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HomeMy WebLinkAbout2001.0215.TCREM.Minutes TOWN OF FOUNTAIN HILLS
MINUTES OF THE REGULAR AND EXECUTIVE SESSION OF THE
FOUNTAIN HILLS TOWN COUNCIL
February 15,2001
Mayor Morgan called the regular session of the Town Council to order at 5:30 p.m.
Vice Mayor Wyman MOVED that the Council convene the executive session and Councilman McNeill
SECONDED the motion, which carried unanimously.
AGENDA ITEM#1 - PURSUANT TO A.R.S. §38-431.03.A.4 AND A.R.S. 38-431.03.A.7, VOTE TO GO
INTO EXECUTIVE SESSION FOR: DISCUSSION OR CONSULTATION WITH THE ATTORNEYS
OF THE PUBLIC BODY IN ORDER TO CONSIDER ITS POSITION AND INSTRUCT ITS
ATTORNEYS REGARDING THE PUBLIC BODY'S POSITION IN PENDING OR CONTEMPLATED
LITIGATION OR IN SETTLEMENT DISCUSSIONS CONDUCTED IN ORDER TO AVOID OR
RESOLVE LITIGATION; SPECIFICALLY TOWN OF FOUNTAIN HILLS V. MCO PROPERTIES
(EMINENT DOMAIN); MCO PROPERTIES V. TOWN OF FOUNTAIN HILLS (LITIGATION
REGARDING THE SUBDIVISION ORDINANCE); AND CONTEMPLATED LITIGATION FOR
RECOVERY OF INVESTMENT FUNDS; AND FOR DISCUSSIONS OR CONSULTATIONS WITH
DESIGNATED REPRESENTATIVES OF THE PUBLIC BODY IN ORDER TO CONSIDER ITS
POSITION AND INSTRUCT ITS REPRESENTATIVES REGARDING NEGOTIATIONS FOR THE
LEASE OF REAL PROPERTY--CURRENT TOWN HALL COMPLEX,RESPECTIVELY.
Mayor Morgan recessed the executive session of the Town Council at 6:25 p.m. and convened the regular session
of the Town Council at 6:30 p.m.
AGENDA ITEM#2- RETURN TO REGULAR SESSION
Following the pledge to the flag and the invocation by Councilwoman Ralphe, the roll call was taken.
ROLL CALL - Present for roll call were the following members of the Fountain Hills Town Council: Mayor
Sharon Morgan, Vice Mayor John Wyman, and Councilmembers Leesa Fraverd, Sharon Hutcheson, John
McNeill,John Kavanagh, and Susan Ralphe. Also present were Town Manager Paul Nordin, Town Attorney Bill
Farrell,Interim Town Engineer Tom Ward,Director of Administration Cassie Hansen,and Director of Community
Development Jeff Valder.
Mayor Morgan announced that agenda item #7 had been removed from the consent agenda at the request of
Councilwoman Fraverd. She then proceeded to read the remaining items.
AGENDA ITEM#1 - CONSIDERATION OF APPROVING THE MEETING MINUTES OF
FEBRUARY 1,2001.
AGENDA ITEM#2- CONSIDERATION OF RESOLUTION 2001-09 ABANDONING WHATEVER
RIGHT, TITLE, OR INTEREST THE TOWN HAS IN CERTAIN PUBLIC UTILITY AND
DRAINAGE EASEMENTS LOCATED ALONG THE SOUTHERLY AND SOUTHEASTERLY
PROPERTY LINES OF PLAT 206, BLOCK 3, LOT 7 (12217 N. LA MONTANA DRIVE) AS
RECORDED IN BOOK 147 OF MAPS, PAGE 2 RECORDS OF MARICOPA COUNTY, ARIZONA.
(ROBERT L.SPECKMAN) EA01-01
AGENDA ITEM#3- CONSIDERATION OF RESOLUTION 2001-10 ABANDONING WHATEVER
RIGHT, TITLE, OR INTEREST THE TOWN HAS IN CERTAIN PUBLIC UTILITY AND
DRAINAGE EASEMENT LOCATED ALONG THE SOUTHWESTERLY PROPERTY LINE OF
Town Council Minutes Regular and Executive Session 2/15/01
Page 1 of 18
PLAT 603-C, BLOCK 3, LOT 8 (15941 E. CHOLLA DRIVE) AS RECORDED IN BOOK 161 OF
MAPS,PAGE 43 RECORDS OF MARICOPA COUNTY,ARIZONA. (GREG WHITE) EA00-15
AGENDA ITEM#4- CONSIDERATION OF THE FINAL REPLAT OF FIRE ROCK PARCEL A-1
iiksie, AND PARCEL A-2, A LOT REVISION, LOCATED AT THE SOUTHEAST CORNER OF SHEA
BLVD.AND FIRE ROCK COUNTRY CLUB DR.; CASE NUMBER S2001-02.
AGENDA ITEM#5 - CONSIDERATION OF THE FINAL PLAT OF FIRE ROCK PARCEL K, A 14
LOT SUBDIVISION,A PARCEL OF THE FIRE ROCK MASTER PLAT; CASE NUMBER S1999-042.
AGENDA ITEM#6- CONSIDERATION OF THE FINAL PLAT OF THE PLAZA FOUNTAINSIDE,
A 3 LOT AND 1 PARCEL SUBDIVISION, LOCATED AT THE NORTHEAST CORNER OF
SAGUARO BLVD.AND EL LAGO BLVD; CASE NUMBER S2000-008.
Councilman McNeill MOVED to approve the Consent Agenda as read. Councilwoman Hutcheson
SECONDED the motion. A roll call vote was taken with the following results.
Vice Mayor Wyman aye
Councilman McNeill- aye
Councilwoman Hutcheson- aye
Councilwoman Fraverd- aye
Councilman Kavanagh- aye
Councilwoman Ralphe— aye
Mayor Morgan- aye
The motion CARRIED unanimously with a roll call vote.
AGENDA ITEM#7- CONSIDERATION OF THE REVISION TO THE SPECIAL EVENT PERMIT
ISSUED TO BRAD LAUGHLIN OF LAUGHLIN ENTERTAINMENT, INC. FOR A JAZZ CONCERT
SCHEDULED FOR SATURDAY AND SUNDAY, MAY 5 AND 6, 2001. THE REVISION WILL
REQUIRE THE CLOSURE OF SAGUARO BOULEVARD FROM EL LAGO BOULEVARD TO
PALISADES BOULEVARD.
Mayor Morgan called on Councilwoman Fraverd. Councilwoman Fraverd MOVED to approve the revised
special event permit, which included street closures beginning May 4, 2001 at 5:30 p.m. and ending May 6,
2001. Vice Mayor Wyman SECONDED the motion.
Councilwoman Fraverd acknowledged that she had asked for this to be removed from the consent agenda. She
stated that she did support this event. She was concerned because there appeared to be a trend developing with
which she was uncomfortable. Councilwoman Fraverd referred to her past experiences as a member of the
Planning and Zoning Commission. During her time on that commission there had been a spurt of growth and
she had reviewed many applications, which after a time it became a standard joke to ask, "What type of waiver
would the applicant like". She noted there was always something. Councilwoman Fraverd said that the
commission worked with those projects which they felt would be an asset to the community. She said that the
Planning and Zoning Commission had felt that it would be refreshing to have an applicant who was not asking
for any type of waiver or concession. She pointed out that in the end it didn't really matter what the
Commission said because the applicant would then go to the Council and past Councils had approved those
plans with whatever waivers the developer wanted. She said that approach had been frustrating and that was
one of the reasons she had run for Council (so she could have a vote). She reviewed the Target project and
concessions that the Council granted. Councilwoman Fraverd noted that it also included some small retail
commercial projects in this project, which would be competition for the downtown. She reviewed that the
Council last month had waived a major portion of the commercial impact fees in order to encourage downtown
growth. She asked if the Council could now see the trend that was developing.
