Case 6:12-bk-28006-MJ Doc 1837 Filed 05/27/16 Entered 05/27/16 21:36:07 Desc Main Document Page 1 of 157
1 PAUL R. GLASSMAN (State Bar No. 76536) FRED NEUFELD (State Bar No. 150759) 2 JAMES O. THOMA (State Bar No. 133329) MARIANNE S. MORTIMER (State Bar No. 296193) 3 KATHLEEN D. DeVANEY (State Bar No. 156444) STRADLING YOCCA CARLSON & RAUTH 4 A Professional Corporation 100 Wilshire Blvd., 4th Floor 5 Santa Monica, CA 90401 Telephone: (424) 214-7000 6 Facsimile: (424) 214-7010 E-mail: [email protected] 7 [email protected] [email protected] 8 [email protected] [email protected] 9 GARY D. SAENZ (State Bar No. 79539) 10 CITY ATTORNEY 300 North “D” STREET, Sixth Floor 11 San Bernardino, CA 92418 Telephone: (909) 384-5355 12 Facsimile: (909) 384-5238 E-mail: [email protected] 13 Attorneys for Debtor 14 City of San Bernardino
15 UNITED STATES BANKRUPTCY COURT 16 CENTRAL DISTRICT OF CALIFORNIA RIVERSIDE DIVISION 17 18 In re Case No. 6:12-bk-28006-MJ
19 CITY OF SAN BERNARDINO, Chapter 9 CALIFORNIA, 20 CITY’S SUBMISSION OF REDLINED Debtor. COMPARISON OF ITS THIRD AMENDED 21 DISCLOSURE STATEMENT OVER THE SECOND AMENDED DISCLOSURE 22 STATEMENT [DOCKET NO. 1774] 23 Hearing Date: June 16, 2016 24 Time: 1:30 p.m. Place: Courtroom 301 25 3420 Twelfth Street Riverside, CA 92501-3819 26
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STRADLING YOCCA CARLSON & RAUTH LAWYERS S ANTA MONICA DOCSSM/3026728v1/200430-0003 Case 6:12-bk-28006-MJ Doc 1837 Filed 05/27/16 Entered 05/27/16 21:36:07 Desc Main Document Page 2 of 157
1 TO THE HONORABLE MEREDITH A. JURY, UNITED STATES BANKRUPTCY JUDGE, AND ALL PARTIES IN INTEREST: 2 3 The City of San Bernardino, California (“City”) hereby submits the redlined comparison, 4 attached hereto as Exhibit 1, of its“Third Amended Disclosure Statement With Respect To The 5 Third Amended Plan For The Adjustment Of Debts Of The City Of San Bernardino, California 6 (May 27, 2016)” over the “Second Amended Disclosure Statement With Respect To The Second 7 Amended Plan For The Adjustment Of Debts Of The City Of San Bernardino, California (March 8 30, 2016)” [Docket No. 1774]. 9 10 Dated: May 27, 2016 STRADLING YOCCA CARLSON & RAUTH A Professional Corporation 11 12 By: /s/ Paul R. Glassman Paul R. Glassman 13 Fred Neufeld Attorneys for City of San Bernardino, 14 Debtor
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STRADLING YOCCA -1- CARLSON & RAUTH LAWYERS S ANTA MONICA SUBMISSION OF REDLINED COMPARISON OF DISCLOSURE STATEMENTS DOCSSM/3026728v1/200430-0003 Case 6:12-bk-28006-MJ Doc 1837 Filed 05/27/16 Entered 05/27/16 21:36:07 Desc Main Document Page 3 of 157
EXHIBIT 1 Case 6:12-bk-28006-MJThis Disclosure Statement Doc 1837 has not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore,05/27/16 the 21:36:07distribution of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be4 construedof 157 to be, the solicitation of votes on the Plan.
1 PAUL R. GLASSMAN (State Bar No. 76536) 2 FRED NEUFELD (State Bar No. 150759) JAMES O. THOMA (State Bar No. 133329) 3 MARIANNE S. MORTIMER (State Bar No. 296193) KATHLEEN D. DeVANEY (State Bar No. 156444) 4 STRADLING YOCCA CARLSON & RAUTH A Professional Corporation 5 100 Wilshire Blvd., 4th Floor Santa Monica, CA 90401 6 Telephone: (424) 214-7000 Facsimile: (424) 214-7010 7 E-mail: [email protected] [email protected] 8 [email protected] [email protected] 9 [email protected]
10 GARY D. SAENZ (State Bar No. 79539) CITY ATTORNEY 11 300 North “D” STREET, Sixth Floor San Bernardino, CA 92418 12 Telephone: (909) 384-5355 Facsimile: (909) 384-5238 13 E-mail: [email protected] 14 Attorneys for Debtor City of San Bernardino 15 UNITED STATES BANKRUPTCY COURT 16 CENTRAL DISTRICT OF CALIFORNIA 17 RIVERSIDE DIVISION
18 In re Case No. 6:12-bk-28006-MJ 19 CITY OF SAN BERNARDINO, Chapter 9 CALIFORNIA, 20 Debtor. SECONDTHIRD AMENDED DISCLOSURE 21 STATEMENT WITH RESPECT TO THE SECONDTHIRD AMENDED PLAN FOR THE 22 ADJUSTMENT OF DEBTS OF THE CITY OF SAN 23 BERNARDINO, CALIFORNIA (MARCH 30,MAY 27, 2016) 24 25 Hearing Date: April 27,June 16, 2016 Time: 1:30 p.m. 26 Place: Courtroom 301 3420 Twelfth Street 27 Riverside, CA 92501-3819 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS Case 6:12-bk-28006-MJ Doc 1837 Filed 05/27/16 Entered 05/27/16 21:36:07 Desc Main Document Page 5 of 157 TABLE OF CONTENTS
Page 1 2 I. INTRODUCTION 1 A. Purpose of the Disclosure Statement 4 3 B. Summary of Treatment of Claims and Other Information. 5 C. Summary of Entities Entitled to Vote on the Plan and of 4 Certain Requirements Necessary for Confirmation of the Plan 9 D. Voting Procedures, Balloting Deadline, Confirmation Hearing, 5 and Other Important Dates, Deadlines, and Procedures 10 1. Voting Procedures and Deadlines 10 6 2. Plan Confirmation Hearing Date and Deadlines for Objections to Confirmation of the Plan 1011 7 E. Important Notices and Cautionary Statements 12 F. Persons to Contact for Further Information 13 8 II. THE CITY’S FISCAL CHALLENGES LEADING TO ITS BANKRUPTCY FILING 13 9 A. The City’s Financial Problems Prior To Theto the Petition Date 1314 10 B. The City’s Attempts to Avoid Insolvency 15 C. The City Learns It Is Deeply Insolvent 16 11 D. The City’s Declaration of Fiscal Emergency and Filing of the Bankruptcy Case 18 12 E. Adoption of City’s Fiscal Emergency Plan 19 13 III. ADMINISTRATION OF THE BANKRUPTCY CASE 20 A. Implementation of the Pendency Plan 20 14 B. Eligibility Litigation 21 C. Mediations Conducted by Judge Gregg Zive 21 15 D. The City’s Pension Plan and the CalPERS Settlement 22 E. Settlement With Official Retiree Committee on Retiree Health Benefits 24 16 F. Litigation, and then Settlement, with the POB Creditors 27 G. Litigation, and then Settlements, with the City’s Labor Unions 28 17 H. Motions for Relief from Stay to Pursue or Commence Litigation 3132 I. Status of the City’s Audits 32 18 J. Development of the City’s Plan and Implementation of Measures to Increase Operational Efficiencies and Enhance Revenues 32 19 K. Filing of the City’s Plan and Disclosure Statement 34 20 IV. THE CITY’S LIABILITIES AND ASSETS 34 21 A. Liabilities and Claims 3435 1. Liabilities Listed by the City in Its List of Creditors 35 22 2. Proofs of Claim 35 3. General Unsecured Claims 36 23 4. Priority Unsecured Claims 3637 5. Secured Claims 37 24 6. Restricted Revenue Bond and Note Payable Claims 39 7. Other Bond Claims 41 25 8. Consenting Union Claims 46 9. Litigation Claims 46 26 10. Employee Wage and Benefit Claims 5052 11. Key Contractual Obligations 5053 27 12. Newmark Groundwater Contamination Consent Decree 5254 13. Environmental/Remediation Obligations 5255 28 14. Lease Obligations for Real Property 5355
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS i Case 6:12-bk-28006-MJ Doc 1837 Filed 05/27/16 Entered 05/27/16 21:36:07 Desc Main Document Page 6 of 157 TABLE OF CONTENTS Page 1 15. The PARS Claims 5356 2 16. Workers Compensation Liabilities. 55 58 17. Capital Maintenance Obligations 5559 3 18. Cash Balances of City Funds and Description of Restricted Funds 5761 19. Reservation of Rights on Allowance or Disallowance of Claims 5862 4 B. City Assets 5962 1. City Owned Sports Facilities 5962 5 2. Other Real and Personal Property Assets 6164 3. The Former RDA and the Successor Agency Assets 6165 6 V. SUMMARY OF THE PLAN OF ADJUSTMENT 6468 7 A. Classification and Treatment of Claims 6468 1. Unclassified Claims 6468 8 2. Classified Claims 6569 B. Treatment of Executory Contracts and Unexpired Leases 7679 9 1. Executory Contracts Generally 7679 2. Assumption and Assignment of Executory Contracts 7680 10 3. Rejection of Executory Contracts 7781 4. Deadline for the Assertion of Rejection Damage Claims; 11 Treatment of Rejection Damage Claims 7881 5. Amendments to Assumption, Assumption and Assignment or 12 Rejection of Contracts and Leases 78 C. Means for Execution and Implementation of the Plan 7882 13 1. Alternative Methods of Delivering Municipal Services 7982 2. Police Resources Plan 8690 14 3. Necessary Reinvestment in City Infrastructure and Services 9194 4. City Charter Reform 9598 15 5. Revenue Enhancement Measures 9699 6. City’s Continued Operations 99102 16 7. City’s Retention of Rights of Action 100103 D. Provisions Regarding Distributions Under the Plan 100103 17 1. Distribution Agent 100103 2. Delivery of Distributions 100103 18 3. Distributions of Cash 101104 4. Timeliness of Payments 101104 19 5. Compliance with Tax, Withholding, and Reporting Requirements 101104 6. Time Bar to Cash Payments 101104 20 7. No De Minimis Distributions 102105 8. Distributions of Unclaimed Property 102105 21 9. No Distributions on Account of Disputed Claims 102105 10. Certain Claims to be Expunged 103106 22 11. No Post-petition Accrual 103106 E. Disputed Claims 103106 23 1. Claims Objection; ADR Procedures; Prosecution of Objections 103106 2. Payments and Distributions with Respect to Disputed Claims 103106 24 F. Continuing Jurisdiction of the Bankruptcy Court 104107 VI.25 CONFIRMATION AND EFFECTIVENESS OF THE PLAN 104107 26 A. Voting on the Plan 104107 1. Who May Vote to Accept or Reject the Plan? 104107 27 2. Who Is Not Entitled to Vote? 105108 3. Vote Necessary to Confirm the Plan 105108 28 B. The “Best Interests” Test 105108 C. The Plan’s Payment of 1% on General Unsecured Claims 106109
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS ii Case 6:12-bk-28006-MJ Doc 1837 Filed 05/27/16 Entered 05/27/16 21:36:07 Desc Main Document Page 7 of 157 TABLE OF CONTENTS Page 1 D. Feasibility: The City’s Financial Model and The Bankruptcy Fund 110113 2 1. The Baseline Budget 114 2. Adjustments to the Baseline Budget Through New Revenues, 3 Service Delivery Efficiencies and Basic Level Service Recovery 115 3. The Debt Adjustment Component 116 4 4. The Bankruptcy Fund 116 E. Cramdown 114117 5 F. Effective Date 114118 1. Conditions to the Occurrence of the Effective Date 114118 6 2. Non-Occurrence of Effective Date 115119 G. Effect of Confirmation 115119 7 1. Discharge of the City 116119 2. Release by Holders of Pre-Confirmation Date Claims 116120 8 3. Injunction 117121 4. Term of Existing Injunctions and Stays 118121 9 5. Exculpation 118122 6. Comprehensive Settlement of Claims and Controversies 119123 10 7. Injunction Provisions of the Plan 119123 8. Agreements With the U.S. 125 11 VII. CERTAIN RISK FACTORS TO BE CONSIDERED 121126 12 A. Failure of Voters to Reauthorize Measure Z in 2021 122127 B. Failure of Annexation into the County Fire District 122127 13 C. Future Increases in CalPERS Rates 122127 D. Financial Projections 124129 14 VIII. INCOME TAX CONSEQUENCES 124129 15 IX. RECOMMENDATION 125130 16 17 18 19 20 21 22 23 24 25 26 27 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS iii Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 8construed of 157 to be, the solicitation of votes on the Plan.
1 I. INTRODUCTION 2 The City of San Bernardino, California (the “City”) filed a petition under Chapter 9 of Bankruptcy 3 Code on August 1, 2012 (the “Petition Date”), Case No. 6:12-28006-MJ (the “Bankruptcy Case”). This
4 “SecondThird Amended Disclosure Statement With Respect to the SecondThird Amended Plan for the 5 Adjustment of Debts of the City of San Bernardino, California” (“Disclosure Statement”) provides
6 important information to the holders of claims against the City regarding the City’s “SecondThird 7 Amended Plan for the Adjustment of Debts of the City of San Bernardino, California (March 30,May 27, 8 2016)” (“Plan”). A copy of the Plan is attached as Exhibit 1 to the Appendix of Exhibits accompanying 9 this Disclosure Statement (“Appendix”).1 10 This Disclosure Statement is being sent to you because the City is asking creditors to vote to 11 accept the Plan. The Bankruptcy Court has approved this Disclosure Statement as containing information 12 of a kind, and in sufficient detail, to enable creditors to make informed judgments about the Plan. The 13 information in this Disclosure Statement is presented as follows: Section II explains the events and 14 circumstances leading to the City’s filing of the Bankruptcy Case; Section III summarizes the significant 15 events that have occurred during the administration of the Bankruptcy Case; Section IV describes the 16 City’s assets and liabilities, including a description of the proofs of claim filed in the Bankruptcy Case; 17 Section V summarizes the classification and treatment of claims under the Plan and other important 18 information concerning the Plan; Section VI discusses the procedures for voting on the Plan and the legal 19 requirements for confirmation of the Plan; and Section VII presents a discussion of certain risk factors to 20 be considered in connection with the Plan. 21 As discussed in detail in this Disclosure Statement, the City commenced the Bankruptcy Case 22 when the City realized that it was at risk of running out of funds needed to provide essential municipal 23 services to City residents. The causes of the City’s bankruptcy are discussed in Section II. Today, the City 24 has in place settlements with most of its principal creditors, those settlements are all incorporated into the 25 Plan, and the City has made significant progress at restructuring the delivery of municipal services. The
26 City’s settlement with the California Public Employees’ Retirement System (“CalPERS”) regarding the
27 City’s continued funding of employee pension benefits is discussed in Section IIIII.AD. The City’s 28 1 For convenience of the parties the Plan has been separately filed, as has a supplement to the Appendix that contains several new or revised Exhibits (the “Supplemental Appendix”).
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 1 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 9construed of 157 to be, the solicitation of votes on the Plan.
1 settlement with the official Retiree Committee regarding the continued funding of retiree pensions and the 2 restructuring of retiree health benefits is discussed in Section III.E. The City’s settlements with the police, 3 firefighters and other employee unions are discussed in Section III.G, IV.A.8 and V.A.2.j. The City’s 4 settlements with the bondholders who own City issued bonds are discussed in Section III.F and V.A.2.l. 5 The City’s plan to annex into the San Bernardino County Fire Protection District (“County Fire”) and 6 have County Fire provide fire suppression and emergency medical response services instead of the current 7 City Fire Department is discussed in Section V.C.1.a. The City’s contracting out of solid waste and 8 recycling, sweeping and right-of way clean up services to Burrtec Waste Industries, Inc. (“Burrtec”) is 9 discussed in Section V.C.5. The City’s insurance coverage for personal injury claims is discussed in
10 Section V.C.1.b. The City’s revised Long Term 20-Year Financial Model (the “Financial Model”) in 11 support of the financial feasibility of the Plan is attached as Exhibit 3 to the supplemental Appendix and 12 discussed in Section VI.D. Other settlements and restructuring efforts are discussed throughout this 13 Disclosure Statement. 14 The Plan represents a major step forward for the City in its efforts to exit bankruptcy and breathe
15 new life into the City’s economy. All of the City’s principal creditor constituencies that initially 16 opposed the City’s restructuring efforts now support the Plan. That includes the City’s police, fire 17 and other unions, the official Retirees Committee and CalPERS and the holder of the City’s bonds. The 18 City reached a comprehensive settlement with CalPERS, the unions and the Retiree Committee which
19 provides that, if the Plan is confirmed, the City will continue to make its payments and comply with 20 its other obligations to CalPERS, thereby preserving, not reducing, employee and retiree pension 21 benefits. As part of those settlements, employees have agreed to contribute more to their pension plans 22 and to make certain other employee benefit concessions, and the Retiree Committee has agreed to the 23 restructuring of retiree health benefits changes that went into effect on January 1, 2015 – all to help the 24 City dig out from its financial insolvency while preserving pension benefits. The Plan also has the 25 support of all of the holders of the City’s bonds, and the holders of the City’s pension obligation bonds
26 have recently agreed to take a substantial reduction on their claims as well. Under the Plan, the City’s 27 creditors are making substantial sacrifices to help get the City back on its feet. 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 2 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 10 construed of 157 to be, the solicitation of votes on the Plan.
1 Every dollar of savings from the compromises with the City’s creditors is going into 2 rebuilding the City’s badly depleted infrastructure and modernizing the delivery of municipal 3 services. Within the last year, the City completed a Strategic Plan with input from City residents and 4 businesses, which formed the basis for the City’s recovery plan submitted as an exhibit to the City’s 5 original disclosure statement in May 2015. In November 2015, the City developed a Police Services Five 6 Year Resources Plan to rebuild, modernize and properly equip the Police Department to make a 7 significant dent in reducing crime in the City, and has budgeted $17.6 million to implement that five year 8 plan. That money will go to hiring new police officers (the number of officers is 30% less today than in 9 2009), modernizing the Police Department’s technology and replacing the department’s aging fleet of 10 vehicles. A copy of the Staff Report for the Five-Year Police Resources Plan is included in the Appendix 11 at Exhibit 11, and parties are encouraged to review it. All the evidence shows that reducing crime will not 12 only positively impact the daily lives of the City’s residents, but will also stimulate economic 13 development, and the resulting higher tax revenues will enable the City to renew funding City services 14 that were cut back before and during the Bankruptcy Case. The Financial Model on which the Plan is 15 based also budgets funds for road and street maintenance and repair, building upgrades, parks, libraries, 16 community centers and other essential services which have been neglected for a long time due to the lack 17 of funds. 18 The Plan, and the City’s settlement with the union representing the City’s firefighters, will allow 19 the City to provide better firefighting and emergency medical response (“EMR”) services by annexing the 20 City into the County Fire District and utilizing the greater and more modern capacity of the County Fire 21 District to provide City residents with fire and EMR services. The City’s current firefighters will be 22 transitioning over to County employment, and their cooperation in this process, and the concessions they 23 have made, has saved the City substantial sums of money. In addition to replacing the City Fire
24 Department to provide better services at lower cost, the City is contractinghas contracted for the delivery 25 of solid waste and recycling, sweeping and right-of-way cleanup services to a private contractor, Burrtec
26 Waste Industries (“Burrtec”), which decision had the support of the affected City employees. Every dollar 27 of savings from regionalizing or contracting out City services (including in other areas under 28 consideration) is going to rebuilding the City and improving the delivery of other City services.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 3 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 11 construed of 157 to be, the solicitation of votes on the Plan.
1 The City has a long road ahead of it to reach a level of municipal services the residents are entitled 2 to expect. The Plan and the Financial Model on which it is based dedicate as much as the City’s resources 3 as they can to providing municipal services to City residents to reach reasonable levels of services over 4 time. That leaves very little to pay creditor claims. Under the Plan, the City will make a distribution of 5 1% on General Unsecured Claims, because City municipal services were cut to the bone in the years 6 before the Petition Date and in the early days of the Bankruptcy Case, and the City needs to dedicate every 7 dollar available to it to rebuild those municipal services. A description of how much the City was forced 8 to cut back due to lack of funds is discussed in Section III.J below. 9 All creditors will be better off with the City thriving again, in terms of safer streets, more jobs and 10 greater opportunity. Confirmation of the Plan and the consequent City exit from bankruptcy is a major 11 step in that direction. The City asks all creditors, including retirees, who receive Ballots to take the time 12 to check the box for accepting the Plan and return the Ballot to the Ballot Tabulator. 13 A. Purpose of the Disclosure Statement 14 The Bankruptcy Code requires that the proponent of a plan of adjustment prepare and file a 15 disclosure statement that provides information of a kind, and in sufficient detail, that would enable a 16 typical holder of claims in a class impaired under that plan to make an informed judgment with respect to 17 the plan. This Disclosure Statement provides such information. Creditors and parties in interest should 18 read this Disclosure Statement, the Plan, and all of the exhibits and any supplements accompanying
19 these documents in their entirety in order to ascertain how the Plan will affect creditor claims against 20 the City and how to cast a ballot with respect to the Plan. 21 This Disclosure Statement cannot and does not provide creditors with legal, tax or other advice or 22 inform such parties of all aspects of their rights. Claimants are advised to consult with their attorneys 23 and/or financial advisors to obtain more specific advice regarding how the Plan will affect them and 24 regarding their best course of action with respect to the Plan. In addition, retirees are advised to consult 25 with the Retiree Committee.
26 This Disclosure Statement has been prepared in good faith and in compliance with applicable 27 provisions of the Bankruptcy Code. Based upon information currently available, the City believes that the 28 information contained in this Disclosure Statement is correct as of the date of its filing. This Disclosure
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 4 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 12 construed of 157 to be, the solicitation of votes on the Plan.
1 Statement, however, does not and will not reflect some events that may occur after Bankruptcy Court 2 approval of the Disclosure Statement, and the City presently does not intend to prepare or distribute any 3 supplements to reflect such events. 4 As required by the Bankruptcy Code, the Plan classifies the claims of the City’s creditors into 5 classes based upon the different legal rights of creditors, and proposes to pay each class of creditors in 6 accordance with the City’s financial ability. The City must continue to provide its citizens with basic 7 essential services, maintain its streets and buildings, and create an environment in which its residents can 8 safely live and work. In order to do so, the Plan has no choice but to impair certain of the City’s creditor’s 9 claims to provide the City with a feasible financial foothold going forward. The City believes that the 10 financial restructuring set forth in the Plan represents the best option for the City to achieve this outcome, 11 and to return the City to solvency. 12 For the reasons set forth in this Disclosure Statement, the City believes that the Plan provides the 13 greatest and earliest possible recoveries to creditors while preserving necessary City services and 14 operations. Acceptance of the Plan is in the best interests of creditors as well as the best interests of the 15 City’s residents and businesses. The alternative to accepting the Plan is only additional delay, uncertainty, 16 expense, litigation, and, ultimately, smaller or no distributions to creditors. Therefore, the City urges that 17 you cast your ballot in favor of the Plan. 18 B. Summary of Treatment of Claims and Other Information. 19 The following chart summarizes key information about the Plan and this Disclosure Statement,
20 including the proposed treatment of the various classes of claims. Please do not rely on the chart alone. 21 The Disclosure Statement has important information that is not contained in the chart and that 22 may influence your decision regarding whether to vote to accept the Plan. Please thoroughly read 23 this entire document and the accompanying materials. 24 25
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SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 5 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 13 construed of 157 to be, the solicitation of votes on the Plan.
1 Debtor City of San Bernardino, California. 2 Bankruptcy Court United States Bankruptcy Court for the Central District of 3 California, Riverside Division, The Honorable Meredith A. Jury presiding. 4 Plan SecondThird Amended Plan For The Adjustment Of Debts Of 5 The City Of San Bernardino, California (March 30, 2016). 6 Purpose of the Disclosure To provide information of a kind, and in sufficient detail, that Statement would enable a typical holder of claims in a Class Impaired under 7 the Plan to make an informed judgment with respect to voting on the Plan. 8 9 Balloting Information Ballots have been provided with this Disclosure Statement to creditors known to have claims that are Impaired under the Plan. 10 Ballots must be returned to and received by the Ballot Tabulator by no later than [___] p.m., Pacific Time, on [______, 11 2016]. Objections to confirmation also must be filed and served by no later than [______, 2016]. 12 Rust Consulting/Omni Bankruptcy, 5955 De Soto Avenue, Suite 13 Ballot Tabulator 100, Woodland Hills, CA 91367 14 Confirmation Hearing and A hearing regarding confirmation of the Plan will be held by the Confirmation Objections Bankruptcy Court on [______, [2016], commencing at 15 [______] a.m./p.m., Pacific Time. 16 Treatment of Claims If the Bankruptcy Court confirms the Plan and the Plan becomes effective, claims will be treated as follows: 17 Administrative Claims Post-petition claims meeting the definition of Administrative 18 Claims will be paid in full, except to the extent that the holder of an Administrative Claim agrees to different treatment. 19 Class 1 Claims: Impaired. This Class is comprised of approximately $6 million of 20 1996 Refunding Bonds Claims relating to the 1996 Refunding Bonds. These Claims will Claims be paid in accordance with the terms of the 1996 Trust Indenture, 21 as amended by the 1996 Refunding Bonds Amendment, and the 1996 Refunding Bond Agreements (City Hall), which the City will 22 assume on the Effective Date. As part of those amendments, a surety will replace funds held in a “Reserve Fund” (as such term is 23 defined in the 1996 Trust Indenture), with such funds to be released to the City for use for capital expenditure purposes in 24 accordance with federal tax covenants. 25 Class 2 Claims: Impaired. This Class is comprised of approximately $7.9 million 1999 Refunding of Claims relating to the 1999 Refunding Certificates of 26 Certificates of Participation. These Claims will be paid in accordance with the Participation Claims terms of the 1999 Trust Agreement, as amended by the 1999 27 Refunding Certificates of Participation Amendment, and the 1999 Refunding Certificates of Participation Agreements (Police 28 Station/201 North E Street/South Valle), which the City will assume (as amended by the 1999 Refunding Certificates of
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 6 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 14 construed of 157 to be, the solicitation of votes on the Plan.
1 Participation Amendment) on the Effective Date. As part of the amendments and assumptions provided for in the 1999 Refunding 2 Certificates of Participation Amendment, the Police Station Lease will be prepaid in full from funds in the Capital Reserve Fund and 3 the debt service Reserve Fund (as such terms are defined in the 1999 Trust Agreement), and the City will redeem an amount of the 4 1999 Refunding Certificates of Participation equal to the principal components of the Police Station Lease payments to be paid. 5 Upon such prepayment, the Police Station Lease will be terminated, and thereafter, neither the JPFA, National nor the 1999 6 Refunding Certificates of Participation Trustee will have any interest in the Police Station. In addition, once the Police Station 7 Lease payments have been made, the City will have the right to use any excess funds in the Capital Reserve Fund for capital 8 expenditure purposes in accordance with federal tax covenants. Class 3 Unimpaired. This Class is comprised of Claims held by 9 Secured Claims: CIEDB with respect to the Harriman Project. These Claims CIEDB Harriman will be paid in accordance with those CIEDB Documents 10 Project Claims relating to the CIEDB’s financing of Harriman Project. 11 Class 4 Unimpaired. This Class is comprised of Claims held by Secured Claims: CIEDB with respect to the Pavement Project. These Claims 12 CIEDB Pavement will be paid in accordance with those CIEDB Documents Project Claims relating to the CIEDB’s financing of the Pavement Project. 13 Class 5 Impaired. This Class includes the claims of Western Alliance 14 Secured Claims: Equipment Finance, Inc. in relation to the Police Station AC Police Station AC Financing Agreement. Under the Plan, the collateral securing 15 Financing Claims the City’s payment obligations under the Police Station AC Financing Agreement will be relinquished to Western Alliance, 16 the City will have no further obligations under the Police Station AC Financing Agreement, and Western Alliance will 17 have a General Unsecured Claim for any unpaid amounts due under the Police Station AC Financing Agreement 18 (approximately $475,000). 19 Class 6 Impaired. The maturity date with respect to the Burgess Secured Claims: Documents is in 2019, at which time a large balloon payment 20 Burgess Claims (approximately $1.1 million) is due to Burgess. Under the Plan, the Burgess Documents will be amended to extend the 21 maturity date until 2022, and the balloon payment will be amortized over that 3-year period with interest continuing to 22 accrue through the new maturity date on the unpaid principal balance at the current interest rate set forth in the Note (5%) 23 which will be paid on January 1 and July 1 of each ear of the 3 year extend period. The Burgess Documents will also be 24 amended to provide that Burgess has granted the City the option until April 30, 2017 to pay the principal amount due 25 under the Note at a 10% discount (the “Discounted Payoff”), plus all accrued and unpaid interest at the rate set forth in the 26 Note through the date that the Discounted Payoff payment is made. If the Discounted Payoff payment (plus all accrued and 27 unpaid interest at the rate set forth in the Note) is not made on or before April 30, 2017, the option will expire automatically 28 without any action required by Burgess. The City plans to
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 7 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 15 construed of 157 to be, the solicitation of votes on the Plan.
1 exercise its option to make the Discounted Payoff payment in June 2016. 2 3 Class 3 Unimpaired. This Class is comprised of Claims held by CIEDB Secured Claims: with respect to the Harriman Project. These Claims will be paid in 4 CIEDB Harriman accordance with those CIEDB Documents relating to the CIEDB’s Project Claims financing of Harriman Project. 5 Class 4 Unimpaired. This Class is comprised of Claims held by CIEDB 6 Secured Claims: with respect to the Pavement Project. These Claims will be paid in CIEDB Pavement accordance with those CIEDB Documents relating to the CIEDB’s 7 Project Claims financing of the Pavement Project. 8 Class 5 Impaired. This Class includes the claims of Western Alliance Secured Claims: Equipment Finance, Inc. in relation to the Police Station AC 9 Police Station AC Financing Agreement. Under the Plan, the collateral securing the Financing Claims City’s payment obligations under the Police Station AC Financing 10 Agreement will be relinquished to Western Alliance, the City will have no further obligations under the Police Station AC Financing 11 Agreement, and Western Alliance will have a General Unsecured Claim for any unpaid amounts due under the Police Station AC 12 Financing Agreement (approximately $475,000). 13 Class 6 Impaired. The maturity date with respect to the Burgess Secured Claims: Documents is in 2019, at which time a large balloon payment 14 Burgess Claims (approximately $1.1 million) is due to Burgess. Under the Plan, the Burgess Documents will be amended to extend the maturity 15 date until 2022, and the balloon payment will be amortized over that 3-year period (subject to the parties’ agreement to a complete 16 payoff of the Burgess Obligations on an earlier date, at a discount). In addition, in connection with the City’s intended annexation to 17 the County, the City will sublease the real property located at 120 South D Street (the Fire Department maintenance facility) to 18 County Fire. All other payment terms will remain as presently stated pursuant to the Burgess Documents. 19 Class 7 Unimpaired. The City will continue to apply restricted revenues 20 to pay the Restricted Revenue Bond and Notes Payable Claims on Restricted Revenue Obligations, including to pay the approximate $3.4 million due on 21 Bond and Note Payable the 1998 Refunding Certificates of Participation and the Obligations approximate $1.7 million due on the CSWRCB Revenue Bond 22 Claim, in the ordinary course of business pursuant to the applicable documents. In addition, the City will assume the 1998 23 Refunding Certificates of Participation Agreements (Sewer). 24 Class 8 Unimpaired. The Claims of CalPERS will be paid in accordance CalPERS Claims with the City’s settlement agreement with CalPERS and all terms 25 of the settlement agreement are be deemed incorporated into the Plan. The settlement agreement provides for, among other things, 26 (i) payment of certain arrearages to CalPERS; (ii) payment of certain additional administrative costs of CalPERS; and (iii) a 27 covenant not to impair CalPERS under the Plan. Notwithstanding anything in the Plan to the contrary, nothing in the Plan is intended 28 to or does impair or interfere with the rights of the City and CalPERS under the CalPERS Interim AgreementMediator’s
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 8 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 16 construed of 157 to be, the solicitation of votes on the Plan.
1 Order. 2 Class 9 Impaired. With respect to the claims of PARS Participants in PARS Claims relation to the PARS Plans, the City proposes the followingThe 3 City has entered into a settlement with the holders of the PARS Claims. Pursuant to the settlement: (i) the PARS Plans 4 will be rejected, and the City will waive any and all claims to the funds held within the PARS Trust and the 415 Trust as of the date 5 of termination of the PARS Plans, (ii) the amounts remaining in the PARS Trust and the 415 Trust (approximately $1.92 million) 6 will be distributed to the PARS Participants pursuant to agreed-upon allocations, and the City will endeavor to make each 7 such distributions in a manner that will minimize adverse tax consequences for each PARS Participant, (iii) each PARS 8 Participant will have a General Unsecured Claim for the unfunded liability owed by the City under each respective PARS Plan as of 9 the date distributions are madethe City will make a distribution of $290,000.00 on the later of the Effective Date or July 5, 10 2017, and a distribution $290,000.00 on the later of the Effective Date or July 5, 2018, in each case to the PARS 11 Participants pursuant to agreed-upon allocations, and (iv) the City will be discharged from any and all obligations to further fund 12 any PARS Plan. The Claims of the PARS participants for the unfunded liability (approximately 13 $2.97 million) are included in Class 13 General Unsecured or to make any other distributions on account of the PARS Claims. 14 If the holders of the Class 9 Claims vote to reject the Plan, then the legal, equitable and contractual rights to which the Class 9 Claims 15 entitle the Holders will be the subject of the claims allowance procedures. 16 Class 10 Impaired. The City has entered into settlements with all but one 17 Consenting Union of the unions representing its seven bargaining units that establish Claims the amount of the claim of each union and its members (and 18 anticipates settlement with the last union prior to the hearing on the Disclosure Statement). The Consenting Union Claims are 19 Claims Class 13 General Unsecured Claims for all purposes, including for voting of, and distributions, on the claims. 20 Class 11 Impaired. Under the Plan, the holders of the Retiree Health 21 Retiree Health Benefit Benefit Claims will receive the rights and benefits set forth in the Claims Retiree Settlement, including that their pension benefits will not be 22 impaired, but retiree health benefits have been modified. 23 Class 12 Impaired. The POB Claims will be paid in accordance with the POB Claims settlement between the City and the POB Creditors. Pursuant to 24 the terms of that settlement, the City will make installment payments over a thirty-year term, starting one year after the City’s 25 Plan is confirmed. The City will make payments of $1 million to $2.5 million per fiscal year until 2046 instead of the $3.3 million 26 to $4.7 million per fiscal year owed under the terms of the 2005 pension bond agreement. The payments constitute a 40% recovery 27 on the POB Claims, in full settlement of the litigation commenced by the POB Creditors regarding the payment priority of their 28 claims, and the POB Creditors now support confirmation of the
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 9 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 17 construed of 157 to be, the solicitation of votes on the Plan.
1 Plan. 2 Class 13 Impaired. On the Effective Date of the Plan or as soon as General Unsecured reasonably practicable after the Effective Date, Holders of 3 Claims Allowed Class 13 General Unsecured Claims will receive a 1% distribution on their claims. 4 Class 14 Impaired. Within 30 days after the Effective Date, each holder 5 Convenience Class of an Allowed Convenience Class Claim will receive the lesser Claims of the Allowed amount of the Claim or $100 at the election of 6 the holder of the Allowed Convenience Class Claim. 7 Questions: Questions can be submitted electronically on the City’s Chapter 9 website (www.sanbernardinochapter9.com) or by 8 calling 800-572-9583 and leaving a message. All questions will receive a prompt response. 9 Class 14 Impaired. Within 30 days after the Effective Date, each holder of 10 an Allowed Convenience Class Claim will receive the lesser of the Convenience Class Allowed amount of the Claim or $100 at the election of the holder 11 of the Allowed Convenience Class Claim. Claims 12 Questions: Questions can be submitted electronically on the City’s Chapter 9 13 website (www.sanbernardinochapter9.com) or by calling 800-572-9583 and leaving a message. All questions will receive a 14 prompt response. 15 Many capitalized terms are used and defined in this Disclosure Statement and in the Plan. 16 Capitalized terms used but not defined in this Disclosure Statement have the meaning ascribed to them in 17 the Plan. 18 19 C. Summary of Entities Entitled to Vote on the Plan and of Certain Requirements Necessary for Confirmation of the Plan 20 Holders of Allowed Claims in the following Classes are entitled to vote on the Plan because the 21 Claims in each such Class are “Impaired” under the Plan within the meaning of section 1124 of the 22 Bankruptcy Code: Class 1 – 1996 Refunding Bonds Claims; Class 2 – 1999 Refunding Certificates of 23 Participation Claims; Class 5 – Police Station AC Financing Claims; Class 6 – Burgess Claims; Class 9 – 24 PARS Claims; Class 10 - Consenting Union Claims; Class 11 – Retiree Health Benefit Claims; Class 12 – 25 POB Claims; Class 13 – General Unsecured Claims; and Class 14 – Convenience Class Claims. Class 26 10 (Consenting Union Claims) and Class 11 (Retiree Health Benefit Claims) are created for claim 27 description purposes only and are Class 13 General Unsecured Claims for all other purposes under 28 this Plan, including for voting on the Plan and for distributions under a confirmed Plan.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 10 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 18 construed of 157 to be, the solicitation of votes on the Plan.
1 The Bankruptcy Court may confirm the Plan only if at least one Class of Impaired Claims has 2 voted to accept the Plan and if certain other legal requirements are met with respect to Classes of creditors 3 who do not vote to accept the Plan, and with respect to individual creditors who do not vote to accept the 4 Plan. A Class of Impaired Claims has accepted the Plan only when more than one-half in number and at 5 least two-thirds in dollar amount of the Allowed Claims voting in that Class vote in favor of the Plan. 6 In the event of a rejection of the Plan by any of the voting Classes, the City will request that the 7 Bankruptcy Court confirm the Plan in accordance with the “cramdown” provisions of section 1129(b) of 8 the Bankruptcy Code applicable to the Bankruptcy Case. These provisions permit confirmation of the 9 Plan notwithstanding rejection of the Plan by any of the voting Classes if the Bankruptcy Court finds, 10 among other things, that the Plan does not discriminate unfairly and is fair and equitable with respect to 11 each rejecting Impaired Class. Other sections of this Disclosure Statement provide a more detailed 12 description of the requirements for acceptance and confirmation of the Plan. 13 D. Voting Procedures, Balloting Deadline, Confirmation Hearing, 14 and Other Important Dates, Deadlines, and Procedures 15 1. Voting Procedures and Deadlines 16 The City has provided copies of this Disclosure Statement, the Plan, Appendix and Ballots to all 17 known holders of Impaired Claims in the voting Classes. Those holders of an Allowed Claim as of 18 ______, 2016 in each of the voting Classes who seek to vote to accept or reject the Plan must accurately 19 complete a Ballot and return it to the Court-appointed Ballot tabulator, Rust Consulting/Omni 20 Bankruptcy, 5955 De Soto Avenue, Suite 100, Woodland Hills, CA 91367 (the “Ballot Tabulator”), so 21 that their Ballots actually are received by no later than the Balloting Deadline (as defined in the following 22 paragraph). The ballots must be returned directly to the Ballot Tabulator, not to the Bankruptcy Court. 23 Note that Ballots do not constitute proofs of claim. 24 All Ballots must be completed, signed, returned to, and actually received by the Ballot Tabulator 25 by not later than ______, 2016, at 5:00 p.m. Pacific Time (the “Balloting Deadline”). Ballots
26 received after the Balloting Deadline, and Ballots returned directly to the Bankruptcy Court rather 27 than to the Ballot Tabulator, will not be counted in connection with confirmation of the Plan. 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 11 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 19 construed of 157 to be, the solicitation of votes on the Plan.
1 2. Plan Confirmation Hearing Date and Deadlines for 2 Objections to Confirmation of the Plan 3 The hearing to determine whether the Bankruptcy Court will confirm the Plan (the “Confirmation 4 Hearing”) will commence on [______], 2016 at [______] [a.m./p.m.] before the Honorable 5 Meredith A. Jury, United States Bankruptcy Judge for the Central District of California, in Courtroom 301 6 of the United States Courthouse, 3420 Twelfth Street, Riverside, California 92501. The Confirmation 7 Hearing may be continued from time to time, including by announcement in open court, without further 8 notice. 9 Any objections to confirmation of the Plan must be filed with the Bankruptcy Court and served on
10 the following entities so as to be actually received by each of them no later than ______, 2016: (i) 11 City Attorney’s Office, 300 North “D” Street, Sixth Floor, San Bernardino, CA 92418, Attention: Gary 12 D. Saenz, City Attorney (the City); (ii) Stradling Yocca Carlson & Rauth, P.C., 100 Wilshire Blvd., 4th 13 Floor, Santa Monica, CA 90401, Attention: Paul R. Glassman, Fred Neufeld and Marianne S. Mortimer 14 (counsel to the City); (iii) Bienert, Miller & Katzman, PLC, 903 Calle Amanecer, Suite 350, San 15 Clemente, CA 92673, Attention: Steven J. Katzman, Anthony Bisconti and Anne A. Uyeda (counsel to 16 the Retiree Committee), (iv) Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, NY 10153 17 Attention: Debra A. Dandeneau (counsel to National Public Guarantee Finance Corporation); (v) Paul 18 Aronzon, Linda Dakin-Grimm, Thomas Kreller, Milbank, Tweed, Hadley & McCloy LLP, 601 South 19 Figueroa Street, 30th Floor, Los Angeles, CA 90017 (counsel to Ambac Assurance Corporation); (vi) 20 Ballard Spahr LLP, 1735 Market Street, 51st Floor, Philadelphia, PA 19103-7599 Attention: Vincent J. 21 Marriott, III (counsel to COMMERZBANK Finance & Covered Bond S.A f/k/a/ Erste Europäische 22 Pfandbriefund Kommunalkreditbank AG in Luxemburg); (vii) K&L Gates LLP, 10100 Santa Monica 23 Boulevard, Seventh Floor, Los Angeles, California 90067, Attention: Michael B. Lubic (counsel to the 24 California Public Employees’ Retirement System); (viii) Felderstein Fitzgerald Willoughby & Pascuzzi
25 LLP, 400 Capitol Mall, Suite 1750, Sacramento, California 95814 Attention: Jason RiosSteven 26 Felderstein (counsel to the California Public Employees’ Retirement System); (ix) Duane Morris LLP, 27 One Market Plaza, Spear Street Tower, Suite 2200, San Francisco, CA 94105-1127 Attention: Ron M. 28 Oliner (counsel to the San Bernardino Police Officers Association); and (x) San Bernardino City
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 12 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 20 construed of 157 to be, the solicitation of votes on the Plan.
