the draft plan of finance to rating agencies for feedback on debt structure. f. Assuming a viable financial structure, present financing structure to both Boards for approval to finalize consolidation by May 1, 2003. 3. Concurrent with recommendations 1 and 2, authorize Staff to continue exploring opportunities for an equity contribution or other forms of financial assistance from another government entity to improve the SJHTCA's finances on a stand -alone or • consolidated basis. April 25, 2002 • SUMMARY Report No. 12 Page 2 of I I The Finance Working Group and the Board's Independent Financial Consultants were charged with exploring all financial options available to establish long -term financial stability for the Agency on a stand -alone basis. Among the options to be explored was a potential consolidation with the Foothill /Eastern Agency. In addition, the group was to address potential operational and policy changes to enhance revenue and reduce operating costs. The analyses are now complete and the conclusion of the Finance Working Group is that absent a grant or loan (to be repaid after 2036) in excess of $400 million, there is no stand -alone financial restructuring available that establishes long -term financial stability. In order to avoid a rate covenant violation, which results in loss of the Board's discretion relative to the financial activities of the Agency, the only viable and recommended solution, based on exhaustive financial modeling, is to approach the FoothilUEastern Board and request that they consider consolidation of the two Agencies. Consolidation of the two Agencies allows all debt of both agencies to be restructured and eliminates the currently cumbersome operating procedures providing for a more efficient and streamlined organization. DISCUSSION The subsequent discussion will be presented in the following order: I. • II. III. IV. V. VI. VII Background: Non - Recourse Toll Revenue Financing Current Financial Picture Analyses & Options for Long -Term Financial Stability Finance Working Group Recommendation Analysis of Options not Recommended Our Contract with SJHTCA Bondholders Conclusion I. Background: Non - Recourse Toll Revenue Financing In 1993, the San Joaquin Hills Transportation Corridor Agency ( "SJHTCA ") successfully financed $1.2 billion of non - recourse toll revenue bonds, which, at the time, represented the largest start-up, private toll -road financing by a public agency in U.S. history. The innovative public /private partnership enabled the construction of a new 15 -mile state highway which today serves more than 80,000 people a day — with no new general taxes and very little state dollars. (For additional historical background, please see Attachment A, "The Toll Roads: Historical Finance Perspective. ' ) The 1993 financing — detailed in SJHTCA's 1993 Official Statement — was based on the assumption that annual revenues would grow by an average of 6.6% which was greater than the 6% average annual growth in debt service. According to the 1993 projections, transactions would grow annually by an average of 2.7 %. Projections of future transactions and revenue were the result of a detailed study by Wilbur Smith & Associates based on the most current land- use development plans, the Orange County Traffic Analysis Model ( "OCTAM ") and the most current socio- economic data available at that time. April 25, 2002 Report No. 12 Page 3 of 11 The completed toll road (SR 73) opened to traffic in 1996. After one year of operations, revenue • levels were approximately 50% of 1993 projections. In 1997, as interest rates neared historic lows, the SJHTCA exercised its only opportunity under tax law to refinance a majority of the debt on a tax- exempt basis. The refinancing provided cash flow savings of $277 million between 2000 and 2012 and reduced the average interest rate from 7.6% to 5.7 %, resulting in long -term cash flow savings without extending the sunset date of the Agency. After the 1997 refinancing, revenue and transactions continued to grow by double -digit percentages, but not at a sufficient level to make up for the initial revenue shortfall that occurred between 1993 and 1997. Staff and the Board closely monitored the road's revenue performance, made changes to the marketing program, and kept rating agencies and investors apprised of the situation. In response, to further strengthen the Agency's financial picture, the Board adopted a Revenue Stabilization Plan that included: • Defeasing $45 million in debt with funds received from the Orange County bankruptcy settlement (Feb. 2000) • Implementing a $1 transponder maintenance fee for accounts that did not attain $25 in monthly tolls (July 2000) • Implementing an unscheduled toll increase at ramp plazas (July 2000) • Transitioning toll operations from Lockheed Martin IMS (Dec. 2000) • Implementing a scheduled toll rate increase at the mainline plaza (July 2001) • Approving an unscheduled toll increase at the mainline toll plaza for cash customers and • FasTrak peak -hour pricing (Dec. 2001) II. Current Financial Picture Since 2000, SJHTCA toll revenues have grown more than 10% per year; however, in 2002 the gap between actual and projected revenue has continued to widen due to greater than anticipated diversion following the July 2001 mainline toll increase. In keeping with the Agency's Revenue Stabilization Plan, the Board implemented an unscheduled toll increase at the mainline toll plaza for cash customers and FasTrak peak -hour pricing in February 2002. The Agency's CEO has been implementing cost - cutting measures with the intent of maintaining customer service since FY 2000. In February 2002, Fitch IBCA, a nationally recognized rating agency, downgraded the SJHTCA's bonds from BBB- to BB, a non - investment grade rating. Immediately following the downgrade, the Board again reaffirmed their unanimous commitment to long -term financial stability by creating the SJHTCA Financial Consultant Ad Hoc Committee comprised of Chairwoman Lindholm and Directors Craycraft, Dahl, Ficke, Lautenschleger, Spitzer, and Wilson. The Ad Hoc Committee retained co- independent financial consultants -- Evensen Dodge and Public Financial Management, both experts in municipal bond finance. The consultants' analyses, as stated in their scope of work, included: 11 April 25, 2002 Report No. 12 Page 4 of 11 • • Examination of all options available to establish long -term financial stability for the SJHTCA on a stand -alone basis • Evaluation of potential consolidation of the SJHTCA and F/ETCA • Consideration of other options such as renegotiation of equipment leases • Recommendations on minimizing violation or image -based revenue losses The Board also authorized Staff to continue the Agency's focus on implementation of cost - saving measures. Though the Board approved $14.7 million in budgeted toll operations expenditures for Fiscal Year 2002, staff estimates it will spend $13.6 million through the end of the fiscal year, for a net savings of $1.1 million, or 13 %. III. Analyses & Options for Long -Term Financial Stability For the past three years the existing Finance Working Group, made up of Senior Finance Staff, the Senior Underwriter (Salomon Smith Barney), Bond and Tax Counsel (Straddling, Yocca, Carlson & Rauth), and Agency Counsel (Nossaman, Guthner, Knox & Elliott) have been analyzing both short and long -term options to respond to the financial performance of SJHTCA. During the past two months, Evensen Dodge and Public Financial Management have joined the Finance Working Group in order to perform the analyses requested of them by the Board. The financial modeling performed by Finance Staff and Salomon Smith Barney was provided to Evensen Dodge and Public Financial Management in order to receive their