Councilwoman Fraverd turned her discussion now to the agenda item before them. She reviewed that it had
been on the consent agenda at their last meeting. She reminded the Council that the park fees had been waived.
Councilwoman Fraverd said she had voted for this thinking that this would be hassle free project, with the
Town Council Minutes Regular and Executive Session 2115/01
Page 2 of 18
parking taken care of. She had thought that the residents would enjoy the event. She felt it would be nice if an
applicant would come to the Council without their hand out as she was getting tired of that approach.
Councilwoman Fraverd expressed concern with regard to the street closure and the parking. She said that
initially this event was to have the parking off-site with patrons being bussed into town. She felt that had been a
terrific idea as there wouldn't be the traffic congestion and the event would be contained at the park, which
would have avoided a lot of hassles. She pointed out that had now changed as the off-site parking plan had
changed and it was now "park wherever you can". She noted that as the downtown develops, parking would
become scarce. Now was the time to take a realistic look about where parking would be for some of the major
events and make some plans to accommodate parking for events. She said that the patrons parking further away
from these events might necessitate the need for additional road closures for safety reasons. Councilwoman
Fraverd said the Council would be looking at a Special Event Policy later in the year and parking should be
something that the Council should consider to help alleviate what she felt was a mounting problem. She said
there was nothing that she could think of for this particular project with regard to the parking issue, but she
stated she did support the event.
Mayor Morgan said what had been approved at the last Council meeting with regard to the parking situation was
contingent upon the parking option being secured as the applicant thought it would. She explained that the
applicant could not go to Fort McDowell and ask their permission to use their parking lot until the applicant
knew if the Town was going to approve the event. She felt that it had been a "catch 22" situation. Mayor
Morgan agreed it was unfortunate that the Council had approved one ahead of the other, but again it was a
"catch 22" situation. She acknowledged that the parking was a problem and she felt it would become an even
bigger problem and would need to be addressed.
Vice Mayor Wyman said he had the same concerns as those of Councilwoman Fraverd. He saw the Town in
somewhat of a quasi-frontier state. He noted that the Council had opened the Town to these types of events in
the hope that there would be a spill over into the restaurants and shops, generating tax revenue as well as
offering something to the Town's residents. He felt that as the downtown developed, as the Community Center
and Library became popular, and the Town got larger, then the Town would be in a better position to be more
exclusive and have the ability to set firm guidelines. He said that at this time he saw the Town having a quid
pro quo opportunity, which was one of the reasons that he had reluctantly gone along with this event.
Councilwoman Hutcheson said she also shared the long-range downtown parking concerns. She agreed that the
Council would soon have to look at that. Councilwoman Hutcheson said this event was an opportunity to try
something new and exciting although it was still to be determined as to how well it will be received. She
proposed that it might be something done annually, in which case parking would need to be arranged. She
viewed this a first time opportunity to see if this would be beneficial to the Town and the residents as a regular
event. Councilwoman Hutcheson pointed out that if it wasn't, then the Town was not obligated to repeat the
event.
Councilwoman Ralphe shared the concerns expressed. She said her overall reaction to this event was a positive
one. She said the town had become known for the arts festivals and there was a possibility that music could be
added and expanded. She felt that those two things would a natural event for Fountain Hills. She said she was
very excited about this event.
Councilman McNeill agreed there was a parking issue that needed to be dealt with. He emphasized that street
closures were an inconvenience to people and were now included in this revised event. He said the Council
would be looking at limiting the number of times per year that imposition would be made on the citizens. He
felt this would be a good event for Fountain Hills, and since this was the first time he was willing to entertain it
on a trial basis without the normal fees. He said if it was successful, then he saw no reason that the Town
couldn't ask the applicant for the normal fees. He hoped the event was a big success.
Mayor Morgan said that with regard to the fee issue, if the Town were one of the sponsors, the Town would not
be charging itself fees. She pointed out that the Town was not giving up any money because the Town did not
charge itself for Town sponsored events. She did not feel comfortable with saying the Town was giving up the
Town Council Minutes Regular and Executive Session 2/15/01
Page 3 of 18
store if the Town was connected to the event, because the Town wouldn't be paying for the use of the park
anyway.
rnow Councilman Kavanagh said he shared, and the whole Town shared, the parking concerns, but what was nice
about this particular event was that it was an event where the number of attendees was controlled by ticket sales.
If this year's event of approximately 3,000-5,000 were too much, then next year the Town could grant approval
at a reduced number of attendees. He said these were exactly the types of events that the Town wants. One
reason he supported this event was the Fountain Park shopping complex. He noted that those merchants had to
have a phenomenal overhead expense and he felt that those merchants needed all the help they could get in
terms of revenue opportunities. He pointed out that those sales would also help the Town and that was why it
was important to get these types of events in the downtown area.
Councilwoman Fraverd said she understood that the Town was co-sponsoring this event, but her idea of a co-
sponsored Town event was one where the Town had control over the event. She pointed out that the Town was
not really in charge of this event. She said for this one time only, she thought it was OK to lend the Town's
name to it. Councilwoman Fraverd agreed with Councilman McNeill that in the future the applicant needed to
pay the fees.
Mayor Morgan commented that she could not say to whom nor could she say how much, only that there would
be a "very nice" monetary donation to organizations and groups here in Town when this was all said and done.
She indicated that the Town would benefit in more ways than one.
Vice Mayor Wyman said that one of the things that the community had talked about for years was creating a
sense of a"destination"in the minds of people with regard to Fountain Hills. This event would enhance that.
Jack Jolsaff,Victoria Properties(developer Plaza Fountainside); 549 South 48th St.,Tempe, AZ
He said the plaza was now full. He proposed additional parking on-site be considered at their location stating
that it would help solve the long range-parking problem.
Low The motion CARRIED unanimously.
AGENDA ITEM#8- REPORT, DISCUSSION AND POSSIBLE ACTION RESULTING FROM A
PRESENTATION BY TOWN BOND COUNSEL AND TOWN STAFF REGARDING THE
MUNICIPAL PROPERTY CORPORATION$2.1 MILLION INVESTMENT.
Mr. Farrell gave an overview of the events and the present situation. He introduced Fred Rosenfeld of the firm
Gust Rosenfeld. Mr. Farrell said that if there had been something that anyone or Town staff could have done
that would not bring us to this particular agenda item, it would have been done. He acknowledged that this was
not a light matter or a matter that anyone on staff was treating in a light or casual manner. He said that this has
had an affect on all of us, especially the citizens. He was before the Council to make a complete and full report
as well as field whatever questions that the Council or the citizens might have. He said the Fountain Hills
Times had done an outstanding job making its readers aware of the issue. He did realize that there were some
folks who did not know exactly what we might be talking about with regard to this issue and he wanted to give a
brief overview of this agenda item. With Mr. Rosenfeld's help, he said he would attempt to answer any
questions.