1 Professional Firefighters, Local 891, SulmeyerKupetz, APC, 333 S. Hope St., 35th Floor, Los Angeles, 2 CA 90071 Attention: David M. Goodrich (counsel to the San Bernardino City Professional Firefighters, 3 Local 891). Objections that are not timely filed and served may not be considered by the Bankruptcy 4 Court. Please refer to the accompanying notice of the Confirmation Hearing for specific requirements 5 regarding the form and nature of objections to confirmation of the Plan. 6 E. Important Notices and Cautionary Statements 7 The historical financial data relied on in preparing the Plan and this Disclosure Statement is based 8 upon the City’s books and records. Although certain professional advisors of the City assisted in the 9 preparation of this Disclosure Statement, in doing so such professionals relied upon factual information 10 and assumptions regarding financial, business, and accounting data provided by the City and third parties. 11 The status of the City’s financial audits is discussed below in Section III.I. 12 The City’s professional advisors have not independently verified the financial information 13 provided in this Disclosure Statement, and, accordingly, they make no representations or warranties as 14 to its accuracy. Although reasonable efforts have been made to provide accurate information, the City 15 does not warrant or represent that the information in this Disclosure Statement, including any and all 16 financial information and projections, is without inaccuracy or omissions, or that actual values or 17 distributions will comport with the estimates set forth herein. 18 No entity may rely upon the Plan or this Disclosure Statement or any of the accompanying 19 exhibits for any purpose other than to determine whether to vote in favor of or against the Plan. 20 Nothing contained in such documents constitutes an admission of any fact or liability by any party, and no 21 such information will be admissible in any proceeding involving the City or any other party, nor will this 22 Disclosure Statement be deemed evidence of the tax or other legal effects of the Plan on holders of claims 23 in the Bankruptcy Case. This Disclosure Statement is not intended to be a disclosure communication to 24 the public capital markets and should not be relied upon by investors as such in determining whether to 25 buy, hold, or sell any securities of the City or related entities.
26 Certain information included in this Disclosure Statement and its exhibits contains 27 forward-looking statements. The words “believe,” “expect,” “anticipate,” and similar expressions identify 28 such forward-looking statements. The forward-looking statements are based upon information available
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 13 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 21 construed of 157 to be, the solicitation of votes on the Plan.
1 when such statements are made and are subject to risks and uncertainties that could cause actual results to 2 differ materially from those expressed in the statements. A number of those risks and uncertainties are 3 described below. Readers are cautioned not to place undue reliance on the forward-looking statements in 4 this Disclosure Statement. The City undertakes no obligation to publicly update or revise any 5 forward-looking statements, whether as a result of new information, future events, or otherwise. This 6 Disclosure Statement is not required to be submitted to the Securities and Exchange Commission (“SEC”) 7 or any other regulatory agency or body for approval, and has not been approved, disapproved or 8 determined to be adequate, accurate, truthful, or complete by the SEC or any other regulatory agency or 9 body. 10 F. Persons to Contact for Further Information 11 If you have questions about the procedures for voting on the Plan, want another copy of a ballot, or 12 seek further information about the timing and deadlines with respect to confirmation of the Plan, please 13 write to either: (1) City of San Bernardino Plan of Adjustment, c/o Rust Consulting/Omni Bankruptcy, 14 5955 De Soto Avenue, Suite 100, Woodland Hills, CA 91367; or (2) Stradling Yocca Carlson & Rauth, 15 P.C., 100 Wilshire Blvd., 4th Floor, Santa Monica, CA 90401, Attention: Paul R. Glassman, Fred 16 Neufeld and Marianne S. Mortimer (facsimile: 424-214-7010; Email: [email protected], 17 [email protected] or [email protected]). Please note that counsel for the City cannot and will not 18 provide creditors with any legal advice, including advice regarding how to vote on the Plan or the effect 19 that confirmation of the Plan will have upon claims against the City. For additional information, retirees 20 should contact the Retiree Committee. Counsel to the Retiree Committee is Bienert, Miller & Katzman, 21 PLC, Attn: Steven J. Katzman, Anthony Bisconti and Anne A. Uyeda, 903 Calle Amanecer, Suite 350, 22 San Clemente, CA 92673, phone (949) 369-3700.
23 II. THE CITY’S FISCAL CHALLENGES LEADING TO ITS BANKRUPTCY FILING 24 The City is a municipal corporation formed and organized under the City Charter and the 25 California Constitution. It is governed by a seven-member Common Council and a Mayor elected by
26 popular vote. The City has approximately 213,000 residents, serves as the county seat for San Bernardino 27 County, and occupies an area of approximately 59 square miles. 28 A. The City’s Financial Problems Prior To Theto the Petition Date
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 14 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 22 construed of 157 to be, the solicitation of votes on the Plan.
1 Beginning in the 1980s, the City faced a number of economic challenges such as job losses from 2 the closure of several major employers in the area like Kaiser Steel and the Santa Fe Rail Yard, as well as 3 the loss of business generated by people traveling between Los Angeles and Las Vegas after Interstate 15 4 was re-routed roughly fifteen miles west of the City. In 1995, another economic blow hit the City when 5 Norton Air Force Base closed as part of the United States’ Base Closure and Realignment Act which 6 resulted in the loss of a significant number of jobs. 7 The housing construction boom of the early to mid-2000s led to speculation in the residential 8 housing market, and San Bernardino experienced an influx of people seeking housing more affordable 9 than that available in Los Angeles, Orange and San Diego Counties. The new home construction and real 10 estate boom provided a boost to the City’s economy, but also increased the demand for services. When 11 the real estate boom went bust and the Great Recession hit, San Bernardino was particularly hard hit. 12 Between 2007 and 2012, San Bernardino residential housing prices plummeted resulting in 13 significantly lower property tax revenues. Speculation in San Bernardino’s housing market made it 14 particularly vulnerable when the housing bubble burst, and the Riverside-San Bernardino-Ontario metro 15 area had one of the nation’s highest foreclosure rates in 2012. San Bernardino’s foreclosure rate was 3.5 16 times greater than the national average in 2012. The median single family home sales price peaked in 17 2007, and remained over 40% below that peak in June of 2012. In addition to declines in residential real 18 estate prices, commercial properties dropped in value and continued to search for a bottom as of 2012. 19 Since peaking in the 2008-09 fiscal year, City property tax revenues dropped between $4 million and $7 20 million each year from that peak. Given continued housing market weakness and the constraints imposed 21 by Proposition 13 on property tax increases, property tax revenues likely will grow only modestly for 22 years to come. 23 Sales tax revenues also dropped due to increased unemployment and lower per-capita incomes 24 caused by the loss of the major employers and job losses caused by the Great Recession and real estate 25 market crash. Since June 2008, the City suffered from double digit unemployment and the unemployment
26 rate was 16.9% as of June 2012, notably higher than the State of California’s and more than twice the 27 June 2012 national rate of 8.2%. By 2010, roughly 34.6% of the City’s population was classified as poor. 28 In 2011, the U.S. Census Bureau ranked the City as the second poorest in the nation behind only Detroit.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 15 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 23 construed of 157 to be, the solicitation of votes on the Plan.
1 Not surprisingly given these statistics, sales tax revenue declined significantly from its from a peak level 2 of $36.7 million in 2005-06 to a low of $20.4 million in 2009-10, a decline of over $16 million or 44%. 3 While sales tax revenues increased modestly since the 2009-10 low, those revenues are not projected to 4 increase significantly in the near term. In addition to declining real property and sales tax revenues, the 5 City suffered essentially flat or lower revenues from franchise taxes, user utility taxes, business 6 registration, licenses and permits, revenues from other agencies and other miscellaneous revenues from 7 sources such as fines, penalties and the transient occupancy tax. 8 In 2011, Governor Brown signed legislation eliminating redevelopment agencies throughout the 9 State of California. In December of 2011, the California Supreme Court upheld this legislation and 10 ordered the dissolution of all redevelopment agencies effective as of February 1, 2012. This resulted in 11 the loss of further resources to support economic development programs in the City and funds allocated 12 for general government functions. The loss of redevelopment agency funds further exacerbated the City’s 13 financial struggles. 14 Given these economic declines, the City struggled with budget deficits in the four consecutive 15 fiscal years prior to the Petition Date. Since the end of fiscal year 2008-09, the City’s General Fund 16 revenues dropped while its General Fund expenditures remained the same or increased. As a result, the 17 City’s General Fund budget deficits in those four consecutive fiscal years totaled over $25 million. To 18 address those budget deficits, the City exhausted its General Fund reserves, cut jobs, cut services, sold 19 assets, implemented revenue measures, increased transfers from other funds, and used other mechanisms 20 to maintain cash liquidity and continue essential operations. 21 B. The City’s Attempts to Avoid Insolvency 22 While the City was aware prior to late June of 2012 that its revenues had declined during the Great 23 Recession and it was struggling financially, the City believed that it had taken the appropriate steps to 24 address budgetary issues and reduce expenditures. Labor costs have been and are the City’s largest 25 General Fund expenditure. Governmental service delivery is labor-intensive and relies on City employees
26 to patrol streets, repair and maintain infrastructure, respond to emergencies, staff libraries and community 27 centers, and deliver other direct and supporting services to operate the City. For several fiscal years prior 28 to the Petition Date, the City tried to balance its budgets by negotiating reductions in employee costs and
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 16 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 24 construed of 157 to be, the solicitation of votes on the Plan.
1 eliminating positions, while continuing to provide basic essential services – all of which resulted in 2 service level reductions to the community. The City eliminated over 250 positions between 2009 and 3 2012, despite population growth of nearly 25,000 people. 4 In the 2012-13 fiscal year, personnel costs were projected to account for roughly 78% of all 5 General Fund budgeted expenditures, about 75% of which were for public safety personnel. Charter 6 Section 186 (“Section 186”) establishes the base salaries for members of the San Bernardino Police and 7 Fire Departments, and mandates a process of determining such salaries based on the arithmetic average of 8 the monthly salaries paid in ten California cities with populations between 100,000 and 250,000 selected 9 by the City and the police and firefighters. As such, under the Charter, the process of determining the 10 salaries paid to the City’s police and firefighters is independent of and unrelated to the City’s fiscal 11 condition. Despite the City’s efforts to reduce personnel costs by negotiating concessions, eliminating 12 positions and leaving vacancies unfilled, the City’s cost per employee rose steadily as pension costs 13 increased. This forced the City to further reduce staff and services in an effort to balance budgets without 14 receiving any corresponding reduction in its overall personnel costs.
15 A key factor in the City’s inability to balance its budgets was ever-increasingits pension costs. In 16 absolute dollars, the City’s employee General Fund pension costs rose from $6.2 million in 2000-2001 to
17 about $14.25 million in 2014-15 and arewere expected to be almost $19 million in 2015-16. As of June 18 30, 2012 (one month before the City filed its Bankruptcy Case), CalPERS reported that the City’s
19 employee pension plans were underfunded byhad unfunded actuarial accrued liability of $323.1 20 million. In addition to paying the normal cost of employees’ pensions, the City is required to pay down
21 over timemake payments related to the unfunded actuarial accrued liability. 22 C. The City Learns It Is Deeply Insolvent 23 While the City had been in economic decline since 2008 (and generally since the 1980s), the 24 magnitude and scope of the City’s cash insolvency and budgetary insolvency was not understood fully 25 until a short time prior to the Petition Date. Even as late as early April 2012, the City Manager believed
26 that the actual budget deficit of the General Fund was only $3.183 million (as reflected in the City’s fiscal 27 year 2011-12 Mid-Year Budget Workshop agenda dated April 3, 2012), and the City took steps to reduce 28 that deficit and balance its budget at that time. Unfortunately, this estimate of the City’s General Fund
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 17 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 25 construed of 157 to be, the solicitation of votes on the Plan.
1 budget deficit was inaccurate and the City’s subsequently completed Comprehensive Annual Financial 2 Report reflects that the actual budget deficit for the 2011-12 fiscal year was $7.8 million. Making matters 3 worse, the City-wide implementation of new financial accounting software and other circumstances 4 resulted in a significant backlog of accounting work and, as a result, the City was not aware until June of 5 2012 that it had a cash deficit of millions of dollars in its General Fund. The City discovered it was on the 6 edge of a very deep fiscal abyss only after the City’s new Finance Director completed a detailed analysis 7 of the City’s financial condition in late June of 2012. 8 Beginning in May of 2012, the City’s new Finance Director began analyzing the City’s financial 9 condition and developing a budget for the 2012-13 fiscal year, resulting in a report by the City’s Finance 10 Department entitled “San Bernardino Budgetary Analysis and Recommendations for Budget 11 Stabilization” dated July 9, 2012 (the “Budget Report”).12 The key points of the Budget Report included 12 that: (1) the City faced a General Fund budget deficit preliminarily estimated to be over $45.8 million in 13 the 2012-13 fiscal year; (2) the City had depleted all of its General Fund reserves and reserves in its 14 internal service fund accounts and other funds to cover the substantial budget deficits in the last four 15 consecutive fiscal years; and (3) immediate and substantial action had to be taken to reduce spending and 16 preserve cash for the City to continue to provide essential services to the City’s residents. 17 Equally or more dire than the City’s enormous financial hole was the fact that the City faced a 18 severe cash liquidity crisis. As news of the City’s financial problems spread, its fiscal situation and cash 19 flow crisis grew worse. A Staff Report dated July 18, 2012,23 explained that: (1) it was likely that the City 20 could not meet its payroll and other financial obligations in the next 30 to 60 days, including debt 21 obligations and lease payments for critical City assets; (2) an unusually large number of employees were 22 retiring or leaving the employ of the City, triggering immediate payment of large vacation and sick leave 23 pay accruals; (3) the City’s credit line had been terminated; (4) vendors were demanding cash up front 24 before providing essential materials, goods and services to the City; (5) the City had no ability to access 25 short term credit markets to solve its cash flow problems and no reserves; and (6) cash flow projections
26 12 27 The Budget Report is available on the City’s website at: http://www.sbcity.org/home_nav/chapter_9_bankruptcy/default.asp. 28 23 The Staff Report is available on the City’s website at: http://www.sbcity.org/home_nav/chapter_9_bankruptcy/default.asp.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 18 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 26 construed of 157 to be, the solicitation of votes on the Plan.
1 showed that the City had monthly General Fund deficits ranging between about $2 and $5.6 million from 2 July through September. 3 The City also faced huge deficits in its Internal Service Funds. The City has historically 4 established Internal Service Fund accounts pursuant to accepted governmental accounting practices for 5 fleet services (vehicles, vehicle maintenance and related costs), liability and property insurance (for the 6 City’s self-insurance program and payment of claims), worker’s compensation insurance, unemployment 7 insurance, telephone support (for the City’s communication system), utilities (for the City’s utility costs) 8 and central services (for reproduction and copying services). All the reserves in the City’s Internal 9 Service Fund accounts had been depleted, and its worker’s compensation and liability and property 10 insurance funds were underfunded by an estimated $20 million. The need to replenish funding for long 11 term liabilities in the City’s Internal Service Funds contributed to and was in addition to the City’s 12 projected $45.8 million budget deficit for fiscal year 2012-13. 13 At the same time, the City had other long term debt obligations on which payments were coming 14 due, including outstanding bond indebtedness in a par amount of approximately $90 million, and lease 15 obligations approaching $16 million for critical City assets such as City Hall, police, library and fire 16 facilities, fire engines, police vehicles, fire station alerting systems, refuse trucks and other critical 17 equipment, and for infrastructure loans for capital improvements. In addition, certain creditors were 18 threatening to levy on City assets (including City bank accounts) to enforce their claims against the City, 19 which could have resulted in creditors seizing funds the City had earmarked for making its August 2012 20 payroll. 21 D. The City’s Declaration of Fiscal Emergency and Filing of the Bankruptcy Case 22 Facing an immediate liquidity crisis and the fact that the City was be unable to meets its financial 23 obligations, City staff recommended that the City consider a declaration of fiscal emergency and filing for 24 Chapter 9 bankruptcy protection. Following presentations, discussions and public comments at three 25 noticed meetings held on July 10, July 16 and July 18, 2012 regarding the City’s budget for the fiscal year
26 2012-13 and the possibility of filing of a petition under Chapter 9, a majority of the Common Council 27 voted to declare a fiscal emergency and passed Resolution No. 2012-205 finding that: (1) the City is or 28 will be unable to pay its obligations within the next 60 days, and that the financial state of the City
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 19 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 27 construed of 157 to be, the solicitation of votes on the Plan.
1 jeopardizes the health, safety or well-being of the residents of the City absent the protections of Chapter 9; 2 and (2) given the City’s dire financial condition, it was in the best interest of the City to declare a fiscal 3 emergency. The City’s dire cash flow crisis presented a fiscal emergency that translated into a service 4 emergency and would negatively affect the health, safety and well-being of its citizens if City employees, 5 including police, fire and other essential workers, were not paid and did not report for work. On July 18, 6 2012, the Mayor and Common Council determined that “given the City’s dire financial condition and 7 taking into consideration the advice of City staff and counsel, it was in the best interests of the City to 8 seek protection under Chapter 9 of the Bankruptcy Code” and passed Resolution No. 2012-206 9 authorizing the filing of a voluntary petition under Chapter 9 of the Bankruptcy Code.34 The City filed its 10 chapter 9 petition for relief under the Bankruptcy Code commencing the Bankruptcy Case on August 1, 11 2012. 12 E. Adoption of City’s Fiscal Emergency Plan 13 In order to preserve enough cash to meet its August 2012 payroll and provide essential services 14 through the end of September 2012 assuming that a Chapter 9 case would be filed, the City approved its 15 Fiscal Emergency Plan on July 24, 2012 (the “Fiscal Emergency Plan”).45 Pursuant to the Fiscal 16 Emergency Plan, the City did not make certain debt payments then due, including: (1) a payment on bonds 17 due on July 20, 2012 in the amount of over $3.3 million; (2) bi-monthly payments to fund retiree health 18 plan obligations due in the first quarter of the fiscal year; and (3) trade payables due and owing in an 19 amount of over $6 million. These and other measures to preserve cash were necessary to maintain 20 liquidity so that the City would have enough cash to make its August 2012 payroll and continue essential 21 operations. 22 Given the magnitude of its financial problems, the City determined that it could not borrow money 23 from the private credit markets to meet its obligations because it could not demonstrate the ability to pay 24 back any such loan with revenues generated in the same fiscal year. In addition, the City believed that 25 other practical issues, as well as legal and accounting requirements, also limited the City’s ability to raise
26 or borrow money to close revenue shortfalls on an expedited basis. The City’s property tax revenue is 34 27 Resolution Nos. 2012-205 and 2012-206 are available on the City’s website at: http://www.sbcity.org/home_nav/chapter_9_bankruptcy/default.asp. 28 45 The Fiscal Emergency Plan is available on the City’s website at: http://www.sbcity.org/home_nav/chapter_9_bankruptcy/default.asp.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 20 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 28 construed of 157 to be, the solicitation of votes on the Plan.
1 limited by Proposition 13, and the City’s ability to raise any other taxes is limited by Proposition 218 2 which requires that a majority of voters approve any new or increased general tax (the proceeds of which 3 can be used for any purpose) and that a two-thirds majority approve any new or increased special tax (one 4 expressly limited to a specific purpose). Locally, voters’ enactment of Measure Z (a 0.25 percent district 5 tax for 15 years enacted in 2006) to be used to fund more police officers and support personnel and 6 anti-gang and anti-crime operations, left the City with limited opportunities to burden its citizens (a high 7 percentage of who have limited incomes and live below the poverty level) with new general purpose 8 taxes. The immediate severity of the City’s cash flow problems and the time required to enact a ballot 9 measure ruled out a tax increase as a viable expedient option.
10 III. ADMINISTRATION OF THE BANKRUPTCY CASE 11 A. Implementation of the Pendency Plan 12 Subsequent to the Petition Date, the City implemented a series of interim financial plans to grapple 13 with its fiscal emergency. In September 2012 and on October 1, 2012, the Common Council approved the 14 budget set forth in a Pre-Pendency Plan (as adjusted by a 9-Point Adjustment Plan) which subsequently 15 was incorporated into and modified by the City’s Pendency Plan adopted on November 26, 2012 as 16 Resolution No. 2012-278.56 On April 22, 2013, the City adopted its final budget for fiscal years 2012-13 17 and 2013-14 which further implemented the Pendency Plan.67 The City budgets for fiscal years 2014-15 18 and 2015-16 have continued certain of the expenditure reductions in the Pendency Plan and implemented 19 other measures to align expenditures with revenues.78 These efforts have enabled the City to survive 20 financially, manage its ongoing fiscal emergency, and provide essential governmental services to its 21 residents until approval of the Plan. 22 Some of the Pendency Plan’s cost-saving measures required modifications to the terms and 23 conditions of employment of the City’s employees. In late January 2013, the City reached agreements 24 with four of the seven unions representing City employees on modifications to the terms and conditions of 25 employment, as set forth in Resolution Nos. 2013-22, 2013-23, 2013-24, and 2013-25. As to the three
26 56 The Pre-Pendency Plan and Pendency Plans are available at: 27 http://www.sbcity.org/home_nav/chapter_9_bankruptcy/default.asp. 67 The City’s budget for fiscal years 2012-13 and 2013-14 was adopted as Resolution No. 2013-76. 28 78 The City’s 2014-15 budget was adopted as Resolution No. 2014-245, and its 2015-16 budget was adopted as Resolution No. 2015-132.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 21 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 29 construed of 157 to be, the solicitation of votes on the Plan.
1 unions that would not agree, the City imposed the modifications, as set forth in Resolution Nos. 2013-18, 2 2013-19, and 2013-20. The City subsequently reached agreements with the three non-consenting unions, 3 which agreements are discussed below in Section III.G. 4 B. Eligibility Litigation 5 If a city files for chapter 9 relief, it must prove that it is eligible for such relief under Bankruptcy 6 Code Sections 109(c) and 921(c). A hearing was held in the Bankruptcy Court on August 28, 2013 to 7 determine the City’s eligibility for chapter 9 relief. On September 17, 2013, the Bankruptcy Court entered 8 an order determining that the City was eligible, and on October 16, 2013, the Bankruptcy Court issued an 9 opinion explaining the reasons for its ruling. The ruling is published as In re City of San Bernardino, 499 10 B.R. 776 (Bankr. C.D. Cal. 2013). CalPERS, which had objected to the City’s eligibility for chapter 9 11 relief, took an appeal from the eligibility ruling. However, the City and CalPERS later entered into a 12 comprehensive settlement, and CalPERS will dismiss the appeal when the City’s Plan becomes effective. 13 C. Mediations Conducted by Judge Gregg Zive 14 On September 5, 2013, the Bankruptcy Court entered an order appointing the Honorable Gregg 15 Zive, U.S. Bankruptcy Judge for the District of Nevada, as case mediator, and ordered the City and its 16 principal creditor constituencies to participate in mediation and use the mediation for the purpose of 17 achieving a Chapter 9 plan of adjustment. The mediation parties included the City, CalPERS, the City’s 18 secured and unsecured bond holders, the unions representing police and fire safety employees (the 19 SBPOA and SBCPF), and the Official Committee representing the interests of several thousand City 20 retirees (the “Mediation Parties”). Ultimately, each of the entities that participated in the mediation 21 entered into settlements with the City – CalPERS, the official Retiree Committee, the unions representing 22 the City’s police officers and firefighters, and all of the City’s bondholders. Judge Zive’s proactive 23 participation in the mediation was vital to the City’s reaching agreements with its principal creditor 24 constituencies. 25
26 27 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 22 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 30 construed of 157 to be, the solicitation of votes on the Plan.
1 2 D. The City’s Pension Plan and the CalPERS Settlement 3 A CalPERS defined benefit pension is considered to be the industry standard for municipal 4 employees in California. Over 97% of California cities contract with CalPERS for pension benefits, and
5 more than 99% of California municipal employees are covered by CalPERS or aanother defined benefit 6 pension plan. The City contracts with CalPERS to administer a pension plan for the City’s employees and 7 retirees. The City has no ready, feasible, and cost-effective alternative to the administration of its pension 8 plan by CalPERS. 9 The City believes that its obligations to CalPERS constitute an “executory contract.” Under 10 bankruptcy law, a city may assume or reject an executory contract, or the parties may agree to modify the 11 contract. CalPERS, however, took the position that the relationship between the City and CalPERS is not 12 an executory contract that can be assumed or rejected in bankruptcy, and that California law does not 13 provide CalPERS with any legal authority to negotiate changes to the pension plans to provide reduced 14 benefits or different payment structures for the City, or make any other modification that would provide
15 material financial relief to the City. CalPERS also asserted that if the City rejectedterminated its contract 16 withparticipation in CalPERS, current and future retirees would suffer a significant reduction in their 17 pension benefits.8 According to CalPERS actuarial valuation reports for the Safety and 18 Miscellaneous Plans as of June 30, 2014, if the City had terminated its participation in CalPERS as 19 of June 30, 2014, the City would face an almost $2.5 billion hypothetical termination liability. 20 Under the Plan, the City is not terminating or rejecting its contract with CalPERS. Rather, 21 pursuant to a settlement agreement entered into with CalPERS, the City will continue with its 22 pre-bankruptcy contract with CalPERSto participate in CalPERS, and the City’s relationship with 23 CalPERS will be unimpaired by the Bankruptcy Case or the Plan. A copy of the settlement, entitled 24 Mediator’s Order, is included in the Appendix as Exhibit 19. 25 As described in the Mediator’s Order, the City owed CalPERS $13.52 million for the unpaid
26 employer contributions to the City’s pension plan for the period from August 1, 2012 through June 30, 27 8 In addition, according to CalPERS actuarial valuation reports for the Safety and Miscellaneous Plans – 28 June 30, 2014, if the City had terminated its pension plans as of June 30, 2014, it would face an almost $2.5 billion hypothetical termination liability (@2%).
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 23 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 31 construed of 157 to be, the solicitation of votes on the Plan.
1 2013 (the “Arrearage”). The Mediator’s Order provides, among other things, that the City will: (i) will pay 2 the Arrearage with interest; (ii) pay certain additional administrative costs of CalPERS; and (iii) ratify its 3 relationship with CalPERS and not impair CalPERS under the Plan. On July 1, 2014, the City began 4 repaying the Arrearage with interest in the amount of $602,580.00 monthly. As of March 1, 2016, the 5 City has paid CalPERS $14.154 million. The City is expected to complete payment in full of the 6 Arrearage on June 1, 2016. 7 Although the City will have paid the Arrearage in full (including with interest at a 7.5% interest 8 rate) in the amount of $15,961,909.00 before confirmation of the Plan, and ratified its relationship with 9 CalPERS and agreed not to impair CalPERS under the Plan, the settlement with CalPERS still required 10 that the City pay a penalty to CalPERS in the amount of $2 million, paid out over five annual installments 11 of $400,000 each, beginning upon confirmation of the Plan. Of that $2 million penalty, $500,000 will be
12 kept by CalPERS itself and the remaining $1,500,000 will be contributedcredited to the City’s pension 13 planplans (which amounts to an overpayment andpayment exceeds the normal annual amount due). 14 The City agreed to the terms of the Mediator’s Order because, after careful analysis, the City
15 determined that it could not reject its contract, as a practical matter, terminate its relationship with 16 CalPERS. The City concluded that rejectiontermination of the CalPERS contractrelationship would 17 lead to an exodus of City employees and impair the City’s future recruitment of new employees due to the 18 noncompetitive compensation package it would offer new hires. This would be a particularly acute 19 problem in law enforcement where retention and recruitment of police offers is already a serious issue in 20 California, and where a defined benefit pension program is virtually a universal benefit.
21 The departure of City employees upon rejection of the City’s termination of its relationship with 22 CalPERS Contract could be massive and sudden. Under recently enacted California law, in order to 23 preserve their pension benefit levels at a new employer, City employees would need to leave the City’s 24 employ and obtain employment with another public agency with a defined pension benefit plan 25 administered by CalPERS or by the County Employees Retirement Act of 1937 within six months of a
26 rejection of the City’s contract with CalPERS. A sudden massive loss of trained and experienced 27 employees would seriously jeopardize the City’s ability to provide even the most basic essential services,
28 including public safety services. Rejection of the CalPERS contractTermination would also require the
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 24 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 32 construed of 157 to be, the solicitation of votes on the Plan.
1 City to fund and operate an alternate pension plan providing market-level benefits in order to remain a 2 competitive employer, because the City does not participate in the federal Social Security program and 3 City employees receive no federal pension benefits from that source. As a result, the City could not reject 4 its contract with CalPERS without incurring substantial additional financial obligations and jeopardizing 5 its ability to recruit qualified employees. 6 The City believes that the changes made during the Bankruptcy Case requiring greater 7 contributions by employees to their own pension plans, together with the changes in pension benefits for 8 new hires after January 1, 2013, have moderated excesses in the City’s pension costs. Since January 9 2013, City employees have been contributing the full statutory CalPERS employee rates and the City has 10 eliminated the contractual Employer Paid Member Contribution (EPMC) benefit. The City is also 11 reducing pension costs by contracting out to the private sector certain municipal services (including solid 12 waste and recycling, sweeping and right-of way clean up), and is reducing pension costs related to City 13 firefighting personnel by annexing into the County Fire District. While feasible contracting or 14 regionalization opportunities for some municipal services (e.g. police protection) are not existent at this 15 time and the City will have to employ public workers for core management and administrative functions, 16 the City will continue to explore options for more efficient delivery of municipal services at a lower cost 17 (including, in particular, lower pension costs). 18 E. Settlement With Official Retiree Committee on Retiree Health Benefits 19 In October 2013, with the support of the City, the Office of the United States Trustee (an arm of 20 the U.S. Dept. of Justice) appointed nine retired City employees to serve as members of the Official 21 Committee of Retired Employees (“Retiree Committee”). The Retiree Committee represents only the 22 interests of City retirees, and does not represent current City employees or any other creditors. The 23 Retiree Committee is represented by Bienert, Miller & Katzman, PLC. 24 The City and the Retiree Committee have reached a comprehensive settlement (the “Retiree 25 Settlement Agreement”), a copy of which is included in the Appendix as Exhibit 27. The City began
26 implementing the Retiree Settlement Agreement on January 1, 2015. Under the Retiree Settlement 27 Agreement, the City has agreed to continue to fund the pension benefits provided by CalPERS to the
28 City’s retirees, without impairment. Retirees will continue to receive pension benefits from CalPERS
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 25 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 33 construed of 157 to be, the solicitation of votes on the Plan.
1 unaffected by the filing of the City’s Bankruptcy Case or the confirmation of the Plan. In exchange, 2 the retirees consent to the City’s modifications to retiree health benefits that the City implemented in 3 January 1, 2015. The City’s agreement to continue funding the pension benefits unimpaired by the Plan is 4 contingent therefore on the retirees voting to accept the Plan. The following summary describes the terms 5 of the Retiree Settlement Agreement, but retirees are encouraged to read the entirety of the agreement, and 6 any inconsistency between this description and the Retiree Settlement Agreement will resolved by 7 reference to the Retiree Settlement Agreement.
8 Medicare Eligible Retirees Under the Age of 65 9 Retirees in this category include all Retirees under the age of 65 as of January 1, 2015 and: (i) 10 who will become eligible for Medicare benefits once the Retiree reaches the age of 65; or (ii) whose 11 spouse or partner will become eligible for Medicare benefits once this individual reaches the age of 65. 12 All Retirees in this category will be eligible to participate in the City’s healthcare plans until they reach 13 the age of 65; however: (i) the City will no longer provide a subsidy of $112 per month; (ii) Retirees will 14 no longer be allowed to participate in a “blended” benefit program with active City employees but will be 15 placed in a Retiree-only healthcare plan; and (iii) in the event that a Retiree opts out of the City’s 16 healthcare plans for Retirees, that Retiree will not be eligible to participate in the City’s health benefit 17 programs in the future.
18 Medicare Eligible Retirees Who Are Age 65 and Over 19 Retirees in this category include Retirees who are age 65 or older as of January 1, 2015 and: (i) 20 who are eligible for Medicare benefits; or (ii) whose spouse or partner is eligible for Medicare benefits or 21 who will become eligible for Medicare benefits once this individual reaches the age of 65. For all 22 Retirees in this category, the City will no longer provide a subsidy of $112 per month. Also, the City’s 23 sponsored healthcare coverage will terminate as of the date of the Retiree’s 65th birthday or that Retiree’s 24 spouse/partner’s 65th birthday (whichever individual is Medicare-eligible); if both the Retiree and the 25 spouse/partner are Medicare eligible, the City’s sponsored healthcare coverage will terminate on the
26 earliest date that either reaches the age of 65. Upon termination of healthcare coverage, the City will 27 provide information to the Retirees in this category concerning options to purchase Medicare 28 Supplemental plans and/or managed care plans.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 26 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 34 construed of 157 to be, the solicitation of votes on the Plan.
1 Medicare Ineligible Retirees Under the Age of 65 2 Retirees in this category include Retirees hired prior to April 1, 1986 who are under the age of 65 3 as of January 1, 2015, and who are not eligible for Medicare benefits. All Retirees in this category will be 4 eligible to participate in the City’s healthcare plans; however: (i) the City will no longer provide a subsidy 5 of $112 per month; (ii) Retirees will no longer be allowed to participate in a “blended” benefit program 6 with active City employees but will be placed in a Retiree-only healthcare plan; and (iii) in the event that a 7 Retiree opts out of the City’s healthcare plans for Retirees, that Retiree will not be eligible to participate 8 in the City’s health benefit programs in the future.
9 Medicare Ineligible Retirees Who are Age 65 and Over 10 Retirees in this category include Retirees: (i) hired prior to April 1, 1986; (ii) who are not eligible 11 for Medicare benefits and provide proof to the City of non-eligibility; and (iii) who are age 65 or older as 12 of January 1, 2015, or who reach the age of 65 after January 1, 2015 and who satisfy the two previous 13 requirements of this paragraph. All Retirees in this category will be eligible to participate in the City’s 14 healthcare plans; however: (i) the Retirees will no longer be allowed to participate in a “blended” benefit 15 program with active City employees, but will be placed in a City healthcare plan for Retirees only; and (ii) 16 in the event that the Retiree opts out of the City’s healthcare plans for Retirees, such Retiree will not be 17 eligible to participate in the City’s health benefit programs in the future. The City will provide to Retirees 18 in this category a lifetime subsidy equivalent to the difference between the current and future premium for 19 the lowest baseline unblended medical plan for 2014 (“Subsidy”). Any annual increases in the Subsidy 20 shall be capped at two percent (2%) per calendar year. The Subsidy shall be available so long as the 21 Retiree is not eligible to receive Medicare benefits. For calendar year 2015, the City contributed $112 per 22 month towards the Subsidy. 23 In order to be eligible for any of the health plans or City Subsidies as defined in the Retiree 24 Settlement Agreement, all Retirees are required to respond to all requests for information regarding 25 eligibility for certain plans and/or City contributions toward the same. Retirees who fail to provide
26 sufficient information in response to the City’s request for eligibility information (“Affected Retirees”) 27 may be disqualified from participating in any plans or receiving City contributions. The City shall 28 undertake reasonable efforts to contact Affected Retirees and provide them with a reasonable time and
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 27 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 35 construed of 157 to be, the solicitation of votes on the Plan.
1 opportunity to respond to the City’s request for information prior to any determination to disqualify an 2 Affected Retiree from participating in any plans or received City contributions. 3 The City retains the discretion to modify, at any time, any of the City sponsored healthcare plans 4 provided to any or all of the Retirees. Pursuant to Resolution No. 2014-369, employees hired on or after 5 January 1, 2013, will not be eligible to receive City contributions, payments or subsidies for retiree health 6 benefits or premiums. 7 F. Litigation, and then Settlement, with the POB Creditors 8 In 2005, the City issued pension obligation bonds (“POBs”) and used the proceeds of the POBs to 9 prepay a portion of its obligation to CalPERS in 2005. COMMERZBANK Finance & Covered Bond 10 S.A., formerly known as Erste Europäische Pfandbrief-Und Kommunalkreditbank AG in Luxemburg 11 (“Commerzbank”) is the holder of the POBs, and Ambac Assurance Corporation (“Ambac, together with 12 Commerzbank, the “POB Creditors”) is the purported insurer of a portion of the POBs for the benefit of 13 the bondholders. After the Petition Date, the City stopped making payments to the POB Creditors. 14 Approximately $51 million in principal remained due on the POBs on the Petition Date. 15 In January 2015, the POB Creditors filed a complaint for declaratory relief (adversary proceeding 16 6:15-ap-01004-MJ). In the complaint, the POB Creditors asked the Bankruptcy Court to determine that 17 whenever the City pays CalPERS, whether now or under the Plan, the POB Creditors are entitled to an 18 equivalent payment. In March 2015, the City filed a motion to dismiss the complaint. In May 2015, the 19 Bankruptcy Court entered its “Order Dismissing Complaint for Declaratory Judgment” wherein it 20 dismissed the complaint in its entirety with prejudice and without leave to amend (the “Dismissal Order”). 21 In June 2015, the POB Creditors filed a Notice of Appeal from the Dismissal Order. The appeal is 22 currently pending before the Bankruptcy Appellate Panel for the Ninth Circuit. The City and the POB 23 Creditors recently entered into a comprehensive settlement regarding the treatment of the POB Creditors’ 24 claims under the Plan (the “POB Settlement Agreement”). The settlement is contingent upon 25 confirmation of the Plan, and the POB Creditors’ appeal will be dismissed with prejudice once the Plan is
26 confirmed and goes effective. A copy of the POB Settlement Agreement is included in the Appendix as 27 Exhibit 26. 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 28 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 36 construed of 157 to be, the solicitation of votes on the Plan.
1 Pursuant to the POB Settlement Agreement, the POB Creditors’ asserted $95.8 million claim 2 against the City is reduced to $50.7 million, which is a $45.1 million reduction in one of the City’s largest 3 obligations. The City will make installment payments over a 30 year term at a discount rate of 5.628% 4 beginning one year after the Effective Date of the City’s Plan. The City will make payments of $1 to $2.5 5 million per fiscal year until 2046, instead of the $3.3 to $4.7 million per fiscal year due under the terms of 6 the POBs. The present value of the settlement amount is $21.3 million, about a 60% reduction in the 7 $52.7 million owed under the POBs. 8 The settlement with the POB Creditors saves the City what would have been significant litigation 9 costs over the rights of the POB Creditors. The settlement also removes the risk that the POB Creditors 10 might prevail on appeal on their priority of payment claims, and thereby force the City to pay the full
11 amount of their claim, not just the 40% the parties have agreed on. Were the City forced to pay the 12 POB Creditors the full amount of their claim, the City would not have the funds to meet its other 13 commitments under the Plan, including to continue fully funding retiree and current employee 14 pension benefits. 15 The settlement also ends enormously costly litigation with POB Creditors over confirmation of the 16 Plan, as the settlement provides that the POB Creditors will now support confirmation of the Plan. As 17 Judge Zive, the case mediator noted, the settlement is “a reasonable compromise of the various legal and 18 financial issues.” 19 G. Litigation, and then Settlements, with the City’s Labor Unions 20 In January and February 2013, as part of the City’s Pendency Plan, the City implemented certain 21 changes to the terms and conditions of employment of City employees through bargaining with the seven 22 labor organizations: 1) the police safety unit represented by the San Bernardino Police Officers 23 Association (SBPOA); 2) the police management unit represented by the San Bernardino Police 24 Management Association (PMA); 3) the fire safety employees represented by the San Bernardino City 25 Professional Firefighters, Local 891 (SBCPF); 4) the general miscellaneous employees represented by the
26 International Union of Operating Engineers (IUOE); 5) the fire management employees represented by 27 the San Bernardino Fire Management Association; 6) the management/ confidential unit ; and, 28 7) the mid-management employees formerly represented by the San Bernardino Public Employees
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 29 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 37 construed of 157 to be, the solicitation of votes on the Plan.
1 Association (SBPEA) and currently represented by the Teamsters. While four of the City’s seven unions 2 agreed to the changes required by the Pendency Plan, three unions did not. In late February and early 3 March of 2013, the SBCPF, the SBPOA and the SBPEA each moved the Bankruptcy Court for relief from 4 the automatic stay of Bankruptcy Code Section 362 so they could file challenges to the modified terms 5 and conditions of employment with the California Public Employees Relations Board and in the state 6 courts. In March 2013, the City moved the Bankruptcy Court for authority to reject the collective 7 bargaining agreements with those three unions. 8 The City has resolved all of the litigation with the SBPEA, SBPOA and SBCPF. In August 2013, 9 the City and the SBPEA resolved their disputes and agreed on new terms and conditions of employment. 10 On April 15, 2015, Bankruptcy Court entered an order authorizing rejection of the SBPOA collective 11 bargaining agreement and the SBPOA’s motion for relief from stay was denied. However, in August 12 2015, the City and the SBPOA reached agreement on the terms of a new collective bargaining agreement. 13 A copy of the agreement is included in the Appendix as Exhibit 32. In October and November 2015, the 14 City reached two-year settlement agreements with the Middle-Management, the IUOE, and the 15 Management Confidential labor groups, and a five-year agreement with the PMA. 16 The litigation with the SBCPF was far more extensive. In July 2014, the SBCPF filed a second 17 motion for relief from stay on an emergency basis seeking authorization to commence litigation against 18 the City in other forums to challenge, among other things, planned operational changes in the City’s Fire 19 Department. The Bankruptcy Court denied that motion, the SBCPF appealed from the order, and the U.S. 20 District Court affirmed the Bankruptcy Court’s order in full. On September 19, 2014, the City’s collective 21 bargaining agreement with SBCPF members was rejected pursuant to the Bankruptcy Court’s “Order 22 Granting in Part and Denying in Part City Of San Bernardino’s Motion Authorizing Rejection of 23 Collective Bargaining Agreement with the San Bernardino City Professional Firefighters.” The SBCPF 24 appealed from the order, and the U.S. District Court affirmed the Bankruptcy Court order in full. The 25 Bankruptcy Court also denied the SBCPF’s motion seeking relief from stay to bring claims in the state
26 court challenging the modifications made by the City to the terms and conditions of employment in 27 February 2013. The SBCPF filed two appeals from that order, and the U.S. District Court affirmed the 28 Bankruptcy Court order in full. After the Petition Date, the SBCPF also filed three charges with the
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 30 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 38 construed of 157 to be, the solicitation of votes on the Plan.