objective input. The independent financial consultants performed additional financial model development and analysis, as they deemed necessary to cover their scope of work. The goal of each of the options • analyzed was to provide for payment of debt service in each year and to maintain the 1.3x rate covenant discussed above. Assumptions As with any long -term financial analysis, basic assumptions must first be made in order to develop an analytic framework or model with which to test the available options. Future toll revenue growth is the single most critical variable. Toll revenues are a function of transactions and toll rates, which are in turn influenced by traffic congestion on competing roads, the value of time, inflation, time of day, and many other variables. It is important to note that the assumptions used in the Finance Working Group's analyses were determined by consensus of the group as well discussions with rating agencies and MBIA, (the insurer of a majority of the bonds), as to "acceptable levels of growth" without the benefit of a new, comprehensive Traffic & Revenue Study. The assumptions are just that: they cannot substitute for a detailed Traffic & Revenue Study. A Traffic & Revenue Study uses sophisticated modeling to attempt to forecast these variables based on new land -use development plans, socio- economic data, and historical data of actual traffic and revenue numbers. The Board took the first step toward obtaining a new study, by approving the RFP process for a new Traffic & Revenue consultant at the April Board Meeting. • April 25, 2002 Report No. 12 Page 5 of 11 Using all available information, the Finance Working Group determined an assumption of 4.09% • (7.25% for fiscal year 02/03 and 4% thereafter) to be a reasonable average annual growth rate over the next 40+ years for financial modeling purposes only. The Finance Working Group does not possess the expertise to make a forecast, but an assumption was necessary in order to model the impact of the various possible alternatives that could be presented to the Board. As a frame of reference, the 1997 financing plan assumed a 5.9% average annual revenue growth rate from 2002 to 2036. The 4.09% revenue growth assumption is critical because it underpins the analyses of all the debt - restructuring options. As such, the Finance Working Group members agreed that a new Traffic & Revenue study would be a critical first step to any and all debt restructuring analysis and planning, including consolidation. If a Traffic & Revenue study outcome is lower or higher than the assumptions used in these analyses, then the menu of options and their outcomes may differ from this report. Other assumptions for analysis purposes only include: • Use of the $4.3 million Toll Revenue Stabilization Fund, of which $1 million is used in Fiscal Year 2003 • A proposed $2 per month transponder fee and threshold increase to $30 • Paid by plate fees of $2 per image and DNW fees of $3 per hold • Three percent per year increase in operating expenses after Fiscal Year 2003 • • Development Impact Fees as forecast in the 1997 Official Statement • Three percent of all violation images are unprocessable. The proposed fees and fines were incorporated into the financial model for planning purposes only. The Finance Working Group recognizes that Board approval is necessary to implement such changes. Both of the Board's independent financial consultants recommended higher increases than proposed by staff to the violations fees and fines structure as a way to recover costs associated with processing toll violations images and as a method to change costly patron behavior. For a detailed description of the Finance Working Group's assumptions, please see Attachment B, "Financial Options Analysis, April 2002, "pages 6 -26 Particular attention should be paid to page 18, maintenance fees and page 24, violation fees. Both assumptions need approval by the Board of Directors before they can be assumed in a final plan. • April 25, 2002 Report No. 12 Page 6 of 11 • Options Based on the 4.09% annual average revenue growth rate assumption, the Finance Working Group analyzed the following options: • No financial restructuring, i.e. keeping the status quo by continuing to identify ways to increase revenue and reduce expenses • Seven specific tax - exempt options for restructuring the Agency's debt • A "restructuring combination" option that includes three of the most viable tax - exempt restructuring options • A taxable debt restructuring option • A loan/grant from an outside government agency • Acquisition of SJHTCA by an outside government agency and keeping the corridor as a toll road • Acquisition by an outside government agency and making the corridor a freeway • Consolidation of the SJHTCA and F/ETCA into a new, single JPA For detailed analyses of all the options, please see Attachment B, "Financial Options Analysis, April 2002, "pages 28 -76. The Finance Working Group believes that the analysis of these options gives the Board information to move forward with long -term financial solutions. Moody's and S &P have • indicated they are looking for positive, decisive actions from the Board that show a commitment to long -term financial solutions. None of the stand -alone options provide for a long -term financial solution and SJHTCA risks being downgraded by Moody's and S &P in taking the stand -alone course of action. Some stand -alone options may forestall such action, but no option prevents a downgrade. While members of the Finance Working Group took different approaches to the analysis of financial options, in the end, all agreed on key issues and recommendations. All agreed that none of the seven tax - exempt restructuring options alone would create enough debt relief to improve the Agency's long -term financial stability beyond 2005, assuming a 4.09% revenue growth rate. The taxable restructuring option — the goal of which would be to ease debt service requirements by extending debt — was also not feasible because the assumed revenue stream would not support larger payments created by a higher taxable interest rate structure. (Attachment C "Summary of Financial Options" attempts to capture the issues, challenges, controlling parties, and key outcomes of the remaining options, each of which is discussed below.) • April 25, 2002 IV. Finance Working Group Recommendation Report No. 12 Page 7 of 11 Consolidation The Finance Working Group believes that consolidation is the Agency's best, most viable option to meet its debt obligations, retain control of toll rate setting, and establish long -term financial stability. Consolidating the SJHTCA and F/ETCA is a process that will require approval of the F/ETCA Board of Directors and will require a new Traffic & Revenue Studies for both Agencies. Consolidation is also likely to require approval of amendments to the existing joint powers agreements. The ultimate result would be the creation of a new Joint Powers Agency, made up of members of both Boards and new unrelated members as required under tax law. The new JPA would issue $4+ billion in new tax - exempt non - recourse toll revenue bonds in order to defease the debt of the SJHTCA and the F/ETCA and acquire the assets of both Agencies. The existing Agencies' Boards of Directors could remain in place to serve in an advisory capacity to the new Board, collect Development Impact Fees, oversee construction of Foothill -South and advise members of the new JPA. The benefits of consolidation include: • • Long -term financial restructuring for both Agencies to re -align debt service with forecasted revenues • An opportunity for tax -free restructuring of all outstanding debt now and once more in the future • • Lower future revenue growth requirements for both