He reviewed that last summer the Town and the Town's Municipal Property Corporation sold $4.68 million
dollars worth of bonds for the construction of the community center and an additional $3.7 million dollars worth
of bonds for the library/museum complex. Currently, both buildings were substantially along in their
construction. Target General Contractors had been awarded the bid and were building both projects. He
pointed out that the two transactions were slightly different. The electorate voted for the library/museum
construction as a general obligation bond. The proceeds of that bond were delivered to the Town and invested
by the Town with the State of Arizona in an acronym known as the LGIP (Local Government Investment Pool).
Town Council Minutes Regular and Executive Session 2/15/01
Page 4 of 18
He stated that cities, towns, counties, school districts, and several types of authorities were allowed by state
statute to pool their idle funds with the state treasurer for the purposes of enhancing the return on idle funds.
Mr. Farrell explained that the community center construction was done through a Municipal Property
Corporation. Because it was not the Town and was a Municipal Property Corporation, the underwriters and the
companies that ensure the bond buyers that they would be paid had required the Town to hire an independent
trustee to:
A. Pay the bonds when due, and
B. Act as the paying agent during the construction contract.
He said the Town had inquired and had long debates with bond counsel and with the Town's financial advisor
about the necessity of doing that. The State Treasurer had issued a ruling that they do not accept bond proceeds
from Municipal Property Corporations. Even though the Town would have preferred that it be treated exactly as
the library/museum construction fund, it was not and the Town went out to bid. He noted that there were a
limited number of companies that perform this trust function. One of the companies was BNY Western Trust(a
California corporation), with BNY being a contraction of the Bank of New York. He pointed out they were not
the Bank of New York but a company owned by the Bank of New York.
He said staff prepared, with the assistance of bond counsel, a seventy-three page trust indenture agreement
between the Town, the Municipal Property Corporation, and BNY. One of the items, which covered five pages
of the agreement, was a list of eligible investments. He said it was tracked as closely as they could and with
some more detail than was found in the State Statutes. It tracked the lists of eligible investments that the State
Treasurer could use. Mr. Farrell said it had been indicated to BNY that they could make investments of the
nature described as eligible investments with Town funds. He said that BNY understood that there was a
construction project involved and liquidity was important. Target General and their subcontractors would
submit bills on a monthly basis for both projects and it was the Town's contractual obligation to make those
payments when they became due. He said there were four or five investment transactions that preceded'kw, investment of December 20, 2000. Mr. Farrell stated that each of those transactions was made in commercial
paper. He said the term"commercial paper"roughly described a form of borrowing used by larger corporations
to level out their cash flow. The corporation would go into the market for a fixed period of time, with a fixed
interest rate, and a promise to pay. He pointed out the term was usually thirty days, sixty days, but never more
than two hundred and seventy days.
Mr.Farrell said that the commercial paper that was offered for sale was offered just like any other security. The
two major rating services(Moody's and Standard and Poor's)issue a report that gives a credit rating assignment
to commercial paper so that the buyer could have the benefit of the opinion of those two investment rating
agencies. He said the highest rating that the investment agents could give to any commercial paper was A-1/P-1
respectively by the two organizations. Mr. Farrell said our trust indenture said to the Bank of New York Trust
Company, you may buy commercial paper, but only A-1/P-1 rated commercial paper and no other type of
commercial paper.
Mr. Farrell reviewed the chain of events. On the 20th of December, 2000, the Bank of New York trustee went
into the market and asked three securities dealers for quotations. She indicated that she had $2,100,000 dollars
of acquisition funds that she wished to invest for a thirty-day period. She researched the available eligible
investments in the market on that particular day. She received three quotations back and had selected the
highest rate of return, which was 6.7%. That investment was made in the commercial paper of Pacific Gas and
Electric Company, which was due to mature on January 19t, 2001. Notification of that purchase was sent to the
Town and the purchase was made from Merrill Lynch, one of the nationally recognized securities dealers. On
the morning of the 20th when the transaction was executed, the Moody's and Standard and Poor's' ratings for
those securities were A-1/P-1, which meant they were on the Town's list of investments that were eligible to
purchase. On the 19th of January, late in the afternoon, the Town was informed by BNY that they had been
informed that Pacific Gas and Electric was not going to make the payment that was due on their commercial
paper that day.
Town Council Minutes Regular and Executive Session 2/15/01
Page 5 of 18
Mr. Farrell said he hesitated to use the term "default", although it had been seen in print from time to time,
because it was technically a legal word. He said the Town had not received a notice of default but noticed that
PG&E did not intend to honor that obligation on that day. He said the 19th of January happened to be a Friday
afternoon, so the morning of January 22nd that matter came to the attention of Mr. Nordin, himself, and the
Town's finance department. He said an extraordinarily large amount of time was spent over the next week and
one-half attempting to put together the paperwork transaction. He said he was proudly able to tell the Council
that he did not invest in securities of that size or understand that market very well. He stated that he thought
there would have been much more paper that would have been involved in this particular transaction. Reality
dictates that the customer gets printout copies of computer screens and that all of this is done electronically
through the Internet and that documentation was recorded everywhere by electronic bank codes but hard pieces
of paper didn't come very easily. The sad thing that staff learned early on was that the Town of Fountain Hills
was not alone. Upwards of $800 million dollars of PG&E commercial paper defaulted during the middle of
January up through the early part of February. Staff found that a number of other public investors had
purchased commercial paper from PG&E from various sources, not always Merrill Lynch but from other
companies or directly. All were found in the very same and very uncomfortable position of saying some of our
money was at risk and could not predict with any degree of accuracy when that money would be returned.
Mr. Farrell said that Mr. Rosenfeld's firm was immediately contacted and asked that they assist in assembling
documents backwards and developing strategies forward. He explained that staff was in daily contact with
Bank of New York, PG&E, Merrill Lynch, Citibank, Bank of America, and any number of folks who for any
reason get themselves involved in this type of a transaction. He reviewed that they were receiving the same
kind of treatment that almost everybody else who was calling was receiving. Everyone involved in this
transaction was extremely concerned about the default. When their concerns were expressed, the questions
were being forwarded to either investors' service or corporate legal department. He said that when you get hold
of investors' service it was forwarded to corporate legal. He said that when calling corporate legal,you reach an
answering machine or a voice mail message and the flow of information was not strong. Everyone that was at
risk in this particular situation was working very diligently at what they term"a businessman to a businessman
lift., solution". Mr. Farrell said that the Town had a contract with Bank of New York Western Trust Company. That
was the organization on which the Town's staff and representatives were primarily focusing their attention. He
pointed out that the Town did not have a contractual relationship with Merrill Lynch nor Pacific Gas &Electric.
He said it had been discovered while going backwards from this transaction the answer to the simple question,
"Didn't anybody know that the utility companies in the state of California were experiencing financial trouble".