1 California Public Employment Relations Board (“PERB”) challenging the City’s efforts to implement 2 certain cost-saving measures. 3 In April 2015, the SBCPF filed two lawsuits in the Bankruptcy Court (adversary proceedings 4 6:15-ap-01116-MJ and 6:15-ap-01119-MJ) asserting claims related to, inter alia, the rejection of their 5 collective bargaining agreement, the modified terms and conditions of employment imposed by the City, 6 alleged violations of federal and state labor laws, purported violations of the City’s Charter and civil 7 rights, and the City’s efforts to consider alternative methods of delivering fire and emergency medical 8 services to the City’s residents. 9 In adversary case 6:15-ap-01119 , the City filed a motion to dismiss an SBCPF claim that the City 10 Charter and state law forbid the City from contracting out the work of City firefighters to another public 11 agency or private contractor. After substantial briefing and a hearing, on July 16, 2015, the Bankruptcy 12 Court entered an order granting the City’s motion to dismiss the SBCPF’s “no contracting out” claim. 13 The SBCPF filed an appeal of that order to the U.S. District Court, and the District Court affirmed the 14 Bankruptcy Court order. The SBCPF then appealed from the District Court’s order to the Ninth Circuit 15 Court of Appeals. Pursuant to a settlement between the City and the SBCPF, that appeal will be stayed 16 and then will be dismissed when the City performs certain payment obligations under the settlement 17 agreement discussed below. 18 In adversary case 6:15 ap-01116, the SBCPF challenged the validity of the City’s April 2015 19 decision to issue a Request for Proposals (“RFP”) for the contracting out of fire and emergency medical 20 services (“Fire Services”), and moved the Bankruptcy Court to enjoin the City from contracting out Fire 21 Services until the City met and conferred with the SBCPF on contracting out. The Bankruptcy Court (a) 22 determined that the City was required to meet and confer with the SBCPF before contracting out Fire 23 Services and ordered the City to do so, (b) prohibited the City from implementing contracting out of Fire 24 Services until further order of the court, but (c) allowed the City to continue with its annexation 25 application to the San Bernardino Local Area Formation Commission (discussed below) under which
26 County Fire would take over providing Fire Services to City residents. The City and the SBCPF engaged 27 in the meet and confer process required by the Bankruptcy Court, and ultimately reached a settlement 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 31 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 39 construed of 157 to be, the solicitation of votes on the Plan.
1 dated February 8, 2016 (the “SBCPF Settlement Agreement”). A copy of the SBCPF Settlement 2 Agreement is attached as Exhibit 22 in the Appendix. 3 The SBCPF Settlement Agreement resolves all of the lawsuits and PERB claims filed by the 4 SBCPF prior to and after the Petition Date, and all of their proofs of claim and requests for payment filed
5 during the Bankruptcy Case. The SBCPF Settlement Agreement is contingent on approval and 6 implementation of the City’s annexation into County Fire (“Annexation”), and the SBCPF agreed to fully
7 support Annexation. The key financial terms of the SBCPF Settlement Agreement are: (a) two business 8 days after the date that annexation into the County Fire District is implemented (the “Annexation Date"), 9 the City will pay $1,562,187 in full settlement of all cost-sharing and other pension related claims of the 10 SBCPF and its members, and the City will reduce the SBCPF’s members’ share of the normal cost of the 11 CalPERS benefit to 9% (the City had raised it to 13.989% in February 2013) effective in January 2016; 12 (b) on the later of December 31, 2016 or the Annexation Date, the City will pay $1,142,000 in settlement 13 of all other post-petition litigation, including overtime claims under the Fair Labor Standards Act 14 (“FLSA”); (c) two days after the Annexation Date, the City will make a “salary comparability” payment of 15 $1,491,000, and will make a second payment in the same amount on the first anniversary of the 16 Annexation Date, in full settlement of all claims of the SBCPF and its members arising from 17 implementation of Annexation into the County Fire District, including claims that County Fire pay and 18 benefits are not comparable to that currently provided by the City; (d) the City will make certain payments 19 to the County Fire District so that transitioning firefighters will begin service with the County with sick 20 leave and vacation time; and (e) all other claims of the SBCPF and its members will constitute a general 21 unsecured claim of $14 million under the City’s Plan (“Fire Union General Unsecured Claim”), and that 22 claim will receive the same distribution payable to the class of General Unsecured Creditors in Class 13 23 General Unsecured Claims. The amount, treatment and distributions on the Fire Union General 24 Unsecured Claim are conditioned on confirmation of the Plan.
25 Pursuant to the Plan, the City will not reject the SBCPF Settlement Agreement under 26 Bankruptcy Code Section 365, and the City’s payment obligations to the SBCPF under the SBCPF 27 Settlement Agreement are excepted from discharge, and the Confirmation Order shall so provide. 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 32 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 40 construed of 157 to be, the solicitation of votes on the Plan.
1 H. Motions for Relief from Stay to Pursue or Commence Litigation 2 Pursuant to 11 U.S.C. §§ 362 and 922, the filing of the Bankruptcy Case imposed an automatic 3 stay which, among other things, prohibits the commencement or continuation of actions against the City, 4 its property and its officers. Approximately twenty-seven motions have been filed in the Bankruptcy 5 Court seeking relief from the automatic stay so that litigation could commence or continue in the state and 6 federal courts. The City has successfully opposed or favorably resolved almost all of these motions for 7 relief from the automatic stay. 8 I. Status of the City’s Audits 9 As of the Petition Date, the City had not completed its audit for the fiscal year 2011-12. During 10 the Bankruptcy Case, the City completed its Comprehensive Annual Financial Report (CAFR) for the 11 2011-12 fiscal year.9 The City’s auditors also completed an audit of the City’s financial statements for the
12 fiscal year ending June 30, 2013.2012-13.10 The City’s audit for the fiscal year ended June 30, 2014 is 13 now targeted for completion in AprilJune 2016. Both the City’s audit and the Single Audit for Federal 14 Awards for fiscal year ended June 30, 2015 are targeted for completion in JulyAugust 2016. The City’s 15 Single Audit for Federal Awards for fiscal years ended 2012, 2013 and 2014 have also been completed.11 16 The audits of the City’s Water Department are prepared separately and available on the City’s Water 17 Department website.12 18 J. Development of the City’s Plan and Implementation of 19 Measures to Increase Operational Efficiencies and Enhance Revenues 20 Throughout the Bankruptcy Case, the City worked to stabilize its dire fiscal condition and resolve 21 major litigation with numerous creditors as part of the process of developing the Plan. The City also 22 embarked on a community engagement and strategic planning process to further develop its Plan, move 9 23 To locate the 2011-12 CAFR go to http://www.ci.san-bernardino.ca.us/civicax/filebank/blobdload.aspx?BlobID=17256. Alternatively, 24 from the City’s website, http://www.ci.san-bernardino.ca.us/ (1) click “City Hall”; (2) then click “Finance”; (3) then click “Financial Reports”; and (4) then click “Fiscal Year 2011-2012 25 Comprehensive Annual Financial Report.” 10 The 2012-13 fiscal year audited financial statements can be obtained at this link: 26 http://www.sbcity.org/civicax/filebank/blobdload.aspx?blobid=19606 11 27 The City’s Single Audits can be obtained at: http://www.sbcity.org/cityhall/finance/financial_reports.asp. 28 12 Financial and audit information for the City’s Water Department is available at: http://www.sbcity.org/water/divisions/finance/financial_information.asp
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 33 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 41 construed of 157 to be, the solicitation of votes on the Plan.
1 the City beyond bankruptcy and build a stronger community. This strategic planning process involved 2 both citizens and community leaders through a number of public meetings held at local public schools 3 throughout the City. 4 Through this process, the City worked to develop a strategic plan that met the following 5 requirements: (1) resulted in a sustainable local government delivering a competitive mix of municipal 6 services; (2) demonstrated financial stability over at least a ten-year period, with all costs of service 7 covered and appropriate reserve levels maintained; (3) balanced competing needs in an equitable manner 8 with priority placed on continued delivery of basic and satisfactory municipal services, including deferred 9 maintenance while realigning expenditures with resources; (4) delivered services in an effective and 10 efficient manner following industry best practices; (5) recognized the need for the City to be a viable 11 employer for the types of employees it needs to recruit and retain; and (6) formed a system of governance 12 that is proven to support satisfactory performance by other municipal corporations of comparable size and 13 complexity.13 14 During the strategic planning process, the City also developed its Recovery Plan to restore service 15 solvency to the City in a financially sustainable way in order to maintain cash solvency and budget 16 solvency. As part of developing the Recovery Plan, the City evaluated the City’s current methods of 17 delivering municipal services and evaluated the feasibility of alternative methods of service delivery and 18 analyzed areas of potential revenue enhancement that either required voter approval or could be achieved 19 without voter approval.14 During the Bankruptcy Case, the City has taken steps to effectuate greater 20 efficiency in its operations in order to reduce costs while restoring service solvency. These steps are 21 include: (1) contracting out municipal services such as park and grounds maintenance, solid waste, 22 recycling, and street sweeping and right-of-way; (2) initiating and implementing the plan to annex the City 23 into the County Fire District for Fire Services; and (3) evaluating options for alternative service delivery 24 providers for other municipal services including animal control, fleet maintenance, attorney services, 25 13 Further information about the strategic planning process is located on the City’s website at the 26 following link under the “Strategic Plan” section: 27 http://www.sbcity.org/home_nav/chapter_9_bankruptcy/default.asp 14 Further information regarding the Recovery Plan dated May 18, 2015, and an update to the Recovery 28 Plan dated November 25, 2015, can be found on the City’s website at the following link under the “Recovery Plan” section: http://www.sbcity.org/home_nav/chapter_9_bankruptcy/default.asp.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 34 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 42 construed of 157 to be, the solicitation of votes on the Plan.
1 inspection services, and maintenance for certain government use properties such as the Soccer Complex, 2 the Shandin Hills Golf Course and the San Manuel Stadium. The City is taking steps to increase fees for 3 municipal services that do not require voter approval, including approving a parcel tax fee for Fire 4 Services, and increasing fees for water and sewer treatment. The City continues to evaluate additional 5 revenue enhancement opportunities. The steps taken by the City to restore service solvency, streamline its 6 operations and evaluate revenue enhancement measures are discussed below in Section V.C.5. 7 K. Filing of the City’s Plan and Disclosure Statement 8 On May 30, 2015, the City filed its initial Disclosure Statement and Chapter 9 Plan of Adjustment 9 (May 29, 2015). After considering objections to the initial Disclosure Statement at a hearing on October 10 8, 2015, the Bankruptcy Court ordered the City to file an amended Disclosure Statement on or before 11 November 25, 2015, and continued the hearing on the adequacy of the Disclosure Statement to December 12 23, 2015. On November 25, 2015, the City filed its First Amended Disclosure Statement and First 13 Amended Chapter 9 Plan of Adjustment (November 25, 2015). After considering objections to the First 14 Amended Disclosure Statement at a hearing on December 23, 2015, the Bankruptcy Court ordered the 15 City to file a further amended Disclosure Statement on or before February 10, 2016, and continued the 16 hearing on the adequacy of the Disclosure Statement to March 9, 2016. Due to significant developments 17 in the Bankruptcy Case that would materially affect the Disclosure Statement and Plan, the Bankruptcy 18 Court set a status conference for February 4, 2016. On that date, the Bankruptcy Court continued the 19 deadline to file a further amended Disclosure Statement to March 30, 2016, and continued the hearing on
20 the adequacy of the Disclosure Statement to April 27, 2016. On April 27, 2016, the Bankruptcy Court 21 continued the deadline to file a further amended Disclosure Statement to May 27, 2016, and 22 continued the hearing on the adequacy of the Disclosure Statement to June 16, 2016. 23 IV. THE CITY’S LIABILITIES AND ASSETS 24 This section summarizes the proofs of claim filed in the Bankruptcy Case, and describes certain of 25 the City’s principal liabilities and assets not discussed in earlier sections of the Disclosure Statement.
26 A. Liabilities and Claims 27 The description of the transactions in this section is included for summary purposes only. The 28 underlying agreements control in the event of any inconsistency between such descriptions and the
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 35 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 43 construed of 157 to be, the solicitation of votes on the Plan.
1 agreements. The City reserves any and all rights, defenses and arguments as to whether any of the 2 documents termed as “leases” are “leases” within the meaning of Bankruptcy Code section 365, and no 3 implication may be drawn from or prejudice result from the description of any such “lease” as a lease. 4 1. Liabilities Listed by the City in Its List of Creditors 5 On August 9, 2012, the City filed a list of creditors holding the 20 largest unsecured claims against 6 the City as required by the Bankruptcy Code. On November 8, 2013, the City filed the First Amended 7 List of Creditors (the “Creditors’ List”) which provided a more comprehensive list of creditors and claims. 8 The cover sheet to the Creditors’ List disclosed as follows: “The List of Creditors represents obligations 9 of the City’s General Fund as well as obligations of the City’s designated special use funds. Special use 10 fund obligations are included on the List of Creditors for purposes of full disclosure, and the City 11 maintains that applicable laws and procedures prohibit the use of such special use funds to pay General 12 Fund obligations.”15 13 2. Proofs of Claim 14 The Bankruptcy Court established two deadlines for the filing of proofs of claim against the City 15 that arose on or before September 17, 2013. The first bar date of February 7, 2014 (the “General Bar 16 Date”) applied to all claims against the City except those specifically excluded by the order (the “Bar Date 17 Order”). The excluded claims were primarily those relating to (i) claims of current employees of the City; 18 (ii) claims of former employees of the City (and their spouses and dependents) who are receiving pensions 19 or retiree health benefits based upon their former employment with the City; and (iii) claims of 20 governmental units against the City. The second bar date of March 21, 2014 (the “Governmental Bar 21 Date”) was limited to the claims of governmental units. 22 Approximately 385 proofs of claim were filed on or prior to the General Bar Date or 23 Governmental Bar Date. Though many of the proofs of claim did not specify, or did not specify correctly, 24 their classification as general unsecured, priority, secured, etc., the City classified these claims based on a 25 review of the proofs of claim filed and the best information available to the City. Based on the City’s
26 initial review, the City estimates that creditors filed or asserted 303 General Unsecured Claims, 17 27 15 The Amended List of Creditors is available at this link: 28 http://www.omnimgt.com/sblite/templates/a/documentslist.aspx?clientid=CsgAAncz%2b6ZKJYniNraoa WaJM%2bqzpd6uwuSGCG13uwcvZKN5ZQTA3%2bteumuyt5waBBIEHibrRH4%3d&tagid=627
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 36 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 44 construed of 157 to be, the solicitation of votes on the Plan.
1 Unsecured Priority Claims, and 42 Secured Claims filed or asserted against the City. Approximately 96 of 2 the proofs of claim, rather than listing a specific amount being sought, were filed with amounts shown as 3 “unknown,” “to be determined,” or “unliquidated.” Those proofs of claim listing a specific amount 4 aggregate to approximately $410.7 million, which are comprised of approximately $292.7 million of 5 General Unsecured Claims as calculated by the filing entities, $557,518 of Unsecured Priority Claims, and 6 $113.8 million of Secured Claims. 7 The Bar Date Order preserved the City’s right to request that the Bankruptcy Court set a deadline 8 for the filing of proofs of claims against the City for claims held by current employees of the City and 9 retirees of the City. As a result of the settlements the City has entered into with CalPERS and each of the 10 Consenting Unions, the City does not contemplate seeking a bar date order for current and former 11 employees because all such current and former employee claims have been resolved by settlement with 12 the Consenting Unions. Similarly, as a result of the settlement the City entered into with CalPERS and 13 the Retiree Committee regarding the continued funding of pension benefits, and the settlement the City 14 entered into with the Retiree Committee on restructuring retiree health benefits, the City also does not 15 contemplate seeking a bar date order for retirees. The amount of the Class 11 Retiree Health Benefit 16 Claim is a fixed number for each retiree, and the Ballots distributed to each retiree for voting on the Plan 17 will provide notice of that fixed claim amount. 18 3. General Unsecured Claims 19 Approximately 303 General Unsecured Claims were filed or asserted against the City. Based on 20 its analysis and calculations, the City believes that the allowed amount of General Unsecured Claims in 21 Class 13 will ultimately be between approximately $190 million and $200 million. This estimate is 22 comprised primarily of General Unsecured Claims that will be discharged under the Plan for Retiree 23 Health Benefits, PARS Claims, Employee Wage and Benefit Claims, Consenting Union Claims, Contract 24 Rejection Claims, Litigation Claims and Other Post-petition Claims. A number of proofs of claim were 25 filed that greatly exceed the City’s estimates and/or are inconsistent with the City’s records.
26 4. Priority Unsecured Claims 27 The City believes that substantially all of the Claims which assert a priority unsecured claim 28 against the City are claims properly characterized as General Unsecured Claims and treats them as such in
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 37 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 45 construed of 157 to be, the solicitation of votes on the Plan.
1 the Plan. Because Chapter 9 incorporates only those administrative claims allowed under section 2 507(a)(2), the City submits that virtually all Claims filed as priority Claims are not entitled to priority 3 status under Chapter 9. Accordingly, the City intends to object to the characterization of substantially all 4 Claims filed as a priority Claim. 5 5. Secured Claims 6 The City has categorized a number of proofs of claim as Secured Claims. These claims are the 7 claims of the California Infrastructure Economic Development Bank, Western Alliance in connection with 8 the Police Station AC Financing Agreement, and Tim Burgess. Although a number of other proofs of 9 claim were also filed as secured, the City does not believe that such claims are actually secured. 10 a. California Infrastructure Bank Claims 11 The California Infrastructure and Economic Development Bank (“CIEDB”) issued bonds and 12 loaned the proceeds of the bonds to the City so that the City could make the following capital 13 improvements: (1) the “Harriman Place Street Extension Project – Phase I” (a $2 million project to extent 14 the eastern end of Harriman Place to align with a nearby intersection, in order to facilitate the 15 development of a regional commercial shopping center and the improvement of a local blighted area); (2) 16 the “Verdemont Fire Station Project” (a $2.55 million project to finance the construction, acquisition and 17 installation of the Verdemont Fire Station, located on real property owned by the City, as well as the 18 purchase of two new fire engines); and (3) the “Pavement Reconstruction and Rehabilitation Project” (a 19 $10 million project to finance the construction, acquisition and installation of pavement in or around the 20 public streets throughout the City). 21 In each transaction listed above, the City leased certain real property to CIEDB, CIEDB leased the 22 real property back to the City, and the City’s obligations to pay rent under the leases secure the payment of 23 principal and interest under the bonds. The Harriman Place Project involved a Site Lease between the 24 City, as lessor, and CIEDB, as lessee, and a Facility Lease between CIEDB, as lessor, and the City, as 25 lessee, both leases dated as of August 28, 2001 (the real property that is the subject of the leases includes
26 the City’s Rudy C. Hernandez Community). The Pavement Project involved a Site Lease between the 27 City, as lessor, and CIEDB, as lessee, and a Facility Lease between CIEDB, as lessor, and the City, as 28 lessee, both leases dated as of April 15, 2006. The Verdemont Fire Station Project involved a Site Lease
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 38 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 46 construed of 157 to be, the solicitation of votes on the Plan.
1 between the City, as lessor, and CIEDB, as lessee, and a Facility Lease between CIEDB, as lessor, and the 2 City, as lessee, both leases dated as of August 2, 2004 (the “2004 leases”). The amounts due under the 3 Verdemont Fire Station leases will be paid in connection with implementation of the City’s annexation 4 into the County Fire District. 5 b. Claims of Western Alliance 6 (i) Fire Alerting System 7 In December 2009, the City and Bank of America, National Association (“Bank of America”) 8 entered into a Master Equipment Lease/Purchase Agreement (the “Fire Alerting System Financing 9 Agreement”) pursuant to which the City could lease and acquire certain fire alerting system equipment 10 (the “Fire Alerting System”) from the lessor. Payment on the Fire Alerting System Financing Agreement 11 was secured by a security interest in the equipment leased and other assets of the City. Bank of America 12 filed a UCC financing statement with respect to the equipment and other collateral. The equipment 13 purchased under the Fire Alerting System Financing Agreement included fire station alerting systems for 14 twelve of the City’s fire stations and one dispatch center as set forth on the Schedule of Property No. 1 15 (related to the Fire Alerting System Financing Agreement). The City still uses the Fire Alerting System 16 equipment. The City makes bi-annual principal and interest payments pursuant to the Fire Alerting 17 System Financing Agreement which matures in December 2016. The City believes that the Fire Alerting 18 System Financing Agreement was assigned by Bank of America to Western Alliance Equipment Finance, 19 Inc. (“Western Alliance”) in March 2012. 20 The amount due in connection with the Fire Alerting System Financing Agreement is 21 approximately $85,000 and will be paid in connection with implementation of the City’s annexation into 22 the County Fire District. 23 (ii) Police Station Air Conditioning Units Agreement 24 In October 2004, the City and Koch Financial Corporation (“Koch”) entered into a Master 25 Equipment Lease/Purchase Agreement pursuant to which the City leased four air conditioners (the “Police
26 Station ACs”) for the City’s police station headquarters (the “Police AC Financing Agreement”). Koch 27 filed a UCC financing statement with respect to the Police Station ACs. The City believes that Koch 28 assigned its rights and obligations under the Police AC Financing Agreement to Banc of America Public
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 39 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 47 construed of 157 to be, the solicitation of votes on the Plan.
1 Capital Corp. in May 2010, which subsequently assigned its rights and obligations under the Police AC 2 Financing Agreement to Western Alliance in March 2012. The obligations under the Police AC 3 Financing Agreement were secured by a security interest in the Police Station ACs. 4 c. The Burgess Claim 5 In June 2009, the City acquired certain real property located at 120 South D Street in San 6 Bernardino from Tim Burgess (“Burgess”) for use as a Fire Department maintenance facility (“Fire 7 Maintenance Facility”). The City’s former Fire Department maintenance facility was acquired by Caltrans 8 in connection with work to widen Interstate 215, and the property acquired from Burgess was intended to 9 be used as a maintenance facility for firefighting equipment. The San Bernardino Joint Powers Financing 10 Authority (“JPFA”) entered into a Purchase and Sale Agreement to purchase the property from Burgess 11 for $1.6 million and executed the San Bernardino City Fire Department Maintenance Facility Note in the 12 original principal sum of $1,200,000 (the “Burgess Note”), an Indenture and Loan Agreement, and a Deed 13 of Trust, Security Agreement, Assignment of Leases and Rents, and Financing Statement. In June 2009, 14 the City as lessee and the JPFA entered into a Lease Agreement pursuant to which the City makes lease 15 payments to the JPFA for use of the Fire Maintenance Facility. The lease payments secure the JPFA’s 16 obligations under the Burgess Note, which the City pays directly to Burgess (the “Burgess Obligations”). 17 The current principal amount due under the Burgess Note is $1,100,000. 18 6. Restricted Revenue Bond and Note Payable Claims 19 The revenues securingthat secure the City’s Restricted Revenue Bond and Notes Payable 20 Obligations, including the 1998 Refunding Certificates of Participation (Sewer) (“1998 Sewer COPS”)
21 and the CSWRCB Revenue Bond Claim, arewere not a part of or available to the General Fund, and the 22 General Fund is not obligated to make any payment on the Restricted Revenue Bond and Notes Payable 23 Obligations. Rather, Restricted Revenue Bond and Notes Payable Obligations are paid out of “restricted” 24 or “special” funds, as such terms are defined in Bankruptcy Code section 902(2). 25 The Restricted Revenue Bond and Notes Payable Obligations include the 1998 Refunding
26 Certificates of Participation (the “1998 Sewer COPs”). In order to finance infrastructure improvement 27 projects related to the City’s sewer system and wastewater treatment plant, the City and the San 28 Bernardino Public Safety Authority (the “SBPSA”) entered into a Trust Agreement dated July 1, 1998
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 40 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 48 construed of 157 to be, the solicitation of votes on the Plan.
1 with the 1998 Sewer COPs Trustee, pursuant to which $36.23 million of the 1998 Sewer COPS were 2 issued. Pursuant to an Installment Purchase Agreement entered into between the City and the SBPSA 3 dated July 1, 1998, the SBPSA sold the improvement projects to the City and the City agreed to pay the 4 purchase price of such sale in installment payments (the “Sewer Installment Payments”). The City 5 pledged certain income, rents, rates, fees, charges and other moneys derived from the operation of the 6 City’s sewer system (the “Special Revenues”) to secure the Sewer Installment Payments, and the SBPSA 7 assigned its right to receive the Special Revenues to the 1998 Sewer COPs Trustee, to fund interest and 8 principal payments on the 1998 Sewer COPS. In February 2017, the Sewer Installment Payments 9 terminate and all outstanding 1998 Sewer COPS mature. Because the 1998 Sewer COPS are secured by 10 the Special Revenues and are Restricted Funds, they will not be impaired or altered under the City’s Plan. 11 The City believes that as of the date of this Disclosure Statement, approximately 12 $3.4 million remains outstanding under the 1998 Sewer COPS. The City anticipates that 1998 Sewer Cops
13 will be defeased on April 25, 2016.The 1998 Sewer COPS were scheduled to mature in February 14 2017. The 1998 Sewer COPS were defeased and paid off in April 2016, in the approximate amount 15 of $3.4 million. 16 The Restricted Revenue Bond and Notes Payable Obligations also include the CSWRCB Revenue 17 Bond Claim. The CSWRCB Revenue Bond is secured by dedicated Water Funds, which are Restricted 18 Funds and “special revenues” as defined in Bankruptcy Code section 902(2). On or about April 12, 1994, 19 the State Water Resources Control Board (the “SWRCB”) and the Santa Ana Watershed Project Authority 20 (the “Santa Ana Agency”) entered into a State Revolving Fund Loan (the “Water Project Loan”), as 21 subsequently amended, pursuant to which the SWRCB loaned $30,563,058 to the Santa Ana Agency for 22 the construction of a Regional Tertiary Treatment System (the “Water Project”). The Santa Ana Agency 23 received the loan on behalf of the City (by and through its Board of Water Commissioners) and the city of 24 Colton and the Santa Ana Agency completed the Water Project on April 1, 1996. On or about April 1, 25 2000, the Santa Ana Agency assigned its then-outstanding obligations for the Water Project Loan to the
26 City, which assumed the obligation to repay 85% of the outstanding balance (the “CSWRCB Revenue 27 Bond”), and the city of Colton (which assumed the obligation to repay the remaining 15% of the 28 outstanding balance). By City Resolution No. 515, the Sewer Fund of the City was dedicated to
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 41 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 49 construed of 157 to be, the solicitation of votes on the Plan.
1 repayment of the City’s obligation under the CSWRCB Revenue Bond. ApproximatelyIn April 2016, 2 the remaining $1.7 million remains outstanding on the CSWRCB Revenue Bond was repaid. 3 Under the Plan, the City will continue to apply restricted revenues to pay the Restricted Revenue 4 Bond and Notes Payable Obligations in the ordinary course of business pursuant to the applicable 5 documents (which, including the 1998 Sewer COPS, will be assumed by the City on the Effective Date, 6 with any defaults, to the extent any defaults exist as of the Effective Date, that are required to be cured 7 under section 365(b)(1)(A) of the Bankruptcy Code cured, or adequate provision made for the prompt cure 8 thereof). The 1998 Sewer COPs Trustee shall retain all of its rights, remedies, security interests and 9 collateral under the 1998 Trust Indenture, and any bonds, notes, security agreements, or any other 10 instruments or agreements executed in connection with the 1998 Sewer COPS or otherwise providing, 11 granting or perfecting a lien in connection with the 1998 Sewer COPS. 12 7. Other Bond Claims 13 a. The 1996 Refunding Bonds and the City Hall 14 and Parking Structure Lease 15 Pursuant to a 1996 Trust Indenture, the Joint Powers Financing Authority (“JPFA”) issued the 16 1996 Refunding Bonds in the principal amount of $16,320,000 for the purpose of refunding prior 17 certificates of participation, rehabilitating certain portions of City Hall, and funding other capital projects. 18 In connection with the 1996 Refunding Bonds, the former Redevelopment Agency (“RDA”) leased City 19 Hall and an adjacent parking structure to the JPFA under a Site and Facility Lease, dated as of December 20 1, 1996, by and between the RDA, as lessor, and the JPFA, as lessee. In turn, the JPFA leased those 21 buildings to the City. 22 The lease and lease back transaction is reflected in the following documents: (1) a Ground Lease 23 between the City and the RDA, pursuant to which the City leased the City Hall building located at 300 24 North “D” Street and an adjacent five-story parking structure to the RDA (“City Hall Ground Lease”); (2) 25 a Site and Facility Lease between the RDA as lessor and the JPFA as lessee pursuant to which the RDA
26 leased City Hall and the related premises (with the RDA retaining fee title to City Hall and the parking 27 structure) to the JPFA (“City Hall Site Lease”); and (3) the City Hall Lease, pursuant to which the JPFA 28 leased City Hall and the parking structure back to the City. In connection with the issuance of the 1996
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 42 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 50 construed of 157 to be, the solicitation of votes on the Plan.
1 Refunding Bonds, the City also entered into a Continuing Disclosure Agreement with First Trust of 2 California National Association, the predecessor to the 1996 Refunding Bonds Trustee. The City has 3 continued to make lease payments required under the City Hall Lease during the Bankruptcy Case. 4 Pursuant to the City Hall Lease, the City agreed to pay the JPFA for use and occupancy of the 5 premises, which lease payments were denominated in principal and interest components payable at the 6 times and in the amounts necessary to allow the JPFA to make full and timely payments of principal and 7 interest on the 1996 Refunding Bonds. Pursuant to the 1996 Trust Indenture, the JPFA transferred in trust 8 and assigned to the 1996 Refunding Bonds Trustee, as security for the benefit of the holders of the 1996 9 Refunding Bonds, all of the “Revenues” (as defined in the 1996 Trust Indenture) and all of the rights and 10 interest of the JPFA in the City Hall Lease payments, including the right to receive such payments from 11 the City. As additional security for the 1996 Refunding Bonds, MBIA Insurance Corporation (“MBIA”) 12 issued its Financial Guaranty Insurance Policy No. 22731, dated December 18, 1996 (“FGI Policy”), 13 pursuant to which MBIA insured the payment of the principal and interest on the 1996 Refunding Bonds 14 when due, subject to the terms and conditions set forth in the FGI Policy. National has succeeded to the 15 rights and obligations of MBIA under the FGI Policy, and U.S. Bank National Association currently is the 16 1996 Refunding Bonds Trustee. 17 The 1996 Refunding Bonds are treated in Class 1 of the Plan. Pursuant to the Plan and the terms 18 of the 1996 Refunding Bonds Amendment, the 1996 Trust Indenture and the City Hall Lease will be 19 amended on the Effective Date to permit the substitution of a surety bond issued by National in an amount 20 equal to the “Reserve Requirement” (as such term is defined in the 1996 Trust Indenture) to replace the 21 “Reserve Fund” (as such term is defined in the 1996 Trust Indenture). As of the date of this Disclosure 22 Statement, approximately $5.67 million in principal amount of 1996 Refunding Bonds remains 23 outstanding, and approximately $1.1 million was held in the Reserve Fund. Simultaneously with the 24 substitution of the surety, the funds held in the Reserve Fund will be released to the City, to be used by the 25 City for capital expenditure purposes in accordance with federal tax covenants. In addition, the Plan
26 provides that the City will assume the 1996 Refunding Bond Agreements and cure, or provide adequate 27 assurance for the prompt cure, of all defaults under the 1996 Refunding Bond Agreements that are 28 required to be cured under section 365(b)(1)(A) of the Bankruptcy Code.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 43 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 51 construed of 157 to be, the solicitation of votes on the Plan.
1 The effectiveness of the 1996 Refunding Bonds Amendment will also be subject to a number of 2 terms and conditions set forth therein. These terms and conditions include receipt of an opinion of 3 nationally recognized bond counsel to the City, in form and substance reasonably satisfactory to the 1996 4 Refunding Bonds Trustee, that interest on the 1996 Refunding Bonds will not be included in the gross 5 income of the holders thereof for purposes of federal income taxation as a result of the 1996 Refunding 6 Bonds Amendment; the occurrence of the Effective Date, and the satisfaction or waiver of the conditions 7 to the effectiveness of the 1999 Refunding Certificates of Participation Amendment.
8 In exchange for the foregoing agreements by the City described in this Section IV.A.7.(a), 9 National Public Guarantee Finance Corporation (“NPFG”), as the deemed holder of the Class 1 10 Claims, has advised the City that it supports the Plan and intends to vote to accept the Plan. 11 b. The 1999 Refunding Certificates of Participation and the Police 12 Station, 201 North E Street, and South Valle Leases 13 Pursuant to the 1999 Trust Agreement, the JPFA issued the 1999 Refunding Certificates of 14 Participation (“1999 COPS”) in the principal amount of $15,480,000 for the purpose of (1) refunding 15 prior certificates of participation issued in 1995 for the cost of constructing and equipping the City’s 16 Police Station; (2) refunding prior certificates of participation issued in 1987 to cover the cost of various 17 public street improvements in the City’s South Valle Redevelopment Project Area; and (3) providing 18 funds for RDA projects and capital improvements. 19 At the time the 1999 COPS were issued, the RDA owned the Police Station and a 201 North E 20 Street Building located in the City (the “201 Building”), and the City owned the South Valle 21 Improvements (as defined in the South Valle Lease). The lease and lease back transaction was 22 documented by the following documents: (1) the 201 North E Street Site and Facility Lease Agreement 23 between the RDA, as lessor, and the JPFA, as lessee, pursuant to which the RDA leased the 201 Building 24 and the site on which it was located to the JPFA; (2) the 201 North E Street Lease Agreement between the 25 JPFA, as lessor, and the City, as lessee, pursuant to which the JPFA leased to the City the improvements
26 and real property referred to as the 201 North E Street Site (the “201 Lease”); (3) the Police Station Site 27 and Facility Lease between the RDA, as lessor, and the JPFA, as lessee, pursuant to which the RDA 28 leased the Police Station and the Police Station site to the JPFA; (4) the Police Station Lease, pursuant to
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 44 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 52 construed of 157 to be, the solicitation of votes on the Plan.
1 which the JPFA leased to the City the improvements and real property referenced as the “Police Station 2 Site,” which include the City’s Police Station; (5) the South Valle Site and Facility Lease between the 3 City, as lessor, and the JPFA, as lessee, pursuant to which the City leased certain City-owned property 4 known as the “South Valle Improvements” to the JPFA; and (6) the South Valle Lease Agreement 5 between the JPFA, as lessor, and the City, as lessee, pursuant to which the JPFA leased back to the City 6 the South Valle Improvements (the “South Valle Lease”). 7 Payment of principal and interest under the 1999 COPS is secured by the lease payments made by 8 the City to the JPFA under the 201 Lease, the Police Station Lease, and the South Valle Lease, and the 9 right to receive such lease payments has been assigned to the 1999 Refunding Certificates of Participation 10 Trustee pursuant to that certain Assignment Agreement, between the JPFA and the 1999 Refunding 11 Certificates of Participation Trustee, dated as of September 1, 1999. In addition, the RDA secured 12 payment of the 1999 COPS pursuant to a deed of trust from the RDA for the benefit of the 1999 13 Refunding Certificates of Participation Trustee on the real property located at 201 North E Street. During 14 the Bankruptcy Case, the City has made the lease payments due under the 201 Lease, the Police Station 15 Lease, and the South Valle Lease. 16 As additional security for the 1999 COPS, MBIA issued its Financial Guaranty Insurance Policy 17 No. 30284, dated September 29, 1999 (the “FGI Policy”), pursuant to which MBIA insured the payment 18 of the principal and interest on the 1999 COPS when due, subject to the terms and conditions set forth in 19 such insurance policy. National has succeeded to the rights and obligations of MBIA under the FGI 20 policy, and U.S. Bank National Association currently is the 1999 Refunding Certificates of Participation 21 Trustee. In connection with the issuance of the 1999 COPS, the City also entered into a Continuing 22 Disclosure Agreement with the 1999 Refunding Certificates of Participation Trustee. In addition, the City 23 and the RDA entered into an Agency Agreement, as well as a Reimbursement Agreement, pursuant to 24 which the RDA promised to reimburse the City for the lease payments made under the 201 Lease and the 25 South Valle Lease.
26 Subject to the terms and conditions of the 1999 Refunding Certificates of Participation 27 Amendment, on the Effective Date, the 1999 Trust Agreement and the Police Station Lease will be 28 amended and supplemented. Pursuant to the 1999 Refunding Certificates of Participation Amendment, on
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 45 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 53 construed of 157 to be, the solicitation of votes on the Plan.
1 the Effective Date, funds from the “Reserve Fund” (in excess of the “Reserve Requirement”) and the 2 “Capital Reserve Fund” (as such terms are defined in the 1999 Trust Agreement) will be used to prepay in 3 full all remaining lease payments due from the City under the Police Station Lease. As a result of these 4 transactions, the City will be able to withdraw any remaining amounts in the Capital Reserve Fund in 5 accordance with the terms and conditions of the 1999 Trust Agreement. Upon payment in full of the 6 remaining lease payments under the Police Station Lease, the Police Station Lease will terminate and 7 neither the JPFA, National nor the 1999 Refunding Certificates of Participation Trustee will have any 8 interest in the Police Station or the Police Station Lease. The City expects that such prepayment will 9 enable the City to use the Police Station as collateral for purposes of obtaining financing for capital 10 expenditures. As of the date of this Disclosure Statement, approximately $7.9 million in principal amount 11 of the 1999 COPS remains outstanding. In addition, the current balance of the Capital Reserve Fund is 12 approximately $4 million, and the balance of the Reserve Fund (in excess of the Reserve Requirement) is 13 approximately $500,000. The City expects to receive approximately $1 million in excess funds from the 14 Reserve Fund and the Capital Reserve Fund following the optional redemption provided under the Plan. 15 In addition, pursuant to Section 10.02 of the Police Station Lease, the City will give notice of an 16 optional redemption of the 1999 COPS in an amount equal to the amount of the Police Station Lease 17 payments, with such redemption to occur at the earliest practicable date following the occurrence of the 18 Effective Date. Such notice will specify the order of redemption of the 1999 COPS, which order will 19 ensure that the remaining payments required to be made by the City under the 1999 COPS (Police 20 Station/201 North E Street/South Valle) will be sufficient to pay the principal of and interest on the 1999 21 COPS when due, as certified by an independent financial consultant of the City reasonably acceptable to 22 National and the Trustee. On the Effective Date, the City will deposit the proceeds of the payment in full 23 of the Police Station Lease with the 1999 Refunding Certificates of Participation Trustee to hold in trust 24 pursuant to the terms of the 1999 Trust Agreement pending the redemption of the 1999 COPS. 25 In connection with the 1999 Refunding Certificates of Participation Amendment, on the Effective
26 Date, the City will also assume the 1999 Refunding Certificates of Participation Agreements (Police 27 Station/201 North E Street/South Valle), including the Police Station Lease, as amended by the 1999 28 Refunding Certificates of Participation Amendment, and will cure, or provide adequate assurance for the
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 46 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 54 construed of 157 to be, the solicitation of votes on the Plan.
1 prompt cure of all defaults under the 1999 Refunding Certificates of Participation Agreements (Police 2 Station/201 North E Street/South Valle) that are required to be cured under section 365(b)(1)(A) of the 3 Bankruptcy Code. 4 The effectiveness of the 1999 Refunding Certificates of Participation Amendment will also be 5 subject to a number of terms and conditions. These terms and conditions include the occurrence of the 6 Effective Date and the receipt of an opinion of nationally recognized bond counsel to the City, in form and 7 substance reasonably satisfactory to the 1999 Refunding Certificates of Participation Trustee, that interest 8 on the 1999 COPS will not be included in the gross income of the holders thereof for purposes of federal 9 income taxation as a result of the 1999 Refunding Certificates of Participation Amendment.
10 In exchange for the foregoing agreements by the City described in this Section IV.A.7.(b), 11 NPFG, as the deemed holder of the Class 2 Claims, has advised the City that it supports the Plan 12 and intends to vote to accept the Plan. 13 8. Consenting Union Claims 14 The City has entered into settlements with sixeach of the seven unions representing City 15 employees and anticipates that a settlement agreement with the one remaining union will be finalized in
16 early April 2016.. Certain of those unions’ and employees’ claims will be impaired, treated as Class 13 17 General Unsecured Claims and discharged under the Plan. A discussion of the Consenting Union 18 Claims is found at Section V.A.2.j. below. 19 9. Litigation Claims 20 a. Pending Lawsuits 21 There are approximately 157172 lawsuits currently pending against the City that seek, among 22 other things, monetary damages. Approximately 94 lawsuits are pre-petition claims, and approximately
23 6378 lawsuits are post-petition claims. The City has reviewed the allegations made in each case, its own 24 files with respect to each case, and the settlements and verdicts in past cases with similar facts, and took 25 into consideration that there has been a substantial recent increase in settlements and verdicts obtained by
26 plaintiffs against public entities in the general geographic region that includes the City. Based upon that 27 analysis, and solely for the purpose of estimating the amount of pending Litigation Claims so as not to 28 delay Plan confirmation, and not for the purpose of allowing any particular claim:
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 47 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 55 construed of 157 to be, the solicitation of votes on the Plan.