roads and possibly lower tolls over time • The ability to negotiate more favorable debt coverage requirements under a new Bond Indenture • Enhancements to the market view of the Transportation Corridor Agency ( "TCA ") credit • Board control of toll rate and fee setting • Increased efficiency by streamlining operations and ultimately reducing costs • Establishment of long -term financial stability without financial support that uses taxpayer dollars from another entity. The challenges of consolidation are: • The new Traffic & Revenue Study might forecast annual revenue growth for the combined system that would be so low as to preclude any financial restructuring for either Agency • The rating agencies may still downgrade SJHTCA bonds during the implementation period • Market capacity for a $4+ billion bond issue payable over a longer period of time • Obtaining an independent market valuation for the acquisition price of the Agencies • Recent proposed changes to IRS regulations which make structuring the finance plan more difficult • April 25, 2002 Report No. 12 Page 8 of l l • The process for establishing a new JPA is complex and could take up to a year. Major steps include: • SJHTCA Board request that the F/ETCA Board consider consolidation • F/ETCA Board agree to consider consolidation • Amend scope of work for traffic and revenue consultant to study a combined revenue forecast • Develop and obtain approval of a Board structure for the new JPA. • Amend the existing JPAs, subject to approval of three - fourths of the parties to each agreement • Finalize the consolidated finance structure • SJHTCA and F/ETCA vote to effect consolidation • New JPA hires an independent third party to value the SJHTCA and F /ETCA to determine a fair market value purchase price • New JPA approves a plan of finance to issue $4+ billion in toll revenue bonds to acquire the respective assets from SJHTCA and F/ETCA and defease all outstanding bonds Concurrent Staff Recommendation: Involvement from Outside Government Entities The Finance Working Group analyzed three options -- A loan/grant from an outside government entity, acquisition by an outside government entity and the project remains a toll road, and acquisition by an outside government entity and the project becomes a freeway. (Details of these options are presented on pages 71 -76 of Attachment B and on page 3 of Attachment C.) • In order to stabilize SJHTCA on its own, in addition to a possible financial restructuring combination, an outside entity would need to provide an estimated $680 million to defease or repurchase enough debt to meet the Agency's 1.3x debt coverage ratio. The consensus was that this would be extremely difficult to secure, given the shortage of state, federal, or local transportation funds. Existing transportation dollars are already earmarked for specific projects, so a grant from another government entity will likely require the diversion of funds from existing programs. In spite of these daunting constraints, Staff is recommending concurrent pursuit of an equity contribution, in the form of a grant, long -term (40 year) loan, or acquisition by another government entity as a way to potentially resolve the financial issues facing SJHTCA. One of the Board's independent financial consultants, Public Financial Management, recommended that the Agency examine the possibility of consolidation with the F /ETCA and the 91 Express Lanes as a way to boost revenue and diversify risk on the toll road system. (Information on the 91 express lanes is not readily available and the Finance Working Group therefore did not analyze this for financial viability or willingness on the part of the 91 Express Lanes owners to participate in such an action.) (See Attachment D for "Independent Consultants' Analysis" and supporting presentations) • j'� April 25, 2002 Report No. 12 Page 9 of 11 The Finance Working Group also believes that an acquisition by an outside government entity is • unlikely as it would require the purchasing agency to find funds to retire SJHTCA's entire $2 billion outstanding debt. The Agencies were created to plan, finance, design and construct the toll roads precisely because of a lack of state and federal transportation funds for new roads. Further analysis of an outside acquisition would require the SJHTCA Board to direct staff to pursue the option and, most likely, a reciprocal action by the potential acquiring entity's policy - making body. Moreover, Staff believes that involvement from an outside government entity (whether through a loan, grant, or acquisition) would run contrary to TCA's accomplishment to date of building and operating 51 miles of new state highways with virtually no tax dollars. TCA's innovative financing plan has been a model for other government entities, such as the Alameda Corridor, the Pocahontas Parkway in Virginia, the Southern Connector in South Carolina and Northwest Parkway in Colorado, all of which sought ways to fund much - needed transportation infrastructure projects in an era of shrinking public resources. V. Analysis of Options Not Recommended No Restructuring Option The Finance Working Group and the Board's consultants analyzed the option of choosing no financial restructuring and continuing current efforts to increase revenue and reduce expenses. It was concluded that revenue would have to grow at 11.5% annually to meet the Agency's current debt service coverage ratio (1.3x debt service), or by 7.5% to achieve 1.Ox coverage -- growth • rates that the Finance Working Group and the financial markets believe are too aggressive. The key financial outcomes of this option, assuming a 4.09% revenue growth rate, are: • Rate covenant violation in Fiscal Year 2005 • Draw on the Federal Line of Credit in Fiscal Year 2005 • Default on debt service payments in Fiscal Year 2012 • Extension of the debt by 21 years from 2036 to 2057 These outcomes will result in trustee enforcement of the covenants under the Indenture beginning in 2005, which includes commissioning of a traffic and revenue consultant to recommend changes in toll rates and operations in an effort to achieve required coverage. This process could continue annually, ultimately eliminating the Board's ability to set toll rates for many years. (Reference Exhibit B pages 31— 35) CJ 1 F April 25, 2002 Report No. 12 Page 10 of 11 • Combination of Restructuring Options A combination of the three tax - exempt restructuring options (surety substitution, fixed -to- floating swap, and Series 1993 refunding) would require policy actions to ensure revenue growth of 9.9% year- over -year to achieve a 1.3x debt coverage ratio, or 6.4% to achieve I.Ox debt coverage. The conclusion of the Finance Working Group is that even if the combination of restructuring options was feasible, under the reasonable growth assumption of 4.09 %, the SJHTCA would face its first rate covenant violation in Fiscal Year 2007 and first default on debt service in Fiscal Year 2008. (Reference Exhibit B pages 61 -64) Renegotiation of Debt with the Markets The Finance Working Group believes the Agency is not in a position to aggressively negotiate with the financial markets. Negotiation requires funds with which the Agency can make an offer to bondholders. Funds this Agency does not have. In addition, a majority of the bonds are insured and will be paid on a timely basis by MBIA. The remaining bondholders would have no incentive to accept lower payments and give up their right to eventually get paid, even it means they will get paid later than they had originally expected. While investors will ultimately get paid, they will take financial losses upon an additional downgrade by either rating agency. They will either incur market value losses due to reduced value of the bonds