He thought that everyone was aware of the fact that financial troubles were being experienced. However,
commercial paper was the lifeline of many large corporations and it was the one area where even troubled
organizations need to maintain their credit in order to exist.
Mr. Farrell said that there had been a period within the past week or two where it appeared that the State of
California was going to adopt some legislation, which would allow PG&E to be the recipient of upwards to$10
billions dollars worth of relief. There was an Internet and live press conference held about a week and one-half
ago in which PG&E indicated that commercial paper holders would be paid as soon as possible, not only their
principle but their interest that was due, plus the additional interest until time of payment. He reported that
subsequent federal court actions had dampened some of the enthusiasm of the State of California. He said that
the expected relief package had not been finalized by the state. Mr. Farrell said that the issue was still very
critical with PG&E and the state. Staff found a wealth of information, both speculative and securities filings
filed with the security rating agencies by PG&E and others, that their credit worthiness was under investigation
on the 20th of December when the purchase was made. The credit reporting agencies, however, don't lightly
change their A-1/P-1 ratings immediately. They use terms, which were almost like code terms, such as "credit
watch",but leave the rating at A-1/P-1. Those agencies might put"negative financial prospect", but again leave
the rating at A-1/P-1. Mr.Farrell said he did not want to be redundant,but it had a lot to do with what the Town
was faced.
L. Mr. Farrell stated there was no question that the people who trade in these securities, companies like Merrill
Lynch and BNY, ought to be aware of that material. He explained that the staff doesn't subscribe to Moody's
Town Council Minutes Regular and Executive Session 2/15/01
Page 6 of 18
or Standard and Poor's rating service, does not buy investments, and were not skilled in those areas of financial
analysis even with the Town's own idle funds. He explained that staff trusted the State Treasurer in these
matters. Mr. Farrell pointed out that the Town's staff had been good stewards of the monies that have been
given to them. He noted that the Town had an excellent credit rating in the bonds that they had sold and that
they were not jeopardized.
Mr. Farrell said he would be less than forthcoming if he did not say there was now a wealth of information that
was available. Staff felt strongly Bank of New York and Merrill Lynch were, or should have been, aware of
that information at the time of the transaction. He said that staff did not have material or was aware of that
material at that time. He said staff had now searched the Wall Street Journal and any number of informational
sources regarding the financial condition of PG&E. He acknowledged that sounded apologetic but there was
nothing in staff possession or in staffs specter of review that indicated to staff that during the period from
December 20,2000,to January 19, 2001,that the default would occur. There were no early warning signs in the
Wall Street Journal. The issues were complex because of the responsibilities that trustees take upon themselves
when they agree, for a fee,to be the trustee of your money.
Mr. Farrell explained the Town's position at the $2.1 million dollars level in a $800 million to a $1 billion
default was not a giant position. He quickly pointed out he did not want anyone to think he was minimizing the
situation. He was trying to illustrate that Fountain Hills wasn't the largest investor to be considered. When
Fountain Hills knocks on PG&E's door, it wasn't one of the investments in commercial paper that causes them
to change their policies. The reason that the public had not seen a great deal of litigation on this particular issue
was simple. The conventional wisdom says that most of the holders of that paper would prefer, and were
working towards,a businessman to businessman solution. An intense amount of litigation against PG&E would
result in either an involuntary or voluntary petition to seek relief under the federal bankruptcy laws. Under
these laws the first thing that would be issued would be a litigation stay order,requiring all courts everywhere to
stop the lawsuits. The next item was usually a determination of whether or not receivers or trustees would be
appointed to determine whether or not the utility management should be allowed to stay in control of the
company. He said they were all fearful that bankruptcy would not be the best place for the defaulted $800
million dollars worth of bond holders/commercial papers to be. That did not mean that there might not be
separate legal accesses that the Town would have available regarding the trustee and the Merrill Lynch folks.
However, at this point in time it was staffs belief that they had so far conducted the due diligence and have put
them on notice that the Town expects BNY to honor their obligations to the Town of Fountain Hills Municipal
Property Corporation. He noted that might be a precursor to litigation. That was the only area this evening that
both Mr. Rosenfeld and he preferred not to go into in terms of actions that the Municipal Property Corporation
and the Town Council would be taking. He suggested that the Council say the Town was perfecting their rights
and would be in a position to file litigation when that was a decision that the Council authorizes and staff would
recommend as the Town's best course of action.
Mr. Farrell said the next several agenda items would clarify misconceptions as to the Town's financial well
being. He explained that because the Town has had such good financial stewardship, this was not a financial
situation that meant the Town had to stop the construction of the community center. Staff was grateful that they
were in a position to say to the Council that the community center construction could continue. Staff was also
very grateful to say that the library/museum construction would continue and that both buildings would be
finished. He acknowledged that the situation was serious and that the staff believed it was thankful that the
Town had the financial wherewithal to finish the construction. Staff was not happy that the programs might
have to be delayed. Mr. Farrell assured the Council that there wasn't a single act that could have been done that
wasn't done. He noted that staff had explored concepts that he had not before known existed. He stated that
PG&E did not have a secondary market. Mr. Farrell said staff had networked with folks who were in a similar
position and staff had used the national organizations to determine what other municipal attorneys were
encountering this problem. He pointed out that if major litigation were to be a reality in this case,the Town did
not have the wherewithal to fund that solely. This litigation could potentially cost major amounts of money in
foreign jurisdictions. It could be necessary to go to California to file the lawsuit against PG&E. The parties
involved are of the legal opinion that by pooling their legal resources, all would have a better opportunity. Mr.
Town Council Minutes Regular and Executive Session 2/15/01
Page 7 of 18
Farrell said that as of today staff had not been able to determine anyone who had filed such a lawsuit at this
point in time. He stated that the Town would not have to read about it in the papers as the Town would be
allowed to participate to the degree that the Council would elect to want to participate in the litigation. He said
likkof the Town had been criticized about the litigation expenses, but he assured the Council that this type of litigation
would be far more expensive than the litigation that the Town was currently defending that had been brought
upon the Town by other parties.
Vice Mayor Wyman asked if commercial paper was subordinate or superior to bonded indebtedness, in the
event there were litigation. Mr. Farrell said it was their opinion that it was a security, because it was an
obligation for a fixed amount due at a specific time. He asked Mr. Rosenfeld to address this question. Mr.
Rosenfeld said the commercial paper was totally unsecured. It was a debenture and only a promise on the part
of PG&E to pay. He said that they did have mortgage bonds out and bonds that were of like position, which
were unsecured. Sometimes with commercial paper there were what were called credit facilities which were
tied directly to the commercial paper and that was not the case this time. He stated that he had inquired at the
Bank of America and their counsel stated that there wasn't letter or line of credit by the bank lenders that was
tied directly to this commercial paper. PG&E did have a $1 billion dollar line of credit, which they were
drawing on to pay the commercial paper as it came due until the 16th of January, when they no longer drew upon
it. Their filings with the SEC,that although it was not a letter of credit that was triggered by a rating default,the
banks refused a request to honor the draw. That was two days before the Town's commercial paper came due.
He had asked specifically and got the answer that he had expected from the attorney for Bank of America,
which was that they had done nothing wrong under its line of credit agreement. He noted he had no way of
knowing whether they did or not.