1 (a) the City’s estimated potential liability on the prepetition claims is up to $14.6516 million; and 2 if the City were forced to litigate the prepetition claims, the estimated cost of defense would be
3 $5.135.2 million, in the aggregate; and 4 (b) the City’s estimated potential liability on the post-petition claims is up to $5.476.72 million; 5 and if the City were forced to litigate the post-petition claims, the estimated cost of defense would
6 be $2.683.16 million, in the aggregate. 7 A chart listing the lawsuits which identifies the plaintiffs’ names, provides a brief description of the 8 causes of action and the date the lawsuit was served on the City and the alleged date of loss, is included in 9 the Appendix as Exhibit 6. 10 b. Personal/Bodily Injury Claims 11 Approximately 112119 of the 157172 pending lawsuits seek damages from the City for personal 12 injury and bodily injury based on alleged torts by the City and its police officers and other employees;
13 6667 of the suits allege prepetition injuries and 4652 allege post-petition injuries (the “Injury Claims”). 14 The Injury Claims may be covered by the City’s insurance policies (discussed below). 15 The Injury Claims implicate the City's obligations to defend and indemnify its employees because, 16 under California Government Code §§ 825 and 995, the City is generally required to 17 (a) defend and indemnify its employees in actions brought against such employees by third parties for acts 18 or omissions occurring in the scope of employment, and (b) pay judgments against such employees in the 19 action. See e.g. Dionne Smith-Downs v. City of Stockton, 2012 U.S. Dist. LEXIS 109181 (E.D. Cal. 2012) 20 (City of Stockton must indemnify police officers for the amount of any judgment or settlement in civil 21 rights violations action under ’Cal. Gov’t Code §825(a)); In re City of Stockton, 484 B.R. 372, 379 22 (Bankr. E.D. Cal 2012) (“The City bears the financial risk of a judgment against the individual 23 defendants. The City, having undertaken the defense of the City Manager and Deputy City Manager, is 24 generally obliged to pay a judgment against them in the civil action. ’Cal. Gov’t Code § 825.”) 25 Based upon the City’s analysis of the Injury Claims: (a) the City’s estimated potential liability on
26 the prepetition Injury Claims is up to $12.6714.10 million; and if the City were forced to litigate the 27 prepetition Injury Claims, the estimated cost of defense would be $4.194.24 million in the aggregate; and 28 (b) the City’s estimated potential liability on the post-petition Injury Claims is up to $4.635.59 million;
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 48 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 56 construed of 157 to be, the solicitation of votes on the Plan.
1 and if the City were forced to litigate the post-petition Injury Claims, estimated cost of defense would be
2 $2.122.43 million, in the aggregate. These estimates of liability for Injury Claims are a subset of the 3 overall estimates of potential prepetition and post-petition liability discussed above.
4 c. Estimation of Litigation Claims 5 The estimates described above do not reflect the likelihood that any particular plaintiff will prevail
6 in any particular case, and the aggregate of outcomes in 155172 lawsuits may yield significantly lower or 7 higher results. The City is defending or intends to defend substantially all of these cases, and nothing 8 contained in this Disclosure Statement can be used as an admission of fact in any cases. 9 c. d. Insurance/BICEP ClaimsBICEP Agreement and Reinsurance 10 Policies The City is self-insured for the first $1 million of defense costs, settlements and judgments per 11 bodily injury or personal injury claim.16 12 If the amount of judgment or settlement exceeds $1 million, the City, as a member of the Big 13 Independent Cities Excess Pool Joint Powers Authority (“BICEP”)BICEP, and pursuant to the BICEP 14 Agreement, has purchased Excess Liability coverage through BICEP. That excess liability coverage, 15 provided by BICEP, that is backed by the Reinsurance Policies between BICEP and each of Great 16 American Insurance Company, Wesco Insurance Company and Starr Indemnity & Liability Co., provides 17 The aggregate effect of the BICEP Agreement and the Reinsurance Policies is to provide annually up 18 to 19 $9 million of coverage per claim and an aggregate $26 million dollars of coverage for personal liability 20 and bodily injury claims above the City’s $1 million self-insured retention per claim and, subject to the 21 other terms and conditions of the applicable insurance policies (collectively the “Insurance Policies”). 22 16 23 Under the BICEP Agreement, (1) bodily injury means physical injury, emotional distress, sickness, or disease sustained by a person, including death resulting from any of these at any 24 time; and (2) personal injury means damages caused by or arising out of one or more of the following: (a) false arrest, detention or imprisonment, malicious prosecution or abuse of process; 25 (b) wrongful entry or eviction; (c) publication or utterance of material that slanders or libels a person or organization or 26 disparages a person’s or organization’s goods, products or services, or infringement of copyright, 27 title or slogan, or oral or written publication of material that violates a person's right of privacy; (d) discrimination, other than employment practices, based upon race, religion, nationality, 28 national origin, color, creed, sex, sexual orientation, handicap, disability, age or employment or violation of civil rights; and (e) assault and battery.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 49 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 57 construed of 157 to be, the solicitation of votes on the Plan.
1 Copies of the Insurance Policies are included in, conditions and limitations of the BICEP Agreement 2 and the Reinsurance Policies, copies of which are attached to the Appendix as Exhibit 5. 3 Under the applicable BICEP documents, (1) bodily injury means physical injury, emotional 4 distress, sickness, or disease sustained by a person, including death resulting from any of these at any 5 time; and (2) personal injury means damages caused by or arising out of one or more of the following: (a) 6 false arrest, detention or imprisonment, malicious prosecution or abuse of process; (b) wrongful entry or 7 eviction; (c) publication or utterance of material that slanders or libels a person or organization or 8 disparages a person’s or organization’s goods, products or services, or infringement of copyright, title or 9 slogan, or oral or written publication of material that violates a person's right of privacy; (d) 10 discrimination, other than employment practices, based upon race, religion, nationality, national origin, 11 color, creed, sex, sexual orientation, handicap, disability, age or employment or violation of civil rights; 12 and (e) assault and battery. The foregoing, and all other references to the Insurance Policies, is a summary 13 only and is qualified in its entirety by the provisions of the applicable Insurance Policies. The City has 14 determined that it will assume the applicable BICEP Agreements and the Insurance Policies.
15 e. Insurance Coverage Process/ADR ProcessThe Insurance Policies are 16 essential to the operations of the City. Pursuant to the Plan, the City will 17 ratify its relationship with BICEP and the other insurers and, to the extent 18 that the Insurance Policies are executory contracts, confirmation of the Plan 19 shall constitute assumption of the Insurance Policies under section 365 of 20 the Bankruptcy Code. It is the City’s intention under the Plan that 21 litigants’ access to the City’s Excess Liability and other insurance coverage 22 shall not be impaired by the filing of the City’s bankruptcy, any provision 23 of the Plan or confirmation of the Plan, and the City’s proposed 24 confirmation order will so provide. It is the City’s intention that the Plan 25 shall not modify or impair the rights and obligations of BICEP and the
26 insurers under the Insurance Policies, including, for example, that under 27 the BICEP policy the City may not settle a claim in excess of the $1 28 million self-insured retention without the consent of the BICEP Board of
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 50 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 58 construed of 157 to be, the solicitation of votes on the Plan.
1 Directors. Under paragraphparagraphs 6.1 and 6.2 of Exhibit “A” to 2 BICEP Memorandum of CoverageAgreement, the City is obligated to 3 provide BICEP with written notice of any claim or occurrence that the
4 BICEP Master Memorandum of Liability CoverageAgreement covers or 5 potentially covers if, among other things, the claim involves paralysis,
6 brain damage, dismemberment or death or otherwise has potential damages 7 exposure of at least $500,000.500,000 (which potential damages 8 exposure includes claimant’s attorney’s fees, costs and prejudgment 9 interest). The City in the ordinary course provides notice to BICEP of 10 such claims. Attached to the Disclosure Statement as Exhibit 6A is a 11 list of claims as to which the City has provided such notice to BICEP 12 (including claims that do not necessarily meet the criteria of Section 13 6.1 of Exhibit A to the BICEP Agreement). 14 Under the Plan, the City will assume the BICEP Agreement pursuant to Sections 365(a) and 15 1123(b)(2) of the Bankruptcy Code. The Confirmation Order will contain findings regarding the 16 approval of assumption and the satisfaction of the cure and adequate assurance requirements of 17 Section 365(b) of the Bankruptcy Code. 18 d. ADR Procedures 19 Included in Attached to the Appendix as Exhibit 4 are alternative dispute resolution procedures 20 (“the ADR Procedures”) that the City proposes shall be used to liquidate the claims of claimants holding 21 Litigation Claims as part of the claims allowance procedures. The City designed the ADR Procedures to 22 substantially reduce the cost to the City and the claimants of reaching an equitable resolution of the 23 claims. The City intends to make concrete mediation settlement proposals once the Plan is confirmed and 24 the ADR Procedures apply, and the City will pay for the costs of the mediators that are used in the ADR 25 Procedures. The ADR Procedures also provide that, unless otherwise directed by the Bankruptcy Court,
26 after the Effective Date of the Plan the City shall have the discretion to enter into settlements regarding
27 the allowance and payment of Litigation Claims without further order of the Bankruptcy Court. The 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 51 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 59 construed of 157 to be, the solicitation of votes on the Plan.
1 ADR Procedures also provide that BICEP will be a released party in any settlement entered into by 2 the City in respect of any Litigation Claims. 3 In connection with solicitation of votes to approve the Plan, the City will provide a separate 4 notice to the holders of Litigation Claims listed in Exhibit 6 to the Appendix that a discussion of the 5 Litigation Claims and the Insurance Policies is contained in this Section IV.A.9.d and IV.A.9.e of the 6 Disclosure Statement, and that copies of the ADR Procedures, the BICEP Agreement and the 7 InsuranceReinsurance Policies are attached as Exhibits 4 and 5 to the Appendix. 8 e. BICEP’s Position Statement 9 BICEP requested that the City include the following in this Disclosure Statement, as the 10 position of BICEP regarding the BICEP Agreement and certain of its provisions. 11 BICEP Position Statement 12 The City is, along with several other cities, a member of BICEP and a party to the 13 BICEP Agreement. The BICEP Agreement is a risk sharing agreement among member 14 cities of BICEP and is not an insurance policy. 15 The Plan provides that the City will assume the BICEP Agreement in connection with 16 confirmation of the Plan pursuant to Sections 365(a) and 1123 (b)(2). The Plan further 17 provides that the Confirmation Order shall contain findings regarding the approval of 18 assumption and the satisfaction of the cure and adequate assurance requirements of Section 19 365(b). BICEP reserves any and all of its rights on these issues. 20 The BICEP Agreement provides: (i) at Section III, paragraph 1, that BICEP has the 21 right but not the legal duty to defend any claim against a member city; (ii) at Section III, 22 paragraph 2, that BICEP shall reimburse the member city only after the $1 million SIR 23 amount has been exhausted by payment of judgments, settlements and defense costs, subject 24 to the terms and conditions of the BICEP Agreement; (iii) at Section VII, paragraph 9, that 25 there are no third party beneficiaries to the BICEP Agreement; and (vi) at Section VII, 26 paragraph 15, that the BICEP Agreement is not an insurance policy. 27 BICEP’s position is that: (i) BICEP owes obligations only to the City, as the other 28 party to the BICEP Agreement; (ii) the BICEP Agreement does not confer any coverage or
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 52 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 60 construed of 157 to be, the solicitation of votes on the Plan.
1 benefits to any person or entity other than the City; (iii) no direct claims for coverage can be 2 made by third parties such as holders of Litigation Claims; (iv) per the terms and conditions 3 of the BICEP Agreement, the City must comply in full with all requirements as a condition 4 precedent to making a claim for coverage including by complying with the requirement that 5 the City pay 100% of the SIR; (v) the City, as a member of the risk sharing pool, has a duty 6 to reduce risks in the pool including by paying 100% of the SIR (whether it be through 7 expenditure of defense costs or payment of a judgment or settlement agreement) prior to 8 making a claim for coverage; (vi) the right of the City to make a claim for coverage under 9 the BICEP Agreement is a right to make a claim for reimbursement only after 100% 10 payment of the SIR; and (vii) what the City has under the BICEP Agreement is a property 11 interest. 12 Further, in terms of how third party litigants will be paid under the Plan in 13 conjunction with the BICEP Agreement, BICEP’s position is that: (i) the legal effect of 14 assumption of the BICEP Agreement is that the City must comply with all requirements as a 15 condition precedent to making a claim for coverage including by complying with the 16 requirement that the City pay 100% of the SIR; and (ii) under the terms and conditions of 17 the BICEP Agreement as well as the Plan, holders of Litigation Claims have recourse only 18 by making claims against the City and are barred from making claims against BICEP and 19 the BICEP Agreement. 20 The foregoing indented section is the statement of position of BICEP, not the City, and the City 21 does not share BICEP’s view of the effect of the SIR on litigants’ claims. 22 f. The Possible Effect of the City’s Bankruptcy on the SIR in the BICEP 23 Agreement BICEP has made clear its position that (a) it as no duty under any circumstances to defend 24 claims against the City, and (b) litigation claimants may not make direct claims against BICEP – 25 therefore, the City bears the entire burden of defending against all such claims. However, the 26 27 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 53 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 61 construed of 157 to be, the solicitation of votes on the Plan.
1 question of whether California insurance law17 and federal bankruptcy policy apply in the 2 circumstances of the City’s chapter 9 case to provide litigation claimants access to the BICEP 3 Agreement and the Reinsurance Policies for the amount of a judgment in excess of the SIR, even if 4 the City does not first pay the $1 million SIR in full in cash, is not a matter of settled law. The 5 majority view in the published decisions is that the Bankruptcy Code requires an insurer to provide 6 coverage for liability in excess of the deductible or SIR and up to the coverage limits regardless of 7 whether an insolvent insured satisfies amounts owing under the deductible or SIR.18 8 Under the Plan, Litigation Claims are Class 13 General Unsecured Claims and will be paid 9 the 1% distribution paid on all other allowed Cass 13 General Unsecured Claims. Thus, if a holder 10 of a personal injury claim obtains a judgment against the City in excess of $1 million, and seeks
11 17 California Insurance Code § 11580, entitled “Mandatory provisions regarding insolvency, bankru 12 ptcy, or death of insured,” provides in relevant part that all insurance policies ensuring against loss or damage resulting from liability for injury suffered by another person shall include, or 13 shall be deemed to include, the following two provisions: (1) A provision that the insolvency or bankruptcy of the insured will not release the insurer 14 from the payment of damages for injury sustained or loss occasioned during the life of such policy. 15 (2) A provision that whenever judgment is secured against the insured or the executor or 16 administrator of a deceased insured in an action based upon bodily injury, death, or property damage, then an action may be brought against the insurer on the policy and subject to its terms 17 and limitations, by such judgment creditor to recover on the judgment. 18 See e.g. Richard L. Epling, Kelly A. Brennan & Brandon Johnson, Intersections of Bankruptcy 18 Law and Insurance Coverage Litigation, 21 J. Bankr. L. & Prac. 2 (April 2012) (citing cases and other secondary sources at fn. 78); Phillips v. Noetic Specialty Ins. Co., 919 F. Supp. 2d 1089 (S.D. 19 Cal. 2013) ("Adopting Defendant's interpretation of the policy and requiring payment of the SIR 20 to trigger coverage, even in the event of the insured's insolvency . . . would . . . conflict with public policy as reflected by California's direct action statute. While not controlling, this Court 21 finds the underlying public policy persuasive in reaching the conclusion that failure to pay the SIR resulting from an insured's insolvency does not prevent coverage from being triggered."); 22 Gulf Underwriters Ins. Co. v. Burris, 674 F.3d 999, 1005 (8th Cir. 2012) (holding that terms of insurance agreement limited amount of coverage in the event of non-payment of the retention, 23 but not the availability of coverage; even if policy had unambiguously provided that 24 non-compliance by the insured due to insolvency voided existing claims, the court would hold the provision void as against public policy); Rosciti v. The Ins. Co. of the State of Penn., 659 F.3d 92 25 (1st Cir. 2011)(terms of insurance policy unambiguously providing that insurer was only liable after SIR was satisfied, even in the event of the insured’s bankruptcy, are contrary to public 26 policy); Albany Ins. Co. v. Bengal Marine, Inc., 857 F.2d 250, 255 (5th Cir. 1988) (insurer should 27 not be allowed to escape its obligations under the insurance policy simply because its insured is in bankruptcy); Admiral Ins. Co. v. Grace Indus., 409 B.R. 275 (E.D.N.Y. 2009) (insurer may not 28 withdraw from its obligations under the policy on theory that the SIR endorsement supersedes the bankruptcy clause required by state law).
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 54 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 62 construed of 157 to be, the solicitation of votes on the Plan.
1 payment of the judgment in excess of the $1 million SIR from BICEP or the reinsurers under the 2 Reinsurance Policies, there is likely going to be a dispute over the effect of the SIR provisions on 3 BICEP’s and the reinsurers’ payment obligations. The City is prepared to brief the matter at the 4 appropriate time. 5 10. Employee Wage and Benefit Claims 6 Employee Wage and Benefit Claims are defined under the Plan as “claims of current and 7 former employees of the City and their collective bargaining representatives for unpaid wages and 8 benefits, but not including Claims included in any other category of Claims.” With the exception of 9 unpaid leave claims of former employees, substantially all Employee Wage and Benefit Claims are 10 subsumed into the PARS Claims, Retiree Health Benefit Claims, and the Consenting Union Claims. 11 Therefore, the category of Employee Wage and Benefit Claims means, for all practical purposes, 12 the accrued and unpaid leave claims of retirees and former (non-retiree) employees of the City. 13 Under the Plan, Employee Wage and Benefit Claims means any claims of currentare part of Class 13 14 General Unsecured Claims and will receive the same distribution as other holders of Class 13 15 General Unsecured Claims. 16 Retirees and former employees of the City for unpaid wages and benefits that are not resolved by 17 the City’s settlements with the seven unions representing City employees. The City does not believe any 18 such unresolved claims exist because all such claims are incorporated into the City’s settlements with the
19 Consenting Unions and the claims will be voted by the Consenting Unions aswill receive a Class 13 20 General Unsecured Claims. In connectionClaim distribution on account of their leave claims soon 21 after the Effective Date. Current employees of the City will receive a distribution on account of 22 prepetition accrued leave in the following manner. In accordance with the settlementsagreements 23 entered into with the Consenting Unions (other than the Fire Safety Unit and Fire Management Unit who 24 will be transitioning to employment with the County Fire District if Annexation is approved), the City and 25 its employees have agreed on the following going-forward policy with regard to accrued pre-petition
26 leave: (1) employees may not cash-out pre-petition leave, but may utilize any, current employees of the 27 City may utilize accrued pre-petition leave balances during the course of their employment only in the 28 event the employee has no accrued post-petition leave; (2) employees must usethat they have exhausted
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 55 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 63 construed of 157 to be, the solicitation of votes on the Plan.
1 their post-petition accrued leave before utilizing any pre-petition leave balances; (3) upon. Upon 2 separation from employment, employees will be cashed out for any post-petition leave balances in
3 accordance with the applicable provisions of the applicable collective bargaining agreements; and (4), 4 and will also receive a Class 13 General Unsecured Claim distribution for any accrued but unused 5 prepetition leave. The City’s Effective Date distribution to current employees of their pro rata 6 share of the Consenting Union claims will exclude a distribution on account of prepetition leave, 7 such distribution to be made only upon separation from employment, separating employees shall be 8 entitled to a General Unsecured Claim for the amount of the value of all pre-petition leave bank accruals.
9 Former (non-retired) employees of the City hold $1.4 million of prepetition leave claims, 10 retirees hold $2.8 million of such claims, and the City anticipates that current employees will be 11 entitled to an allowed Employee Wage and Benefit Claim for accrued unpaid leave of 12 approximately 13 $2.4 million in the aggregate upon termination of employment. 14 11. Key Contractual Obligations 15 During the development of the City’s most recent budget, the City conducted an analysis of the 16 contracts it has outstanding. The City has slated for the current fiscal year an audit of its continuing 17 contracts (including analyzing whether there is duplication in any of the City’s current contractual 18 relationships and whether the City might be able to renegotiate, or negotiate elsewhere, a better deal). The 19 City is currently undergoing that review of its significant contracts. 20 21 22 23 24 25
26 27 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 56 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 64 construed of 157 to be, the solicitation of votes on the Plan.
1 2 a. New World Agreement 3 The City is party to a Standard Software License Subscription and Services Agreement dated as of 4 January 12, 2011 (the “New World Agreement”) between New World Systems Corporation (“New 5 World”) and the City. Pursuant to the New World Agreement, among other things, New World granted 6 the City a license to install and operate two New World computer software systems: (1) the “AEGIS” 7 system, pertaining to certain public safety products and services, including police dispatch services; and 8 (2) the “LOGOS” system, pertaining to certain public administration products and services, including 9 certain human resources and finance functions of the City. The New World Agreement also provides for 10 certain training and other services that New World provides to the City in relation to the AEGIS and 11 LOGOS systems. The City has proposed to New World that it will assume the New World Agreement, 12 with certain modifications. 13 b. Kohl’s Department Stores Agreement 14 The City is a party to a Business Operations and Covenant Agreement dated as of August 2, 2010 15 (the “Kohl’s Covenant Agreement”) between the City and Kohl’s Department Stores, Inc. (“Kohl’s”). 16 Pursuant to the Kohl’s Covenant Agreement, Kohl’s agreed, among other things, to open and operate an 17 internet sales fulfillment center/office within the City, to designate certain taxable sales transactions 18 through the City and not to open another similar facility in California. In return, the City agreed to make 19 certain covenant payments to Kohl’s on a quarterly basis for a term of approximately 40 years in the 20 amounts and upon the terms set forth in the Kohl’s Covenant Agreement. The City intends to assume the 21 Kohl’s Covenant Agreement pursuant to the Plan. 22 c. Franchise Agreements 23 The City is party to a number of legacy franchise agreements which entitle the City to collect 24 certain franchise taxes and related fees, and which grant to private entities, such as Southern California 25 Edison Company, franchise rights to use City property for conducting operations (such as the provision of
26 electricity, telephone services, etc.). The City intends to assume those Franchise Agreements that have 27 not previously been reduced to ordinance. 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 57 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 65 construed of 157 to be, the solicitation of votes on the Plan.
1 2 12. Newmark Groundwater Contamination Consent Decree 3 The City is a party to the Newmark Groundwater Contamination Consent Decree (“Consent 4 Decree”) entitled the City of San Bernardino Municipal Water Department v United States Army; State of 5 California Department of Toxic Substances Control v United States, Civil Action Nos. 96-5205, 8867 6 (C.D. Cal. approved March, 2005). Pursuant to the Consent Decree, the City has certain obligations that it 7 funds through the Water Department. The City and the Water Department remain committed to carrying 8 out their obligations under the Consent Decree, and do not intend to modify, amend or abridge any of the 9 terms or conditions found in the Consent Decree, whether pursuant to the City’s Plan or otherwise. 10 13. Environmental/Remediation Obligations 11 From 1950 until about 1960, the City operated a municipal landfill on the south bank of the Santa 12 Ana River, just east of Waterman Avenue (the “Waterman Landfill”). The Waterman Landfill property 13 (approximately 14.6 acres), has been under private ownership since the City ceased its landfill operations 14 in or about 1960. In 1995 and 1996, as partially described in letters dated October 23, 1995 and April 17, 15 1996, the Santa Ana Regional Water Quality Control Board (“RWQCB”) determined that the City was 16 primarily responsible for the environmental monitoring of the Waterman Landfill, and the City was 17 subsequently ordered to perform mitigation of (1) potential groundwater contamination, and (2) the 18 release of methane gas (the “Initial Determination”). In response, the City installed a soil cover as well as 19 gas extraction wells at the Waterman Landfill, and the City has since continued its monitoring and 20 mitigation activities. In 2014, the RWQCB determined that the Waterman Landfill should be treated as a 21 closed, abandoned or inactive landfill in the Santa Ana Region and issued Order No. R8-2013-0010 22 (“2014 Order”). Since that time, the City has complied with both the Initial Determination and the 2014 23 Order. Collectively, the Initial Determination and the 2014 Order are the “Waterman Landfill 24 Obligations.” The City remains committed to carrying out the Waterman Landfill Obligations as 25 determined by the RWQCB, and the City does not intend to modify, amend or abridge any of the
26 Waterman Landfill Obligations pursuant to the City’s Plan. The Plan does not purport to affect the City’s 27 Waterman Landfill Obligations. 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 58 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 66 construed of 157 to be, the solicitation of votes on the Plan.
1 2 14. Lease Obligations for Real Property 3 a. Superior HomesRialto Property Lease 4 On or about January 23, 2007, the City of San Bernardino Municipal Water Department (“Water 5 Department”), acting by and through its Board of Water Commissioners, entered into a “Standard 6 Industrial/Commercial Single-Tenant Lease-Net” as lessee for real property located at 444 W. Rialto 7 Avenue in San Bernardino, California (“Rialto Property”), which is improved with an office building and 8 a warehouse for use by the City’s Water Department as an office building and warehouse. The lessor for
9 the Rialto Property is Woo Sung Lim, who recently purchased the Rialto Property from Superior 10 Homes. The City and Superior Homes have entered into a series of stipulations with Superior Homes 11 extending the time period to assume or reject the lease for the Rialto Property until June 30, 2016, and 12 recently entered into a stipulation with the new owner, Woo Sung Lim, to extend the time until 13 December 31, 2016. The City will assume the Superior HomesRialto Property Lease and reserves all of 14 its rights with respect to any options to extend thereafter. 15 b. The SBEDC Lease 16 Between 1994 and 1996, the City and the former RDA caused the construction of a new baseball 17 field, stadium and ancillary parking and related facilities (the “Stadium”). The RDA subsequently 18 transferred its ownership interest in the Stadium to the San Bernardino Economic Development 19 Corporation (the “SBEDC”). In 1996, pursuant to a lease agreement, the City leased the Stadium to the 20 San Bernardino Stampede, Inc. for the purpose of conducting and carrying on a Class A professional 21 baseball franchise (the “Stadium Lease”). The Stadium Lease has been amended from time to time. The 22 Inland Empire 66ers Baseball Club of San Bernardino, Inc. currently is the lessee under the Stadium 23 Lease. As part of the 2011 legislation that dissolved redevelopment agencies, the State ordered the 24 SBEDC to transfer the Stadium to the City, in its capacity as the Successor Agency for the former RDA 25 (the “Successor Agency”). The SBEDC thereafter quitclaimed its interest to the Successor Agency in
26 December 2014, as ordered by the State of California. More information of the City’s plans for the 27 Stadium is found at Section IV.B.1. below entitled “City Owned Sports Facilities.” 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 59 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 67 construed of 157 to be, the solicitation of votes on the Plan.
1 15. The PARS Claims 2 In January 2004, the City adopted the City of San Bernardino Public Agency Retirement System 3 Retirement Enhancement Plan (the “PARS Enhancement Plan”), which was amended and restated 4 effective July 1, 2007. The PARS Enhancement Plan provides 23 of the City’s former police officers 5 (with those participants of the PARS Excess Benefit Plan (as defined below), the “PARS Participants”) 6 with retirement benefits to supplement pension payments. The PARS Participants covered under the 7 PARS Enhancement Plan were each required to be 50 years of age, have completed 20 years of service 8 and have retired on or before December 31, 2008 in order to obtain benefits under the PARS 9 Enhancement Plan. 10 Upon satisfying such criteria, the PARS Participants became eligible to receive supplemental 11 benefit payments under the PARS Enhancement Plan, combined with the benefits they were entitled to 12 receive under CalPERS. The supplement of the PARS Enhancement Plan allowed the PARS Participants 13 covered by such plan to receive a 3% benefit upon retiring at age 50, which at the time was available 14 under CalPERS only for participants of CalPERS who retired at age 55. Thus, the PARS Enhancement 15 Plan permitted the PARS Participants to retire 5 years early, but still receive the benefits they would 16 otherwise maintain upon retirement at age 55 under CalPERS. In addition, because two of the PARS 17 Participants were subject to a benefit limitation under Section 415 of the Internal Revenue Code, in 18 January 2008, the City also adopted the City of San Bernardino Excess Benefit Plan (the “PARS Excess 19 Benefit Plan”(together with the PARS Enhancement Plan, the “PARS Plans”)), which provided these 20 employees with “gross ups” to compensate them for any loss in benefits because of the Section 415 21 limitation. Both PARS Plans are administered by an affiliate of the Public Agency Retirement System (or 22 “PARS”) (while the Human Resources Director of the City acts as the penultimate plan administrator of 23 the PARS Plans). 24 The benefits from both of the PARS Plans are paid out of two separate trusts. The PARS 25 Enhancement Plan benefits are paid from a trust related to a multi-employer plan PARS Trust Agreement
26 to which the City, along with other municipalities, is a party (the “PARS Trust”). The benefits from the 27 PARS Excess Benefit Plan are paid out of a separate trust (the “415 Trust”) established pursuant to the 28 City of San Bernardino Excess Benefit Trust Agreement (the “415 Trust Agreement”).
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 60 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 68 construed of 157 to be, the solicitation of votes on the Plan.
1 Prior to the Petition Date, the City made payments to the PARS Trust and the 415 Trust to fund 2 the PARS Plans. After the Petition Date, the City made additional payments of approximately $240,000 3 to the PARS Plans. Currently, neither the 415 Trust nor the PARS Trust holds sufficient assets to pay all 4 of the remaining obligations due under the respective PARS Plans. The 415 Trust maintains current 5 assets (as of June 30, 2015) of approximately $56,000, and the PARS Trust holds current assets (as of 6 June 30, 2015) of approximately $1.868 million, leaving both trusts (a) with total assets of approximately 7 $1.924 million, and (b) collectively underfunded by approximately $2.974 million. These amounts are 8 calculated assuming a 6% discount rate and 1983 Group Annuity Mortality table, one of the generally 9 accepted actuarial standards for such calculations. Payments from the 415 Trust to the participants were 10 halted on or about the Petition Date due to a provision in the 415 Trust Agreement requiring the trustee to 11 cease payments upon the City’s bankruptcy filing. Payments to PARS Participants from the PARS Trust 12 assets have continued during the pendency of the Bankruptcy Case. 13 The holders of the PARS Claims assert that they are entitled to all of the approximate 14 $1.924 million in cash in the two trusts, plus payment in full by the City of approximate $2.974 million of 15 unfunded liability. The City disputes those assertions. Under the Plan, in full settlement of the disputes, 16 the City is offering to: (a) distribute the $1.924 million of cash to the holders of the PARS Claims 17 (treatment in Class 9 of the Plan); and (b) treat the $2.974 unfunded lability as a Class 13 General 18 Unsecured Claim, which would receive a 1% distribution. Alternatively, if the holders of the Class 9 19 Claims vote to reject the Plan, then the legal, equitable and contractual rights to which the Class 9 Claims
20 entitle the Holders will be the subject of the claims allowance procedures. City and the holders of the 21 PARS Claims have entered into the PARS Settlement which was approved on May 5, 2016 as 22 Resolution No. 2016-83, a copy of which is included in the Supplemental Appendix as Exhibit 34. 23 In accordance with the PARS Settlement, the PARS Plans will be rejected, and the City will waive 24 any and all claims to the funds held within the PARS Trust and the 415 Trust as of the date of 25 termination of the PARS Plans, (ii) the amounts remaining in the PARS Trust and the 415 Trust 26 will be distributed to the PARS Participants pursuant to agreed-upon allocations, and the City will 27 endeavor to make each such distributions in a manner that will minimize adverse tax consequences 28 for each PARS Participant, (iii) the City will make a distribution of $290,000.00 on the later of the
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 61 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 69 construed of 157 to be, the solicitation of votes on the Plan.
1 Effective Date or July 5, 2017, and a distribution $290,000.00 on the later of the Effective Date or 2 July 5, 2018, in each case to the PARS Participants pursuant to agreed-upon allocations, and (iv) 3 the City will be discharged from any and all obligations to further fund any PARS Plan or to make 4 any other distributions on account of the PARS Claims. 5 In exchange for the City’s proposed treatment of the PARS Claims, the PARS Participants 6 have agreed to vote their claims in favor of the Plan and to support confirmation of the Plan. 7 16. Workers Compensation Liabilities. 8 Pursuant to the Plan, workers compensation claims will be processed and paid pursuant to the 9 City’s current practices in the ordinary course of the City’s continued operations. Accordingly, no proofs 10 of claim are or were required for holders of such claims. 11 17. Capital Maintenance Obligations 12 a. Public Facilities Repair Needs 13 The City has 169 public facilities which require on-going operational maintenance as well as 14 required capital maintenance. The City’s Building Maintenance & Costs Reports – Building Detail 15 Report (the “City Properties Report”) is included in the Appendix as Exhibit 8. For many years these 16 facilities have not been maintained as necessary and many require immediate attention. As described in 17 the City Properties Report, $63.6 million is required to meet this need (specifically, $12 million towards 18 public facilities within the City’s 44 parks and $51.6 million for other facilities such as City Hall, the 19 Police Station, libraries, neighborhood community centers and senior centers). 20 b. Street and Road Repair Backlog and Needs 21 As set forth on the Street Repairs Report included in the Appendix as Exhibit 9, the City’s 22 right-of-way capital maintenance backlog exceeds $180 million. However, the historic funding allocated 23 to finance the City’s right-of-way infrastructure requirements continues to be significantly inadequate. In 24 addition, other funding sources are unavailable to the City. For example, other federal funding is typically 25 not available for capital maintenance, as most monies are earmarked for mobility or air quality
26 improvements (e.g., Federal Congestion Mitigation and Air Quality (CMAQ) Funds). In addition, the 27 State of California’s State Transportation Improvement Program (STIP) provides funding that could be 28 used for local projects, but only where such projects are included in a Regional Transportation
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 62 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 70 construed of 157 to be, the solicitation of votes on the Plan.
1 Improvement Plan (RTIP), and such RTIP funds are typically used solely for transportation 2 improvements, not street and road maintenance. Thus, the City must supplement its funding needs 3 through General Fund resources. 4 (i) Measure I Sales Tax 5 Measure I is a half-cent sales tax collected throughout San Bernardino County for transportation 6 improvements and allocated to local agencies based on population. San Bernardino County voters first 7 approved the measure in November 1989 and overwhelmingly approved the extension of the Measure I 8 sales tax in 2004 to ensure that needed transportation projects were implemented countywide through 9 2040. The Measure I retail transactions and use tax is statutorily dedicated for transportation purposes 10 only in San Bernardino County and cannot be used for other governmental purposes or programs. There 11 are specific safeguards in the Ordinance to ensure that funding is used in accordance with the specified 12 voter-approved transportation project improvements and programs. 13 The Measure I Ordinance contains maintenance-of-effort provisions that state that funds provided 14 to government agencies by Measure I are to supplement, and not replace, existing local revenues being 15 used for transportation purposes. In addition, Measure I revenues may not replace requirements for new 16 development to provide for a municipalities own road needs. As a result, the City must continue to fund 17 part of its street improvements needs with General Fund monies and not replace those funds with Measure 18 I revenues.
19 San Bernardino Associated Governments (“SANBAG”) is the council of governments and 20 transportation planning agency for San Bernardino County. Among other things, SANBAG 21 administers Measure I, the half-cent transportation sales tax approved by county voters in 1989. 22 Pursuant to a letter agreement dated January 14, 2016, by and between the City and SANBAG (the 23 “SANBAG Agreement”): (a) SANBAG is authorized to withhold, and has been withholding, 24 certain Measure I funds until the City is in compliance with its obligations under Measure I and its 25 requirements; and (b) such authorized withholding is without the need to seek relief under the 26 Bankruptcy Code, among other things. The Plan and the confirmation of the Plan will not affect, 27 impair or modify, in any way, SANBAG’s rights under the SANBAG Agreement, including the 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 63 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 71 construed of 157 to be, the solicitation of votes on the Plan.
1 power to continue to withhold funds until the City is in compliance with its obligations under 2 Measure I and its requirements, and the Confirmation Order will so expressly provide. 3 (ii) State Gas Tax 4 The state collects a base excise tax of 18 cents per gallon of gasoline and a variable excise tax on 5 gasoline of roughly 21.5 cents per gallon (the “Gas Taxes”). Annually, these taxes are estimated to 6 generate $5 billion to $6 billion of which only a small portion of revenues are allocated to cities and 7 counties for local streets and roads. State Gas Taxes have not been adjusted since 1995. As a result, local 8 agencies are unable to keep up with inflationary costs related to right-of-way maintenance. Despite the 9 inclusion of countywide sales taxes for transportation program including street maintenance (such as 10 Measure I), funding to support the City’s large right-of-way network is insufficient. 11 (iii) The Need For Additional Non-Restricted 12 Funding for Street and Road Repair 13 Based on data provided through computations of State Controller and Department of Finance data, 14 the City’s per capita spending for street improvements is well below the statewide median average. In 15 many years, the City’s spending for street maintenance is only about 50% of the statewide median 16 average. The lack of available non-restricted funds may explain, in part, the City’s significant backlog of 17 right-of-way maintenance projects. Without the inclusion of non-restricted funds, the City would be able 18 to allocate only $95 million over 20 years to address a current need that exceeds $180 million, which 19 equals only about 53% of the necessary funding. General Fund revenues will be required to help pay for 20 such costs so that the City can begin to address the capital maintenance backlog at a level consistent with 21 other cities statewide. 22 18. Cash Balances of City Funds and Description of Restricted Funds 23 As set forth in the Plan, the Plan does not propose to alter the obligations of those City funds that 24 are restricted by grants, federal law or state law. Therefore, securities or claims payable solely from 25 Restricted Funds are not impaired by the Plan and will be paid in the ordinary course. Without limiting
26 the foregoing, those claims against the City/Water Department payable solely from Water Funds are 27 unimpaired by the Plan and will be paid in the ordinary course. Included in the Appendix as Exhibit 17 is 28 a “Cross Fund Report” listing different City funds and the estimated cash balance (including negative cash
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 64 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 72 construed of 157 to be, the solicitation of votes on the Plan.
1 balances) of those fund as of February 29, 2016.1619 A chart which identifies restricted or committed 2 funds and describes the basis for the restrictions on those funds is included in the Appendix as Exhibit 18. 3 19. Reservation of Rights on Allowance or Disallowance of Claims 4 While the City’s review and analysis of Claims is ongoing, the City currently disputes a number of 5 asserted Claims. Given the inherent uncertainty of litigation, no assurance can be given regarding the 6 successful outcome of any litigation that may be initiated in objection to Claims or regarding the ultimate 7 amount and priority, if any, of Claims that will be allowed against the City. 8 The Plan enables the City to file objections to claims and/or subject the claims to the ADR 9 Procedures. The Plan also provides for the City to retain any and all defenses, offset and recoupment 10 rights, and counterclaims that may exist with respect to any disputed Claim, whether under the 11 Bankruptcy Code or otherwise. The City reserves all rights with respect to the allowance and 12 disallowance of any and all Claims. In voting on the Plan, creditors may not rely on the absence of a 13 reference in this Disclosure Statement or the Plan or the absence of an objection to their proof(s) of claim 14 as any indication that the City will not object to the amount, priority, security, or allowance of their 15 Claims. 16 Parties in interest may not rely on the absence of a reference in this Disclosure Statement or in the 17 Plan as any indication that the City ultimately will not pursue any and all available claims, rights and 18 causes of action of the City against such parties. All parties who previously dealt with the City are hereby 19 on notice that the Plan preserves the City’s rights, claims, causes of action, interests and defenses. The 20 City expects that any and all meritorious claims will be pursued and litigated after the Effective Date. 21 22 23 24
25 1619 The cash balances set forth in the Cross Fund Report are the most current available and, thus, unaudited. Some funds such as Successor Agency funds, trust and fiduciary funds, and the City’s 26 Water Department are not included in the Cross Fund Report, but financial and audit information for 27 the City’s Water Department is available at: http://www.sbcity.org/water/divisions/finance/financial_information.asp and information for the 28 Successor Agency is available at: http://www.sbcity.org/cityhall/successor_agency_to_the_former_redevelopment_agency/default.asp
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 65 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 73 construed of 157 to be, the solicitation of votes on the Plan.
1 2 B. City Assets 3 1. City Owned Sports Facilities 4 The City owns, or will own, certain sports related real properties: the San Manuel Stadium Park (a 5 baseball stadium), the Shandin Hills Public Golf Park (“Golf Park”), and the City Soccer Complex 6 (“Soccer Complex”). The San Manuel Stadium and Golf Park are now assets of the Successor Agency. 7 In accordance with the Successor Agency’s Property Management Plan to be submitted to the California 8 Department of Finance (which is overseeing the dissolution of all municipal redevelopment agencies) 9 discussed below, both assets are to be transferred to the City as “government use” properties. The Soccer 10 Complex is already an asset of the City. 11 As discussed further in Section IV.B.3. below, on February 16, 2016, the Successor Agency 12 adopted Resolution No. 2016-26 authorizing the transfer of certain real property to the City for 13 government use, including San Manuel Stadium and the Golf Course. The transfer of San Manuel 14 Stadium to the City is conditioned upon receiving authorization to do so from the California Department 15 of Finance. A copy of Resolution No. 2016-26 is included in the Appendix as Exhibit 31. 16 a. San Manuel Stadium 17 The existing lease between the City and the Inland Empire 66ers Baseball Club of San Bernardino, 18 Inc. (“IE66”) has never produced significant revenue for the City. Over the past three fiscal years, the 19 City has seen no revenue from the lease because of (1) cumulative deferred maintenance in the stadium 20 that is an obligation of the City, but which IE66 has paid for, and (2) the dissolution of the City’s 21 redevelopment agency (the primary source of funding for stadium maintenance) that shifted more 22 maintenance obligations to IE66. There are many studies and statistics demonstrating that 23 municipally-owned or built minor league stadiums generally do not generate net revenue for their host 24 cities, and most municipal stadiums require an ongoing subsidy for maintenance, repair, and replacement 25 costs. Cities decide to bear the cost of a municipal stadium based on, among other things: (1) studies that
26 indicate there is an overall economic benefit to the community and businesses from a municipal stadium 27 and minor league franchise; and (2) the quality of life enhancement to the community from a stadium and 28 minor league sports franchise that many cities believe is worth the cost of the subsidy.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 66 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 74 construed of 157 to be, the solicitation of votes on the Plan.