or cash losses if their portfolio parameters do not allow them to hold non- investment grade debt and they are required to sell. At the point of an additional downgrade, most losses will have occurred, thus making the negotiating position of the Agency even less viable. VI. Our Contract With SJHTCA Bondholders In 1993, when the Agency completed its landmark - financing plan, it entered into a contract with the investors who purchased bonds and made construction of the San Joaquin Hills Toll Road possible. This contract, also known as the Agency's Indenture of Trust, clearly outlines the Agency's responsibilities to its investors. In 1997, the Agency entered into a new Indenture of Trust with its 1997 bondholders. As both 1993 and 1997 debt are still outstanding, both of these contacts remain in force. Under the contract, the SJHTCA is required to maintain a revenue coverage ratio of 1.3x debt service. If the coverage requirement is not met, but the Agency can continue to meet debt service payments through other funding sources (such as the Federal Line of Credit or Debt Service Reserve Fund), the Agency would be in violation of its rate covenant. If the Agency cannot make its debt service payments, then it is default. (Details about the consequences of a rate covenant violation and default are outlined on pages 18 -21 of Attachment A.) • April 25, 2002 Report No. 12 Page 11 of 11 A downgrade and ultimate default could also have a negative ripple effect on other government • agencies seeking to issue future bond debt, including the F /ETCA and all TCA member Agencies. Because of the direct losses incurred by the markets on such a large and visible Orange County issue, the Finance Working Group, based on input from their underwriting and trading desks, the Board's independent financial consultants and unrelated investment bankers, believe the market penalty cost to the Foothill /Eastem Agency for its future debt offerings would be significant — in the range of $10 - $20 million a year — in additional interest cost. This additional cost would be a burden to all users of the Foothill/Eastem Toll Road upon financing of the Foothill -South project. Because members of the SJHTCA Board also represent the County and various member cities, it is likely that a default by SJHTCA would taint each of the jurisdictions represented by the Board. Default by a public agency also makes the market skeptical about the willingness or ability of other local government agencies, such as member cities, the county, and school districts,' to repay debt. The cost may be assessed in the form of higher interest, increased disclosure or tighter controls. VII. Conclusion The Finance Working Group analyzed 14 different options for establishing SJHTCA's long -term financial stability. Based on an assumed 4.09% annual average revenue growth rate, the Finance Working Group believes that consolidating with the F/ETCA is the SJHTCA's best, most viable option to meet its debt obligations, fulfill its fiscal responsibilities as a government agency, retain local control of toll setting, and establish long -term financial stability. The Finance Working Group recognizes that consolidating the two Agencies into a new Joint • Powers Agency is complex and challenging undertaking and will not be immediate. The viability of consolidation rests on the outcome of a new Traffic & Revenue study. The Finance Working Group recommends that the Board engage a Traffic & Revenue consultant and initiate the consolidation process. Concurrent with this process, staff also recommends continuing to explore opportunities for equity contributions from outside government agencies while the Traffic and Revenue Study is being conducted. INDEX OF ATTACHMENTS A: "The Toll Roads: Historical Financial Perspective" B: "Financing Options Analysis" C: " SJHTCA: Summary of Financing Options" D: "Independent Consultant Analysis," plus supporting presentations • Tom: • TRANSPORTATION CORRIDOR AGENCIES • • EXHIBIT E 125 PACIFIC4. SUITE 100, IRVINE CA 92618 -3304 9491754 -3400 FAX 9491754 -3467 MEMORANDUM DATE: September 19, 2002 TO: Foothill/Eastern TCA Board of Directors San Joaquin Hills TCA Board of Directors FROM: Board Structure Ad Hoc Committee SUBJECT: Proposed Board Structure for a Combined Foothill/Eastern and San Joaquin Hills Joint Powers Authority BOARD STRUCTURE AD HOC COMMITTEE RECOMMENDATION: 1. Approve the Board of Directors structure as described herein, for the proposed combined Joint Powers Agency. This structure maintains a voting seat for all existing 21- member agencies and requires a super majority vote to approve any major action. 2. Maintain the quorum requirements of the two existing JPAs which states that 2/3 of the membership must be present. 3. Authorize TCA legal counsel, under the direction of the CEO, to prepare a draft amendment to the existing Joint Powers Agreements to allow for the creation of a new JPA. 4. Direct staff to present the draft JPA amendment to key staff at each member agency for comment, and return to the boards with the proposed final draft. ISSUE In April and June, the San Joaquin Hills TCA Board and the Foothill /Eastern TCA Board, respectively, voted to approve the concept of consolidation of the two agencies. In order to insure that the consolidation can be accomplished in a timely fashion after receipt of revised traffic and revenue projections and approval by both boards, a structure for the proposed new JPA needs to be developed and approved. Proposed Board Structure for Combined Agencies 2002J -019 September 19, 2002 Report No. 9 Page 2 of 6 BACKGROUND: Following the 1997 refunding of the San Joaquin Hills TCA outstanding bonds, staff and the Board continued to monitor the San Joaquin Hills Toll Road's performance in comparison to the newly revised projections. Transactions on the road continued to grow by double -digit percentages, but not enough to keep pace with the revised revenue projections. Several measures were taken in an attempt to put actual revenues back in line with projections. Those measures included using proceeds returned from the Orange County bankruptcy to defease $45M of outstanding bonds, toll rate increases, changes to the violation collection processes and several cost cutting measures. Despite the persistence of the Board and the continued positive revenue growth, in February 2002, Fitch Investors Service downgraded the outstanding SJHTCA bonds from BBB- to BB. While clearly disappointed in Fitch's decision, but focused on maintaining the two remaining ratings from Standard and Poor's and Moodys, the SJHTCA Board took immediate action. A Board committee was appointed by the Chairwoman Lindholm to further review the financial issues, and two independent financial consultants were hired to assist the Board in looking for a long - term financial solution. On April 5, 2002, the Agency's finance staff, Salomon Smith Barney (underwriter of the Agency's bonds), legal and tax counsels and the two Board - appointed financial advisors presented their findings to the committee. Following a four hour, 90 -page presentation, the • committee concluded that the best and most viable long term financial solution was to request that the Foothill/Eastem Board consider combining with the SJHTCA to form a new Joint Powers Agency. The new JPA could then issue bonds, the proceeds of which would be used to acquire all the outstanding assets of both agencies. On April 25, 2002, the SJHTCA Board took action to make such a request of the Foothill /Eastem Board. Throughout the month of May, the Foothill/Eastem Board was briefed on the financial issues related to the San Joaquin Hills Corridor Agency, the analysis completed by the SJHTCA Finance Working Group and the impacts to the Foothill/Eastem