Councilman McNeill said he knew they would be pursuing the legal remedies available with respect to the
trustee. He said the fact that he found most galling and disappointing was that the Town had hired this firm for
their financial expertise and they had failed to invest the Town's funds wisely. He agreed that the trustee had
followed the criteria provided from the Town, which included commercial paper rated P-1, and this paper had
Loy technically met on the day that it was purchased. After this situation came to light, he had done some research
on the Internet. He noted that he had quickly found Form 8-K filed with the Securities Exchange Commission
on December 18th,before the trustee had purchased the PG&E commercial paper on the Town's behalf. He said
that it had included statements reflecting that on December 11t, Moody's had placed a securities of PG&E
under review for possible down grade, on December 13th, Standard and Poor's had placed PG&E on credit
watch. He had not known how available this information was but he pointed out that he did not have any
trouble when he signed onto Moodys.com to find that the credit watch matters were posted on their Internet site
regularly. He found it difficult to understand that a trustee in California, investing in commercial paper in
California utilities on behalf of its clients, would not be fully aware of this information. He found that to have
invested in that paper with that knowledge showed that they had failed to observe the prudent man's
reasonableness test with which a trustee was charged.
Councilwoman Ralphe thanked Mr. Farrell for his detailed account of the situation. She acknowledged that
locally the "buck stopped" with the Council. She said the Council was responsible locally for this situation.
Councilwoman Ralphe asked staff about looking at preventing this type of problem in future investments. She
questioned whether or not it would be advisable to strike commercial paper from the acceptable criteria list
provided to the trustees for investment purposes. She reiterated that Mr. Rosenfeld had stated commercial paper
was totally unsecured and others had told her that type of investment had the highest rate of risk. Mr. Rosenfeld
responded yes. The trust indenture would clearly allow the Town to direct the trustee to no longer purchase
commercial paper and he had no problem with implementing that suggestion for future investment purposes.
He proposed the Council had the authority to limit the investments solely to anything other than commercial
paper. Mr. Farrell reminded the Council that the $2.1 million was not the entire fund. The funds that remain
with BNY were in a money market account located in Wells Fargo Bank under specific instructions not to do
anything else with that money so that the Town could continue on a thirty-day basis to honor the draws that
come from Target General Contractors. Councilwoman Ralphe said she was thinking in terms of the future as
Silir there would be other bonds and buildings. Mr. Farrell said this was a unique situation. He explained that the
Town Council Minutes Regular and Executive Session 2/15/01
Page 8 of 18
normal job of the trustee was to honor the coupon payments when the bondholders present a coupon for
payment. In this particular case there was also a construction acquisition fund. The library construction
acquisition fund was a general obligation bond of the Town and the money came directly to the Town with the
kil,.. Town giving the funds to the State Treasurer. He said that the State Treasurer had the authority under the state
statute to buy commercial paper. In Arizona, to the best of Mr. Farrell's knowledge, the State Treasurer has not
bought commercial. He pointed out that although the Town did not control what the State Treasurer does,
chances were very good that this situation would not be repeated in terms of construction financing unless there
was another Municipal Property Corporation project. He noted that this was the first and only time that the
Town had entered into this type of financing with the requirement by the insurers that the Town have an
independent trustee.
Councilman Kavanagh said it was frustrating that the culprits in California who had created this situation can't
be touched. He stated it was a good idea to settle this with the businessman to businessman approach. He asked
if that did not work, would the Town be able to recoup not just the $2.1 million but also the lost interest and
legal expenses involved with a lawsuit. Mr. Farrell replied that a lawsuit would be filed seeking absolutely
everything, including damages suffered, delay damages, lost interest damages, interest, and attorney fees. He
pointed out there wasn't a restriction as to what could be included in the suit. Mr. Farrell explained that as the
lawsuit proceeded there was the possibility that the Town would be offered a settlement of less than what was
desired,but that the Town would not be forced to take less than all that the Town desired. The persons involved
would be corporations capable of paying the entire $2.1 million dollars plus interest, damages, and attorney
fees. Councilman Kavanagh asked if this litigation occurred and the Town received less than the full amount,
could the Town then go after the rest of the parties involved to get the remaining money the Town had lost. Mr.
Farrell responded that that there were two legal avenues down which the Town was walking. One was the
PG&E avenue and the other was the BNY-Merrill Lynch avenue.
Councilman Kavanagh asked if this money had been held in the State's LGIP, would the money have been
insured. Mr. Farrell replied that the Local Government Investment Pool (LGIP) was a creature of Arizona
Statute. He was not willing to state that the State Treasurer would indemnify anybody if the LGIP lost money.
Mr. Rosenfeld answered that it was his understanding that there wasn't any insurance on the pool. Whether
items purchased by the pool, which was somewhat like a mutual fund—moving money market fund, he did not
know, but the pool itself was not insured. He said he wanted to call the State Treasurer's office in the morning
to confirm that statement. Mr. Rosenfeld said he would report back to the Council on this issue.
Vice Mayor Wyman asked for clarification that this money would not have been eligible to be in the State pool.
Mr. Farrell said the State Treasurer's interpretation of state law did not allow Municipal Property Corporations
bond proceeds to be invested in the LGIP. Councilman Kavanagh clarified that he was alluding to if the State
pool was insured and safer, and even though they can't take bond proceeds from Municipal Property
Corporations,the State Treasurer could take proceeds from G.O. bonds. Mr. Farrell said that was correct if they
were insured, which Mr. Rosenfeld will be verifying. Councilman Kavanagh suggested that it might be better in
the future, when money must be invested and raise bonds, to use G.O. bonds, if the Town could get the insured
coverage. That was the reasoning behind exploring this safer avenue.
Councilwoman Hutcheson said this was a difficult situation for the Council and the public to understand and she
thanked Mr. Farrell and Mr. Rosenfeld for their explanation of the situation. She asked Mr. Farrell to explain
the difference between an MPC that was not tied to construction as opposed to a traditional MPC. Mr. Farrell
responded that the MPC was a creation of a series of cases that lead to the construction of the Civic and
Convention Center. It was not something defined in the index of the Arizona Revised Statutes. Most cities,
towns, and governmental agencies other than the state exist on sales tax revenue or property tax revenue. The
Municipal Property Corporation was a court approved method that all the cities and towns use to allow sales tax
revenues to ultimately wind up being used for construction projects in lieu of raising property taxes, which a
G.O. (General Obligation) bond would do. The situation with the investment of the proceeds turns on whether
or not there was a construction project. He explained that in Fountain Hills' case the Community Center was
oitrow technically going to be a property of the Municipal Property Corporation and leased back by the Town. He said
Town Council Minutes Regular and Executive Session 2/15/01
Page 9 of 18
that other cities and towns could use an MPC this way, but they generally had a single fixed purchase, such as a
telephone system or golf course, something that did not require an acquisition construction fund. He pointed out
that although there were others who have had acquisition construction funds, they had to use an independent
trustee. He noted it was a bad situation but it was a typical situation in the way the framework was set up. The
issue before the Town was PG&E's desire or inability to make their payment. Councilwoman Hutcheson asked
if the solution would be to limit the commercial paper, not necessarily eliminating MPCs, which ties the hands
of most cities and town. Mr. Farrell agreed that there was no question that in any investment of idle funds or
public monies over which the Town had control, staff would make sure that there was a heightened interest in
the strict instructions to the trustee. He said the term commercial paper came to the Town from the insurance
carriers, who insure the bonds and from the State Statutes. Mr. Farrell acknowledged that the term"commercial
paper" could not be taken out of the State Statutes but could certainly tell the insurance carriers the Town was
not interested in the insurance if commercial paper was among the eligible investments. He stated that it was
important to understand that the funds to pay the bonds were not the funds that were invested in the commercial
paper. The funds to pay the bonds were separately set aside in the Town's budget and when the first coupons
become due, which was July 15t, 2001,those funds were set aside to make those bond payments.