1 The lease on the San Manuel Stadium will expire in the near future, and the City and IE66 will be 2 negotiating a renewal of that lease without the benefit of redevelopment agency funding. The City’s goal 3 will be to internalize all stadium costs within the lease, thereby minimizing or eliminating any public 4 contribution to the San Manuel Stadium costs. Therefore, it is not realistic to expect that the San Manuel 5 Stadium can generate net revenue for the City. In fact, the City projects transfers of about $2.1 million 6 from the General Fund to the Baseball Stadium Fund over the term of the Financial Model. 7 b. City Soccer Complex 8 The Soccer Complex has generated an average net positive cash flow of roughly $100,000 9 between fiscal years 2012 through 2014. However, the Soccer Complex was not maintained adequately 10 and requires substantial repair. In around November 2015, the City entered into an agreement with the 11 Elmore Sports Group to privatize the management of the Soccer Complex in an effort to save the Soccer 12 Complex and its economic benefit to the community. Much like the San Manuel Stadium, the goal of the 13 City in negotiating a management/operating agreement is to internalize the cost to rehabilitate and 14 revitalize the Soccer Complex into the lease to avoid any significant support from the General Fund. 15 Revenues from the Soccer Complex need to be utilized for critical repairs and replacement projects for the 16 foreseeable future. The total cost of the rehabilitating the Soccer Complex over the next 3 to 4 years may 17 also require a private capital contribution that would be repaid from future revenues. The City’s goal is to 18 return the Soccer Complex to a healthy and competitive condition and to ensure it is maintained at that 19 level in order to reap the general economic benefits that flow from the thousands of club soccer teams that 20 come to the facility annually. Given these circumstances, it is difficult to predict when or if the Soccer 21 Complex will produce positive cash flow for the City in the future. 22 c. Shandin Hills Public Golf Park 23 The Shandin Hills Golf Park (“Golf Park”), a Successor Agency asset, is slated to be transferred to 24 the City pursuant to Successor Agency Resolution No. 2016-26. However, because of significant deferred 25 maintenance, competition from other local golf courses, and the cost of providing water to the facility, it
26 may not yield comparable positive cash flow in the future. 27 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 67 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 75 construed of 157 to be, the solicitation of votes on the Plan.
1 2 2. Other Real and Personal Property Assets 3 The City also owns other properties. A Building Detail Report for each of those properties, which 4 includes a picture of each property and an estimate of the replacement cost, is included in the Appendix as 5 Exhibit 7. All of the properties listed as owned by the City on the Building Detail Report are public use 6 properties (police stations, fire stations, kennels, picnic facilities, public restrooms, etc.). These properties 7 are located primarily on public or governmental use land and are not established for commercial purposes. 8 In addition, most of these properties have such a distressed value that they have little financial value other 9 than as public use facilities. 10 A “List of City-Owned Equipment (Excluding Fire Dept. Equipment)” (“Equipment List”) is 11 included in the Appendix as Exhibit 16. The Equipment List identifies the City’s machines and tools used 12 to provide municipal services such as lathes, forklifts, back-hoes, chippers, trailers, air compressors, and 13 reflects that most of the equipment has outlasted its useful life. A “List of City-Owned Personal Property 14 (as of June 2013)” is included in the Appendix as Exhibit 14. This list has value and depreciation 15 numbers associated with each item of personal property. 16 Because all of the properties and assets currently owned by the City are governmental use and/or 17 distressed, the City is not contemplating any sales of such assets. Moreover, the City has determined that 18 further appraisal of such assets would be cost-prohibitive and futile given the condition of these properties 19 and assets. 20 3. The Former RDA and the Successor Agency Assets 21 a. The Former RDA 22 In 1945, the California legislature enacted the Community Redevelopment Act (the 23 “Redevelopment Act”) which gave cities and counties the ability to address urban blight. The 24 Redevelopment Act was later codified as the Community Redevelopment Law in California Health and 25 Safety Code §33000 and following, and amended to allow the use of part of the City’s property tax
26 revenues to finance redevelopment projects. Pursuant to the Redevelopment Act, the City established the 27 Redevelopment Agency of the City of San Bernardino (“RDA”) as its redevelopment agency. The former 28 RDA was established to develop a number of projects within the City.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 68 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 76 construed of 157 to be, the solicitation of votes on the Plan.
1 b. The Successor Agency and Its Long- 2 Range Property Management Plan 3 Assembly Bill x1 26 (the “Initial Dissolution Bill”), effective on June 28, 2011, caused the 4 dissolution of all redevelopment agencies in California, including the RDA, on February 1, 2012. 5 Pursuant to the Initial Dissolution Bill, and as confirmed by Resolution of the Common Council, the 6 Common Council elected to serve as the governing body of the Successor Agency. The Initial Dissolution 7 Bill makes clear that the Successor Agency is a separate legal entity from the City, that the liabilities of 8 the former RDA are not transferred to the City and that the assets of the former RDA will not become 9 assets of the City by virtue of the Common Council’s election to serve as the governing body of the 10 Successor Agency. Pursuant to the Initial Dissolution Bill, the Successor Agency took ownership of 11 former RDA real properties (excluding certain real properties that are subject to liens in favor of the 12 United States Department of Housing and Urban Development) (the “RDA Properties”). The dissolution 13 of the former RDA and winding down of the former RDA’s affairs is discussed in more detail in the RDA 14 Exhibit attached as Exhibit 12 to the Appendix. 15 The City believes that redevelopment and/or economic development of the RDA Properties is
16 crucial to the future of the City. The Successor Agency is working to refinancerefinanced certain 17 long-term bond debt and note debt of the former RDA to generate debt service savings. This refinancing 18 will benefit the various affected taxing agencies that receive property tax revenues from the former RDA’s 19 redevelopment project areas, including the City. On March 23, 2016, the Successor Agency’s underwriter 20 was authorized to sell the refinancing bonds to interested and eligible investors. The transaction is
21 scheduled to close before the second week ofclosed in April 2016. 22 The Successor Agency prepared a Long-Range Property Management Plan (“Property 23 Management Plan”), that was submitted to the California Department of Finance (“DOF”) in 2015 and 24 which has since been approved by the DOF. A copy of the Property Management Plan is included in the 25 Appendix as Exhibit 13. The Property Management Plan will govern the disposition of the RDA
26 Properties. In connection with the Property Management Plan, many Successor Agency properties will be 27 marketed and sold, and the net proceeds of sale will be distributed to the various affected taxing agencies, 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 69 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 77 construed of 157 to be, the solicitation of votes on the Plan.
1 including the City. The Property Management Plan may also authorize the City to retain certain properties 2 for governmental use and/or future development. 3 On February 16, 2016, the Successor Agency adopted Resolution No. 2016-26 authorizing the 4 transfer of certain former RDA Properties to the City for government use. These former RDA Properties 5 include City Police Headquarters, the City Administration Campus (which includes City Hall and the 6 former RDA building), the Local Agency Administration Building, the San Manuel Stadium, the Golf 7 Park, portions of Secombe Lake Park, the California National Guard Armory, the U.S. Army Reserve 8 building and various rights of way, parking lots and a water well site. These properties are designated as 9 “government use properties” are not considered surplus or non-essential. The Property Management Plan 10 includes a chapter on each government use property that provides a detailed history and overview of each 11 property. It is anticipated that the Successor Agency will transfer these government use properties to the 12 City toward the end of the City’s current fiscal year in June 2016. 13 The City’s new revenue projections include supplemental payments that are anticipated from either 14 the County Auditor-Controller or the Successor Agency resulting from land sales by the Successor 15 Agency pursuant to the Successor Agency’s Property Management Plan. The Successor Agency’s 16 Property Management Plan includes 26 distinct grouping of parcels (“Sites”) that have a combined 17 estimated value of approximately $32 million. The Successor Agency anticipates the sale of the 26 Sites 18 over an approximate five-year period beginning in 2016. If the estimated values are achieved, the City’s 19 share will be approximately 18% of net proceeds, which represents the City’s approximate share of the 20 1% General Tax Levy (“GTL”). This 18% recovery is derived from the tax-increment financing 21 provisions of the Redevelopment Act, under which certain property tax revenue dedicated to school 22 districts and other public agencies was used for urban redevelopment purposes. Pursuant to the recent 23 RDA dissolution statutes, the net proceeds from the sale of RDA assets are distributed to the local 24 agencies in the same geographic area as the dissolved RDA. The City is entitled to 18% of the property 25 taxes in its geographical area (the rest goes to the County, school districts, and other local agencies and
26 special districts), hence the City will receive 18% of the net proceeds from the sale of the RDA assets. It 27 is assumed that approximately 10% of gross proceeds from the sale of the 26 Sites will be allocated to 28 costs of sale. Therefore, under these assumptions the City’s share would be equal to 18% of
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 70 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 78 construed of 157 to be, the solicitation of votes on the Plan.
1 approximately $28.8 million, or approximately $5.2 million. However, this amount is only a rough 2 estimate of the City’s potential recovery. The actual sales prices for the affected 26 Sites may vary from 3 the estimated values and will affect the amount of land sales proceeds that will be paid to the City. 4 Currently there exist certain disputes and litigation between the City and the DOF that relate to 5 actions taken in regard to the former RDA and/or taken by the Successor Agency all as more fully 6 described in the RDA Exhibit. The parties are in discussions to resolve these disputes but no final 7 resolution has been reached. As of the date of the Disclosure Statement, the City has no information that 8 would lead the City to believe that the DOF will withhold any sales tax, use tax or property tax revenue 9 payments otherwise due the City.
10 V. SUMMARY OF THE PLAN OF ADJUSTMENT 11 The summary and discussion of the Plan set forth below is qualified in its entirety by reference to 12 actual terms of the Plan, which are controlling. Creditors and other interested parties are urged to, and 13 should, read the Plan and the documents referred to in the Plan and this Disclosure Statement that are in 14 included in the Appendix so that they may make an informed decision regarding the Plan. The Plan does 15 not alter the obligations of those City funds that are restricted by grants, federal law or state law. Thus, 16 obligations payable solely from restricted funds are not impaired by the Plan. 17 A. Classification and Treatment of Claims 18 1. Unclassified Claims 19 Section II of the Plan governs the treatment of certain claims that are not classified into Classes 20 under the Plan. 21 a. Administrative Claims 22 Administrative Claims, as defined in the Plan, are dealt with in Section II.A. of the Plan. The Plan 23 provides that, except to the extent that the holder of an Allowed Administrative Claim agrees to a 24 different treatment, the City or its agent will pay to each holder of an Allowed Administrative Claim, in 25 full satisfaction, release, and discharge of such Allowed Administrative Claim, Cash in an amount equal
26 to such Allowed Administrative Claim on the later of (i) the Effective Date or (ii) the date on which such 27 Claim becomes an Allowed Administrative Claim, or as soon thereafter as is practicable. In addition, the 28 City’s consent under the Plan to the Bankruptcy Court adjudicating Administrative Claim status is given
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 71 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 79 construed of 157 to be, the solicitation of votes on the Plan.
1 without the City in any way consenting or agreeing that Claims for post-petition obligations of the City are 2 or would be entitled to status as Administrative Claims as “the actual necessary costs and expenses of 3 preserving the estate” under Bankruptcy Code section 503(b), and the City reserves its right to maintain 4 that such Claims are Other Post-petition Claims under the Plan. 5 b. Deadline for the Filing and Assertion of Administrative Claims 6 Section II.D. of the Plan provides that all requests for approval of Administrative Expense Claims 7 must be filed with the Bankruptcy Court and served upon the City no later than thirty (30) days after the 8 date on which the Notice of Effective Date is served pursuant to the Plan.
9 Any proof of claim for payment of an Administrative Claim that is not timely filed by such 10 date will be forever barred, and holders of such claims will be barred from asserting such claims in 11 any manner against the City. 12 c. Professional Claims 13 Professional Claims are claims of professionals for unpaid services and costs during the 14 Bankruptcy Case or incident to the Plan to be paid by the City. Bankruptcy Code section 943(b)(3) 15 provides that, in order to confirm the Plan, all amounts to be paid by the City for services or expenses 16 incurred in the Bankruptcy Case, or incident to the Plan, must be fully disclosed and must be reasonable. 17 After the Effective Date, there will be paid to each holder of a Professional Claim, in full satisfaction, 18 release, and discharge of such Claim, Cash in an amount equal to the amount the Bankruptcy Court 19 determines is reasonable. The City, in the ordinary course of its business, and without the requirement for 20 Bankruptcy Court approval, may pay for professional services that are rendered and costs that are incurred 21 following the Effective Date. 22 2. Classified Claims 23 a. Class 1 Claims - 1996 Refunding Bonds Claims 24 Class 1 is comprised of Claims relating to the 1996 Refunding Bonds. Subject to the terms and 25 conditions of the 1996 Refunding Bonds Amendment, on the Effective Date, the 1996 Trust Indenture and
26 the City Hall Lease will be amended and supplemented. Pursuant to the 1996 Refunding Bonds 27 Amendment, on the Effective Date, a surety bond will be issued by National in an amount equal to the 28 “Reserve Requirement” (as such term is defined in the 1996 Trust Indenture) to replace the “Reserve
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1 Fund” (as such term is defined in the 1996 Trust Indenture). Simultaneously with the substitution of the 2 surety, the funds held in the Reserve Fund will be released to the City, to be used by the City for capital 3 expenditure purposes in accordance with federal tax covenants. In addition, in connection with the 1996 4 Refunding Bonds Amendment, the City will assume the 1996 Refunding Bond Agreements (City Hall) 5 and will cure, or provide adequate assurance for the prompt cure, of all defaults under the 1996 Refunding 6 Bond Agreements (City Hall) that are required to be cured under section 365(b)(1)(A) of the Bankruptcy 7 Code. The effectiveness of the 1996 Refunding Bonds Amendment will also be subject to a number of 8 terms and conditions as set forth therein. Subject to the 1996 Refunding Bonds Amendment, the 1996 9 Refunding Bonds Trustee shall retain all of its rights, remedies, security interests and collateral under the 10 1996 Trust Indenture, as amended, and any bonds, notes, security agreements, or any other instruments or 11 agreements executed in connection with the 1996 Refunding Bonds or otherwise providing, granting or 12 perfecting a lien in connection with the 1996 Refunding Bonds. The form of the 1996 Refunding Bonds 13 Amendment will be included in the Plan Supplement. A more complete description of the 1996 14 Refunding Bonds is set forth above in Section IV.A.8. The Class 1 Claims are Impaired and the holders 15 of the Class 1 Claims are entitled to vote the Claims to accept or reject the Plan. 16 b. Class 2 Claims - 1999 Refunding Certificates of Participation Claims 17 Class 2 is comprised of Claims relating to the 1999 Refunding Certificates of Participation. 18 Subject to the terms and conditions of the 1999 Refunding Certificates of Participation Amendment, on 19 the Effective Date, the 1999 Trust Agreement and the Police Station Lease will be amended and 20 supplemented. Pursuant to the 1999 Refunding Certificates of Participation Amendment, on the Effective 21 Date, funds from the “Reserve Fund” (in excess of the “Reserve Requirement”) and the “Capital Reserve 22 Fund” (as such terms are defined in the 1999 Trust Agreement) will be used to prepay in full all remaining 23 lease payments due from the City under the Police Station Lease. As a result of these transactions, the 24 City will be able to withdraw any remaining amounts in the Capital Reserve Fund in accordance with the 25 terms and conditions of the 1999 Trust Agreement. Upon the prepayment in full of the remaining lease
26 payments under the Police Station Lease, the Police Station Lease will terminate, and neither the JPFA, 27 National, nor the 1999 Refunding Certificates of Participation Trustee will have any interest in the Police 28
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1 Station or the Police Station Lease. The City expects that such prepayment will enable the City to use the 2 Police Station as collateral for purposes of obtaining financing for additional capital expenditures. 3 In addition, pursuant to Section 10.02 of the Police Station Lease, the City will give notice of an 4 optional redemption of the 1999 Refunding Certificates of Participation in an amount equal to the amount 5 of the Police Station Lease payment hereunder, with such redemption to occur at the earliest practicable 6 date following the occurrence of the Effective Date. Such notice will specify the order of redemption of 7 the 1999 Refunding Certificates of Participation, which order will ensure that the remaining payments 8 required to be made by the City under the 1999 Refunding Certificates of Participation Agreements 9 (Police Station/201 North E Street/South Valle) will be sufficient to pay the principal of and interest on 10 the 1999 Refunding Certificates of Participation when due, as certified by an independent financial 11 consultant of the City reasonably acceptable to National and the Trustee. On the Effective Date, the City 12 will deposit the proceeds of the prepayment in full of the Police Station Lease with the 1999 Refunding 13 Certificates of Participation Trustee to hold in trust pursuant to the terms of the 1999 Trust Agreement 14 pending the redemption of the 1999 Refunding Certificates of Participation required hereunder. 15 In connection with the 1999 Refunding Certificates of Participation Amendment, the City will also 16 assume the 1999 Refunding Certificates of Participation Agreements (Police Station/201 North E 17 Street/South Valle), including the Police Station Lease, as amended by the 1999 Refunding Certificates of 18 Participation Amendment, and will cure, or provide adequate assurance for the prompt cure, of all defaults 19 under the 1999 Refunding Certificates of Participation Agreements (Police Station/201 North E 20 Street/South Valle) that are required to be cured under section 365(b)(1)(A) of the Bankruptcy Code. The 21 effectiveness of the 1999 Refunding Certificates of Participation Amendment will also be subject to a 22 number of terms and conditions, as set forth therein. Subject to the 1999 Refunding Certificates of 23 Participation Amendment, the 1999 Refunding Certificates of Participation Trustee shall retain all of its 24 rights, remedies, security interests and collateral (other than with respect to the Police Station) under the 25 1999 Trust Agreement, as amended, and any bonds, notes, security agreements, or any other instruments
26 or agreements executed in connection with the 1999 Refunding Certificates of Participation or otherwise 27 providing, granting or perfecting a lien in connection with the 1999 Refunding Certificates of 28 Participation. The form of the 1999 Refunding Certificates of Participation Amendment will be included
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 74 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 82 construed of 157 to be, the solicitation of votes on the Plan.
1 in the Plan Supplement. A more complete description of the 1999 Refunding Certificates of Participation 2 is set forth above in Section IV.A.8. The Class 2 Claims are Impaired and the holders of the Class 2 3 Claims are entitled to vote the Claims to accept or reject the Plan. 4 c. Class 3 – Secured Claims: CIEDB Harriman Project Claims 5 Class 3 is comprised of Claims held by CIEDB with respect to the Harriman Project. These 6 Claims will be paid in accordance with those CIEDB Documents relating to the CIEDB’s financing of the 7 Harriman Project. The holder of Claims in this Class is not entitled to vote to accept or reject the Plan. 8 d. Class 4 – Secured Claims: CIEDB Pavement Project Claims 9 Class 4 is comprised of Claims held by CIEDB with respect to the Pavement Project. These 10 Claims will be paid in accordance with those CIEDB Documents relating to the CIEDB’s financing of the 11 Pavement Project. The holder of Claims in this Class is not entitled to vote to accept or reject the Plan. 12 e. Class 5 – Secured Claims: Police Station AC Financing Claims 13 Class 5 is comprised of Claims of Western Alliance in relation to the Police Station AC Financing 14 Agreement. Under the Plan, the collateral securing the Western Alliance Claim will be returned to 15 Western Alliance and Western Alliance shall have a Class 13 General Unsecured Claim in the 16 approximate amount of $475,000 which will receive a 1% distribution. Western Alliance may leave the
17 Police Station ACs on City property (or property controlled by the City) without any liability to the City, 18 and if so, the Police Station ACs shall be deemed abandoned to the City, without any City liability to 19 Western Alliance. The Class 5 Claims are Impaired and the holders of the Class 5 Claims are entitled to 20 vote the Claims to accept or reject the Plan. 21 22 23 24 25
26 27 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 75 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 83 construed of 157 to be, the solicitation of votes on the Plan.
1 2 f. Class 6 – Secured Claims: Burgess Claims 3 Class 6 is comprised of Claims held by Tim Burgess pursuant to the Burgess Documents. The 4 maturity date with respect to the Burgess Documents is in 2019, at which time a large balloon payment is 5 due to Burgess. Under the Plan, the Burgess Documents will be amended to extend the maturity date until 6 2022, and the balloon payment that is otherwise due in 2019 under the Burgess Documents will be 7 amortized over that 3-year period (subject to the parties’ agreement to a complete payoff of the Burgess
8 Obligations on an earlier date, at a discount). In addition, in connection with the City’s intendedwith 9 interest continuing to accrue through the new maturity date on the unpaid principal balance at the 10 current interest rate set forth in the Note (5%) which will be paid on January 1 and July 1 of each 11 ear of the 3 year extend period. The Burgess Documents will also be amended to provide that 12 Burgess has granted the City the option until April 30, 2017 to pay the principal amount due under 13 the Note at a 10% discount (the “Discounted Payoff”), plus all accrued and unpaid interest at the 14 rate set forth in the Note through the date that the Discounted Payoff payment is made. If the 15 Discounted Payoff payment (plus all accrued and unpaid interest at the rate set forth in the Note) is 16 not made on or before April 30, 2017, the option will expire automatically without any action 17 required by Burgess. The City plans to exercise its option to make the Discounted Payoff payment 18 in June 2016, and then convey the Fire Maintenance Facility to the County Fire District in 19 connection with annexation of the City into the County Fire District discussed in Section V.C.6 below, 20 the City will sublease the real property located at 120 South D Street (the Fire Department maintenance 21 facility) to County Fire. All other payment terms will remain as presently stated in the Burgess 22 Documents. The holder of the Claims in this Class is entitled to vote to accept or reject the Plan. The 23 Class 6 Claims are Impaired and the holders of the Class 6 Claims are entitled to vote the Claims to accept 24 or reject the Plan. 25 g. Class 7 - Claims on Restricted Revenue 26 Bond and Note Payable Obligations 27 Class 7 is comprised of Claims on Restricted Revenue Bond and Note Payable Obligations, 28 including Claims under the 1998 Refunding Certificates of Participation and the CSWRCB Revenue Bond
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 76 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 84 construed of 157 to be, the solicitation of votes on the Plan.
1 Claim. Such obligations are secured by a pledge of and lien on revenues of several of the City’s systems 2 and enterprises, which are restricted revenues and “special revenues” as defined in Bankruptcy Code 3 section 902(2). The City will pay Restricted Revenue Bond and Notes Payable Obligations in the ordinary 4 course of business pursuant to the applicable documents (which, including the 1998 Refunding 5 Certificates of Participation Agreements (Sewer) (which, including the 1998 Refunding Certificates of 6 Participation Agreements (Sewer) and, as applicable, the CSWRCB Revenue Bond Claim, will be 7 assumed by the City on the Effective Date, with any defaults, to the extent any defaults exist as of the 8 Effective Date, that are required to be cured under section 365(b)(1)(A) of the Bankruptcy Code cured, or 9 adequate provision made for the prompt cure thereof). The 1998 Refunding Certificates of Participation 10 Trustee shall retain all of its rights, remedies, security interests and collateral under the 1998 Trust 11 Indenture, and any bonds, notes, security agreements, or any other instruments or agreements executed in 12 connection with the 1998 Refunding Certificates of Participation or otherwise providing, granting or 13 perfecting a lien in connection with the 1998 Refunding Certificates of Participation. The holders of 14 Claims in this Class are not entitled to vote to accept or reject the Plan. 15 h. Class 8 - CalPERS Claims 16 Class 8 is comprised of the Claims of CalPERS arising under and related to the City’s contract 17 with CalPERS. The CalPERS Claims will be paid under the Plan in accordance with the Mediator’s 18 Order. Notwithstanding anything in the Plan to the contrary, nothing in the Plan is intended to or does 19 impair or interfere with the rights of the City and CalPERS under the Mediator’s Order. All terms of the 20 Mediator’s Order are deemed incorporated into the Plan and the Confirmation Order shall provide that the 21 Mediator’s Order is approved. The holders of Claims in this Class are not entitled to vote to accept or 22 reject the Plan. 23 i. Class 9 - PARS Claims 24 Class 9 is comprised of the Claims of PARS Participants for the approximate $1.924 million in
25 cash inin respect of the PARS Trust and the 415 Trust. 26 If Class 9 votes to accept the Plan, then: (i)In accordance with the PARS Settlement, the PARS 27 Plans will be rejected, and the City will waive any and all claims to the funds held within the PARS Trust 28 and the 415 Trust as of the date of termination of the PARS Plans, (ii) the amounts remaining in the
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 77 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 85 construed of 157 to be, the solicitation of votes on the Plan.
1 PARS Trust and the 415 Trust will be distributed to the PARS Participants pursuant to agreed-upon 2 allocations, and the City will endeavor to make each such distributions in a manner that will minimize 3 adverse tax consequences for each PARS Participant, (iii) each PARS Participant will have a Class 13 4 General Unsecured Claim for the unfunded liability owed by the City under each respective PARS Plan as
5 of the date distributions are madethe City will make a distribution of $290,000.00 on the later of the 6 Effective Date or July 5, 2017, and a distribution $290,000.00 on the later of the Effective Date or 7 July 5, 2018, in each case to the PARS Participants pursuant to agreed-upon allocations, and (iv) the 8 City will be discharged from any and all obligations to further fund any PARS Plan or to make any other 9 distributions on account of the PARS Claims. The Class 9 Claims are Impaired and the holders of the 10 Class 9 Claims are entitled to vote the Claims to accept or reject the Plan. 11 If Class 9 Claims vote to reject the Plan, then the legal, equitable and contractual rights to which 12 the Class 9 Claims entitle the Holders with respect to the funds in the PARS Trust and the 415 Trust shall 13 be determined in the claims allowance process. 14 15 16 17 18 19 20 21 22 23 24 25
26 27 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 78 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 86 construed of 157 to be, the solicitation of votes on the Plan.
1 2 j. Class 10 – Consenting Union Claims 3 The City has entered into settlements with sixeach of the unions representing its seven bargaining 4 units. The City anticipates that a settlement will be approved with the last union in early April 2016 prior 5 to the hearing on the adequacy of the Disclosure Statement. All of the fiscal impacts of the settlements 6 with the labor unions representing the City’s employees have been included in the Financial Model. The
7 City has reached agreements with each of the unions regardingand the Consenting Unions have agreed 8 to stipulate to the amount of the Consenting Union Claims, which stipulated amounts shall be voted by 9 each of the respective unions on behalf of their members in connection with voting on the Plan.
10 The Class 10 Consenting Union Claims are Impaired and the Consenting Unions are entitled to 11 vote their Class 10 Claims to accept or reject the Plan. The Class 10 Consenting Union Claims are 12 General Unsecured Claims and shall be treated as part of Class 13 General Unsecured Claims for 13 all purposes, including for voting on the Plan and payment on the claims. 14 Each of the City’s settlements with the Consenting Unions (other than the SBCPF and Fire 15 Management) contains the following provisions: 16 the MOU will become null and void and of no further effect if the Plan is not confirmed; 17 the Confirmation Order (approving the Plan) shall provide for approval of the settlement and, 18 where applicable, the modified or new Memorandum of Understanding (“MOU”); and
19 all claims of the union and its members with respect to wages, pensions (including implementation 20 of cost sharing and elimination of the employer paid member contribution (“EPMC”) benefit, 21 other benefits and other terms and conditions of employment that arose prior to the date of the 22 confirmation of the Plan, including, without limitations, all claims arising from the City’s changes 23 to the terms and conditions of employment and/or rejection or the prior MOU (collectively the 24 “union claims”), shall be treated as general unsecured claims under the Plan, and the City and its 25 officers shall be discharged from such union claims upon confirmation of the Plan; provided,
26 however, that any claims arising under the settlement or MOU after it is executed by the City and 27 the union (e.g. grievances) shall not be discharged as long as (a) the union complies with the terms 28 of the MOU, and (b) the Bankruptcy Court confirms the Plan; and
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 79 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 87 construed of 157 to be, the solicitation of votes on the Plan.
1 the Union and the City shall agree on the amount of the union Claim and the union shall vote the 2 union Claim in support of the Plan. 3 The Consenting Union Claims generally include claims arising from modifications to retirement benefits 4 (cost sharing, EPMC, retiree health benefits) and reductions in accruals and cash out of leave time
5 (vacation and sick leave), and also include specific modifications to terms and conditions of 6 employment with respect each Consenting Union. The stipulated amount of the Class 13 General 7 Unsecured Claim for the SBCPF is $14 million. The Stipulated amount of the Class 13 General 8 Unsecured Claims for each of the other Consenting Unions will be determined prior to 9 commencement of balloting on the Plan. The City believes that The City has calculated the total 10 amountamounts of the Consenting Union Claims will be approximately 11 $100-$110 million (inclusive of the $14 million Fire Union General Unsecured Claim). as follows:20 12 SBCPF $ 14.00 million 13 SBPOA $ 74.14 million 14 Police Mgmt. $ 5.98 million 15 General Unit $ 20.90 million 16 Mgmt. Confi. $ 8.58 million 17 Middle Mgmt. $ 4.60 million 18 Fire Mgmt. $ 1.62 million 19 Total $129.82 million 20 (i) The Police Safety ClaimsSettlement The City and the San Bernardino Police Officers Association (“SBPOA”) have entered into a new 21 MOU covering the Police Safety Bargaining unit for the period of July 1, 2015 to June 30, 2020. A copy 22 of the MOU is included in the Appendix as Exhibit 24. The SBPOA MOU provides for a minimum 3.5% 23 salary increase per year and CalPERS member cost-sharing of 12% for the last three years of the 24 agreement. These impacts have been included in the Financial Model. The stipulated Class 13 General 25
26 20 27 The SBCPF Consenting Union Claim is already set by agreement. The City is submitting the backup for the calculation of the Consenting Union Claims to the other bargaining units and 28 anticipates reaching agreement on these numbers prior to commencement of balloting on the Plan.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 80 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 88 construed of 157 to be, the solicitation of votes on the Plan.
1 Unsecured Claim of the SBPOA will be determined and disclosed prior to commencement of balloting on 2 the Plan. 3 (ii) The Police Management Unit ClaimsSettlement 4 Resolution 2015-255 adopted in November 2015 provides compensation and CalPERS 5 cost-sharing obligations for the 13-member Police Management Association similar to that approved for 6 the SBPOA. The Resolution is included in the Appendix as Exhibit 23. The stipulated Class 13 General 7 Unsecured Claim of the Police Management Unit will be determine and disclosed prior to commencement 8 of balloting on the Plan. 9 (iii) The General Unit ClaimsSettlement 10 The City’s settlement with the International Union of Operating Engineers regarding the General 11 Unit employees unit is contained in the Side Letter approved in October 2015 included in Resolution No. 12 2015-217, a copy of which is included in the Appendix as Exhibit 20. The Side Letter provides, among 13 other things, that: it will be in effect from July 1, 2015 through June 30, 2017; and General Unit 14 employees will receive 2% cost of living raises effective each of July 1, 2015 and July 1, 2016. The 15 stipulated Class 13 General Unsecured Claim of the General Unit will be determined and disclosed prior 16 to commencement of balloting on the Plan. 17 (iv) The Management/Confidential Unit ClaimsSettlement 18 The City’s settlement with the Management/Confidential unit is included in Resolution 2015-242 19 approved in November 2015, which is included in the Appendix as Exhibit 21. The settlement provides, 20 among other things, that it will be in effect from July 1, 2015 through June 30, 2017 and 21 Management/Confidential employees will receive 2% cost of living raises effective each of July 1, 2015 22 and July 1, 2016. The stipulated Class 13 General Unsecured Claim of the Management/Confidential 23 Unit will be determined and disclosed prior to commencement of balloting on the Plan. 24 (v) The Middle Management Unit ClaimsSettlement 25 The City’s settlement with the Middle Management unit is included in Resolution No. 2015-261
26 approved in December 2015, which is included in the Appendix as Exhibit 25. The settlement provides, 27 among other things, that it will be in effect from July 1, 2015 through June 30, 2017 and Middle 28 Management employees will receive 2% cost of living raises effective each of July 1, 2015 and July 1,
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 81 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 89 construed of 157 to be, the solicitation of votes on the Plan.
1 2016. The stipulated Class 13 General Unsecured Claim of the Middle Management Unit will be 2 determined and disclosed prior to commencement of balloting on the Plan. 3 (vi) The Fire Management Unit ClaimsSettlement 4 The City anticipates that it will have a’s settlement with the Fire Management Unit in early April 5 prior to the hearing on the adequacy of this Disclosure Statement and will file a notice of the settlement 6 and the language to be inserted into this section of the Disclosure Statement as soon as the settlement is
7 reached, which will include the stipulated Class 13 General Unsecured Claimis set forth in Resolution 8 No. 2016-68 approved on April 4, 2016, which is included in the Appendix as Exhibit 33. The 9 settlement provides, among other things, for the transition of members of the Fire Management Unit 10 to the County Fire District and certain salary mitigation payments over the next five fiscal years in 11 amounts not to exceed $300,000 in any fiscal year. These costs have been included in the Financial 12 Model. 13 k. Class 11 - Retiree Health Benefit Claims 14 Class 11 is comprised of Retiree Health Benefit Claims of the City’s retirees who are covered 15 under the Retiree Settlement, which is included in the Appendix as Exhibit 27. Under the Plan, the 16 holders of the Retiree Health Benefit Claims will receive the rights and benefits set forth in the Retiree
17 Settlement, including no modifications to their pension benefits, but retiree health benefits will be 18 modified, in accordance with the procedures implemented by the City on January 1, 2015 and as described 19 in Section III.E above. The Class 11 Retire Health Benefit Claims are Impaired and the holders of the
20 Class 11 Claims are entitled to vote the Claims to accept or reject the Plan. The Class 11 Retiree Health 21 Benefit Claims are General Unsecured Claims and shall be treated as part of Class 13 General 22 Unsecured Claims for all purposes, including for voting on the Plan and payment on the claims. 23 l. Class 12 – POB Claims 24 Class 12 is comprised of Claims held by the holders of the outstanding POBs issued by the City in 25 2005. Under the Plan, the POB Creditors will be paid in accordance with a settlement entered into
26 between the City and the POB Creditors in March 2016. The terms of the settlement are deemed 27 incorporated into the Plan and the Confirmation Order shall provide that the Settlement is approved. A 28 copy of the settlement is included in the Appendix as Exhibit 26. Pursuant to the terms of that settlement,
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 82 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 90 construed of 157 to be, the solicitation of votes on the Plan.
1 under the Plan, the City will make installment payments over a thirty-year term, starting one year after the 2 City’s chapter 9 plan is confirmed and goes effective. The City will make payments of 3 $1 million to $2.5 million per fiscal year until 2046 instead of the $3.3 million to $4.7 million per fiscal 4 year owed under the terms of the 2005 pension bond agreement. The settlement reduces their $95.8 5 million dollar claim against the City to $50.7 million, a $45.1 million reduction of its largest debt. The 6 present value of the tentative settlement is $21.3 million instead of the $52.7 million owed under the 7 pension bond agreement. The Class 12 Claims are Impaired and the holders of the Class 12 Claims are 8 entitled to vote the Claims to accept or reject the Plan. 9 m. Class 13 - General Unsecured Claims 10 Class 13 is comprised of Claims of general unsecured creditors of the City and includes all claims 11 except Administrative Claims, CalPERS Claims, POB Claims, Convenience Class Claims, those Claims 12 payable from a Restricted Fund, and those Claims relating to the 1996 Refunding Bonds or the 1999 13 Refunding Certificates of Participation. This Class includes, without limitation, the Fire Union General 14 Unsecured Claim, General Unsecured Claims, Employee Wage and Benefit Claims, Contract Rejection 15 Claims, Litigation Claims, Other Post-petition Claims, all Claims of pre-petition vendors and service 16 providers to the City, the unsecured and/or deficiency portion, if any, of the claims of the holders of the 17 Claims in Classes 1 through 6, Retiree Health Benefits Claims, Consenting Union Claims, the unfunded 18 liability portion of the PARS Claims, and any other Claims that by agreement and/or pursuant to the Plan,
19 will be treated as Class 13 General Unsecured Claims and discharged under the Plan. As a result of the 20 settlements that the City has entered into with the official Retiree Committee and with each of the 21 unions representing City employees, the Class 10 Consenting Unions Claims and Class 11 Retiree 22 Health Benefit Claims are fully included in this Class 13 General Unsecured Claims for all 23 purposes, including voting on the Plan and claim treatment under the Plan. When the Ballot 24 tabulator reports on the results of the voting, Classes 10 and 11 shall be included in Class 13 for 25 calculating the votes in Class 13 accepting and rejecting the Plan. 26 Under the Plan, on the Effective Date, or as soon as reasonably practicable after the Effective 27 Date, Holders of Allowed Class 13 Claims will receive a distribution equal to 1% of their Allowed 28 General Unsecured Claims. The holders of Claims in this Class are entitled to vote to accept or reject the
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 83 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 91 construed of 157 to be, the solicitation of votes on the Plan.
1 Plan. The Class 13 Claims are Impaired and the holders of the Class 13 Claims are entitled to vote the 2 Claims to accept or reject the Plan. Each of the Consenting Unions will vote the Consenting Union 3 Claims for themselves and their members. 4 n. Class 14 - Convenience Class Claims 5 Class 14 is comprised of Convenience Class Claims, which are defined in the Plan as Allowed 6 Claims that are (a) greater than zero but equal to or less than $100 in Allowed amount or irrevocably 7 reduced to $100 in Allowed amount at the election of the holder of an Allowed Claim as evidenced by the 8 Ballot submitted by such holder; provided, however, that an Allowed Claim may not be subdivided into 9 multiple Claims of $100 or less for purposes of receiving treatment as a Convenience Class Claim. Under 10 the Plan, within 30 days after the Effective Date, each holder of an Allowed Convenience Class Claim 11 will receive the lesser of the Allowed amount of the Claim or $100 at the election of the holder of the 12 Allowed Convenience Class Claim. The Class 14 Claims are Impaired and the holders of the Class 14 13 Claims are entitled to vote the Claims to accept or reject the Plan. 14 15 16 17 18 19 20 21 22 23 24 25
26 27 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 84 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 92 construed of 157 to be, the solicitation of votes on the Plan.
1 2 B. Treatment of Executory Contracts and Unexpired Leases 3 1. Executory Contracts Generally 4 An “executory contract” is generally defined to mean a contract under which material performance 5 other than the payment of money is due by the parties on either side of the agreement. An “unexpired 6 lease” is a lease the term of which has not matured as of the date of the filing of the Bankruptcy Case. 7 The Bankruptcy Code empowers debtors, subject to the approval of the Bankruptcy Court, to assume or 8 reject their executory contracts and unexpired leases. 9 A debtor’s assumption of an executory contract or unexpired lease means that it will and must 10 continue to honor its obligations under such agreement. In other words, as to such agreement, it is 11 business as usual. The caveat to this is that the debtor must also “cure” any existing defaults prior to 12 assumption. On the other hand, rejection of an executory contract or unexpired lease constitutes a 13 prepetition breach of such agreement, excusing the debtor’s future performance but creating a claim for 14 the breach. 15 The City will reject almost all of its executory contracts and unexpired leases except for a 16 number of agreements and leases which it will assume – and which either are addressed specifically 17 in the Plan or will be set forth in lists that will be exhibits to the Appendix. 18 2. Assumption and Assignment of Executory Contracts 19 The City is a party to numerous executory contracts and unexpired leases, including numerous 20 equipment and vehicle leases, agreements with contractors and vendors. Pursuant to the Plan, City will 21 assume (a) all of the executory contracts and unexpired leases listed in the “List of Assumed Executory 22 Contracts and Unexpired Leases” and in the “List of Assumed and Assigned Executory Contracts and 23 Unexpired Leases,” (which lists will be included in the Appendix prior to distribution of the Solicitation 24 Packages), (b) those contracts and leases specifically provided for in the Plan as being assumed or 25 assumed and assigned, including but not limited to Franchise Agreements that have not been reduced to
26 ordinance, and the leases and contracts addressed in Classes 1, 2 and 7 of the Plan, and (c) all contracts 27 and leases of the City’s Water Department. The City shall be entitled to modify or supplement the List of 28 Assumed Executory Contracts and Unexpired Leases and the List of Assumed and Assigned Executory
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 85 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 93 construed of 157 to be, the solicitation of votes on the Plan.
1 Contracts and Unexpired Leases any time up to seven days prior to the Confirmation Hearing. The City 2 will not assume those unexpired leases and executory contracts specified in Section VI.C. of the Plan to 3 be rejected. 4 The City believes that it is current in its payments and other obligations under the executory 5 contracts and unexpired leases that it will assume via the Plan. However, after the provision of notice and 6 the opportunity for a hearing in relation to Plan confirmation, the Bankruptcy Court will resolve any and 7 all disputes regarding: (i) the amount of any cure payment to be made in connection with the assumption 8 of any contract or lease; (ii) the ability of the City to provide “adequate assurance of future performance” 9 within the meaning of Bankruptcy Code section 365 under the contract or lease to be assumed; and (iii) 10 any other matter pertaining to such assumption and assignment. Any party to an executory contract or 11 unexpired lease that is to be assumed, or assumed and assigned, by the City that asserts that any payment 12 or other performance is due as a condition to the proposed assumption must file with the Bankruptcy 13 Court and serve upon the City a written statement and accompanying declaration in support thereof, 14 specifying the basis for its Claim on the date that objections to confirmation of the Plan are due, 15 [______, 2016]. The failure to timely file and serve such a statement in accordance with the Plan 16 will be deemed to be a waiver of any and all objections to the proposed assumption and of any claim for 17 cure amounts of the agreement at issue. 18 3. Rejection of Executory Contracts 19 Pursuant to the Plan, upon the Effective Date, without the need to file any motions, the following 20 leases and contracts are rejected: (a) the contracts and leases listed in the “List of Rejected Executory 21 Contracts and Unexpired Leases” (which list will be included in the Appendix prior to distribution of the 22 Solicitation Packages), (b) any other contracts and leases expressly provided for under the terms of the 23 Plan as rejected, (c) and all other contracts and leases not assumed pursuant to Section VI.A. of the Plan. 24 For the avoidance of doubt, none of the following contracts and leases are rejected: (a) those contracts and 25 leases related to the 1996 Refunding Bonds Agreements (City Hall), the 1999 Refunding Certificates of
26 Participation Agreements (Police Station/201 North E Street/South Valle) and the 1998 Refunding 27 Certificates of Participation Agreements (Sewer) (the assumption of which are addressed in Classes 1, 2 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 86 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 94 construed of 157 to be, the solicitation of votes on the Plan.
1 and 7 of the Plan); (b) the SBCPF Settlement Agreement; and (bc) the contracts and leases of the City’s 2 Water Department. 3 The City will be entitled to modify or supplement the List of Rejected Executory Contracts and 4 Unexpired Leases any time up to 7 days prior to the Confirmation Hearing. 5 4. Deadline for the Assertion of Rejection Damage Claims; 6 Treatment of Rejection Damage Claims 7 Proofs of claim arising from the rejection of executory contracts or unexpired leases must be filed 8 with the Bankruptcy Court and served on the City no later than 30 days after the Effective Date. 9 Any Claim for rejection damages for which a proof of claim is not filed and served within such time will 10 be forever barred and shall not be enforceable against the City or its assets, properties, or interests in 11 property. All rejection damage claims will be treated as a Claim in Class 13 (General Unsecured Claims). 12 a. 5. AmendmentsModifications to Assumption, Assumption and 13 Assignment or Rejection of Contracts and Leases 14 Any time, within 120180 days after the Effective Date, in order to rectify any inadvertent 15 assumption or rejection of anthe City may file a motion to add or remove contracts or leases to or 16 from the List of Assumed and Assigned Executory Contracts and Unexpired Leases and the List of 17 Rejected Executory Contracts and Unexpired Leases or otherwise modify any decision to assume, 18 assign or reject any executory contract or unexpired lease, the City may file a motion to make such 19 modification, as to whichupon notice to the counterparty. The Bankruptcy Court may grant such 20 motion Bankruptcy Code section 1127(d) will applyfor cause shown, including that no opposition to 21 the motion was filed. 22 23 C. Means for Execution and Implementation of the Plan The implementation of the Plan will be accomplished by the City: 24 implementing its settlements with CalPERS, the Retiree Committee, the SBCPF, the 25 Consenting Unions and the POB Creditors; 26 performing its Plan obligations to the other Creditors whose Claims are Impaired or 27 Unimpaired under the Plan; 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 87 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 95 construed of 157 to be, the solicitation of votes on the Plan.