Agency. On June 13, 2002, the Foothill /Eastem Board of Directors voted to support the concept of consolidation and took actions necessary to fund a traffic and revenue study. Immediately following that meeting, both the Foothill /Eastem and San Joaquin Hills Agency Boards met jointly to outline the issues and concerns of each member relative to the proposed consolidation. Following the meeting, Chairman Diehl and Chairwoman Lindholm categorized all the issues and appointed four separate committees, comprised of members from each board to address each item. The committees are as follows, New Board Structure/Legal Issues, Operational Issues, Capital Improvement Program and Financial Issues. Each committee was charged with analyzing their assigned issues and bringing a recommendation back to the full Boards. The Board Structure/Legal Issues Ad Hoc Committee was the first to meet due to the fact that none of the committees would be needed if concurrence on a new board structure could not be achieved 11 c� \J Proposed Board Structure for Combined Agencies 2002) -019 September 19, 2002 Report No. 9 Page 3 of 6 DISCUSSION: The New Board Structure/Legal Issues Ad Hoc Committee is comprised of members from each Agency. The FoothilVEastem TCA Board Members include: Chairman Diehl, and Board members Coontz and Worley. The San Joaquin Hills Board Members include: Chairwoman Lindholm and Board Members Hack and O'Neil. There is one member who is a member of both boards, Supervisor Wilson. The Committee held their first meeting on July 17 and was briefed by both bond and tax counsel on the constraints under federal tax law and the physical constraints of the Agencies in developing a board structure. The new structure will need to meet the criteria necessary to allow the new JPA financing to be classified as an acquisition financing rather than an advance refunding. These constraints are discussed below in order to provide a framework for further analysis. Federal Tax Law Constraint One of the major criteria that must be satisfied in order for bonds of the proposed JPA to be • considered acquisition bonds rather than an advance refunding bonds is absence of control of the proposed JPA by either the Foothill/Eastem or the San Joaquin Hills Agencies. In simple terms, this means that members of the Board of Directors of the Proposed JPA whose votes would be sufficient to approve actions of the Proposed JPA may not consist of or be appointed by a majority of the board of directors of either of the existing Agencies. Physical Constraint There are currently a total of 21 member agencies (counting each of the three supervisorial districts) represented on the TCA boards. Of that amount, seven are exclusive members of the Footbill/Eastem Board ( "Foothill/Eastem Exclusive Members "), six are exclusive members of the San Joaquin Hills Board ( "San Joaquin Hills Exclusive Members ") and eight are common to both boards ( "Common Members "). The eight Common Members constitute a majority of both TCA boards. In the absence of other facts, by simply "combining" these two boards, each TCA would be deemed as having a controlling interest in the new JPA. Any resulting financing therefore would be considered a refunding of both agencies and its bonds would not be eligible for tax- exempt treatment under federal tax law. Options In order to accomplish the "absence of controlling interest" requirement, the entity must not be controlled by either existing TCA's. This may be accomplished by either 1) adding outside • directors (not currently a member agency) or 2) by changing the voting structure. The Committee analyzed several variations of these two premises. Proposed Board Structure for Combined Agencies 20027 -019 September 19, 2002 Report No. 9 Page 4 of 6 ANALYSIS Proposed Board Structure - Dilution of Membership Two potential options were analyzed under this category: (1) one that focused on retaining all existing 21 members; and (2) a smaller board consisting of 9 members. In order to meet the absence of controlling interest criteria, ten additional outside members would need to be added to the existing 21, bringing total membership to 31. (See Attachment A) Actions would require a majority vote of the 31 members to pass. A variation on this approach focused on a nine - member board. (See Attachment B) In this situation, each existing TCA board would appoint 3 members to serve on the New Board. Only one of the appointed members from each TCA could be from the common member group. Three additional members must then be added from outside the member agencies group in order to dilute control. Membership from the existing TCA boards could rotate to the new board at predetermined intervals. Committee View Both structures that would dilute membership were ultimately rejected. While the larger board allows all current member agencies to retain a seat at the table, thirty -one members was considered too large to be efficient or effective. In addition, concerns were raised about adding members to the board who were not accountable to the political constituents of the affected cities. The smaller nine- member board, while manageable in size, was not considered to supply adequate representation. In addition, some control would be placed with the "outside" directors, potentially unaffected, by the location and usage of the roads or the fee program. Proposed Board Structure— Change in Voting Structure A change in voting structure could be accomplished in several different ways. The Committee discussed a population based plan, a plan with geo- political subgroups and plans that required a super majority voting element. Committee View Population Based The population based plan whereby members would receive greater weighted voting power based on the population of their city was rejected, as there was no direct relationship between population size and road usage or revenues. Any new board developed under this plan could potentially lack representation on the highest impacted jurisdictions. In addition, some of the larger cities, based on population, have the smallest Development Impact Fee zones. 40 • • cC \J Proposed Board Structure for Combined Agencies September 19, 2002 2002J -019 Report No. 9 Page 5 of 6 Geopolitical Sub - groups This concept involved separating existing member agencies into geographical subgroups. Each subgroup, to comply with the "absence of control' requirements under tax law, could consist only of members from the Foothill/Eastern Exclusive, San Joaquin Hills Exclusive, or Common Members groups. Each subgroup would then select one or two (depending on the desired size of the board) members to serve on the New Board. Members could serve on the board for some predetermined period of time (Attachment C). This concept also lacked support of the committee primarily due to the fact that it was somewhat cumbersome and in some cases lacked regional commonality between the cities that needed to be grouped together for tax purposes. Super Majority Vote — Small Board Under this concept, each of the three existing groups, Foothill/Eastern Exclusive Members, San Joaquin Hills Exclusive Members and Common Members would appoint three representatives to serve on the New Board. The existing F/ETCA and SJHTCA boards would remain in place in an advisory capacity. Chairpersons from the two advisory boards would automatically serve on the New Board. Remaining members would then be selected from the available spaces within their respective groups. All decisions of the New Board would require a super majority to pass, seven out of nine members or 78% of the members present and voting at the time. (Attachment D). While members of the committee liked the concept of a smaller board, they raised concerns about leaving the