Councilwoman Fraverd asked if Mr. Farrell or Mr. Nordin had a feel for the time frame when the Council might
know when the businessman to businessman procedure might conclude or if it will work. Mr. Farrell said that
they should have additional information at the next Council meeting(approximately 15 days).
Councilman Kavanagh asked if there were to be a lawsuit, would the Town be at a disadvantage by waiting until
after they declare bankruptcy. Mr. Farrell said no one was in bankruptcy at this moment, but in his opinion
litigation against PG&E would make no difference and litigation against other parties in this matter would not
result in them seeking protection from the bankruptcy court. Councilman Kavanagh was concerned that the
Town's claim would go to a lower order of compensation if action by the Town were filed post-bankruptcy.
Councilman McNeill noted there were various California legislative proposals, some of which include the state
acquiring the transmission systems of the affected utilities. He pointed out that no one knew if any of this was
going to come to pass. The idea was to exchange state money to help the liquidity crisis for the state's utilities
in exchange for some of their property. He said that proposed California legislation, to initiate the hearing
process, could go through as soon as tomorrow. He did not know if there would be any news regarding this by
the next Council meeting or not. Until something breaks in California, there wasn't any way the Town would
know the timetable involved. Mr. Farrell agreed.
Mayor Morgan invited the public to make comments and ask questions about the situation, but she would not
allow derogatory, slanderous, or out of line comments directed at any individual, staff or Councilmember. She
warned that she would remind the public only once and the second time she would ask the Marshal to remove
the speaker.
Mayor Morgan gave this speaker additional time(6 minutes).
Thomas J. Craddock,P.O. Box 18257,FH
He asked if Councilman McNeill was employed in the legal department for Salt River Project. Councilman
McNeill confirmed this statement. Mr. Craddock asked if Councilman McNeill could make a general statement
as to how long the general public,especially the business community and those involved in investing large sums
of money, had been aware of the financial problems caused by the deregulation procedures that the State of
California had put in place. Councilman McNeill responded he would have a hard time putting an exact time on
when it became general knowledge. He felt it could be traced all the way back to the power crisis of last
summer, when prices were getting extremely high in California and the utilities were having to pay more for
power than anyone had ever expected to. The utilities had been constrained by the system that had prevented
them from collecting from their ratepayers enough money to pay for those purchases. That basically led to this
situation. He said there had been a great disparity in the utility's cash flow. He noted that the situation had not
abated but only gotten worse over time. What surprised him was the length of time it took for the rating
agencies to recognize this situation. He said the agencies had made a credit watch statement several days before
Town Council Minutes Regular and Executive Session 2/15/01
Page 10 of 18
this commercial paper was sold, but looking at the situation, and as he was in the utility industry, it surprised
him that PG&E was rated P-1 (the highest rating) in December.
Mr. Craddock said that early last fall, high level executives in the public utilities in California, particularly the
electric companies, were publicly stating that they were becoming increasingly financially pressed to meet their
obligations. He remembered hearing such statements in the media. He asked Councilman McNeill if it was
reasonable to say that warnings were even coming from within the industry. Councilman McNeill felt there had
been a lot of press given to the problems.
Mr. Craddock referred to a statement made by Mr. Farrell regarding the Wall Street Journal not reporting their
predictions. Mr. Craddock pointed out it was not the role of a newspaper, which was what the Wall Street
Journal was, to give its opinions except in its editorial sections. It was their job to report news. If they had said
to get out of commercial paper market in California,they would have been subject to lawsuits. He said the issue
was common knowledge among investors and had been reported on many times by TV news and analysts. He
said there was also a statement made that the Town's staff and Council did not have a subscription to Standard
& Poor's and Moody's. He reminded the Council that the Maricopa County Branch Library had those reports
and the phone numbers of the rating agencies available. Mr. Craddock noted that the Town might have
benefited earlier from the insight provided by someone that had some skill in investments of this size but were
independent of all those involved in this situation.
Mr. Farrell responded to the Wall Street Journal reference made my Mr. Craddock. Mr. Farrell said Mr.
Craddock might have taken an inference to that he had not intended to give. He said this situation was not the
fault of the Wall Street Journal or the fact that the Town did not have subscription. Mr. Farrell said staff had
seen and heard a lot of comments that there were a lot of people much wiser than those entrusted with the
Town's responsibility that could have made the investments. He pointed out that if anyone were willing to
ensure that, the Town would be very happy to have them. He explained that the Town was not in a situation
where the Town hired a day trader to execute calls the Town made. He said the Town had hired a professional
L. trust organization from the Bank of New York to perform those duties for the Town. He pointed out that when
professionals were hired to do the job, you don't triple guess them for the job that they do. Mr. Farrell said that
those professionals were accountable for their negligence. If someone wanted to ensure the Town's investment
in exchange for picking what they were and they had the financial wherewithal, the Town would love to have
them.
Don Logan, 14061 N. El Pueblo
He focused on future investments. He proposed minimizing the loss risk by encouraging the Town to change its
policy for such investments by limiting them to those that were insured by the federal government. He felt that
was a way to safeguard the Town's funds, have true stewardship, and earn some money although it would not be
the maximum investment return. He felt that BNY had reviewed the investment options available that day and
they had chosen the highest earnings rate offered at that moment. It was unfortunate that the best rate happened
to be the most risky. That eliminated looking at the industry sectors for types of commercial paper. He
recognized that it was difficult to predict the future with regard to any single company or event. He was sorry to
see that the Council and staff had to spend their time on the matter as they had better things to do. He said that
although the state may allow more investment options with their regulations, he felt the Council could allow
fewer investment options and find that they were more comfortable with them.
Fred Mutter, 15719 E. Sunflower
He was concerned that there was $2.1 million dollars floating around somewhere. Somehow that money must
come back in some way shape or form. If it did not come back to the Town, he felt that the Town had some
type of financial exposure. He felt that the Council should be thinking about where the replacement would
come from assuming that there was default or assuming that the legal community could take a long time in
recovering any funds. As a citizen he asked that staff and the Council do some creative thinking concerning the
possible shortfall of $2.1 million dollars. He gave the Council and staff credit for being able to handle a
problem of this magnitude.
Town Council Minutes Regular and Executive Session 2/15/01
Page 11 of 18
Mr. Farrell thanked Mr. Mutter for those comments and agreed with him that the legal profession moved at a
snail's pace, which was why he was encouraging the businessman to businessman approach. He said that Mr.
Nordin would address some of those issues on the next two agenda items, which had been considered.