1 complying with the contracts and memoranda of understanding that the City is entering in 2 connection with the City’s annexation into the County Fire District and the City’s 3 contracting out of certain municipal services including to Burrtec; and
4 performing its obligations in good faith under the ADR Procedures to facilitate settlement 5 of disputed claims. 6 Certain of the critical elements of Plan implementation are discussed in sections 1 through 6 below. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
26 27 28
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1 2 1. Alternative Methods of Delivering Municipal Services 3 A keystone of the Plan is contracting out and/or regionalization of certain municipal services 4 currently provided by City employees. Municipalities have been contracting for virtually all municipal 5 services since the 1950’s. For a City such as San Bernardino, this approach can generate economies of 6 scale savings and labor cost savings. Services can be provided by either private sector service providers 7 or other public agencies, either through a contract or by regionalization. 8 The City is in the process of implementing annexation of the City into the County Fire District. 9 Upon annexation, the County Fire District would provide Fire Services directly to the City’s residents. 10 The City also entered into a contract for solid waste disposal, recycling, sweeping and right-of-way
11 clean-up services with Burrtec in January 2016. Burrtec began providing services on April 1, 2016. 12 In addition, the other services the City will be considering contracting out include fleet 13 maintenance, business licensing, engineering, inspections, information technology, graffiti abatement, 14 traffic signal maintenance, street maintenance, custodial maintenance, code enforcement and more. Such 15 regionalization or outsourcing will allow the City to achieve both significant savings and receive 16 additional revenues. While the City has done relatively little contracting in the past, it has had success 17 with contracting out park maintenance functions in the last several years. The City believes that utilizing 18 alternative methods to deliver municipal services will have significant economic and other benefits to the 19 City and its residents. 20 a. City’s Joint Application With the County of San Bernardino to Annex 21 the City into the San Bernardino County Fire Protection District In April 2015, the City issued a request for proposals to provide Fire Services to the City. The 22 City received two proposals in response – one from the County Fire District for annexation and one from 23 Centerra Group, LLC for private contracting of Fire Services. The City also received a proposal from the 24 Interim Fire Chief for reorganization of the existing Fire Department. The City hired a consulting firm, 25 Citygate Associates LLC (“Citygate”), to evaluate the proposals and make recommendations. 26 In August 2015, Citygate completed its evaluation and issued its report entitled “Evaluation of Fire 27 Service Proposals” (“Citygate Evaluation”). On August 24, 2015, the former City Manager, Allen Parker, 28 with the assistance of Andrew Belknap of Management Partners and Citygate, presented their evaluation
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1 and recommendations at a regularly noticed meeting of the City’s Common Council. Both the Citygate 2 Evaluation and the memorandum dated August 24, 2015 to the Mayor and Common Council from Mr. 3 Parker and Mr. Belknap regarding Annexing to San Bernardino County Fire Protection District for Fire 4 Service Delivery (“Staff Report”) recommended that the City move forward with the County Fire District 5 proposal. 1721 After hearing and considering the presentations and public comments made at a five hour 6 August 24, 2015 meeting, the Common Council approved Resolution No. 2015-195 which authorized: (1) 7 City staff to negotiate with San Bernardino County and the County Fire District the terms and conditions 8 of annexation and return to the Common Council for approval; and (2) the City Manager to negotiate an 9 interim contract for the County Fire District to deliver Fire Services to the City until the annexation is 10 completed and return to the Common Council for approval. Ultimately, the City and County Fire District 11 decided not to enter into an interim contract, and proceed only with annexation of the City into the County 12 Fire District. 13 The County Fire District is a proven and professional provider of the full range of fire and 14 emergency medical services. The County Fire District currently operates 56 fire stations, serving 15 unincorporated San Bernardino County and 7 incorporated cities (including the City of Fontana). It has a 16 total of approximately 865 employees of which 642 are sworn firefighters. If the City annexes into the 17 County Fire District, the City will be able to take advantage of two existing County Fire District stations 18 to serve portions of the City and pool costs for a large number of administrative, support and specialized 19 services such as management, dispatch, purchasing, fire prevention, EMS management, hazardous 20 materials response, search and rescue and wildland fire response. 21 In accordance with Resolution No. 2015-195 and in furtherance of the City’s Plan, the City 22 submitted its certified application to the Local Agency Formation Commission of the County of San 23 Bernardino (“ LAFCO”), a local commission (separate and independent of the County of San 24 Bernardino’s government) empowered under the Cortese-Knox-Hertzberg Local Government 25 Reorganization Act of 2000 to ensure an orderly and efficient growth pattern and use of land resources
26 and protect against overlapping governmental jurisdiction within San Bernardino County. 27 1721 Further information and documents related to the City’s evaluation of alternative methods of 28 delivering fire and emergency services can be found on the City’s website at this link under the “Fire S ervices” section: http://www.sbcity.org/home_nav/chapter_9_bankruptcy/default.asp
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 90 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and Plan Main at this Document time is not, and should Page not be 98 construed of 157 to be, the solicitation of votes on the Plan.
1 In September 2015, the San Bernardino County Board of Supervisors, acting as the governing 2 body for the County Fire District, adopted a substantially similar resolution to the City’s making the 3 annexation application a joint request from the City and County Fire District. LAFCO subsequently 4 opened two proposals for governmental reorganization, LAFCO 3198 – reorganization to include 5 annexation into the County Fire District, its Valley Service Zone and Service Zone FP-5; and LAFCO 6 3197 – sphere of influence amendments (expansion) for the County Fire District. After LAFCO opened 7 the two proposals, the City, as well as several County agencies (Assessor, Registrar of Voters and 8 Surveyor) provided information necessary to support the reorganization proposal and the sphere 9 amendment. 10 In October 2015, LAFCO held the Departmental Review Committee Meeting to review both 11 proposals. Based on the meeting LAFCO issued a determinations letter on October 21 for both LAFCO 12 3197 and LAFCO 3198. In response to the determinations letter, the County Fire District filed a revised 13 Plan of Service and Five Year Financial Forecast on October 28, 2015. The Five Year Financial Forecast 14 showed a City General Fund property tax transfer revenue requirement starting at $20.4 million in FY 15 2016/17, increasing to $22.9 million in FY 2020/21. From an economic standpoint, this result is quite 16 favorable to the City when measured against the financial projection prepared for the City by Urban
17 Futures as part of the annexation analysis, which showed City costs for a stand-alone fire department for 18 similar services and capital obligations to the County’s proposal would have a General Fund revenue 19 requirement of from $32.9 million to $36.7 million over the same five year period. 20 Under the County Fire District’s Plan of Service, if annexation is approved, City residents will 21 experience improved service from a dispatch system which has faster call processing time than is 22 associated with the City dispatch system, as well as from direct responses from two County Fire stations 23 which are closer to some sections of the City than City responding stations. County Fire also has more 24 equipment for delivery of fire services such as water tenders, water rescue boats, heavy equipment for 25 floods or earth moving, hand crews, ambulance response (in seven areas), additional hazardous materials
26 response capabilities, and sophisticated urban search and rescue capabilities. Regionalization of fire 27 services is considered an industry best practice in order to make service delivery more seamless and 28
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1 to take advantage of economies of scale. Many cities are currently served using an annexation 2 model, and LAFCO has approved of several annexations into the County Fire District. 3 In January 2016, LAFCO held a public hearing to discuss LAFCO’s staff recommendation to 4 accept the joint City/County annexation application. The application, including County Fire’s proposed 5 service plan, was approved unanimously on January 27, 2016 as set forth in LAFCO Resolution No. 3211. 6 In February 2016, the 30 day reconsideration period of LAFCO’s decision ended and the Notice of Protest
7 Hearing was issued. LAFCO will hold the Protest Hearing on April 21, 2016. 22 On April 21, 2016, 8 LAFCO held the Protest Hearing and the number of protests received was below 5% for both 9 property owners and registered voters. Accordingly, the LAFCO Executive Director determined 10 that annexation of the City into the County Fire District can proceed. 11 Annexation is discretionary and could be denied or delayed by LAFCO. While possible, this 12 outcome is considered relatively low risk in that the annexation is designed to provide the same or 13 improved service delivery on a sustainable basis with economic benefits to the City. Regionalization of 14 fire services is considered an industry best practice in order to make service delivery more seamless and to 15 take advantage of economies of scale. Many cities are currently served using an annexation model, and 16 LAFCO has approved of several annexations into the County Fire District. 17 Because the City’s annexation into the County Fire District is a populated annexation, voters 18 within the territory to be annexed have the right to petition LAFCO regarding the annexation decision. 19 California’s Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000, as amended, Calif. 20 Government Code §§ 56000 et seq., contains the notice procedures and timetables for resident and 21 property owner input into the LAFCO decision-making process, including that LAFCO would (a) 22 terminate the annexation approval process if 50% or more of the City’s registered voters filed timely 23 protests, or (b) place the annexation approval to a vote of the City’s residents if more than 25% but less 24 22 Because the City’s annexation into the County Fire District is a populated annexation, voters 25 within the territory to be annexed have the right to petition LAFCO regarding the annexation decision. California’s Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000, 26 as amended, Calif. Government Code §§ 56000 et seq., contains the notice procedures and 27 timetables for resident and property owner input into the LAFCO decision-making process, including that LAFCO would (a) terminate the annexation approval process if 50% or more of 28 the City’s registered voters filed timely protests, or (b) place the annexation approval to a vote of the City’s residents if more than 25% but less than 50% of registered voters filed timely protests.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 92 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be100 construed of 157 to be, the solicitation of votes on the Plan.
1 than 50% of registered voters filed timely protests. In addition, some City residents have indicated that 2 they would protest the imposition of an annual per property fee of approximately $148 that will be used to 3 pay the County Fire District to provide the Fire Services. 4 Completing the annexation in time for a July 1, 2016 effective date is crucial to the City’s 5 reorganization efforts. The transition process for current City employees is underway. It is the City’s 6 intention that disruptions to employment, compensation and benefits be kept to a minimum in connection 7 with the County Fire District taking over the provision of Fire Services. Nonetheless, the City estimates
8 that annual economic benefits from annexation will be approximately $7.4 and $12 million.1823 The 9 City’s Financial Model shows that even including certain one-time transition costs associated with 10 the annexation, the transfer of service responsibility will improve the City’s fiscal position by in 11 excess of $30 million, and considerably more if deferred maintenance costs are taken into 12 consideration. Without annexation the projections show that the City would soon run an annual 13 deficit of up to $12 million per year. Therefore, successful annexation is fundamental to restoring 14 the City to solvency. 15 Under annexation, the City will remain responsible for certain “legacy” pension costs. These 16 legacy pension costs are accounted for in the Financial Model under the line item entitled “Fire’s Legacy 17 CalPERS Pension Cost,” and are estimated at approximately $3.3 million in fiscal year 2016-17 with 18 annual increases up to $10 million annually in fiscal year 2033-34 for a total of approximately $131 19 million over the term of the Financial Model. The decision to annex into the County Fire District does not 20 have an impact on these costs because they relate to and must be paid for the period when the City 21 operated its own Fire Department. Even taking into consideration these estimated legacy pension costs, 22 the City firmly believes that the increased savings and revenue improvements to the City from annexation 23 on a net basis (particularly in contrast to the cost to the City of continuing to fund a stand-alone fire 24 department) will be of significant benefit to the City and its residents and are critical to the success of the 25 City’s Plan.
26 27 1823 Detailed information that answers frequently asked questions about the annexation into the County 28 Fire District can be found on the City’s website at the following link: http://www.sbcity.org/home_nav/chapter_9_bankruptcy/fire_annexation_faqs/default.asp
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 93 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be101 construed of 157 to be, the solicitation of votes on the Plan.
1 b. Contract for Solid Waste Disposal and Related Services 2 California cities are increasingly contracting with the private sector for solid waste and recycling. 3 Today the vast majority of cities in Southern California provide solid waste and recycling services under a 4 franchise agreement with one or more private companies. The move to private contractors is justified by 5 the economies of scale available to private companies which serve numerous jurisdictions. These 6 economies are found in several areas including capital acquisition, fleet maintenance, workers 7 compensation, employee recruitment, safety and training programs, customer service, billing, technology 8 and management. Recent examples include Hemet which contracted its solid waste service to CR&R 9 Waste and Recycling Services in 2011, and Newport Beach which contracted its residential solid waste 10 services (commercial had already been contracted) to CR&R in 2013. Most cities in the Inland Empire 11 provide these services through contracting with private companies. 12 With California recycling requirements that have been in place for over 25 years, refuse haulers 13 gradually have expanded their businesses to include materials sorting, recycling, public education, and in 14 some cases, street sweeping and other related services, working in partnership with individual cities and 15 counties. In addition, the more sophisticated companies use specialized routing systems to reduce travel 16 times and produce and closely monitor work measurements based on their experience. Given the 17 expertise developed in multiple jurisdictions by these waste companies, and the economies of scale that 18 larger operations can provide, it is likely that contracting these services to a private company will result in 19 lower or similar costs to provide the service, plus increased franchise fees paid to the City’s General Fund 20 by the contractor, along with fees paid by the contractor to the City for an exclusive agreement. 21 In June 2015, the City sent out a request for proposals to contract three of its largest maintenance 22 services – solid waste and recycling, street sweeping and right-of-way cleanup. These services are 23 currently performed by approximately 100 employees in the City’s Public Works Department. Four 24 companies submitted proposals, all of which are active in solid waste collection and street sweeping in the 25 Southern California area. An evaluation team of consultants with experience in contracting and solid
26 waste evaluated the companies’ financial statements, reviewed the technical, financial proposals and 27 28
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1 references, and provided a recommendation to the City Manager.19 In November 2015, a recommendation 2 was made to the Common Council, the Common Council selected Burrtec and then directed staff to 3 negotiate a ten-year agreement. In January 2016, the negotiations with Burrtec were completed and the 4 Common Council has approved the contract between the City and Burrtec as Resolution No. 2016-10, a 5 copy which is included as Exhibit 29 in the Appendix. A copy of the Burrtec Contract is included as
6 Exhibit 30 in the Appendix. Burrtec began providing services on April 1, 2016. As a result, the City 7 will be able to offer the same or better level of services than the City currently provides with substantial 8 economic benefit to the City. 9 In connection with the Burrtec Contract, the City expects to receive these benefits: (1) a one-time 10 franchise fee payment of $5 million within 60 days of execution of an agreement; (2) franchise fees of
11 $2.8 million per year above current levels and other franchise/host fee payments which the City 12 estimates will net a cumulative annual revenue stream of approximately $5 million to $7.6 million per 13 year over the 20-year term of the Financial Model as reflected in line item “New Waste Management
14 Franchise” (which amounts to approximately $106.9 million in revenues); and (3) net revenue(3) an 15 enhanced franchise fee of $500,000 annually; (4) a host fee of $325,000 annually; (5) recycle waste 16 revenue of approximately $60,000 annually; and (6) an estimated $12.225 million from the sale of 17 refuse vehicles, carts, bins, and containers of $9,454,000 after vehicle leases are paid (the City estimates 18 gross sale values of $12.225 million, which less of remaining lease payments, will net the City
19 approximately $9.45 million of this amount – an estimate that(which is included in the Financial Model 20 under the line item, “Proceeds from IW Vehicle Sale & CIP”) that will be used to pay liabilities. In 21 addition, Burrtec has agreed to reimburse the City for “wear and tear” costs on the City’s streets over the 22 course of the Financial Model (which costs are currently reflected in the line item “Proceeds from IW 23 Vehicle Sale & CIP”). 24 24 25 19 Further information and documents related to the City’s evaluation of alternative methods of delivering 26 waste management services can be found on the City’s website at this link under the “Refuse Services” 27 section: http://www.sbcity.org/home_nav/chapter_9_bankruptcy/default.asp 24 Further information and documents related to the City’s evaluation of alternative methods of 28 delivering waste management services can be found on the City’s website at this link under the “Refuse Services” section: http://www.sbcity.org/home_nav/chapter_9_bankruptcy/default.asp
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1 c. Soccer Complex Maintenance 2 The City has implemented a contract to operate the Soccer Complex. The Elmore Sports Group 3 (“ESG”) took over operations in November of 2015. Under the agreement, the City expects a net gain of 4 approximately $280,000 in base operations in fiscal year 2016-17 increasing to about $425,000 per year in 5 fiscal year 2033-34 as reflected in the line item “Contract Soccer Complex Mgt & Admin” in the 6 Financial Model. This will come from ESG’s participation in capital improvement costs and improved 7 marketing of the facility, which will result in additional revenues for the City. Because of the City’s 8 economic situation, basic maintenance and capital replacement funding had been inadequate which led to 9 a decrease in utilization of the facility. Contracting with ESG creates a satisfactory maintenance and 10 capital replacement platform which, along with proper marketing, will position the Soccer Complex for 11 fiscal solvency. 12 d. Fleet Maintenance 13 The City has been financially unable to replace its vehicles and equipment in accordance with 14 industry standards or provide an effective fleet maintenance operation. About 479 units, representing 15 56% of the City’s total fleet, are currently due or past due for replacement at an estimated cost of more 16 than $41 million. The aging fleet has resulted in a significant burden on the understaffed fleet 17 maintenance employees who must contend with an aging fleet and an inefficient fleet operation. Deferred 18 fleet maintenance also puts the City at risk for compliance with state mandated equipment and vehicle
19 inspections. The City is attempting to address this issue through the transfers of certain heavy 20 equipment to Burrtec as part of its outsourcing efforts, and through resources directed via the Police 21 Resources Plan (in the form of new fleet vehicles, which the City intends will alleviate some of the 22 maintenance issues currently faced). The City also anticipates outsourcing fleet maintenance operations in
23 20162017 to provide the City with increased resources and estimated annual savings of $400,000 24 beginning in fiscal year 2016-17 and increasing thereafter to about $600,000 as shown in the line item 25 “Contract Fleet Maintenance” in the Financial Model.
26 e. Other Contracting Options 27 There are other areas where the City likely will derive efficiencies from a contract approach. 28 Efforts are underway to contract for business license administration, custodial services, graffiti abatement
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1 and some information technology functions which are anticipated to be completed in 2016.2016 or 2017. 2 Areas where savings have yet to be identified but might offer benefit include engineering, inspection, code 3 enforcement and attorney services, and the City is preparing RFPs and implementing an analysis of each 4 option. 5 2. Police Resources Plan 6 The primary municipal service provided by the City is for police services. Reducing the City’s 7 violent and other crime rates and addressing the City’s perception as a “dangerous” city are the most 8 pressing issues facing the City. As shown in the chart below, San Bernardino has more than double the 9 violent crime rate as either the surrounding region or the state as a whole. For every three violent crimes 10 per 1,000 residents in the region, there are ten such crimes in San Bernardino. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
26 27 28
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1
2 State and Regional Crime Rates Compared to San Bernardino in 2014 3 4 5 6 7 8 9
10 Sources: 2015 California Department of Finance; 2014 Federal Bureau of Investigation Crime Reports Notes: Region average includes large nearby cities: Fontana, Moreno Valley, Rancho Cucamonga, Ontario, Riverside, and Corona. Part 1 11 crimes include violent and property crimes as defined by the Federal Bureau of Investigation. 12 San Bernardino’s crime rates are high even when compared to other high-crime cities in 13 California. Of the 63 California cities with populations between 100,000 and 400,000, San Bernardino has 14 the second highest Part 1 crime rate. The table below provides demographic and crime data for the 10 15 cities with the highest crime rates within this population range. Notably, San Bernardino also has a 16 significantly lower median household income and a higher percentage of people in poverty than other 17 cities with high rates of crime. People living in poverty are the victims of violent crime at more than twice 18 the rate of high income populations according to a study by the Bureau of Justice Statistics between 2008 19 and 2014. 20 21 22 23 24 25
26 27 28
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1 2 High-Crime Cities in California between 100,000 and 400,000 in population – Demographic Data 3 2014 Part 1 2014 Violent 2014 Percent 2013 2013 Crimes per Crimes per Violent Crime Median Percent of 4 2015 1,000 1,000 of Part 1 Household All People City Population Residents* Residents Crimes Income in Poverty 5 Antioch 108,298 46.9 7.8 17% $65,254 14.9 6 Bakersfield 369,505 45.0 4.5 10% $56,204 20.4 Berkeley 118,780 46.7 3.6 8% $63,312 18.7 7 Concord 126,069 45.0 3.7 8% $65,798 12.1 8 Modesto 209,186 52.3 8.5 16% $47,060 20.8 9 Richmond 107,346 48.0 7.9 16% $54,589 18.5 San Bernardino 213,933 53.7 9.9 19% $38,385 32.4 10 Stockton 306,999 56.1 13.0 23% $46,831 24.3 11 Vallejo 119,683 49.8 8.6 17% $58,371 17.5 12 Victorville 121,168 41.6 5.3 13% $50,034 25.3 State 38,714,725 28.4* 4.0 14% $61,094 15.9 13 14 Sources: 2015 California Department of Finance; 2014 Federal Bureau of Investigation Crime Reports; 2009-2013 American Community Survey Estimates 15 Note: Part 1 crimes include violent and property crimes as defined by the Federal Bureau of Investigation. San Bernardino’s rates of crime also top national averages. San Bernardino has 53.7 Part 1 crimes 16 per 1,000 residents and 9.9 violent crimes per 1,000 residents, significantly higher than the respective 17 national rates of 29.6 and 3.7, according to the 2014 Crime Reports by the Federal Bureau of 18 Investigation. 19 Yet, financial circumstances have forced the City to reduce the size of its Police Department. The 20 Police Department’s sworn staffing levels have been in decline steadily since 2009, while crime rates 21 remain steady and response times rose to unacceptable levels. The general service impacts can be 22 described as follows: 23 Sworn staffing has been reduced from 356 full-time equivalent (FTE) employees in 2008 to 248 24 today (30% reduction), 25 Patrol division sworn staffing has been reduced by 25% since 2008, 26 Community policing teams have been scaled back by about 75%, 27 Narcotics enforcement has been reduced by 50% since 2008, 28 Traffic enforcement personnel were reduced by 58% since 2008,
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1 Priority 1 average response times increased 76% since 2008, and 2 Almost 36% of patrol vehicles are overdue for replacement. 3 Unless residents, business owners and visitors feel safe in the City, efforts to attract economic 4 development and new residents will be significantly hampered. Currently, funding for the Police 5 Department falls well below the average compared with other similarly sized California cities with high 6 rates of crime. 7 Similar Sized California Cities with Top Crime Rates – Police Expenditure per Part 1 Crime in FY 2014-15 8 9 10 11 12 13
14 Sources: FY 2014-15 Adopted City Budgets; 2014 Federal Bureau of Investigation Crime Reports Note: Part 1 crimes include violent and property crimes as defined by the Federal Bureau of Investigation. 15 16 The City will have to dedicate significant resources to very specific and measurable elements to reduce 17 crime. 18 To address these issues, the City developed a five-year plan intended to bolster the City’s police 19 resources and reduce the City’s crime rates (the “Police Resources Plan”) which was approved by the 20 Common Council in November 2015. A staff report outlining the Police Resources Plan is included in the 21 Appendix as Exhibit 11. The primary objective of the Police Resources Plan is to rebuild sworn staffing 22 levels and provide the sworn staff with the tools (largely technology, equipment and vehicles) needed to 23 do the job as follows: 24 Increase staffing levels of the City’s Police Department to enable the Police Department to 25 reduce call response time sand be able to build deeper relationships in the community;
26 Invest in the Police Department technology (to replace otherwise aging and deficient 27 systems, to improve efficiency and effectiveness and to ensure business continuity and access to critical 28 systems); and
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1 Fleet replacement (to replace the Police Department’s largely aging fleet - with more than 2 half of all police cars 10 years or older and roughly a fifth with more than 100,000 miles). 3 The Police Resources Plan also seeks to increase community engagement in strategies to reduce crime and 4 increase economic development opportunities. 5 With respect to staffing, the table below provides a history of authorized sworn police staffing 6 levels over the last 10 years. The City’s sworn police staffing was at its peak of 356 positions in 2009. 7 Since that time the number of sworn positions has decreased by almost 30%. Also, the number of actual 8 positions (those filled) is at the lowest level in a decade. 9 History of Sworn Police Staffing Levels 10 Fiscal Year Budgeted Year-End Actual 11 FY 2005-06 312 311 12 FY 2006-07 330 323 FY 2007-08 346 346 13 FY 2008-09 356 324 14 FY 2009-10 350 326 15 FY 2010-11 350 348 FY 2011-12 305 292 16 FY 2012-13 281 272 17 FY 2013-14 260 234 18 FY 2014-15 248 229 FY 2015-16 248 214 (November) 19 Percent Change 20 FY 2011 to 16 -29% -39% Source: San Bernardino Police Department 21 22 Ideally, the Police Resources Plan will result in 89 new positions, for an overall 29% increase in sworn 23 positions. Although still below the peak staffing level of 356 in fiscal year 2009, this increase will enable 24 the department to deliver its core service mission, reduce call response times, and provide the depth 25 required to engage with the community on a path to improving the overall quality of life. Increased
26 staffing would also have a significant impact on the ability of the department to redeploy officers and 27 other staff to address those critical community issues related to gangs, illegal narcotics, prostitution, and 28 traffic enforcement. Increasing both sworn and civilian staffing levels will provide renewed capacity to the
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 101 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be109 construed of 157 to be, the solicitation of votes on the Plan.
1 department to be able to reconstitute or expand some of the specialty units designed to address these 2 issues and reduce associated crime. 3 The City will only be able to fund a fraction of the Police Resources Plan with existing revenues. 4 To address the staffing and technology goals identified above, the City will spend approximately $17.6 5 million over the next five year period, with a total expenditure of $91 million over the 20 year term of the 6 Financial Model as reflected in the “Police Services Master Plan” line item. Over the horizon of the 7 Financial Model, the City projects it can afford only about 40% of what is necessary to fund the Police 8 Resources Plan. 9 With respect to police fleet vehicles, more than half of the City’s Police Department vehicles 10 require replacement, as reflected in the List of City Non-Fire Vehicles included in the Appendix as 11 Exhibit 15. The City’s Financial Model allocates approximately $23.4 million over the 20 year term for 12 new police vehicles as reflected in the Capital Investment-Fleet-Police line item to address the third goal 13 of Police Resources Plan. 14 The Police Resources Plan addresses some of the most critical needs for the Police Department in 15 its fight against rising crime rates. While the cost to the City of implementing the Police Resources Plan 16 is not insignificant, research has shown that reductions in crime rates can lead to higher tax revenues and 17 increased economic development. Thus, the City’s plan to upgrade the Police Department’s infrastructure 18 (staffing, IT and fleet) will have long term economic benefits for the City. 19 3. Necessary Reinvestment in City Infrastructure and Services 20 a. Public Facilities Repair and Maintenance 21 The City has 169 public facilities which require on-going operational maintenance as well as 22 required capital maintenance. However, due to the City’s significant capital maintenance backlog and 23 limited financial resources, only approximately 15% (or approximately $39.1 million) of the needed 24 infrastructure maintenance is included in the City’s Financial Model. This budgeted amount is reflected 25 in the Financial Model at line item “Capital Investment – Buildings & Fixtures.” The Financial Model
26 also budgets approximately $1.8 million for park improvements as reflected in the line item “Capital 27 Investment – Parks.” 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 102 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be110 construed of 157 to be, the solicitation of votes on the Plan.
1 2 b. Street and Road Repair 3 As set forth on the Street Repairs Report included in the Appendix as Exhibit 9, the City’s 4 right-of-way capital maintenance backlog exceeds $180 million. To fund the much needed right-of-way 5 maintenance needs, the City of San Bernardino will utilize both restricted funding sources (Measure I and 6 State Gas Tax Funds) as well as General Fund resources. The City’s Financial Model allocates only about
7 $7.114.5 million over 20-years to address a current need exceeding $180 million. Even though the 8 addition of General Fund monies increases the funding available over the next 20-years, the City will still 9 be able to fund only a small fraction of the current need (as reflected at line “Capital Investment – Public 10 Right-of-Way” of the Financial Model and in the Street Repairs Plan. While not sufficient to fully 11 address all of the City’s street repair and maintenance needs, the additional application of General Funds 12 is at least anticipated to reduce the numbers of streets within the City that will require rehabilitation and/or 13 full reconstruction. Because the City’s costs for backlogged capital maintenance will continue to grow 14 over the 20-year funding term, the funding percentage is anticipated to decline annually as costs for 15 repairs go up. As a result, the City will need to find additional sources for funding in the coming years. 16 c. Outdated Information Technology Systems Upgrade 17 Since the early years of the Great Recession, the City eliminated funding for Information 18 Technology (IT) capital requirements. In recent years, the City has allocated funds to replace only those 19 systems which have failed, but continues to risk other failures due to lack of funding availability. The 20 lack of funding availability for IT infrastructure has left the City with operational systems that are long 21 past their useful life and are beyond manufacture support and/or warranty. More concerning is the lack of 22 a back-up system if the City’s network crashes and is unrecoverable. To address these basic service level 23 issues, the City is allocating approximately $11.5 million over the term of the Financial Model as reflected 24 in the line item Capital Investment – IT Infrastructure. 25 d. Reinvestment in City Corporate Support Functions 26 The City’s administrative services have declined significantly over the last decade due to high 27 turnover and other factors. The City has not been in a position over the past several years to invest in 28 management, staffing levels, training and information systems or modern municipal policies and
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 103 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be111 construed of 157 to be, the solicitation of votes on the Plan.
1 procedures in administrative functions such as finance, risk management and general government. For 2 example, while the situation varies from division to division, the average vacancy rate is approximately 3 16% and the vacancy rate in management level positions is typically higher – as much as 46%. In 4 addition, City information technology systems have not been updated and operations are struggling to 5 provide even basic levels of service in some areas. 6 The City and its consultants have identified where critical needs exist for additional City staff and 7 systems, and have a plan to improve City corporate support functions which it intends to implement in
8 2016.fiscal year 2016-17. The primary focus is to implement needed changes to the City’s Information 9 Technology, Human Resources and Finance departments. The cost of this plan is included in the line item 10 “Organizational/Service Improvements” of the Financial Model. 11 e. Replacement of Aging Vehicles 12 Similar to other capital equipment and maintenance needs, the City’s vehicle fleet has not received 13 adequate funding for replacement vehicles for many years. Much of the City’s fleet is well beyond it 14 useful life and has become costly to maintain. Some of the City’s fleet needs have been resolved through 15 contracting of solid waste and other services and annexation into the County Fire District. The City will 16 no longer need to fund vehicles associated with fire service and emergency medical services (assuming 17 annexation is successful) and integrated waste, recycling, street sweeping, right-of-way clean-up and park 18 maintenance fleet needs have been met through contracting out these municipal services. However, the 19 City still must finance the replacement of essential vehicles necessary to provide basic services such as 20 facility maintenance, public works, animal control, code enforcement, and planning and building 21 inspection. The City has allocated $25.3 million for general purpose vehicles as reflected in the Capital 22 Investment-Fleet-Other line item over the term of the Financial Model. 23 f. City Hall Seismic Retrofit 24 The City has considered seismic retrofitting of City Hall since 2002. The City Hall site is within 4 25 miles of the San Andreas Fault which is capable of producing a magnitude 8.0 earthquake. The next
26 dominant fault is the San Jacinto at a distance of 2 miles capable of producing a magnitude 7.5 27 earthquake. These faults make the City of San Bernardino, including the location of City Hall, one of the 28 most seismically hazardous locations in California. On any business day, more than 200 people on
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 104 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be112 construed of 157 to be, the solicitation of votes on the Plan.
1 average occupy City Hall. The City Hall building is a 7-story structure with one subterranean level 2 reinforced concrete structure designed in 1970. It is constructed with lightweight concrete slabs, beams 3 and columns and to the 1968 UBC building code. However, the 1971 San Fernando earthquake 4 demonstrated vulnerability of this type of construction to collapse. Starting with the 1973 Building Code, 5 this type of construction was prohibited in areas with high and moderate seismic potential. 6 In 2002, IDS performed work on the seismic strengthening project of the City Hall parking 7 structure. While performing this work, IDS reported to the City that the building had sustained structural 8 damage which had occurred during the Landers earthquake of 2002. Subsequently, the City solicited 9 proposals from earthquake engineering consultants to perform a seismic evaluation of the building, but 10 due to funding constraints, the City did not proceed at that time with the evaluations. In 2007, URS 11 Corporation was retained by the City to perform a seismic evaluation of City Hall. Based on the review 12 and soil testing under City Hall, URS’ review confirmed that the building needed seismic retrofitting. 13 In July 2015, the City developed and sent out a Request for Qualifications (RFQ) to architects and 14 large contractors who have successfully completed large-scale seismic retrofits for municipalities, 15 universities and other public entities while maintaining the design integrity of their buildings. The City 16 received statements of qualifications and project estimates from five firms. Following a review of the 17 proposals received, the IDS Group was selected to perform the work. The work requested consists of 18 performing a detailed analysis to pinpoint the problem areas and to recommend a retrofit strategy for City 19 Hall, identify additional professional assistance that will be required for implementation, and estimate 20 associated construction costs and schedule. The options for continuity of City operations during the 21 retrofitting process will also be considered because the seismic retrofit will require all of the employees as 22 well as the furnishings, equipment and infrastructure necessary for those employees to perform their job 23 duties to move to another building during the work required to complete the retrofit. 24 IDS Group’s work was recently completed and the City Hall seismic retrofit is projected to cost 25 $20 million. The Financial Model assumes a $20 million financing for the seismic retrofit costs, equal to
26 an annual debt service of $1.6about $1.7 million, and these costs are included in the Financial Model in 27 the Capital Investment – Buildings & Fixtures line item. 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 105 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be113 construed of 157 to be, the solicitation of votes on the Plan.
1 4. City Charter Reform 2 The City historically has experienced a wide range of operational and other problems that have 3 adverse economic impacts due to the existing Charter structure. As one example, the Charter specifies 4 that both primary and general elections for City officers are to be held at times other than the nominal 5 November general election in numbered years. As a result, the City cannot consolidate its elections with 6 most State and Federal elections. This costs the City at least $270,000 more per election cycle because 7 costs cannot be shared. It also diminishes voter turnout. 8 The Mayor and Common Council established the Volunteer Citizen-Based Charter Committee 9 (“Charter Committee”) in March 2014. The Charter Committee identified the Charter as a barrier to 10 efficient and effective government because it is overly complex, hard to understand, and contains 11 elements that are inconsistent with best practices for modern municipal government. The Charter 12 Committee worked to develop recommendations for a new or substantially revised charter that reflects the 13 principles of good governance and meets the City’s needs. The Charter Committee has met approximately 14 twice per month since May 2015 with the goal of providing recommendations to the Mayor and Common 15 Council by May 2016, and has sought public input and engaged in community outreach efforts through 16 public forums. 17 On December 29, 2015 the Charter Committee completed its work on the charter skeleton. The 18 charter skeleton is an outline of the key elements, ideas and principles to be addressed in the City’s 19 charter, including an overall governance structure. In order to recommend a charter that reflects best 20 practices consistent with modern municipal governance, the Charter Committee decided to propose a 21 completely new charter instead of recommending numerous amendments to the existing charter. The City 22 intends to place a proposed new charter before the City’s voters on the November 2016 ballot. 23 The Charter Committee’s preliminary recommendations for the charter result in a governance 24 structure that looks fundamentally different than the existing governance structure. It shows an 25 organizational structure with greater clarity in roles, responsibilities and reporting relationships. Perhaps
26 most importantly, the City Manager is unambiguously responsible for City operations and management. It 27 removes administrative and management decisions from the Mayor and Common Council and focuses 28 their role on establishing policies to be carried out by the City Manager and executive leadership.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 106 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be114 construed of 157 to be, the solicitation of votes on the Plan.
1 This structure is consistent with best practices for council-manager forms of government, as well 2 as the provisions of modern-era charters. Assuming this charter approach is placed on the ballot by the 3 Mayor and Common Council and approved by the voters, the City will have a governance and 4 management structure which much more closely approximates the structure in other comparable 5 California cities. This is of critical importance to the City and its residents because the governance 6 approach taken by other cities leads to performance which is demonstrably better in terms of the delivery 7 of municipal services and the maintenance of fiscal solvency than has been the case for the City under the 8 current system of government. While awaiting Charter reform, the City is operating under the Operating 9 Practices for Good Government protocol the City adopted which streamlines decision making, increases 10 efficiency and provides for better accountability. The City expects that Charter reform will result in 11 streamlined operations, increased efficiency and improved City government accountability. The City’s 12 Plan is not conditioned upon approval of any Charter reforms, and the City’s Financial Model and 13 feasibility analysis do not assume or require that any Charter reforms will be implemented.2025 14 5. Revenue Enhancement Measures 15 While revenue enhancement is severely constrained under California law, there are a number of 16 best practices which can be implemented to generate revenues. The City has evaluated approximately 14 17 additional revenue sources (many of which require voter approval) and the Financial Model contemplates 18 implementation of various new fee adjustments. In 2015, the City implemented increases to the cost 19 allocation structure for the water, sewer treatment and sewer collection enterprise funds. The City’s fire 20 service annexation application requests annexation into a service zone with an approximate $148 per 21 parcel annual fee, which would generate new revenue of approximately $7.8 million for Fire Services. The 22 City also negotiated a solid waste management franchise fee. 23 Many measures the City considered for purposes of raising revenues have been rejected because 24 they would not be realistically feasible to implement. In light of the very low income levels among a 25 substantial percentage of the City’s residents, the City faces significant hurdles in pursuing voter approved
26 tax measures. The City remains the poorest community of its size in California, and it has grown 27 progressively poorer over the past decades. According to the latest U.S. Census Bureau data: the per 28 2025 More information on the Charter reform efforts can be found at this link: http://www.sbcity.org/cityhall/city_clerk/volunteer_citizen_based_charter_committee_agendas.asp.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 107 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be115 construed of 157 to be, the solicitation of votes on the Plan.
1 capita income of City residents is $14,879, compared to a state average of $29,527; the median household 2 income in the City is $38,385, compared to a state average of $61,094; and the percentage of City 3 residents living below poverty level is 32.4%, compared to a state wide average of 15.9%. The median 4 value of owner occupied housing units in the City is $152,800 compared to a state average of 5 $366,400.2126 6 Compounding the severe poverty is the City’s relatively low population growth rate. Over the past 7 25 years, the City had a compound annual growth rate of 1%, and over the last five years the compound 8 annual growth rate was 0.25%. The City’s inability to provide a basic level of municipal services only 9 exacerbates the slow growth rate. Until the City can restore a decent level of municipal services to attract 10 new residents, new population growth is expected to continue to be in the poorer population sectors of the 11 City where the demand for City services is even greater. 12 A summary of key potential revenue enhancement options the City considered is set forth below. 13 a. Measure Z Sales Tax Reauthorization 14 The City is working towards reauthorization of the Measure Z sales tax in 2021, which requires 15 voter approval. The City projects that reauthorization of the Measure Z sales tax will lead to estimated 16 revenues of between $8.7 million and $12.8 million each year between fiscal year 2021 through fiscal year 17 2034 for a total of approximately $134.7 million. Other than Measure Z, the City considered but decided 18 against further sales tax increases at this time. Sales tax in the City is already among the highest in the 19 region, and an increase would only unduly burden the City’s residents who are among the poorest in 20 California. City officials reasonably determined that the residents are not financially capable at this time 21 of carrying a heavier sales tax load in addition to the other revenue measures that will be implemented in 22 connection with the Plan. 23 b. Ground Emergency Medical Transport 24 Legislation that would have provided some potential revenue to municipalities that provide 25 emergency paramedic response in advance of ambulance arrival was passed in 2013-14 but vetoed by
26 Governor Brown. Another similar piece of legislation (SB 534) is pending in Sacramento (which would 27 allow revenue to flow to public agencies that provide ground transport of Medi-Cal eligible emergency 28 2126 See http://quickfacts.census.gov/qfd/states/06/0665000.html (comparing income and housing data for the City of San Bernardino to the average for California).
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 108 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be116 construed of 157 to be, the solicitation of votes on the Plan.
1 patients). The City does not provide any such ground transport service at this time, and it would be both 2 speculative and unsound to rely on any such potential revenue. 3 c. Revenues from Contracting Out 4 The City anticipates that it will realize significant additional savings and revenues from annexation 5 of the City into the County Fire District for Fire Services, its contract with Burrtec for solid waste and 6 recycling, sweeping and right-of-way cleanup, and from contracts for other municipal services with 7 private or other government agency providers that the City is exploring. 8 d. Cost Allocation Revisions for Enterprise Funds 9 Following the City’s plans to restructure its operations for service delivery efficiencies, it was 10 necessary to create a new cost allocation strategy which allowed the City to recover costs associated with 11 general administrative and public safety services. Such cost allocation provides the City an equitable 12 return for services, while allowing the City to continue to receive cost allocation fees from the City’s 13 utilities throughout the term of the Financial Model. Implementing this strategy will ensure the City an 14 increasing cost allocation return for services as the City’s cost for general administration, public safety 15 and right-of-way maintenance increase during the term of the Financial Model. Specifically, the Financial 16 Model (at line items “Transfers In – Water Fund,” Transfers In – Sewer Treatment” and “Transfers In – 17 Sewer Collection”) assumes transfers into the General Fund from the water, sewer treatment and sewer 18 collection enterprise funds of a total of almost $4 million in Fiscal Year 2015-16 growing to almost $6.9 19 million in FY 2033-34 for a total of approximately $109 million over the term of the Financial Model. 20 21 e. Water/Sewer Utilities Rate Increases 22 The City is implementing new water/sewer utility rate increases in connection with an agreement 23 adopted between the City and the City’s Water Department which will provide the City with additional 24 revenue. 25 f. Other Opportunities Considered 26 The City considered additional opportunities to improve revenues from existing sources and 27 generate revenue from new sources such as implementing: (1) a raise in the existing Utility User Tax, or 28 an application of the tax to additional utilities; (2) a higher Transient Occupancy Tax; (3) a higher Real
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 109 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be117 construed of 157 to be, the solicitation of votes on the Plan.