two existing boards in place. As the existing F /ETCA and SJHTCA boards, • under this approach, would only act in an advisory capacity, it was simply viewed as another layer of government with no real power. In addition, the Committee was concerned about lack of unity. If the New Board were truly one united entity working for the good of the system, then continued separation would only lead to jurisdictional issues. Concerns were also raised about how the members would be selected to serve on the new board and how to ultimately present this to their individual jurisdictions when none, other than the existing Chairs, knew they would have direct representation. For the reasons stated above, this concept was ultimately not supported by the majority of the Committee. Recommended Structure -Super Majority Vote — Existing Boards This plan provides that each of the existing 21 member agencies (including the 3 supervisorial districts) appoints one person to the New Board. All material decisions and actions must be passed by a super majority vote. Given that 16 (the number needed for a super majority) is greater than the total number of either current board, neither the F/ETCA nor the SJHTCA board would be deemed to have control. Super majority is therefore defined as 16 of the 21 members or 77% of the members present and voting (Attachment E). While the members of the Committee initially desired a smaller board, this concept was well received as it allowed each existing member agency to retain its representation on the New Board. It also supported the concept of a unified entity working for the betterment of the entire system. Committee members acknowledged that those cities in the Common Member group who have two representatives, San Clemente, Dana Point and Mission Viejo, would have to choose between their representatives. Ultimately, however, that situation was deemed to be easier to overcome than having some member agencies without any representation in a given year. Obtaining a super • majority vote did not raise any particular concerns, as there have been relatively few instances in Proposed Board Structure for Combined Agencies September 19, 2002 2002J -019 Report No. 9 Page 6 of 6 • the agencies' history when an action did not pass with full support of the members present and voting. In addition, each member will, if they so desire, continue to have an appoinated alternate who can vote on their behalf. Other Issues A question was raised as to whether all three County Supervisors (a majority of the County Board) could be represented on the New Board without violating the Brown Act. Based on a legal analysis of Government Code Section 54952.2, and provided that no Board of Supervisors business is conducted, such representation would not be in violation of the Brown Act. While the majority of the Committee favored phasing out the existing F/ETCA and SJHTCA boards once the New Board is created and the financing complete, it is recommended that these two boards remain in place for some period of time following the creation of the new agency. Basically, once it is determined that they have fulfilled all of their functions, they can be dissolved. Alternatively, specifically for FoothilUEastem, it may be appropriate to keep that board in place until an alignment is selected for Foothill South and the environmental process is complete. A contract between the New Board and the existing FoothilUEastem Board could delegate those voting rights to the existing F/ETCA board. For both Agencies, because of the existing Major Thoroughfare and Bridge Fee Program, • development impact fees would still need to be accounted for separately and tracked to specific expenditures within the respective areas of benefit. The existing F/ETCA and SJHTCA boards could delegate their authority to the New Board following their dissolution. CONCLUSION The New Board Structure/Legal Issues Ad Hoc Committee analyzed five separate potential board structures for the New Board. After a significant amount of discussion, a 21- member board structure, with a super majority voting requirement was the committees' recommendation. This alternative was selected because it provides for representation of every existing member agency and focuses the organization on making decisions for a unified system. • Ono EXHIBIT F • TRANSPORTATION CORRIDOR AGENL.rro 125 PACIFIC4, SUITE 100, IMANE C4 92618 ,3304 9491754 -3400 FAX 9491754 -3467 \J u MEMORANDUM DATE: November 14, 2002 TO: Foothill/Eastern Board of Directors San Joaquin Hills Board of Directors FROM: Wally Kreutzen, CEO and Rob Thornton, TCA General Counsel SUBJECT: Amendment to existing Joint Powers Agreement to authorize creation of a new consolidated Joint Powers Authority STAFF RECOMMENDATION: Recommend to TCA member agencies that they adopt the proposed amendments to the existing San Joaquin Hills and Foothill/Eastern Transportation Corridor Agencies Joint Powers Agreements as outlined in Attachment A, the "Second Amended and Restated Joint Exercise of Powers Agreement Creating the SJHTCA," and Attachment B, the "Second Amended and Restated Joint Exercise of Powers Agreement Creating the F/ETCA." The amended agreements would, in summary: a. Specifically authorize the Board of Directors of the SJHTCA and the F/ETCA to join together to form a new, consolidated joint - powers transportation corridor agency. b. Provide that the new consolidated joint powers transportation corridor agency shall have initially a 21- member Board of Directors comprised of a representative from each City that is a party to either or both of the Second Amended and Restated Joint Exercise of Powers Agreements and 3 representatives from the County, shall maintain the current two- thirds quorum requirement for board meetings, and shall establish a voting requirement of the lesser of 16 or 77% of the board members present to approve an item. c. Provide for administration of the Development Impact Fee program by the new consolidated Joint Powers Agency in the event existing TCAs decide to delegate such authority to the new consolidated joint powers transportation corridor agency. d. Apply the indemnity and arbitration provisions of the existing Joint Powers Agreements to the consolidated agency. Amended Joint Powers Agreements Report No. 13 November 14, 2002 File No. 2002J -022 Page 2 of 7 CJ BACKGROUND: The Formation of the Joint Powers Authorities In the 1970s, county traffic studies identified the need for two major highways -- one near the coast and one in inland Orange County -- to help meet the transportation needs of a fast - growing population and economy. The San Joaquin Hills and Foothill Transportation Corridors were sketched out on county road plans as freeways, but with shrinking state and federal transportation funds, local officials needed to find alternative funds to build new roads. In the 1980s, local city and county leaders led the effort to form joint powers authorities to finance and build the planned corridors. The San Joaquin Hills Transportation Corridor Agency ( SJHTCA) and the Foothill/Eastern Transportation Corridor Agency (F/ETCA) were created in 1986. In 1987, the state legislature approved legislation that gave the TCAs the authority to construct the planned corridors as toll roads and to issue bonds supported by future toll revenues to fund construction of the toll roads. Formation of the Agencies required a vote from the County of Orange and each city in. the area of benefited by the corridors to join one or both of the Joint Powers Authorities. The existing JPAs require approval from three - fourths of the member agencies to amend the joint powers agreements. The Toll Roads Today • Today, the 51 -mile network is a critical piece of Southern California's regional