Councilman Kavanagh was pleased that some citizens and the Council had made suggestions to help prevent
this situation in the future. He proposed limiting future exposure by putting a limit on the Town investments in
any one vehicle. Had the Town said that they would not put more than a half a million dollars in any one
vehicle, then the Town might still have purchased PG&E but there might have been three more investments in
other areas which would have limited the Town's exposure. He acknowledged that this was a complex situation
and he invited the public to send in any suggestions. Councilman Kavanagh pointed out that the Town's $2.1
million was currently subsidizing below market electric rates for people in California, which he found most
galling.
Councilwoman Ralphe asked in looking towards the future and in an effort to avoid future trouble, would it be
appropriate to ask staff to prepare a list of investment strategies and options. Mr. Nordin concurred and said he
would be happy to do that. Councilwoman Fraverd wanted to see included in that list that the Town would only
invest in federally insured investments. Mr. Nordin said absolutely. Councilman McNeill asked that the
information also include what the relative interest payments were on the different types of investments, running
from the federally insured to prime commercial paper. He pointed out that with the federal deficit being paid
down,the US Treasury might not be making as many investment opportunities available as they had done in the
past. He noted that the Town could find that there wasn't as much money that could be invested in federally
insured investments in the future. Mr. Nordin said he would look into all the suggestions made and anything
else that staff could think of and report back to the Council. Mr. Nordin suggested that if any of the
Councilmembers or the public could think of anything else,they could call staff with those ideas.
Mayor Morgan called for a recess at 8:03 p.m. She reconvened the regular session at 8:12 p.m.
AGENDA ITEM#9- CONSIDERATION OF REJECTING ALL BIDS FOR THE PHASE II SITE
PACKAGE FOR THE COMMUNITY CENTER AND LIBRARY/MUSEUM PROJECT WITH
POSSIBLE DIRECTION TO STAFF TO SEPARATELY REBID THE SITE PACKAGE INCLUDING
THE PARKING LOT AND UTILITIES FOR THE COMMUNITY CENTER AND THE
LIBRARY/MUSEUM PROJECTS.
Mr. Nordin said he was going to recommend that the Council reject all of the bids received for the parking lot
and landscaping for both the community center and the library/museum at this time. He explained his reasoning.
He said with the magnitude of money that was being bid here, he was not yet able to recommend or tell the
Council tonight how the Town could make up that money if the Town eventually had to do so. He reiterated that
it was staff's hope and desire not to have that conversation, as they would do all they could to get the $2.1
million dollars back. He said the site package bid had come back approximately $350,000 in excess of the
architect's projected cost estimates for this work. He said staff was requesting a period of time, perhaps four
weeks, in order to prepare for the Council a reworked bid package that would clearly bifurcate the work between
the library versus the work for the community center. He explained that then two separate bids could be situated
in such a way that the Council could legally award the work for the library parking lot to one contractor and the
community center work to another contractor. That way the Town would receive defined bids as to the cost for
each project. Mr. Nordin said staff could possibly try to separate the bids received between the two projects, but
he noted that the Town could not legally at this point in time take the bids received and change order out the
community center work and only award the library work. It would also give the Town the opportunity to rework
the package to see if there were any areas where staff could save some additional funds. He felt it was prudent in
this case because the bids went over what the architect had originally estimated and it would also give staff the
opportunity for separation of the projects.
Mayor Morgan MOVED to reject the bids and rebid the phase II site package as presented and Councilwoman
Ralphe SECONDED the motion.
Town Council Minutes Regular and Executive Session 2/15/01
Page 12 of 18
Councilman Kavanagh asked how much of this action was necessitated by the problems with the bond money as
opposed to the fact that the bids came in over the estimate. Mr. Nordin said both influenced this request. He
said that because of the smaller amount on the next agenda item, he would be recommending the Council award
the bid. He could not do so with this item yet because of the variables involved. He reminded the Council that
the bond situation did not take away any of the money that the Town currently had in the bank. The Town's
reserves were 100% intact. He explained that his one and only big difficulty with this whole project (community
center) had not been a want of cash. It had been the lack of expenditure authority to expend that cash. He
reminded the Council how he had talked about that issue at budget time. Mr. Nordin said one of his primary
concerns was that if he were to say that the Council should and could proceed, it would be incumbent upon him
to be able to tell the Council that he could not see any difficulty with the expenditure limitation. He stated that
he could not do that, as he has not had the opportunity to determine an appropriate financial plan if the Council
were to do so. Therefore it was not wise to do it at that time.
Councilman Kavanagh asked how this was going to delay the projects. Mr. Nordin said it would delay things
approximately six to eight weeks,but would get it back to the Council as soon as he could.
Vice Mayor Wyman said that while it would six to eight weeks before the bid could be rebid, with regard to the
expenditure limitation,he asked if this wouldn't push the projects into next fiscal year. Mr. Nordin said it could.
Mayor Morgan asked if this was the only part of the community center-library/museum complex that possibly
could be in jeopardy of not being completed within the time frame of when we thought it would. Mr. Nordin
said yes. Mayor Morgan asked if this work were to be delayed for say two months, it would not be unusual for
Fountain Hills to have a rock or gravel parking lot. She pointed out that many residents had traveled on dirt
streets longer than two months. She did not see it as a major crisis for the Town to go back out and rebid these
projects in order to try to come in under budget. Mr. Nordin asked the Town's architect, Rob Dietz, to address
this issue. Mr. Dietz confirmed that Mr. Nordin's time frame of six to eight weeks was on target. He had put
together a schedule of events, although he did not have a copy with him. He pointed out that he needed the
Council's rejection of these bids in order to start the process. He also needed the Council's authorization to
restructure the bid package as separate bid packages, one for each of the two projects and then a combined bid
package in order to give the Council options.
Councilman McNeill asked if Mr. Nordin would be able to separate in these new bids the parts of what was
currently in the package that would not significantly affect the functionality of the library/museum and the
community center. He understood that there might be a problem with the expenditure limitation but he
acknowledged that he would like to see these projects finished and open to the public as soon as possible.
Councilman McNeill felt there might be pieces of the projects identified that don't necessarily have to be
finished in the immediate future and could be deferred for months to a year if need be. He encouraged Mr.
Nordin to investigate this option. Mr. Nordin said he was correct. He mentioned that staff wanted to also
separate out the utility work, which had been included in the larger bid package. He hoped to bring that to the
Council separately as well. He hoped to put that on the fastest track that he could. He commented that the
Council could possibly see that prior to the eight-week time frame being discussed. He said this work needed to
be done for the buildings themselves.
Councilwoman Hutcheson clarified that the problem was not that the Town lacked the funds but that the Town
lacked the expenditure authority during this fiscal year to spend the funds that the Town has. Mr. Nordin said
that was correct. Councilwoman Hutcheson asked how unusual was it to rebid a package that was $350,000 over
bid anyway. Mr. Nordin said it was common.
The motion CARRIED unanimously.