1 Property Transfer Tax; (4) a higher Business License Fee; (5) a 911 Communication Fee; (6) a Paramedic 2 Subscription Fee; (7) a higher Emergency Response Fee; and (8) a larger Electricity Franchise Fee. 3 However, based on the City’s assessment at this time, such sources are not likely to be successful at this 4 time. This is due primarily to a poor residential community unlikely to vote for tax or fee increases. 5 Implementing the above taxes and fees would also require significant time, as well as fundamental 6 management and technology improvements which separately require a funding investment. As such, the 7 City has determined that the above options are not financially feasible for the City at this time. In the 8 interim, and as an alternative, the City is instead focused on seeking to realize additional potential revenue 9 with updated fee and charges schedules implemented later in 2016, better collection on existing fees and 10 charges, and resource management, together with the parcel tax being implemented for fire and EMS 11 services as part of annexation into the County Fire District. 12 6. City’s Continued Operations 13 Following the Effective Date, the City will continue to operate under its Charter (subject to any 14 changes, repeal or amendments pursuant to voter action), the California Constitution, and other applicable 15 laws. The City will continue to collect real property tax revenues, sales tax revenues, the user utility tax, 16 and other taxes, fees, and revenues following the Effective Date, spending such revenues on municipal 17 services. In accordance with existing policies and operational guidelines, the City will continue to pay 18 ordinary course debt, including, without limitation, Workers’ Compensation Claims (the Uninsured 19 Portion, where the Insured Portion is covered by insurance), trade and/or vendor claims, and amounts due 20 federal agencies (e.g., HUD, and Environmental Protection Agency) that provide ongoing funding to the 21 City. In addition, following the Effective Date, the City will continue to provide Indemnification in 22 accordance with the City’s pre-petition practices (as revised from time to time). The City reserves the 23 right to provide or deny requests or demands for Indemnification in accordance with its practices. 24 7. City’s Retention of Rights of Action 25 Except as otherwise set forth in the Plan, the Plan provides that the City will retain all of its Rights
26 of Action after the Effective Date. The failure to list in the Plan or the Disclosure Statement, the Plan 27 Supplement or any Plan Document any potential or existing Right of Action retained by the City is not 28 intended to and will not limit the rights of the City to pursue any such Right of Action. Unless a Right of
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 110 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be118 construed of 157 to be, the solicitation of votes on the Plan.
1 Action is expressly waived, relinquished, released, compromised, or settled in the Plan or otherwise, the 2 City expressly reserves all Rights of Action for later adjudication and, as a result, no preclusion doctrine, 3 including without limitation the doctrines of res judicata, collateral estoppel, issue preclusion, claim 4 preclusion, estoppel (judicial, equitable, or otherwise), or laches, will apply to such Rights of Action upon 5 confirmation or consummation of the Plan thereafter. Without limiting the foregoing, the City expressly 6 reserves the right to pursue against any entity any claims alleged in any lawsuit in which the City is a 7 defendant or an interested party. 8 D. Provisions Regarding Distributions Under the Plan 9 1. Distribution Agent 10 On and after the Effective Date, the City will act as the Distribution Agent under the Plan. The 11 City may also retain one or more agents (including Rust Omni) to perform or assist it in performing the 12 distributions to be made pursuant to the Plan, which agents may serve without bond. The City may 13 provide reasonable compensation to any such agent(s) without further notice or Bankruptcy Court 14 approval. 15 2. Delivery of Distributions 16 All distributions to be made pursuant to the Plan to any holder of an Allowed Claim will be made 17 at the address of such holder as set forth in the books and records of the City or its agents, unless the City 18 has been notified by such holder in a writing that contains an address for such holder different from the 19 address reflected in the City’s books and records that is mailed to Rust Consulting/Omni Bankruptcy, 20 5955 DeSoto Avenue, Suite 100, Woodland Hills, CA 91367 at least two weeks prior to such distribution. 21 All distributions to indenture trustees or similar entities will be made in accordance with the relevant 22 indenture or agreement, as applicable. 23 3. Distributions of Cash 24 Any payment of Cash to be made by the City or its agent pursuant to the Plan will be made by 25 check drawn on a domestic bank or by wire transfer, at the sole option of the City.
26 4. Timeliness of Payments 27 Any payments or distributions to be made pursuant to the Plan will be deemed to be timely made if 28 made within 30 days after the dates specified in the Plan. Whenever any distribution to be made under the
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 111 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be119 construed of 157 to be, the solicitation of votes on the Plan.
1 Plan will be due on a day that is not a Business Day, such distribution instead will be made, without 2 interest on such distribution, on the immediately succeeding Business Day, but will be deemed to have 3 been timely made on the date due. 4 5. Compliance with Tax, Withholding, and Reporting Requirements 5 The City will comply with all tax, withholding, reporting, and like requirements imposed on it by 6 any government unit, and all distributions pursuant to the Plan will be subject to such withholding and 7 reporting requirements. In connection with each distribution with respect to which the filing of an 8 information return (such as Internal Revenue Service Forms W-2, 1099, or 1042) or withholding is 9 required, the City will file such information return with the Internal Revenue Service and provide any 10 required statements in connection therewith to the recipients of such distribution, or effect any such 11 withholding and deposit all moneys so withheld to the extent required by law. With respect to any entity 12 from whom a tax identification number, certified tax identification number, or other tax information that 13 is required by law to avoid withholding has not been received by the City, the City at its sole option may 14 withhold the amount required and distribute the balance to such entity or decline to make such distribution 15 until the information is received. 16 6. Time Bar to Cash Payments 17 Checks issued by the City on account of Allowed Claims will be null and void if not negotiated 18 within 91 days from and after the date of issuance thereof. Requests for reissuance of any check will be 19 made directly to the City by the holder of the Allowed Claim with respect to which such check originally 20 was issued. Any claim in respect of such a voided check must be made on or before the second 21 anniversary of the Effective Date. After such date, all Claims in respect of voided checks will be 22 discharged and forever barred and the City will retain all moneys related thereto. 23 7. No De Minimis Distributions 24 Notwithstanding any other provision of the Plan, no Cash payment of less than $10 will be made 25 by the City on account of any Allowed Claim.
26 8. Distributions of Unclaimed Property 27 If any distribution to any holder of a Claim is returned to the City or its agent as undeliverable, no 28 further distributions will be made to such holder unless and until the City is notified in writing of such
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 112 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be120 construed of 157 to be, the solicitation of votes on the Plan.
1 holder’s then-current address. Any unclaimed distributions will be set aside and maintained by the City. 2 On the first business day after the first anniversary of the Effective Date and after each subsequent 3 anniversary until all Plan distributions are completed, the City will post on its official website a list of 4 unclaimed distributions, together with a schedule that identifies the name and last-known addresses of the 5 holders of any unclaimed distributions. The City will not be required to make any further attempt to 6 locate the holders of any unclaimed distributions. Any distribution under the Plan that remains unclaimed 7 after 120 days following the date of the first posting on the website may be deemed by the City not to have 8 been made and, together with any accrued interest or dividends earned thereon, may, at the City’s sole 9 discretion, be transferred to and vest in the City to be used by the City for any purpose. The City will not 10 be obligated to make any further distributions on account of any Claim with respect to which an 11 undeliverable distribution was made or was to be made, and such Claim will be treated as a Disallowed 12 Claim. Nothing contained herein or in the Plan will affect the discharge of the Claim with respect to 13 which such distribution was to be made, and the holder of such Claim will be forever barred from 14 enforcing such Claim against the City or its assets, estate, properties, or interests in property. 15 9. No Distributions on Account of Disputed Claims 16 Notwithstanding anything to the contrary in the Plan, no distributions will be made on account of 17 any part of any Disputed Claim until such Claim becomes Allowed (and then only to the extent so 18 Allowed). Distributions made after the Effective Date in respect of Claims that were not Allowed as of 19 the Effective Date (but which later became Allowed) will be deemed to have been made as of the 20 Effective Date. 21 10. Certain Claims to be Expunged 22 Any Claim that has been or is hereafter listed in the List of Creditors as contingent, unliquidated or 23 disputed, and for which no proof of Claim is or has been timely filed, is not considered to be an Allowed 24 Claim and will be expunged without further action by the City and without further notice to any party or 25 any action, approval or order of the Bankruptcy Court.
26 11. No Post-petition Accrual 27 Unless otherwise specifically provided in the Plan, in an executed Plan Document or otherwise 28 required by order of the Bankruptcy Court, the City will not be required to pay to any holder of a Claim
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1 any interest, penalty, or late charge accrued or accruing with respect to such claim from the Petition Date 2 through the date of distribution on such claim. 3 E. Disputed Claims 4 1. Claims Objection; ADR Procedures; Prosecution of Objections 5 The City will have the right to object to the allowance of Claims with respect to which liability or 6 allowance is disputed in whole or in part and, prior to objection, and to subject any Disputed Claim to the 7 ADR Procedures. The City will have until the later of 180 days after the Effective Date or 180 days after 8 a Claim was filed or scheduled, to either (a) file and serve objections to Claims, or (b) give notice to the 9 holder of a Disputed Claim that the City intends to try and resolve allowance of the Claim pursuant to the 10 ADR Procedures (the “180 Day Deadline”). Upon the request of the City, the Bankruptcy Court will be 11 authorized to extend the 180 Day Deadline. The City anticipates there will be additional Bar Dates for 12 certain Claims classified under the Plan. The ADR Procedures are included in the Appendix as Exhibit C. 13 2. Payments and Distributions with Respect to Disputed Claims 14 After the Effective Date has occurred, at such time as a Disputed Claim becomes an Allowed 15 Claim, in whole or in part, the City or its agent will distribute to the holder thereof the distribution(s), if 16 any, to which such holder is then entitled under the Plan. Such distribution(s), if any, will be made as 17 soon as practicable after the date that the order or judgment of the Bankruptcy Court allowing such 18 Disputed Claim becomes a Final Order (or such other date as the Claim becomes an Allowed Claim). 19 Unless otherwise specifically provided in the Plan, no interest will be paid on Disputed Claims that later 20 become Allowed Claims.
21 F. Continuing Jurisdiction of the Bankruptcy Court 22 The Plan provides for the Bankruptcy Court to retain jurisdiction over a broad range of matters 23 relating to the Bankruptcy Case, the Plan and other related items. Readers are encouraged to review the 24 Plan carefully to ascertain the nature of the Bankruptcy Court’s continuing post-Effective Date 25 jurisdiction.
26 VI. CONFIRMATION AND EFFECTIVENESS OF THE PLAN 27 Because the law with respect to confirmation of a plan of adjustment is complex, creditors 28 concerned with issues regarding confirmation of the Plan should consult with their own attorneys and
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 114 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be122 construed of 157 to be, the solicitation of votes on the Plan.
1 financial advisors. The following discussion is intended solely for the purpose of providing basic 2 information concerning certain confirmation issues. The City cannot and does not represent that the 3 discussion contained below is a complete summary of the law on this topic. 4 Many requirements must be met before the Bankruptcy Court may confirm the Plan. Some of the 5 requirements discussed in this Disclosure Statement include acceptance of the Plan by the requisite 6 number of creditors, and the determination of whether the Plan is in the “best interests” of creditors. 7 These requirements, however, are not the only requirements for confirmation, and the Bankruptcy Court 8 will not confirm the Plan unless and until it determines that the Plan satisfies all applicable requirements, 9 including requirements not referenced in this Disclosure Statement. 10 A. Voting on the Plan 11 1. Who May Vote to Accept or Reject the Plan? 12 A creditor generally has a right to vote for or against the Plan if its Claim is both allowed for 13 purposes of voting and is classified in an Impaired Class. Generally, a Claim is deemed allowed if a proof 14 of claim was timely filed; provided, however, that if an objection to a claim has been filed, the claimant 15 cannot vote unless the Bankruptcy Court, after notice and hearing, either overrules the objection or allows 16 the claim for voting purposes. Thus, the definition of “Allowed Claim” used in the Plan for purpose of 17 determining whether creditors are entitled to receive distributions is different from that used by the 18 Bankruptcy Court to determine whether a particular claim is “allowed” for purposes of voting. Holders of 19 claims are advised to review the definitions of “Allowed,” “Claim,” and “Disputed Claim” in the 20 Definitions section of the Plan to determine whether they may be entitled to vote on, and/or receive 21 distributions under, the Plan. Under the Plan, a Class is an “Impaired Class” if the Plan alters the legal, 22 equitable, or contractual rights of the members of that Class with respect to their claims or interests. 23 Classes 1, 2, 5, 6, 9, 10, 11, 12, 13 and 14 are impaired under the Plan. 24 2. Who Is Not Entitled to Vote? 25 The holders of the following types of claims are not entitled to vote on the Plan: (i) Claims that
26 have been disallowed; (ii) Claims that are subject to a pending objection and which have not been allowed 27 for voting purposes; (iii) Claims that are not Impaired; and (iv) Administrative Expense Claims, since 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 115 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be123 construed of 157 to be, the solicitation of votes on the Plan.
1 such Claims are not placed in Classes and are required to receive certain treatment specified by the 2 Bankruptcy Code. 3 3. Vote Necessary to Confirm the Plan 4 The Bankruptcy Court cannot confirm the Plan unless, among other things, (i) at least one 5 Impaired Class has accepted the Plan without counting the votes of any insiders within that Class; and (ii) 6 either all Impaired Classes have voted to accept the Plan, or the Plan is eligible to be confirmed by 7 “cramdown” with respect to any dissenting Impaired Class. A Class of claims is considered to have 8 accepted the Plan when more than one-half in number and at least two-thirds in dollar amount of the 9 claims that actually voted in that Class have voted in favor of the Plan. 10 B. The “Best Interests” Test 11 The Bankruptcy Court also must determine that the Plan is in the “best interests of creditors” 12 pursuant to Bankruptcy Code section 943(b)(7), which in the Chapter 9 context means that treatment 13 under the Plan must be better than the only alternative available, which is dismissal of the case. Dismissal 14 permits every creditor to fend for itself in the race to the courthouse, since a municipality such as the City 15 is not eligible under the Bankruptcy Code for a court-supervised liquidation under chapter 7. The City 16 submits that the Plan is in the best interests of all creditors because the payments that will be made to 17 holders of Allowed Claims in all Impaired Classes will be greater than those the creditors would receive 18 were the Bankruptcy Case dismissed. 19 In contrast, if the Plan is not confirmed and the Bankruptcy Case is dismissed, the City’s creditors 20 would be left to “fend for themselves.” Individual creditor collection actions likely would aggregate, 21 through lawsuits, attempts at attachments, and writs of mandate, to make continued operation of the City 22 untenable. Massive litigation costs would burden the City, its creditors, and all parties in interest, 23 although creditors financially equipped to pursue litigation most quickly (and thus win “the race to the 24 courthouse”) would benefit disproportionately. And even the swiftest of creditors would likely find its 25 ability to collect on a judgment stymied by the inability of the City to pay without violating provisions of
26 California law by raiding Restricted Funds. In short, dismissal of the Bankruptcy Case likely would result 27 in chaos, with few if any creditors emerging safely from the blizzard of inevitable litigation. The City, its 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 116 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be124 construed of 157 to be, the solicitation of votes on the Plan.
1 residents and its creditors cannot afford to be left in such a circumstance. Confirmation of the Plan is in 2 their best interest. 3 C. The Plan’s Payment of 1% on General Unsecured Claims 4 Under the Plan, approximately $190 million to $200209.3 million in General Unsecured Claims 5 will receive a distribution of 1% on the Allowed Claims, comprised of approximately: 6 a. $60Liquidated retiree claims of $46.7 million (which consists of $43.9 million of 7 liquidated retireeRetiree Health Benefit Claims27 8 and $2.8 million of pre-petition accrued leave claims held by retirees); 9 b. $100-$110129.8 million of liquidated Consenting Union Claims; 10 c. $2022.8 million of estimated and unliquidated Litigation Claims; and 11 d. $10 million of additional claims (including PARS Claims). 12 As demonstrated by this Disclosure Statement, in particular in the discussion of the City’s Financial 13 Model, the City does not now have, and is not projected to have the financial resources to fully fund its 14 infrastructure repairs and necessary rebuilding of police and other municipal services, let alone pay 15 anything more on these unsecured claims. 16 The City’s financial crisis forced the City to severely cut municipal services, which process 17 continued during the Bankruptcy Case, to the point of service insolvency, in addition to undisputed 18 budgetary and cash insolvency. The depth of the crisis was demonstrated during the Bankruptcy Case by 19 evidence showing that the City could not continue to fund the operations of its own Fire Department. 20 Similarly, for all the reasons discussed in Section V.C.2. above regarding the City’s Police Resources 21 Plan, the City’s underfunding of its Police Department also must be remedied. But like its other 22 budgetary needs, the City will only be able to spend fraction of what it needs for the Police Resource Plan 23 in the coming years. And even those limited amounts that the City can budget for in the coming years are 24 based on the assumption that the City will be able to discharge the unsecured claims with a 1% 25 distribution on Allowed Claims. If the City is required to pay more on general unsecured claims, it will
26 have nothing left to fund its rehabilitation and service stabilization. If the City cannot provide adequate 27 services, it will not be able to attract economic and become a community of choice for a diverse 28 27 The City is providing the Official Retiree Committee with the backup for the calculation of the $43.9 million amount.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 117 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be125 construed of 157 to be, the solicitation of votes on the Plan.
1 population with choices of where to live and raise a family. Instead, it will continue a cycle of decline that 2 led to the City’s Bankruptcy Case. 3 San Bernardino historically was a middle class community, and services have declined as the 4 community became increasingly poorer. The extent of the cutbacks in municipal services have been 5 dramatic due to the Great Recession and during the Bankruptcy Case.
6 Police Services 7 Sworn staffing reduced from 349 full-time equivalent (FTE) employees in 2008 to approximately 248 8 today (29% reduction)
9 Patrol division sworn staffing reduced by 25% since 2008 10 Community policing teams discontinued 11 Narcotics enforcement reduced by 50% since 2008 12 Traffic enforcement personnel reduced by 58% since 2008 13 Priority 1 average response times increased 76% since 2008 14 Almost three-fourths (73%) of patrol vehicles are overdue for replacement 15 Substantial increases in police response times to service calls ranging from a 75% increase in response 16 time for Priority E life-threatening emergency calls to a 274% increase for Priority 2 calls. 17 18 19 20 21 22 23 24 25
26 27 28
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1 Fire Services 2 Total staffing (sworn and non-sworn) reduced 18% since FY 2011, 27% since 2008 3 Number of units deployed reduced from 15 in 2008 to 13 in 2014 4 One engine company eliminated 5 One fire station closed in November 2014 6 Substantial fleet replacement needed for fire vehicles 7 Public Works 8 Public Works staff reduced by 50 (19%) since 2008 9 Deferred street repairs and improvements estimated at $180 million, up from $88.4 million in 2008 10 Deferred facility repairs and improvements estimated at $131 million 11 Only 20% of sewer collection system has been video inspected; deferred sewer system improvements 12 estimated at $23 million. 13 Over 730 claims filed for damages to vehicles caused by potholes since 2003 14 1,200 locations identified for sidewalk and curb gutter repairs 15 Vehicle and equipment replacement deferred (56% of fleet units due for replacement) 16 Libraries 17 Central library hours reduced from 54 to 37 per week (30% reduction) 18 Reduced library hours at the three branches from 54 to 20 hours per week (63% reduction) 19 Library staff reduced by 68% from 31 in 2008 to 10 FTE 20 All 60 public computers are 7 to 10 years old with no funds for replacement 21 No book budget (all acquisitions rely on fundraising) 22 Parks and Recreation 23 Significantly reduced recreation programs; primary information tool for advertising recreational 24 programs eliminated 25 Two pools closed to public (although maintenance costs continue) 26 Two community centers closed; reduced hours at six other centers 27 Youth sports programs eliminated 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 119 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be127 construed of 157 to be, the solicitation of votes on the Plan.
1 City Support Functions 2 IT staffing reduced 30% since 2012 3 Many computers more than 10 years old 4 Internal service funds have not been funded, including workers compensation and litigation reserves 5 Finance and accounting staff has been difficult to recruit and retain, and the City is running about an 6 11% vacancy rate due to the inability to afford market wages with staffing shortages particular acute in 7 the Police Department and overall management positions. 8 Overall municipal staffing has dropped from nearly 1,300 employees to about 900 employees since 9 2009, and the City is about to lose another 200 due to the annexation into the County Fire District and 10 the contract with Burrtec for solid waste and recycling, sweeping, and right-of-way clean up services. 11 Cutting the number of municipal employees nearly in half in about 6 years is unprecedented for a city 12 the size of San Bernardino. 13 The amount of the City’s deferral of spending on basic municipal infrastructure was just as 14 dramatic. $180 million deferred for street repairs, $130 million deferred for facility repairs and 15 improvements, the failure to inspect 80% of the sewer system – these and other basics of municipal 16 services will not be fully funded during the course of the 20-year Financial Model; indeed some may not 17 be funded at even 50% of requirement as discussed throughout the Disclosure Statement. Even that 18 limited funding, to keep the City moving towards service solvency, is based upon the Financial Model’s 19 assumption that the City can discharge its $200 million of unsecured debt based upon a 1% distribution on 20 Allowed Claims. 21 The City has a fundamental duty to its residents to provide them with basic municipal services. 22 The principal purpose of a chapter 9 debt restructure is the continued provision of public services. In re 23 Mount Carbon Metro District, 242 B.R. 18, 34 (Bankr. D. Colo. 1999). Unlike the other chapters of the 24 Bankruptcy Code, Chapter 9 does not attempt to balance the rights of the debtor and its creditors, but 25 rather, to meet the special needs of a municipal debtor. In re Richmond Unified Sch. Dist., 133 B.R. 221, 26 225 (Bankr. N.D. Cal. 1991). Rather, chapter 9 is designed to assist municipalities in providing vital 27 government services by “providing the debtor with an array of bankruptcy powers to enable it to achieve 28 financial rehabilitation with very few, if any, corresponding limitations and duties of the type to which a
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 120 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be128 construed of 157 to be, the solicitation of votes on the Plan.
1 Chapter 11 debtor is subject.” Id. at 224. Accordingly, courts assessing plans of adjustment in chapter 9 2 have emphasized the unique need to consider the general municipal welfare when addressing issues of 3 plan confirmation. See e.g., In re Corcoran Hosp. Dist., 233 B.R. 449, 454 (Bankr. E.D. Cal. 1999) 4 (describing the area’s economic woes and noting that “[t]he hospital is very important to the community 5 of Corcoran” and that it was “an essential element to the survival of Corcoran as a community”); In re 6 Barnwell Cnty. Hosp., 471 B.R. 849, 869 (Bankr. D. S.C. 2012) (“of particular importance to the Court is 7 that the Plan preserves the availability of healthcare services to citizens and patients in the County”). 8 The City’s Plan and its proposed distribution to general unsecured creditors are well within the 9 four corners of chapter 9 precedents. The Plan is a reasonable effort to adjust the City’s debts to enable 10 the City to dedicate its future limited resources to service, cash and budgetary solvency. 11 D. Feasibility: The City’s Financial Model and The Bankruptcy Fund 12 To satisfy the requirement set forth in Bankruptcy Code section 943(b)(7) that the Plan be feasible, 13 the City must demonstrate the ability to make the payments required under the Plan and still maintain its 14 operations at the level that it deems necessary to the continued viability of the City. The City submits that 15 the Plan is feasible. The financial underpinning of the Plan is the City’s Financial Model included as 16 Exhibit 3 in the Appendix. The Financial Model projects revenues and expenditures over a 20-year period 17 and analyzes, among other things, the resulting unrestricted General Fund balance at the end of each fiscal 18 year covered by the Financial Model. The Financial Model shows that the City will be able to maintain 19 reserves above 15% of General Fund expenditures for 16 out of the 20 fiscal years reflected in the 20 Financial Model assuming Plan confirmation. 21 It is essential that the City maintain adequate levels of fund balances to mitigate current and future 22 risks (such as revenue shortfalls and unanticipated expenditures) and to ensure stable tax rates. General 23 Fund balance levels are a crucial consideration in long-term municipal financial planning, and credit 24 rating agencies monitor levels of a city’s fund balances to evaluate a city’s creditworthiness. Municipal 25 finance best practices recommend the maintenance of reserves equal to at least two months of
26 expenditures, and a city’s particular situation may require a level of reserves significantly in excess of this 27 recommended minimum level. Factors that may compel keeping reserves in excess of two months 28 expenditures include increased capital needs and deficits in other funds, both of which are present in the
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1 City. The average reserve level for California cities with populations in excess of 50,000 is 23%. The 2 level of reserves that the City’s advisors have recommended and incorporated into the City’s financial 3 projections reflects the tension between taking actions to improve long term economic conditions for the 4 City’s residents and the City’s creditworthiness, on the one hand, and the pressure from creditors who may 5 view the reserves as excessive, on the other hand. The City is sensitive to that inevitable tension, and 6 believes that the proposed level of reserves is consistent with the levels of risk still facing the City. 7 As discussed below, the Financial Model reflects three components leading to the City’s financial 8 recovery: (1) the baseline budget; (2) adjustments to the baseline budget through new revenues, service 9 delivery restructuring and basic level service recovery; and (3) the restructuring components. It also 10 explains the purpose of the “Bankruptcy Fund” which is being established to ensure that the City 11 appropriately budgets and tracks the monies necessary to implement the Plan. 12 1. a. The Baseline Budget 13 The baseline budget is the first component of the Financial Model. It represents the City’s 14 projections of revenues and expenses based on prior year trends and current revenue sources, using 15 estimates from the City’s property and sales tax auditor. This forecast also takes into account assumed 16 modest recessions every seven years beginning in calendar year 2017. Further, expenditure projections for 17 the baseline budget are predicated on current budget levels of staffing. In essence, the baseline budget is 18 the City’s “status quo” and projects out assuming little to no change in the City’s financial condition. If 19 the City were to move forward in line with its baseline budget model alone, absent restructuring, the City 20 would not be financially or service solvent. The Financial Model shows that the City will be able to 21 make all contributions to CalPERS during the 20 year period based upon projected CalPERS rates. The 22 forecast takes into consideration anticipated increases in CalPERS rates resulting from both a long-term
23 investment return reduction and recent portfolio performance shortfalls since 2007 discussed in greater 24 detail in Section VII.C. below. 25
26 27 28
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1 2. b. Adjustments to the Baseline Budget Through New Revenues, Service 2 Delivery Efficiencies and Basic Level Service Recovery 3 The second component to the Financial Model is the adjustments to the Baseline Budget resulting 4 from fiscal and service stabilization shown in the Restructuring – New Revenues, Restructuring/Service 5 Delivery, and Basic Level Service Recovery sections of the Financial Model. In the Restructuring – New 6 Revenues section of the Financial Model, the City has identified the projected revenues from the new 7 waste management franchise with Burrtec discussed in Section V.C.5 above, the adjustments to the rates 8 charged to water and sewer utilities discussed in Section V.C.1 above, anticipated increases in revenues 9 from street sweeping parking violations and transient occupancy tax audits, revisions to the City’s master 10 fees and charges, the renewal of Measure Z, proceeds from the disposition of former RDA properties, and 11 proceeds from the integrated waste vehicle sale and CIP. 12 In the Restructuring/Service Delivery section of the Financial Model, the City has identified the 13 economic components of restructuring the delivery of municipal services and other savings through, 14 among other things, annexation of Fire Services, contracts with private entities for fleet maintenance, 15 operation of the Soccer Complex, custodial maintenance, graffiti abatement, business license 16 administration, and modifications to retiree health benefits. 17 In the Basic Level Service Recovery section, the City has projected the funds the City requires for 18 deferred maintenance in buildings and fixtures, parks, public right-of-ways, information systems, fleet 19 replacement and restoration of internal service fund reserves (including worker’s compensation, general 20 liability insurance reserves, and organizational and service improvements). Each of these components 21 reflects aspects of critical City needs that have been deferred in light of the City’s cash flow issues and the 22 filing of its Bankruptcy Case. As discussed in Section V.C.3 above, the City’s information technology 23 and vehicles are far beyond their useful life, and there is a major backlog in infrastructure and public 24 facility maintenance projects. Restoring basic levels of service and infrastructure repair and maintenance 25 is essential to render the City service solvent so that it is capable of providing essential services to its
26 residents. 27 28
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1 3. c. The Debt Adjustment Component 2 In the Restructuring of Secured and Unsecured Obligations section of the Financial Model, the 3 City has projected the savings from the impairment of certain major creditor claims and the 4 implementation of the settlement agreements the City has entered into with its major creditor 5 constituencies. All of these components are critical to the City’s restructuring which the City could not 6 have accomplished without the benefits afforded by Chapter 9. With the restructuring components to the 7 City’s Financial Model, as well as the fiscal and service stabilization components to the Financial Model, 8 the City will become a viable entity and municipal service provider for its residents. 9 4. d. The Bankruptcy Fund 10 A “Bankruptcy Fund" is being established in fiscal year 2015-16 to track costs associated with the
11 Bankruptcy Case, including legal fees, certain settlements, and bankruptcy project managementclaim 12 payments. The Bankruptcy Fund will be used to maintain the separation of resources and costs of 13 bankruptcy activities from other funds so that tracking of bankruptcy expenditures is more transparent.
14 The Bankruptcy Fund iswill be funded primarily funded with monies from the General Fund that 15 the Common Council committed towards bankruptcy costs and settlements. Over, and budgets 16 approximately $33 million over the next five fiscal years, the Bankruptcy Fund will receive and allocate 17 $36.125 million. The Bankruptcy Fund is dedicated to implementing the Plan by allocating budgeted 18 monies in the following fiscal years: 19 Fiscal Year 2015-16 Allocations
20 The Bankruptcy Fund will pay outbudgets approximately $7.3923.5 million towards bankruptcy 21 costs and the certain costs associated with Annexation of Fire Services (such as transition leave for 22 firefighters, debt owed to CIEDB secured by fire stations, and a capital payment, a lease obligation for 23 a fire alerting system and a note secured by the City’s Fire Maintenance facility); 24 Fiscal Year 2016-17 Allocations
25 The Bankruptcy Fund will pay outbudgets approximately $2625 million towards the following 26 anticipated obligations: (1) $415.33 million for bankruptcy litigation and consultants; (2) $14 million for 27 asserted claim settlements; (3) $4.62settlements and general unsecured claims, as well as litigation 28 defense costs and other costs related to creditor claims; (2) $5.93 million towards the settlement with
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1 the SBCPF; (43) $3.1 million towards delinquent property tax obligations for City Hallgovernment 2 buildings including, the Police Station and, the 201 Building and part of the City Hall complex which 3 are secured by City issued bonded debt; and (54) $300,000 towards the settlement with the Fire 4 Management; Unit; and (5) a $400,000 penalty payment to CalPERS. 5 Fiscal Year 2017-18 Allocations
6 The Bankruptcy Fund will pay outbudgets approximately $1.7562.48 million towards the 7 following anticipated obligationobligations: (1) $1.4911.49 million towards the settlement with the 8 SBCPF; and (2) $300,000 towards the settlement with the Fire Management bargaining unit; andUnit; (3) 9 a $400,000 penalty payment to CalPERS; and (4) a $290,000 payment under the PARS Settlement. 10 Fiscal Year 2018-19 through Fiscal Year 2020-21 Allocations
11 The Bankruptcy Fund will pay out approximately $300,000 annually overbudgets approximately 12 $990,000 towards the following anticipated obligations: (1) $300,000 towards the settlement with the 13 Fire Management Unit; (2) a $400,000 penalty payment to CalPERS; and (3) a $290,000 payment 14 under the PARS Settlement. 15 Fiscal Years 2019-20 and 2020-21 Allocations 16 The Bankruptcy Fund budgets approximately $700,000 annually in fiscal years 2018-19 17 through2019-20 and 2020-21 in the total amount of about $900,000 towards anthe following anticipated 18 obligations: (1) $300,000 towards the settlement with the Fire Management bargaining unitUnit; and 19 (2) a $400,000 penalty payment to CalPERS. 20 21 22 23 24 25
26 27 28
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1 2 E. Cramdown 3 The Bankruptcy Code provides that the Bankruptcy Court may confirm a plan of adjustment that is 4 not accepted by all Impaired classes if at least one Impaired Class of claims accepts the Plan and the 5 so-called “cramdown” provisions set forth in sections 1129(b)(1), (b)(2)(A) and (b)(2)(B) are satisfied. 6 The Plan may be confirmed under the “cramdown” provisions if, in addition to satisfying the other 7 requirements of section 943(b), it (i) is “fair and equitable,” and (ii) does not discriminate unfairly with 8 respect to each Class of claims that is impaired under and has not accepted the Plan. 9 The “fair and equitable” standard, also known as the “absolute priority rule,” requires, among 10 other things, that unless a dissenting unsecured Class of claims receives payment in full for its allowed 11 claims, no holder of allowed claims in any Class junior in priority to that Class may receive or retain any 12 property on account of such claims. The “fair and equitable” standard also has been interpreted to 13 prohibit any class senior to a dissenting class from receiving more than 100% of its allowed claims under 14 a plan. The City believes that the Plan satisfies the “fair and equitable” standard because, among other 15 things, no classes junior to the classes of unsecured claims are receiving or retaining any property under 16 the Plan, and no Class of Claims is receiving more than 100%. 17 The requirement that the plan not “discriminate unfairly” means, among other things, that a 18 dissenting Class must be treated substantially equally with respect to other Classes of equal rank. The 19 City believes that the Plan does not unfairly discriminate against any Class that may not accept or consent 20 to the Plan. 21 The City has reserved the right to request the Bankruptcy Court to confirm the Plan by 22 “cramdown” in accordance with sections 1129(b)(1), (b)(2)(a) and (b)(2)(b) of the Bankruptcy Code. The 23 City also has reserved the right to modify the Plan to the extent, if any, that confirmation of the Plan under 24 Bankruptcy Code sections 943 and 1129(b) requires such modifications. 25
26 27 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 126 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be134 construed of 157 to be, the solicitation of votes on the Plan.
1 F. Effective Date 2 1. Conditions to the Occurrence of the Effective Date 3 The Plan will not become effective and operative unless and until the Effective Date occurs. 4 Section XIII.B. of the Plan sets forth certain conditions to the occurrence of the Effective Date. The City 5 may waive in whole or in part the condition regarding agreements and instruments contemplated by, or to 6 be entered into pursuant to, the Plan. Any such waiver of a condition may be effected at any time, without 7 notice or leave or order of the Bankruptcy Court and without any formal action, other than the filing of a 8 notice of such waiver with the Bankruptcy Court. One of the conditions to the occurrence of the Effective 9 Date is that the conditions to the effectiveness of the 1996 Refunding Bonds Amendment and the 1999 10 Refunding Certificates of Participation Amendment have been satisfied or waived. Any waiver of such 11 condition requires the prior written consent of National, the 1996 Refunding Bonds Trustee (which 12 consent shall not be unreasonably withheld), and the 1999 Refunding Certificates of Participation Trustee 13 (which consentconsents shall not be unreasonably withheld). 14 The Effective Date will occur on the first Business Day after which the conditions set forth in 15 Section XIII.B. of the Plan are satisfied or waived. Because the Confirmation Hearing will not commence 16 until [______], the City estimates that the Effective Date will occur in [______] or 17 [______] of 2016. 18 2. Non-Occurrence of Effective Date 19 The Plan provides that, if confirmation occurs but the Effective Date does not occur in a timely 20 manner (unless waived), upon notification submitted by the City to the Bankruptcy Court: (i) the 21 Confirmation Order will be vacated; (ii) no distributions under the Plan will be made; (iii) the City and all 22 holders of Claims will be restored to the status quo as of the day immediately preceding the Confirmation 23 Date as though the Confirmation Date never occurred; and (iv) all of the City’s obligations with respect to 24 the Claims will remain unchanged, and nothing contained herein or in the Plan will be deemed to 25 constitute a waiver or release of any claims by or against the City or any other entity or to prejudice in any
26 manner the rights of the City or any entity in any further proceedings involving the City. The failure of 27 the Effective Date to occur, however, will not affect the validity of any order entered in the Bankruptcy 28 Case other than the Confirmation Order.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 127 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be135 construed of 157 to be, the solicitation of votes on the Plan.
1 G. Effect of Confirmation 2 Section XI of the Plan provides that confirmation of the Plan and the occurrence of the Effective 3 Date will have a number of important and binding effects, some of which are summarized below. Readers 4 are encouraged to review Section XI of the Plan carefully and in its entirety to assess the various 5 consequences of confirmation of the Plan. 6 1. Discharge of the City 7 Pursuant to Bankruptcy Code section 944, upon the Effective Date, the City will be discharged 8 from all debts (as defined in the Bankruptcy Code) of the City and Claims against the City as of the 9 Confirmation Date, including without limitation all Pre-Confirmation Date Claims, other than (i) any debt 10 specifically and expressly excepted from discharge by the Plan or the Confirmation Order, or (ii) any debt 11 owed to an entity that, before the Confirmation Date, had neither notice nor actual knowledge of the 12 Bankruptcy Case. 13 The rights afforded in the Plan and the treatment of holders of Pre-Confirmation Date Claims, be 14 they Claims Impaired or Unimpaired under the Plan, will be in exchange for and in complete satisfaction, 15 discharge, and release of all Claims of any nature whatsoever arising on or before the Confirmation Date, 16 known or unknown, including any interest accrued or expenses incurred thereon from and after the 17 Petition Date, whether against the City or any of its properties, assets, or interests in property. Except as 18 otherwise provided in the Plan, upon the Effective Date all Pre-Confirmation Date Claims will be and will 19 be deemed to be satisfied, discharged, and released in full, be they Impaired or Unimpaired under the 20 Plan. 21 2. Release by Holders of Pre-Confirmation Date Claims 22 Pursuant to Section XI.B. of the Plan, holders of Pre-Confirmation Date Claims provide the 23 following release: 24 “AS OF THE EFFECTIVE DATE, IN CONSIDERATION FOR THE OBLIGATIONS OF THE 25 CITY UNDER THE PLAN, EACH HOLDER OF A PRE-CONFIRMATION DATE CLAIM IS
26 DEEMED TO FOREVER RELEASE, WAIVE AND DISCHARGE ANY AND ALL CLAIMS, 27 ACTIONS, CAUSES OF ACTION, DEBTS, OBLIGATIONS, RIGHTS, SUITS, DAMAGES, 28 ACTIONS, REMEDIES, JUDGMENTS, AND LIABILITIES WHATSOEVER (INCLUDING
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 128 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be136 construed of 157 to be, the solicitation of votes on the Plan.
1 WITHOUT LIMITATION THE AB 506 PROCESS AND THE ELIGIBILITY CONTEST) AGAINST 2 THE CITY AND THE INDEMNIFIED PARTIES, WHETHER KNOWN OR UNKNOWN, FORESEEN 3 OR UNFORESEEN, LIQUIDATED OR UNLIQUIDATED, FIXED OR CONTINGENT, MATURED 4 OR UNMATURED, EXISTING AS OF THE EFFECTIVE DATE OR THEREAFTER ARISING, IN 5 LAW OR AT EQUITY, WHETHER FOR TORT, CONTRACT, OR OTHERWISE, BASED IN WHOLE 6 OR IN PART UPON ANY ACT OR OMISSION, TRANSACTION, EVENT OR OTHER 7 OCCURRENCE OR CIRCUMSTANCES EXISTING OR TAKING PLACE PRIOR TO OR ON THE 8 EFFECTIVE DATE ARISING FROM OR RELATED IN ANY WAY IN WHOLE OR IN PART TO 9 THE CITY, THE INDEMNIFIED PARTIES AND THEIR ASSETS AND PROPERTY, THE 10 BANKRUPTCY CASE, THE DISCLOSURE STATEMENT, THE PLAN OR THE SOLICITATION OF 11 VOTES ON THE PLAN THAT SUCH HOLDER OF A PRE-CONFIRMATION DATE CLAIM 12 WOULD HAVE BEEN LEGALLY ENTITLED TO ASSERT (WHETHER INDIVIDUALLY OR 13 COLLECTIVELY) OR THAT ANY HOLDER OF A CLAIM OR OTHER ENTITY WOULD HAVE 14 BEEN LEGALLY ENTITLED TO ASSERT FOR OR ON BEHALF OF SUCH HOLDER OF A 15 PRE-CONFIRMATION DATE CLAIM (WHETHER DIRECTLY OR DERIVATIVELY); PROVIDED, 16 HOWEVER, THAT THIS SECTION XI.B. SHALL NOT OPERATE TO WAIVE, DISCHARGE OR 17 RELEASE THE RIGHTS OF HOLDERS OF PRE-CONFIRMATION DATE CLAIMS TO ENFORCE 18 THE PLAN AND THE CONTRACTS, INSTRUMENTS, RELEASES, AND OTHER AGREEMENTS 19 OR DOCUMENTS DELIVERED UNDER THE PLAN OR ASSUMED PURSUANT TO THE PLAN 20 OR ASSUMED PURSUANT TO FINAL ORDER OF THE BANKRUPTCY COURT.” 21 3. Injunction 22 Section XI.C. of the Plan provides: 23 “Except as otherwise expressly provided in the Plan, all Entities who have held, hold, or may hold 24 Pre-Confirmation Date Claims will be permanently enjoined from and after the Confirmation Date, with 25 respect to such Pre-Confirmation Date Claims, from: (i) commencing or continuing in any manner,
26 directly or indirectly, any suit, action or other proceeding of any kind against the City or its property or 27 any or all of the Indemnified Parties or any of their property; (ii) enforcing, levying, attaching, collecting, 28 or recovering by any manner or means any judgment, award, decree, or order against the City or its
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 129 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be137 construed of 157 to be, the solicitation of votes on the Plan.