transportation system. Nearly 250,000 trips are taken on The Toll Roads everyday, saving toll -road drivers an estimated 21 minutes per trip and significantly alleviating congestion on the I -5, 405, and SR -55 freeways. Seventy -five percent of the toll -road system is completed, with the final segment of the 241, Foothill - South, in the environmental planning stages. The San Joaquin Hills (73) Toll Road opened in 1996. In 1997, SJHTCA exercised its only opportunity under federal tax law to refinance a majority of the debt on a tax- exempt basis to address a shortfall in projected revenue. After the 1997 refinancing, revenue and transactions continued to grow by more than 10% per year, but not at a sufficient level to make up for the initial revenue shortfall that occurred between 1996 and 1997. Today, revenue from the 73 Toll Road is at 77% of the revenue projections set during the 1997 refinancing. Phases of the Foothill and Eastern Toll Roads opened between 1993 and 1999. The Foothill/Eastem Transportation Corridor Agency has also exercised its only opportunity to refinance and is currently running at approximately 107% of revenue projections established in 1999. In February 2002, one of the three ratings agencies that rates TCAs' bonds downgraded a portion • of the SJHTCA's bonds to a non - investment grade rating. Moody's Investors Service and Amended Joint Powers Agreements Report No. 13 November 14, 2002 File No. 2002) -022 Page 3 of 7 • Standard & Poor's maintained investment -grade ratings. Immediately following the downgrade, the SJHTCA board hired two independent financial consultants to assist staff to independently evaluate all financial options available to the agency to establish long -term financial stability. • • In early 2002, a group of TCA finance staff, bond underwriters, legal counsel, and the board's independent financial consultants analyzed more than a dozen financial options. After exhaustive analyses, the conclusion was that consolidating the SJHTCA and F/ETCA into a single agency was the only viable option for establishing long -term financial stability for the toll -road system. In April 2002, the SJHTCA board unanimously agreed to ask that the F/ETCA consolidate into a single joint powers authority. In June 2002, the F/ETCA Boards of Directors unanimously voted to proceed with the potential consolidation of the agencies as a way to ensure long -term financial stability for The Toll Roads. The consolidation process In order to move forward with a potential consolidation, staff identified a number of steps that had to occur before the Boards could make a final decision whether or not to form a new, consolidated JPA. These steps included: • Completing a new traffic and revenue study to determine the financial feasibility of a single agency. The study is currently underway and is expected to be complete in March 2003. • Determine a new board structure for the consolidated JPA. • Prepare amendments to the existing joint powers agreements to specifically authorize the formation of a new consolidated JPA • Seek approval of the amended joint powers agreements from TCA member agencies. • New JPA hires an independent third party to value the SJHTCA and F/ETCA to determine a fair market value purchase price. • Develop a draft finance plan for the consolidated JPA to be reviewed by the boards. • A vote by SJHTCA and F/ETCA boards to finalize consolidation in May 2003. • New JPA approves a plan of finance to issue approximately $4+ billion in toll revenue bonds to acquire the respective assets from SJHTCA and F/ETCA and defease all outstanding bonds. In October 2002, the two boards took a major step by voting unanimously to establish a 21- member governing body for the consolidated agency, if formed. The governing body would be comprised of a representative from all the cities and county Supervisorial districts currently represented on the two existing boards. Amended Joint Powers Agreements November 14, 2002 Report No. 13 File No. 2002) -022 Page 4 of 7 The process of amending the Joint Powers Agreements and creating a consolidated agency involves the following remaining steps: Along with approving a board structure in October 2002, the boards also authorized TCA legal counsel to draft amendments to the agencies' existing Joint Powers Agreements that would allow for the creation of a new, consolidated agency. DISCUSSION: • The recommended amendments to the JPA are structured to be simple and to leave the existing JPA provisions in place to the maximum extent possible. The amendments are shown in Attachment A, the "Second Amended and Restated Joint Exercise of Powers Agreement Creating the SJHTCA," and Attachment B, the "Second Amended and Restated Joint Exercise of • Powers Agreement Creating the F/ETCA." The amended JPAs includes new language to do the following: a. Specifically authorize the Boards of Directors of the F/ETCA and the SJHTCA to join together to form a new joint- powers transportation corridor agency. Section 5.1 of the existing joint powers agreements state that the "Board is authorized to make or perform any agreement to join with said agencies (other major thoroughfare and bridge agencies) in the planning and implementation of said thoroughfares and bridges, when for any purpose otherwise permitted by law, the Board deems it appropriate." While it appears with this language that the boards have the authority to create a new consolidated JPA, the TCA Boards and staff considered it appropriate to request specific authorization from the member agencies because of the required changes in the voting structure. The specific language providing for this authorization is included in Section 2.3(m) of the amended JPAs (Attachment A and B). This added language specifically cites Government Code Sections 6500 et. Seq. as the legal authority (other than the existing agreements) for joining of the two JPA's. Section 6500 et. Seq. of the Government Code simply defines public agencies. In 1999, the state Legislature amended the Joint Exercise of Powers Act ( "JPA Act ") to include JPA's in the definition of public agencies. Section 6502 gives specific authority for JPAs to contract with each other. is SJMCA &! Results of S1MCA & t F/ETCA i Member Traffic e F(EfCA New JPA .� Gties Vo[es to Review p Create APProve L&Revenue AcQuve Amend ment to Amendment Consolitlated Agencies EzlstinglPAs ;! JPA c Nov 2002 Nov 2002 • Jan 2003 March 2003 May 2003 May 2003 Along with approving a board structure in October 2002, the boards also authorized TCA legal counsel to draft amendments to the agencies' existing Joint Powers Agreements that would allow for the creation of a new, consolidated agency. DISCUSSION: • The recommended amendments to the JPA are structured to be simple and to leave the existing JPA provisions in place to the maximum extent possible. The amendments are shown in Attachment A, the "Second Amended and Restated Joint Exercise of Powers Agreement Creating the SJHTCA," and Attachment B, the "Second Amended and Restated Joint Exercise of • Powers Agreement Creating the F/ETCA." The amended JPAs includes new language to do the following: a. Specifically authorize the Boards of Directors of the F/ETCA and the SJHTCA to join together to form a new joint- powers transportation corridor agency. Section 5.1 of the existing joint powers agreements state that the "Board is authorized to make or perform any agreement to join with said agencies (other major thoroughfare and bridge agencies) in the planning and implementation of said thoroughfares and bridges, when for any purpose otherwise permitted by law, the Board deems it appropriate." While it appears with this language that the boards have the authority to create a new consolidated JPA, the TCA Boards and