1 property or any or all of the Indemnified Parties or any of their property; (iii) creating, perfecting, or 2 enforcing any lien or encumbrance of any kind against the City or its property or any or all of the 3 Indemnified Parties or any of their property; (iv) asserting any right of setoff, subrogation, or recoupment 4 of any kind against any obligation due to the City or any or all of the Indemnified Parties, except as 5 otherwise permitted by Bankruptcy Code section 553; (v) proceeding in any manner in any place 6 whatsoever that does not conform to or comply with the provisions of the Plan or the settlements provided 7 for in the Plan Documents; and (vi) taking any actions to interfere with implementation or consummation 8 of the Plan.” 9 4. Term of Existing Injunctions and Stays 10 Section XI.D. of the Plan provides: 11 “Unless otherwise provided, all injunctions or stays provided for in the Bankruptcy Case pursuant 12 to Bankruptcy Code sections 105, 362, or 922, or otherwise, and in existence immediately prior to the 13 Confirmation Date, will remain in full force and effect until the Effective Date; and will continue in full 14 force and effect after the Effective Date with respect to the ADR Procedures, determination of the City’s 15 liability (or lack thereof) on any Pre-Confirmation Date Claim and the allowance or disallowance 16 thereof.” 17 5. Exculpation 18 Section XI.E. of the Plan provides: 19 “Each of the following is an Exculpated Party under the Plan: (i) the City and each of the persons 20 (including their staff) acting in the following capacities during the Bankruptcy Case: Mayor, City 21 Attorney, City Manager, Deputy City Manager, member of the Common Council; and any employee of 22 the City that submitted a declaration in support of any pleading filed by the City in the Bankruptcy Case; 23 (ii) any of the City’s financial advisors, attorneys, accountants, investment bankers or advisors, 24 consultants, representatives and other professionals, including but not limited to the following: (A) 25 Management Partners, Inc.; (B) Urban Futures, Inc.; (C) Stradling Yocca Carlson & Rauth, a Professional
26 Corporation; (D) Law Office of Linda L. Daube, A Professional Corporation, and (E) Rust Omni; (iii) 27 U.S. Bank National Association, in its capacities as indenture trustee; (iv) the members of the Retiree 28 Committee, and (v) counsel for the Retiree Committee, Bienert Miller & Katzman, PLC. Except with
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 130 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be138 construed of 157 to be, the solicitation of votes on the Plan.
1 respect to obligations specifically arising pursuant to or preserved in the Plan, no Exculpated Party will 2 have or incur, any liability to any person or Entity for any act taken or omitted to be taken in connection 3 with, relating to or arising out of the City’s restructuring efforts and the Bankruptcy Case, including the 4 authorization given to file the Bankruptcy Case, the formulation, preparation, negotiation, dissemination, 5 consummation, implementation, confirmation or approval (as applicable) of the Plan, the solicitation of 6 votes and acceptances for the Plan, the property to be distributed under the Plan, the settlements 7 implemented under the Plan, the Exhibits, the Disclosure Statement, any contract, instrument, release or 8 other agreement or document provided for or contemplated in connection with the consummation of the 9 transactions set forth in the Plan or the management or operation of the City; provided, however, that 10 nothing in Section XI.E. of the Plan will be deemed to release or exculpate any Exculpated Party for its 11 willful misconduct or gross negligence. Each Exculpated Party will be entitled to reasonably rely upon 12 the advice of counsel and financial advisors with respect to its duties and responsibilities under, or in 13 connection with, the Bankruptcy Case, the administration thereof and the Plan.” 14 6. Comprehensive Settlement of Claims and Controversies 15 Section XI.F. of the Plan provides: 16 “In consideration for the distributions and other benefits provided under this Plan, the provisions 17 of this Plan, including the exculpation and release provisions contained in this Section XI, constitute a 18 good faith compromise and settlement of all Claims, causes of action or controversies relating to the rights 19 that a holder of a Claim may have with respect to any Claim against the City and/or the Indemnified 20 Parties, any distribution to be made pursuant to this Plan on account of any such Claim and any and all 21 Claims or causes of action of any party arising out of or relating to the Eligibility Contest. The entry of 22 the Confirmation Order constitutes the Bankruptcy Court’s approval, as of the Effective Date, of the 23 compromise or settlement of all such Claims or controversies and the Bankruptcy Court’s finding that all 24 such compromises and settlements are in the best interests of the City and the holders of Claims, and are 25 fair, equitable, and reasonable.”
26 7. Injunction Provisions of the Plan 27 In exchange for the distributions under the Plan, the Plan enjoins the prosecution of claims against 28 the ““”Indemnified Parties,” who are defined in the Plan as “the current and former officers and
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 131 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be139 construed of 157 to be, the solicitation of votes on the Plan.
1 employees of the City who are entitled to ”“Indemnification.” Plan, § I.B.72. “Indemnification” is 2 defined as the “rights of indemnity . . . of current and former officers and employees of the City . . . in 3 each case arising out of an act or omission occurring within the scope of such officer’s or employee’s 4 employment as an employee of the City.” Plan, § I.B.71. 5 Section XI.B of the Plan has the effect of relieving employees from personal liability on claims 6 that arose within the scope of their employment. As courts in the Ninth Circuit have recognized, claims 7 against officers and employees acting within the scope of their employment are brought against employees 8 not to recover from the officers and employees (who are often judgment proof or close), but to access a 9 city’s assets via its obligation to indemnify the officers and employees. See e.g. In re City of Stockton, 10 484 B.R. 372, 376 (Bankr. E.D. Cal. 2012) (discussing the “strategy of suing a sovereign by falsely 11 pretending to sue an officer”). While the officer or employee may procedurally be a necessary party for 12 purportedly having committed the alleged harm, the real party in interest expected to satisfy the judgment, 13 if any, is the municipality. The terms of the Plan simply recognize and maintain that status quo, and there 14 is no justifiable reason for the realities of the non-bankruptcy litigation process to be upended as a result 15 of the City’s chapter 9 filing. Under the Plan, the plaintiffs will look to the City to satisfy their judgments, 16 not to the individual officers or employees. Exposing officers and employees to liability for harms 17 committed while at work would exposes officers and employees to often ruinous liability simply for doing 18 their jobs. 19 Courts across the country have recognized that third-party releases are appropriate under certain 20 circumstances. See e.g., Securities and Exchange Commission v. Drexel Burnham Lambert Group, Inc., 21 (In re Drexel Burnham Lambert Group, Inc.), 960 F.2d 285, 293 (2d Cir. 1992); MacArthur Co. v. 22 Johns-Manville Corp., 837 F.2d 89, 93 (2d Cir. 1988); Deutsche Bank AG, London Branch v. Metromedia 23 Fiber Network, Inc. (In re Metromedia Fiber Network, Inc.), 416 F.3d 136 (2d Cir. 2005); ’’Gilman v. 24 Cont’l Airlines (In re Cont’l Airlines), 203 F.3d 203, 213 (3d Cir. 2000); Menard-Sanford v. Mabey (In re 25 A.H. Robins Co.), 880 F.2d 694, 701-02 (4th Cir. 1989); ’Nat’l Heritage Found., Inc. v. Highbourne
26 Found., 760 F.3d 344, 348-50 (4th Cir. 2014); In re Dow Corning Corp., 280 F.3d 648, 657-58 (6th Cir. 27 2002); ’In re Airadign Commc’ns, Inc., 519 F.3d 640, 656 (7th Cir. 2008); ’In re Seaside Eng’g & 28 Surveying, Inc., 780 F.3d 1070, 1078 (11th Cir. 2015). While the formulation may be different from
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 132 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be140 construed of 157 to be, the solicitation of votes on the Plan.
1 circuit to circuit and case to case, fundamentally courts look to circumstances where an identity of interest 2 between the debtor and third-party is so strong that to permit claims against the third-party would 3 significantly undermine the debtor’s rehabilitation. 4 The circumstances of this case amply demonstrate a situation where a limited third party release is 5 appropriate. The City is obligated by statute to indemnify its employees and officers for acts committed 6 within the scope of employment. If the plaintiffs are permitted to pursue claims against the officers and 7 employees, the City will be forced to pay such claims one hundred cents on the dollar, which the City 8 cannot afford to do. The limited third-party injunction and release provisions of Article XI of the Plan are 9 necessary and appropriate to preserve the benefit of the discharge for the City. 10 While a minority of circuit courts, including the Ninth Circuit (see e.g., In re American 11 Hardwoods, Inc., 885 F.2d 621, 626 (9th Cir. 1989) and Underhill v. Royal, 769 F.2d 1426, 1432 (9th Cir. 12 1985)) have expressed reluctance to approve third-party releases and injunctions on the circumstances of 13 the cases then before the courts, such reluctance is not a complete bar here. The holdings in those cases 14 are based upon the courts’ application of Bankruptcy Code Section 524(e), which provides that “discharge 15 of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity 16 for, such debt.” However, pursuant to Bankruptcy Code 901, Section 524(e) does not apply in chapter 9 17 cases. In contrast, Section 922(a) – expanding the scope of the automatic stay to apply to claims against 18 officers and inhabitants of the chapter 9 debtor – shows that the statutory treatment of such claims against 19 third parties is different in chapter 9 than it is in chapter 11. The chapter 11 cases on plan releases of third 20 parties that rely on Section 524(e) as the legal basis for the analysis may not apply in chapter 9 cases. 21 8. Agreements With the U.S. 22 The City has agreed with the U.S. Dept. of Justice that that the Confirmation Order will 23 provide that, notwithstanding any other provision of the Plan or Confirmation Order to the 24 contrary: 25 (a) The City’s obligations pursuant to its Contracts for Loan Guarantee 26 Assistance Under Section 108 of the Housing and Community Development Act of 1974, as 27 amended, 42 U.S.C. § 5308, with the United States Department of Housing and Urban 28 Development shall remain extant and enforceable and not subject to discharge pursuant to
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 133 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be141 construed of 157 to be, the solicitation of votes on the Plan.
1 11 U.S.C. § 944; provided, however, that the City retains all defenses to the enforceability of 2 such obligations under applicable non-bankruptcy law. 3 (b) Nothing in the Plan or Confirmation Order shall adversely affect in any way 4 the rights and remedies of the United States and the State of California under the 5 consolidated actions styled as City of San Bernardino v. United States and State of California, 6 on behalf of Department of Toxic Substances Control v. United States, Civil Action Nos. 7 96-8867 (MRP), 96-5205 (MRP) - Consolidated (C.D. Cal.), including without limitation, the 8 Consent Decree therein and any amendment thereto ("C.D. Cal. Actions"), nor shall 9 anything in the Plan or the Confirmation Order divest or limit the jurisdiction of the United 10 States District Court for the Central District of California over the C.D. Cal. Actions. Upon 11 the Effective Date of the Plan, the C.D. Cal. Actions shall survive the bankruptcy case and 12 may be adjudicated and enforced in the United States District Court for the Central District 13 of California, provided, however, that Bankruptcy Court approval must be obtained for any 14 allowance of an administrative expense. 15 (c) As to the United States, its agencies, departments or agents, nothing in the 16 Plan or Confirmation Order shall discharge, release, or otherwise preclude: (1) any liability 17 of the City to the United States, its agencies, departments or agents arising on or after the 18 Effective Date; (2) any liability to the United States, its agencies, departments or agents that 19 is not a "claim" within the meaning of section 101(5) of the Bankruptcy Code; (3) any valid 20 defense of setoff or recoupment with respect to a Claim of the United States, its agencies, 21 departments or agents; (4) the continued validity of the City's obligations to the United 22 States, its agencies, departments or agents under any grant or cooperative assistance 23 agreement; (5) any liability of any entity under environmental law arising or springing anew 24 after the Effective Date that any entity would be subject to as a post-Effective Date owner or 25 operator of property; or (6) the United States from, subsequent to the Confirmation Date, 26 pursuing any police or regulatory action against the City. 27 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 134 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be142 construed of 157 to be, the solicitation of votes on the Plan.
1 VII. CERTAIN RISK FACTORS TO BE CONSIDERED 2 Confirmation of the Plan and the occurrence of the Effective Date are not without risk to the City 3 and its creditors in that the sources of revenue projected in the future years covering the City’s Financial 4 Model could diminish sharply. The reality is that there are economic cycles over time that can negatively 5 affect revenue growth, but the timing of these cycles is very difficult to predict. Thus, while the City 6 devoted considerable time and effort in formulating the Financial Model that forms the basis of the City’s 7 Plan, there can be no guaranty that the predicted results will be achieved. For example, few California 8 cities, if any, could have predicted the length and severity of the recent global financial crisis, its 9 devastating effect upon the housing market in San Bernardino and the Inland Empire generally, and the 10 reduction in sales tax revenues to state and local governments. Moreover, while the General Fund 11 expenditures projected in the Financial Model are the City’s best and most reasoned estimate of costs, 12 factors such as higher inflation, state or federal law changes that increase of shift costs to local 13 government, or a natural or human-caused disaster could and likely would cause costs to rise. These risk 14 factors should not be regarded as constituting the only risks involved in connection with the Plan and its 15 implementation. More specific risks to the Financial Model are described below. 16 A. Failure of Voters to Reauthorize Measure Z in 2021 17 Measure Z established a 0.25 percent district tax for 15 years in 2006. The substantial revenue 18 from this tax will vanish unless voters reauthorize the sales tax in an election in 2021. The City projects 19 that it will lose an estimated $134.4 million (an average of $11.2 million each year) from 2022 through 20 2034 if the tax is not reauthorized. If Measure Z is not reauthorized, the City’s ability to make certain 21 payments under the City’s Plan may be compromised. 22 B. Failure of Annexation into the County Fire District 23 If Annexation is not implemented, the SBCPF Settlement Agreement (which is conditioned upon 24 Annexation) will be nullified and the Plan, in its current state, could not be implemented. If the SBCPF
25 Settlement Agreement fails, nearly nine years of legal disputes between the City and the SBCPF are 26 revived and the SBCPF will continue the litigation unabated. In addition, the City would reap none of the 27 critical economic benefits of Annexation and would be required to fund its own Fire Department, thereby 28 imposing an additional burden on the General Fund of between $7 and $12 million annually.
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 135 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be143 construed of 157 to be, the solicitation of votes on the Plan.
1 C. Future Increases in CalPERS Rates 2 Based on independent forecasts provided CalPERS and the City’s actuary, Bartel & Associates, it 3 is projected that over the next eighteen years the cumulative retirement contributions from the General 4 Fund will exceed $643.9 million with projected annual contributions starting at roughly $19 million in 5 2016-2017 increasing to a peak of roughly $44 million by 2030-2031. Both independent forecasts take 6 into account $130.8 million in legacy costs associated with former fire employees transitioning to the
7 County Fire District, as well as recent and shortfalls in the returns on CalPERS rates of return for its’ 8 investment portfolio of 2.4% in 2015 (which is 5.1% below the assumed actuarial interest rate on
9 CalPERS portfolio investments)since 2007 to the present. Additionally, both forecasts assumed full 10 implementation of the recent CalPERS Board directive to lower the current actuarially assumed 11 investment rates of return down from 7.5% to 6.5% over the next 20 years. As a result of these two recent
12 changes to the City’s forecast of future pension costs, CalPERS pension cost rose by $78.6 million in the 13 City’s 20-Year Financial Model since the City’s original Disclosure Statement was filed with the 14 Bankruptcy Court and provided to the City’s creditors. 15 In general, the increasing costs of pension benefits are attributable to an increase in the pension 16 plans’ unfunded liabilities. Because unfunded liabilities must be “amortized” over the remaining life of a 17 retirement plan, the amount that must be contributed to pay off that liability must also increase. There are 18 three major causes of this increase in annual retirement expense: 19 a. CalPERS’ recent investment losses which led to a failure to meet earnings expectations on 20 plan assets (discussed above); 21 b. Actuarial changes in actuarial assumptions based on experience, including increased 22 longevity and adjusting down the assumed investment rate of return down from 7.5% to 23 6.5%; and 24 c. An increase in the number of retirees and the size of their pensions. 25 These factors have combined to take the City’s pension plans from being at or above full funding levels
26 during the last decade to being underfunded now. 27 One of the variables responsible for the increase in annual contributions is the failure of the 28 pension plans to achieve the annual earning assumptions on which they have been premised. Nationally,
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 136 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be144 construed of 157 to be, the solicitation of votes on the Plan.
1 the trend for earnings assumptions has been downward reflecting: (a) the lower yields on bonds 2 comprising 30-40% of pension portfolios, and (b) reduced expectations for equity (stock) investments 3 given the global overhang of sovereign and consumer debt. Until 2002, CalPERS assumed earnings of 4 8.25% when it began phasing in a reduction of the earnings assumption to 7.75%. From 2000-2002 to 5 2008-2009, much of the new unfunded pension liabilities were caused by investment losses and 6 adjustments. As anticipated by the City, the CalPERS Board has taken action to reduce the actuarially 7 assumed investment rates of return below its current level of 7.5% to 6.5%, the Unfunded Actuarial 8 Accrued Liability (UAAL) for the plans is expected to increase and as such the difference is reflected in 9 increased annual contributions. 10 Another factor in the increase in pension costs is the rising number of retirees relative to active 11 employees. In San Bernardino, as the number of active employees as a percentage of overall pension plan 12 membership has decreased, the payments to retirees out of the plans have exceeded payments by active 13 employees into the pension plans. The increasing ratio creates a risk of even higher future contribution 14 rates, which have been factored into the City’s forecast. This means that the annual cost to pay down the 15 unfunded liability is spread across fewer active employees 16 Despite these increases, the Financial Model demonstrates the ability to remain cash, budget and 17 service solvent, as basic operational services are funded, roughly $10 million annually is available to fund 18 essential capital investments, including increased public safety services and infrastructure investments, 19 and reserves are maintained at the Government Finance Officers Association (GFOA) recommended level 20 of 15% of annual expenses. 21 D. Financial Projections 22 There can be no assurances that the City’s finances in future years will be consistent with the 23 financial projections set forth in the Financial Model, and creditors should review such financial 24 projections with this caveat in mind.
25 VIII. INCOME TAX CONSEQUENCES 26 The implementation of the Plan may have federal, state, local and foreign tax consequences to the 27 City and its creditors. No tax opinion has been sought or will be obtained with respect to any tax 28 consequences of the Plan. However, because the City is a municipal corporation duly organized and
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 137 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be145 construed of 157 to be, the solicitation of votes on the Plan.
1 existing under its Charter and the California Constitution, and is treated as a political subdivision of the 2 State of California for federal income tax purposes, the City believes that it will not be subject to any 3 federal income tax liability from implementation of the Plan. The City anticipates that, in conformity with 4 past practice, it will not file any federal corporate income tax returns with respect to the periods in which 5 the Plan is implemented nor report any income for federal income tax purposes as a result of 6 implementing the Plan. The City may file certain tax documents associated with the restructuring of some 7 of its tax-exempt bonds affected by the Plan, which documents may be required in order to maintain the 8 exclusion from gross income of interest on the bonds for purposes of federal income taxes applicable to 9 the holders thereof. The City may update this discussion and analysis of tax consequences based on 10 developments and/or settlements occurring after the filing of this Disclosure Statement. 11 Because individual circumstances may differ, and the income tax consequences of a Bankruptcy 12 Case are complex and uncertain, this summary does not address the income tax consequences that may be 13 relevant to the creditors of the City as a result of the Plan. Accordingly, creditors should consult with 14 their own tax advisors regarding the income tax consequences of the Plan to them, including the effect, if 15 any, the Plan may have on prior outstanding obligations the interest components of which the creditors 16 were treating as excludable from gross income for income tax purposes.
17 To ensure compliance with requirements imposed by the Internal Revenue Service, you are 18 hereby notified that any discussion of tax matters contained herein (including any attachments) is 19 not intended or written to be used by any taxpayer, and cannot be used by any taxpayer, for the 20 purpose of avoiding tax-related penalties that otherwise may be imposed under the Internal 21 Revenue Code on the taxpayer. Such discussion of tax matters was written in connection with the 22 solicitation of votes in favor of the Plan. Creditors should seek tax advice regarding the tax 23 consequences to them of the Plan based on their particular circumstances from an independent tax 24 advisor. 25 IX. RECOMMENDATION 26 The City urges all creditors that received Ballots to vote to accept the Plan by so indicating 27 on their ballots and returning them as specified in this Disclosure Statement and on their ballots.
28 \ \ \
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 138 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be146 construed of 157 to be, the solicitation of votes on the Plan.
1 \ \ \ 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
26 27 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 139 Case 6:12-bk-28006-MJThis Disclosure Statement Doc has1837 not been Filed approved 05/27/16 by the Bank ruptcy Entered Court. Therefore, 05/27/16 the distribution 21:36:07 of the Desc Disclosure Statement and PlanMain at this Document time is not, and should Page not be147 construed of 157 to be, the solicitation of votes on the Plan.
1 DATED: March 30,May 27, 2016 CITY OF SAN BERNARDINO, CALIFORNIA 2 3 By: ______/s/ 4 Mark Scott 5 Mark Scott City Manager 6
7 Submitted By: 8 STRADLING YOCCA CARLSON & 9 RAUTH, P.C. 10 By: /s/ Paul R. Glassman 11 Paul R. Glassman 12 Fred Neufeld James O. Thoma 13 Marianne S. Mortimer Kathleen D. DeVaney 14 Attorneys for the City of San Bernardino 15 16 17 18 19 20 21 22 23 24 25
26 27 28
SECONDTHIRD AMENDED DISCLOSURE STATEMENT FOR PLAN FOR THE ADJUSTMENT OF DEBTS 140 Case 6:12-bk-28006-MJ Doc 1837 Filed 05/27/16 Entered 05/27/16 21:36:07 Desc Main Document Page 148 of 157
Document comparison by Workshare Compare on Friday, May 27, 2016 8:36:39 PM Input: Document 1 ID PowerDocs://DOCSSM/3025067/1 Description DOCSSM-#3025067-v1-SB_--_3d_amended_DS_ Document 2 ID PowerDocs://DOCSSM/3025067/16 Description DOCSSM-#3025067-v16-SB_--_3d_amended_DS_ Rendering set SYCR 1
Legend: Insertion Deletion Moved from Moved to Style change Format change Moved deletion Inserted cell Deleted cell Moved cell Split/Merged cell Padding cell
Statistics: Count Insertions 423 Deletions 382 Moved from 9 Moved to 9 Style change 0 Format changed 0 Total changes 823 Case 6:12-bk-28006-MJ Doc 1837 Filed 05/27/16 Entered 05/27/16 21:36:07 Desc Main Document Page 149 of 157
PROOF OF SERVICE OF DOCUMENT
I am over the age of 18 and not a party to this bankruptcy case or adversary proceeding. My business address is:
100 Wilshire Blvd., 4th Floor, Santa Monica, CA 90401.
A true and correct copy of the foregoing document entitled CITY’S SUBMISSION OF REDLINED COMPARISON OF ITS THIRD AMENDED DISCLOSURE STATEMENT OVER THE SECOND AMENDED DISCLOSURE STATEMENT [DOCKET NO. 1774] will be served or was served (a) on the judge in chambers in the form and manner required by LBR 5005-2(d); and (b) in the manner stated below:
1. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF): Pursuant to controlling General Orders and LBR, the foregoing document will be served by the court via NEF and hyperlink to the document. On May 27, 2016, I checked the CM/ECF docket for this bankruptcy case or adversary proceeding and determined that the following persons are on the Electronic Mail Notice List to receive NEF transmission at the email addresses stated below:
The United States trustee will be served electronically by the court to: United States Trustee (RS) [email protected]
ATTORNEYS FOR DEBTOR Paul R. Glassman [email protected] Fred Neufeld [email protected] Laura L. Buchanan [email protected]
ATTORNEY FOR OBJECTING/RESPONDING PARTY JAVIER BANUELOS Richard P Herman [email protected]
ATTORNEYS FOR OBJECTING/RESPONDING PARTIES MICHAEL WADE, MICHAEL ANTHONY REY, TERREL MARKHAM, ET AL., ATTORNWY FO J.A. ET AL., CEDRIC MAY SR., ET AL., SHERYL JACKSON Dale K Galipo [email protected], [email protected];[email protected];[email protected] Lazaro E Fernandez [email protected], [email protected];[email protected];[email protected]
ATTORNEYS FOR OBJECTING/RESPONDING PARTY SAN BERNARDINO CITY PROFESSIONAL FIREFIGHTERS LOCAL 891 David M Goodrich [email protected], [email protected], [email protected], [email protected]
ATTORNEYS FOR OBJECTING/RESPONDING PARTY AMBAC ASSURANCE COMPANY Delilah Vinzon [email protected]
ATTORNEYS FOR OBJECTING/RESPONDING PARTY ERSTE EUROPAISCHE PFANDBRIEF- UND KOMMUNALKREDITBANK AKTIENGESELLSCHAFT IN LUXEMBURG S.A. Vincent J Marriott [email protected], [email protected] Christopher Celentino [email protected], [email protected]
ATTORNEYS FOR OBJECTING/RESPONDING PARTY BIG INDEPENDENT CITIES EXCESS POOL JOINT POWERS AUTHORITY ("BICEP") Franklin C Adams [email protected], [email protected];[email protected]; Cathy Ta [email protected], [email protected];[email protected]
ATTORNEYS FOR OBJECTING/RESPONDING PARTY OFFICIAL COMMITTEE OF RETIRED EMPLOYEES Steven J Katzman [email protected], [email protected] Anthony Bisconti [email protected], [email protected] Anne A Uyeda [email protected]
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.
June 2012 F 9013-3.1.PROOF.SERVICE DOCSSM/3026732v1/200430-0003 Case 6:12-bk-28006-MJ Doc 1837 Filed 05/27/16 Entered 05/27/16 21:36:07 Desc Main Document Page 150 of 157
ATTORNEYS FOR OBJECTING/RESPONDING PARTY CMB INFRASTRUCTURE INVESTMENT GROUP III, LP, CMB INFRASTRUCTURE INVESTMENT GROUP V, LP AND CMB INFRASTRUCTURE INVESTMENT GROUP VI-C, LP Carol Chow [email protected]
Franklin C Adams on behalf of Creditor San Bernardino Associated Governments [email protected], [email protected];[email protected]
Franklin C Adams on behalf of Creditor San Bernardino Local Agency Formation Commission [email protected], [email protected];[email protected];
Franklin C Adams on behalf of Big Independent Cities Excess Pool Joint Powers Authority ("BICEP") [email protected], [email protected];[email protected];
Andrew K Alper on behalf of Interested Party Courtesy NEF [email protected], [email protected];[email protected]
Thomas V Askounis on behalf of Interested Party Courtesy NEF [email protected]
Marjorie Barrios on behalf of Raymond Newberry, Patricia Mendoza, Maria Aboytia, Juana Pulido, Jesus Pulido, Jonathan Pulido, Richard Gonzalez Lozada, Melinda McNeal, Bertha Lozada, Mildred Lytwynec, Nicholas Lytwynec, Gloria Basua, and Others Similarly Situated [email protected], [email protected]
Marjorie Barrios on behalf of The Estate of Fernando Melgoza [email protected], [email protected]
Julie A Belezzuoli on behalf of Defendant California Department of Finance [email protected]
Julie A Belezzuoli on behalf of Defendant Office of State Controller, State of California [email protected]
Julie A Belezzuoli on behalf of Defendant Ana J Matosantos [email protected]
Julie A Belezzuoli on behalf of Defendant John Chiang [email protected]
Anthony Bisconti on behalf of Creditor Certain Retired Employees of the City of San Bernardino [email protected], [email protected]
Jeffrey E Bjork on behalf of Interested Party Courtesy NEF [email protected]
Michael D Boutell on behalf of Creditor Comerica Bank [email protected]
J Scott Bovitz on behalf of Creditor U.S. TelePacific Corp. [email protected]
John A Boyd on behalf of Interested Party Thompson & Colegate LLP [email protected]
Jeffrey W Broker on behalf of Creditor The Glen Aire Mobilehome Park Corporation [email protected]
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.
June 2012 F 9013-3.1.PROOF.SERVICE DOCSSM/3026732v1/200430-0003 Case 6:12-bk-28006-MJ Doc 1837 Filed 05/27/16 Entered 05/27/16 21:36:07 Desc Main Document Page 151 of 157
Laura L Buchanan on behalf of Debtor City of San Bernardino, California [email protected]
Michael J Bujold on behalf of U.S. Trustee United States Trustee (RS) [email protected]
Christopher Celentino on behalf of Party Erste Europaische Pfandbrief- und Kommunalkreditbank Aktiengesellschaft in Luxemburg S.A. [email protected], [email protected]
Lisa W Chao on behalf of California Infrastructure and Economic Development Bank [email protected]
Shirley Cho on behalf of Interested Party National Public Finance Guarantee Corp. [email protected]
Carol Chow on behalf of Interested Parties CMB INFRASTRUCTURE INVESTMENT GROUP III, LP, CMB INFRASTRUCTURE INVESTMENT GROUP V, LP AND CMB INFRASTRUCTURE INVESTMENT GROUP VI-C, LP [email protected]
Alicia Clough on behalf of Defendant California Department of Finance [email protected], [email protected];[email protected];[email protected]
Alicia Clough on behalf of Defendant Office of State Controller, State of California [email protected], [email protected];[email protected];[email protected]
Alicia Clough on behalf of Defendant State of California [email protected], [email protected];[email protected];[email protected]
Alicia Clough on behalf of Defendant Ana J Matosantos [email protected], [email protected];[email protected];[email protected]
Alicia Clough on behalf of Defendant John Chiang [email protected], [email protected];[email protected];[email protected]
Marc S Cohen on behalf of Defendant California Department of Finance [email protected], [email protected];[email protected];[email protected]
Marc S Cohen on behalf of Defendant Office of State Controller, State of California [email protected], [email protected];[email protected];[email protected]
Marc S Cohen on behalf of Defendant State of California [email protected], [email protected];[email protected];[email protected]
Marc S Cohen on behalf of Defendant Ana J Matosantos [email protected], [email protected];[email protected];[email protected]
Marc S Cohen on behalf of Defendant John Chiang [email protected], [email protected];[email protected];[email protected]
Christopher J Cox on behalf of Interested Party National Public Finance Guarantee Corp. [email protected], [email protected]
Christina M Craige on behalf of Interested Party Courtesy NEF [email protected]
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.
June 2012 F 9013-3.1.PROOF.SERVICE DOCSSM/3026732v1/200430-0003 Case 6:12-bk-28006-MJ Doc 1837 Filed 05/27/16 Entered 05/27/16 21:36:07 Desc Main Document Page 152 of 157
Alex Darcy on behalf of Creditor Marquette Bank [email protected], [email protected]
Susan S Davis on behalf of Interested Party Courtesy NEF [email protected]
Robert H Dewberry on behalf of Creditor Allison Mechanical, Inc. [email protected]
Donn A Dimichele on behalf of Debtor City of San Bernardino [email protected], [email protected]
Todd J Dressel on behalf of Creditor Pinnacle Public Finance, Inc. [email protected], [email protected]
Warren M Ellis on behalf of Claimant Jesus Castaneda [email protected], [email protected]
Scott Ewing on behalf of Interested Party Rust Consulting/Omni Bankruptcy [email protected], [email protected];[email protected]
John A Farmer on behalf of Creditor County of San Bernardino, California [email protected]
John C Feely on behalf of Claimant Broadway Capital LLC [email protected], [email protected]
Lazaro E Fernandez on behalf of Creditor Lori Tillery, Michael Wade, Michael Anthony Rey, Terrel Markham, et al., Attornwy fo J.A. et al., Cedric may Sr., et al., Sheryl Jackson [email protected], [email protected];[email protected];[email protected]
M Douglas Flahaut on behalf of Interested Party Wells Fargo Bank, N.A. [email protected]
Dale K Galipo on behalf of Attorney Dale K Galipo [email protected], [email protected];[email protected];[email protected]
Dale K Galipo on behalf of Michael Wade, Michael Anthony Rey, Terrel Markham, et al., Attornwy fo J.A. et al., Cedric may Sr., et al., Sheryl Jackson [email protected], [email protected];[email protected];[email protected]
Victoria C Geary on behalf of Defendant California State Board Of Equalization [email protected]
Victoria C Geary on behalf of Defendant Cynthia Bridges [email protected]
Paul R. Glassman on behalf of Debtor City of San Bernardino, California [email protected]
Paul R. Glassman on behalf of Plaintiff City of San Bernardino, California [email protected]
Richard H Golubow on behalf of Glen Aire Mobilehome Park Corporation, Pacific Palms Mobilehome Park Corporation, Friendly Village Mobilehome Park Corporation, Orangewood Mobilehome Park Corporation and Affordable Community Living Corporation fka California Mobilehome Park Corporation fka San Bernardino Mobilehome Park Corporation
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.
June 2012 F 9013-3.1.PROOF.SERVICE DOCSSM/3026732v1/200430-0003 Case 6:12-bk-28006-MJ Doc 1837 Filed 05/27/16 Entered 05/27/16 21:36:07 Desc Main Document Page 153 of 157
[email protected], [email protected];[email protected]; [email protected]
David M Goodrich on behalf of Creditor San Bernardino City Professional Firefighters Local 891 [email protected], [email protected], [email protected], [email protected]
Morton J Grabel on behalf of Claimant Lorrie Pauly [email protected], [email protected]
Christian Graham on behalf of Creditor Miramontes Const. Co., Inc. [email protected]
Everett L Green on behalf of U.S. Trustee United States Trustee (RS) [email protected]
Asa S Hami on behalf of Creditor San Bernardino City Professional Firefighters Local 891 [email protected], [email protected];[email protected];[email protected]
James A Hayes on behalf of Interested Party Courtesy NEF [email protected]
Eric M Heller on behalf of Interested Party Internal Revenue Service [email protected]
Richard P Herman on behalf of Creditor Javier Banuelos [email protected]
Jeffery D Hermann on behalf of Creditor and Defendant County of San Bernardino, California [email protected]
Whitman L Holt on behalf of Interested Party Courtesy NEF [email protected]
Michelle C Hribar on behalf of Interested Party San Bernardino Public Employees Association [email protected], [email protected]
Steven J Katzman on behalf of Creditor Certain Retired Employees of the City of San Bernardino [email protected], [email protected]
Steven J Katzman on behalf of Official Committee Of Retired Employees [email protected], [email protected]
Jane Kespradit on behalf of Interested Party Courtesy NEF [email protected], [email protected]
Mette H Kurth on behalf of Interested Party Courtesy NEF [email protected];[email protected]
Sandra W Lavigna on behalf of Interested Party U. S. Securities and Exchange Commission [email protected]
Michael B Lubic on behalf of Creditor California Public Employees' Retirement System [email protected], [email protected]
Michael B Lubic on behalf of Interested Party California Public Employees' Retirement System [email protected], [email protected]
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.
June 2012 F 9013-3.1.PROOF.SERVICE DOCSSM/3026732v1/200430-0003 Case 6:12-bk-28006-MJ Doc 1837 Filed 05/27/16 Entered 05/27/16 21:36:07 Desc Main Document Page 154 of 157
Michael C Maddux on behalf of Creditor Asinia Johnson [email protected], [email protected]
Vincent J Marriott on behalf of Erste Europäische Pfandbriefund Kommunalkreditbank AG in Luxemburg [email protected]
Vincent J Marriott on behalf of Erste Europäische Pfandbriefund Kommunalkreditbank AG in Luxemburg [email protected], [email protected]
David J McCarty on behalf of Interested Party David J. McCarty [email protected], [email protected]
Reed M Mercado on behalf of Interested Party M. Reed Mercado [email protected]
Dawn A Messick on behalf of Interested Party Courtesy NEF [email protected], [email protected]
Fred Neufeld on behalf of Debtor City of San Bernardino, California [email protected]
Aron M Oliner on behalf of Interested Party San Bernardino Police Officers Association [email protected]
Scott H Olson on behalf of Creditor Kohl's Department Stores, Inc. [email protected], [email protected],[email protected], [email protected]
Allan S Ono on behalf of Interested Party Courtesy NEF [email protected], [email protected]
James F Penman [former City Attorney of the City of San Bernardino]
Mark D Potter on behalf of Creditor Creditor Timothy Crowley [email protected], [email protected];[email protected]
Dean G Rallis, Jr on behalf of Interested Party Courtesy NEF [email protected];[email protected]; [email protected];[email protected]
Manoj D Ramia on behalf of Creditor California Public Employees' Retirement System [email protected], [email protected]
Jason E Rios on behalf of Creditor California Public Employees' Retirement System [email protected], [email protected]
Esperanza Rojo on behalf of Interested Party Rust Consulting/Omni Bankruptcy [email protected], [email protected]
Kenneth N Russak on behalf of Interested Party Courtesy NEF [email protected], [email protected];[email protected]
Vicki I Sarmiento on behalf of Claimants X.J.G., as minor by and through guardian ad litem Angelina Saenz, C.A. as minor Gonzalez by and through guardian ad litem Rosalsela Avalos, Brunilda Gonzalez, Angelina Cesar, Zochilt Gutierrez, Sasha Gonzalez [email protected], [email protected]
Mark C Schnitzer on behalf of Attorney Mark C. Schnitzer [email protected], [email protected]
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.
June 2012 F 9013-3.1.PROOF.SERVICE DOCSSM/3026732v1/200430-0003 Case 6:12-bk-28006-MJ Doc 1837 Filed 05/27/16 Entered 05/27/16 21:36:07 Desc Main Document Page 155 of 157
John R Setlich on behalf of Claimant Francisca Zina Gomez John R Setlich [email protected]
Diane S Shaw on behalf of Interested Party Courtesy NEF [email protected]
Ariella T Simonds on behalf of Interested Party Courtesy NEF [email protected]
Jason D Strabo on behalf of Creditor U.S. Bank National Association, not individually, but as Indenture Trustee [email protected], [email protected]
Cathy Ta on behalf of Big Independent Cities Excess Pool Joint Powers Authority ("BICEP") [email protected], [email protected];[email protected]
Mohammad Tehrani on behalf of U.S. Trustee United States Trustee (RS) [email protected]
Sheila Totorp on behalf of Creditor Landmark American Insurance Company [email protected], [email protected]
Benjamin R Trachtman on behalf of Interested Party Courtesy NEF [email protected], [email protected]
Matthew J Troy on behalf of Creditor United States of America [email protected]
United States Trustee (RS) [email protected]
Anne A Uyeda on behalf of Interested Party Courtesy NEF [email protected]
Annie Verdries on behalf of Interested Party Courtesy NEF [email protected], [email protected]
Delilah Vinzon on behalf of Interested Party Ambac Assurance Company [email protected]
Brian D Wesley on behalf of Interested Party Courtesy NEF [email protected]
Arnold H Wuhrman on behalf of Creditor Serenity Legal Services, P.C. [email protected]
Clarisse Young on behalf of Interested Party Courtesy NEF [email protected], [email protected] Service information continued on attached page
2. SERVED BY UNITED STATES MAIL: On May 27, 2016, I served [or will serve] the following persons and/or entities at the last known addresses in this bankruptcy case or adversary proceeding by placing a true and correct copy thereof in a sealed envelope in the United States mail, first class, postage prepaid, and addressed as follows. Listing the judge here constitutes a declaration that mailing to the judge will be completed no later than 24 hours after the document is filed.
Service information continued on attached page
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.
June 2012 F 9013-3.1.PROOF.SERVICE DOCSSM/3026732v1/200430-0003 Case 6:12-bk-28006-MJ Doc 1837 Filed 05/27/16 Entered 05/27/16 21:36:07 Desc Main Document Page 156 of 157
3. SERVED BY PERSONAL DELIVERY, OVERNIGHT MAIL, FACSIMILE TRANSMISSION OR EMAIL (state method for each person or entity served): Pursuant to F.R.Civ.P. 5 and/or controlling LBR, on May 27, 2016, I served the following persons and/or entities by personal delivery, overnight mail service, or (for those who consented in writing to such service method), by facsimile transmission and/or email as follows. Listing the judge here constitutes a declaration that personal delivery on, or overnight mail to, the judge will be completed no later than 24 hours after the document is filed.
PRESIDING JUDGE’S COPY Honorable Meredith A. Jury (Overnight Delivery Service) U.S. Bankruptcy Court 3420 Twelfth Street, Suite 325 Riverside, CA 92501-3819 Via Federal Express Delivery Tracking number: 7763 9743 3979
UNITED STATES TRUSTEE Office of the United States Trustee (Overnight Delivery Service) 3801 University Avenue, Suite 720 Riverside, CA 92501 Via Federal Express Delivery Tracking number: 7763 9743 6717
ATTORNEYS FOR OBJECTING/RESPONDING PARTY ALBERT HAMILTON Thomas E. Rubbert (Overnight Delivery Service) The Law Offices of Thomas E. Rubbert 790 E Colorado Blvd Fl 9 Pasadena, CA 91101-2193 Via Federal Express Delivery Tracking number: 7763 9743 7735
TOMMIE BAKER III FOR OBJECTING/RESPONDING PARTY KRISTOPHER SHERIDAN Tommie Baker III for Kristopher Sheridan (Overnight Delivery Service) 900 Quebec Ave Corcoran, CA 93212 Number T30691 Housing ASU 160 Via Federal Express Delivery Tracking number: 7763 9744 8240
CREDITOR TIM BURGESS Tim Burgess (Overnight Delivery Service) 1625 Iowa Avenue Riverside, CA 92507 Via Federal Express Delivery Tracking number: 7763 9744 0124
ATTORNEYS FOR OBJECTING/RESPONDING PARTY MIRAMONTES CONSTRUCTION COMPANY, INC. (Via Email) LAW OFFICES OF DAVID L. BRAULT David L. Brault, Esq. GOE & FORSYTHE, LLP Robert P. Goe, Esq. Donald W. Reid, Esq. [email protected]; [email protected]; [email protected]
ATTORNEYS FOR OBJECTING/RESPONDING PARTY MELISSA KELLY (Via Email) David W. Allor, Esq. Law Office of David W. Allor [email protected]
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.
June 2012 F 9013-3.1.PROOF.SERVICE DOCSSM/3026732v1/200430-0003 Case 6:12-bk-28006-MJ Doc 1837 Filed 05/27/16 Entered 05/27/16 21:36:07 Desc Main Document Page 157 of 157
ATTORNEYS FOR UNITED PACIFIC RAILROAD COMPANY (Via Email) Mary Ann Kilgore (Via Email) [email protected] Jennie L. Anderson [email protected]
ATTORNEYS FOR SOUTH COAST AIR QUALITY MANAGEMENT DISTRICT (Via Email) Gina Triviso South Coast Air Quality Management District Office of the General Counsel 21865 Copley Drive, Diamond Bar, CA 91765 [email protected] Service information continued on attached page I declare under penalty of perjury under the laws of the United States that the foregoing is true and correct.
May 27, 2016 Christine Pesis /s/ Christine Pesis Date Printed Name Signature
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.
June 2012 F 9013-3.1.PROOF.SERVICE DOCSSM/3026732v1/200430-0003