staff considered it appropriate to request specific authorization from the member agencies because of the required changes in the voting structure. The specific language providing for this authorization is included in Section 2.3(m) of the amended JPAs (Attachment A and B). This added language specifically cites Government Code Sections 6500 et. Seq. as the legal authority (other than the existing agreements) for joining of the two JPA's. Section 6500 et. Seq. of the Government Code simply defines public agencies. In 1999, the state Legislature amended the Joint Exercise of Powers Act ( "JPA Act ") to include JPA's in the definition of public agencies. Section 6502 gives specific authority for JPAs to contract with each other. is Amended Joint Powers Agreements Report No. 13 November 14, 2002 File No. 2002J -022 Page 5 of 7 • b. Establish a 21- member Board of Directors, maintain the current two-thirds quorum requirement for board meetings, and establish a voting requirement of the lesser of 16 or 77% of the board members present to approve an item. Section 2.3 (m) of the amended JPA also establishes the board structure, maintains the use of alternates, and specifies voting requirements of the proposed consolidated agency. Both boards unanimously approved this structure in October. The supermajority voting requirement is necessary to ensure that the consolidated agency is not controlled by either existing agency as required by federal tax law. As stated in Section 2.3 (m): "A Joint Transportation Corridor Agency Agreement shall provide that: (i) the board of directors of such Joint Transportation Corridor Agency shall be composed of one (1) voting member appointed by the legislative body of each city that is a party to either or both this Agreement and the F/E Agreement from time to time, and three (3) voting members from the County of Orange, said members to be the duly elected supervisors for the Third, Fourth, and Fifth County of Orange Supervisorial Districts, (ii) each such board member shall also have an alternate appointed by the legislative body of the relevant City or the County appointing such board member consistent with this agreement, (iii) not less than two- thirds (2/3) of the members of such board shall constitute a quorum for the purposes of transaction of business relating to the Joint Transportation Corridor Agency, and (iv) such board may adopt any motion, resolution or order and take any other action they deem appropriate by a vote of the lesser • of (a) sixteen (16) such board members, (b) seventy -seven percent (77 %) of those board members present and qualified to vote, or (c) such lesser number or percentage of votes (but not less than a majority) that is the requisite vote necessary to maintain the tax - exempt status of debt issued by the Joint Transportation Corridor Agency, as supported by an opinion of a nationally recognized bond counsel selected by such board. c. Provide for administration of the Development Impact Fee program by the consolidated agency if the existing agencies decide to delegate such duty to the consolidated agency. Development Impact Fees are an important source of revenue that will continue to be used by the consolidated agency, if created, to repay construction debt already issued and to fund toll -road improvements. The amendment, as stated in Section 4, does not change the current Development Impact Fee program, but clarifies that the consolidated agency will be responsible for the program if the amended JPAs are adopted. Simply stated, the amended JPA allows the joint Transportation Corridor Agency to manage the funds collected pursuant to the fee program. d. Apply the indemnity, arbitration, and third -party beneficiary provisions of the existing Joint Powers Agreements to the consolidated agency. This means that member agencies will continue to be protected from debts, liabilities, and obligations of the joint transportation corridor agency, and that arbitration provisions outlined in the existing JPAs will apply to the consolidated agency. The indemnity provisions are stated in Section 8.2. The arbitration provisions are stated in Section 11.4. and the third -party • beneficiary provisions are stated in Section 11.9. Amended Joint Powers Agreements Report No. 13 November 14, 2002 File No. 2002) -022 Page 6 of 7 Next Steps • Approval of this item will allow staff to take the amended Joint Powers Agreements to the all TCA member agencies for approval as required to amend the JPAs. The amended JPAs give the SJHTCA and F/ETCA boards the authority to create a new, consolidated joint powers authority, as stated in the "Second Amended and Restated Joint Exercise of Powers Agreements" (Attachments A and B). The amendments require approval by three- quarters of the members of each agency -- 10 for SJHTCA and for 10 for F/ETCA. The County of Grange is one member agency for the purposes of this vote. Approval of the amended JPAs by the member agencies could take up to three months. It is important that the SJHTCA and the F/ETCA boards approve the amendment at this time to keep the consolidation process on schedule. It is also important that we know now whether the amended JPAs are acceptable before funds are spent on financial consultants needed to perform due diligence on the financial plan and acquisition of the existing TCAs' assets. The ratings agencies and financial markets are watching the TCAs for progress toward a long- term financial solution. Taking no action risks the possibility that the SJHTCA's bonds will be downgraded. While downgrades in and of themselves don't immediately affect toll -road drivers, they signal a loss of confidence by the market and can ultimately hurt the Agencies' future financing ability. By approving the recommendation, the boards are taking another step forward • and sending a strong signal to the markets that the agencies are committed to a long -term financial solution. Approval by TCA member agencies does not create the consolidated agency, but it establishes the legal groundwork for the creation of a new, consolidated agency only if the boards vote to proceed with consolidation next year. Before consolidation can occur, staff must develop a viable financial plan based on the results of the traffic and revenue study that is currently underway. Once the study is completed, staff will develop and bring back to the boards a viable financial plan for a consolidated agency in spring 2003. The SJHTCA and F/ETCA boards will then make the final decision on whether or not to proceed with formation of a new consolidated agency. The board of the consolidated agency will then consider the finance plan and decide whether to acquire the assets of the existing agencies. FUNDING: No funding required. CONCLUSION: Adopting the amendments to the existing Joint Powers Agreements specifically provides the existing agencies the authority to create a new, consolidated agency, establishes a 21- member • Board of Directors for the new consolidated agency, maintains the current 2/3 quorum, r� E • • Amended Joint Powers Agreements November 14, 2002 Report No. 13 File No. 2002) -022 Page 7 of 7 establishes a supermajority voting requirement, provides for the administration of the Development Impact Fee Program, and applies the indemnity, arbitration, and third -party beneficiary provisions of the existing JPAs. Adopting the amendments does not create the consolidated agency, but establishes the legal groundwork for the creation of a new, consolidated agency, only if the boards vote to proceed with consolidation next year. Once a draft financial plan is developed, staff will bring a financial plan for a consolidated agency to the boards in spring 2003 for final decision on whether or not to proceed with consolidation.