Town Council Minutes Regular and Executive Session 2/15/01
Page 13 of 18
AGENDA ITEM#10- CONSIDERATION OF AWARDING THE BID FOR THE PHASE III FF&E
(FURNITURE, FIXTURE AND EQUIPMENT) PACKAGE FOR BOTH THE COMMUNITY CENTER
AND THE LIBRARY/MUSEUM IN THE AMOUNT OF $548,221.44 AS RECOMMENDED BY THE
CONSULTANT. THIS APPROVAL WILL INCLUDE AWARDS TO THE FOLLOWING VENDORS
ALL OF WHICH WERE THE LOWEST BIDDERS: WALSH BROS. - $405,519.59; VIRCO - $41,081.24;
SCHOOL SOURCE,INC.-$24,999.04; FACILITEC-$17,614.94; EMERLINGS-$49,006.63.
Mr. Nordin stated that he was recommending approval for the following reasons:
1. These bids were well below that amount which had been estimated. He noted the combined budgeted
amount had been $1,025,000 and the total bid had come in at$745,979.40. On that basis and for that reason
he would want to recommend approval.
2. The bid package had been split between the Library/Museum and the Community Center at roughly 50%.
He said as discussed, the Library/Museum portion of this bid, had no difficulty whatsoever. In the case of the
Community Center, he recalled the discussion just held on the last agenda item, which was relative to
expenditure authority. In the preparation of this year's budget, he had told the Council that the Town was tight
not in terms of cash but in terms of expenditure authority. This had an impact on his recommendation on what
the Council ultimately approved in terms of expenditures for this Community Center construction. Last budget
year the Town budgeted and wanted to expend $1.5 million dollars out of the Town's cash as a down payment
for the Community Center. Mr. Nordin explained that because the construction schedule was delayed longer
than had been anticipated when that year's budget was completed, the Town was only able to expend somewhere
in excess of$600,000 dollars for that work in the Community Center in that budget year. He did not and the
Council did not approve spending the remaining$800,000 it would take to make up the $1.5 million dollars from
this year's budget as an expenditure out of the general fund because the Town were having expenditure
limitation difficulties. The Town had budgeted to expend those funds from the proceeds of the bond issue
(MPC)because the Town had the ability to spend outside the limitation if those borrowed funds were used.
Mr.Nordin summarized that he was recommending that the Council approve awarding the bids for both projects.
, One,because they were under budget and two,because he could identify the expenditure authority this year to be
able to put the cash together with that authority to make that expenditure. That expenditure would act as a
reduction downline in the amount that would have to be expended from the General Fund to make a principal
and interest payment on the indebtedness. He acknowledged that to date there was a very aggressive and
successful fund-raiser that has been going on relative to these very items, furniture and furnishings for the
Community Center. To date those involved had raised in excess of $250,000. He explained that in terms of
gifts,they could be exempted and were an exemption from the expenditure limitation, which would also help the
Town's cash situation. For all of these combined reasons he felt it made sense to award the bids. He added that
the bids, if approved this evening, would not include the tables. He pointed out that they had bid several
varieties and were not pleased with any of the bids for various reasons. Staff found out that when they went out
for bid that there was a difference in the warranties, which was reflected in the prices that were quoted. There
were concerns expressed about the quality of the tables with the five-year warranty. He wanted to remove that
one item from this bid package, allowing staff to try again as he felt there were better tables out there for a better
price.
Councilwoman Ralphe MOVED to award the bids for the phase III FF&E package for both the community
center and the library/museum projects as presented and Councilman Kavanagh SECONDED the motion.
Vice Mayor Wyman asked if this was a favorable expenditure variance that would allow the Town, because the
Town was not over on the expenditure limitations, to achieve this in this fiscal year. Mr. Nordin agreed. Vice
Mayor Wyman questioned if the Town would be sacrificing anything to do this. Mr. Nordin confirmed that the
Council would be spending the favorable variance.
Councilwoman Hutcheson asked if all of the tables would be rebid. Denise Holland, with Hoffman Dietz,
iie, responded that the tables to be rebid would be the folding tables used in the classrooms or the banquet rooms.
Town Council Minutes Regular and Executive Session 2/15/01
Page 14 of 18
She said there were round and rectangular tables on that bid. Councilman McNeill mentioned that a preferred
item would be available on the Mojave State contract. He questioned whether or not the Town would go out for
bid or just buying them through the Mojave contract. Ms. Holland said both were possible. Mr. Nordin
responded that at this time, what was in the staff report was a possibility. He explained that he had not given his
blessing to that option yet, as he wanted to consider the options.
The motion CARRIED unanimously.
AGENDA ITEM#11 -CONSIDERATION OF AWARDING THE EMULSION SEAL ANNUAL
CONTRACT TO CHOLLA PAVEMENT MAINTENANCE IN THE AMOUNT OF$76,050.
Mr. Ward reviewed his memo, which compared the bids received and included a map showing the proposed
projects. He acknowledged that there had been two bidders. He reviewed that the contractor that the town had
been using for the last four years,Domino Road Coating, had not rebid this project because the business was sold
to International Surfacing Systems. Mr. Ward expressed it was customary to research potential companies to
find out for whom they've worked, where they've worked, and for how long. He had checked with the cities of
Mesa and Chandler regarding the low bidder Cholla Pavement. He found that the staff in Chandler's
transportation department had been happy with their work, performance, and their ability to take care of
problems. Mr. Ward was confident that Cholla Pavement would do a good job and he was recommending that
the Council award the bid to Cholla Pavement in the amount of$76,050. He noted that the amount in this year's
budget was $75,000 and he pointed out that the difference could be absorbed in the street maintenance budget
bottomline.
Councilwoman Ralphe MOVED to award the emulsion seal annual contract to Cholla Pavement Maintenance in
the amount of $76,050 as presented and Councilman McNeill SECONDED the motion, which CARRIED
unanimously.
AGENDA ITEM#12- DISCUSSION AND POSSIBLE DIRECTION TO STAFF REGARDING WASTE
MANAGEMENT'S REQUEST FOR THE TOWN OF FOUNTAIN HILLS TO SEEK A VARIANCE TO
MARICOPA COUNTY'S AND THE STATE OF ARIZONA'S TWICE A WEEK REFUSE PICK UP
REQUIREMENT.
Mr. Farrell said this was something that staff had been anticipating for some time. Because it had some impact
on the community, staff wanted to bring it forward with a couple of options. Basically the State of Arizona and
the Maricopa County require refuse collection on a twice a week basis where it is offered. Generally, they lump
garbage and refuse together. He pointed out that there were two major and several minor haulers that operate in
the Town of Fountain Hills. Only one major hauler offers twice weekly refuse collection and the other offers
two pickups per week but the pickups were divided between refuse collection and an environmental collection.
Mr. Farrell said that per Waste Management that service had proven to be very desirable by their clients and the
clients enjoyed the ability to separate the ecology or environmental pickup from the refuse pickup. Maricopa
County and the State had finally a "cease and desist" order to Waste Management indicating that unless a
variance was sought from the regulations that they would be required to offer twice weekly refuse and garbage
pickup. Mr. Farrell said the carrier could not seek the variance. It must be sought by the municipality through
their health department powers. He acknowledged that Fountain Hills did not have a health department but the
Town did possess those powers within the Town. To have such a variance granted a plan had to be adopted and
some ordinance or regulation put in place with a mechanism for inspection as part of the plan. He noted that was
traditionally paid for by charging the hauler a fee based upon the number of containers in the community. He
said that fee could not be a revenue generator and must cover the cost of administering the program. Mr. Farrell
stated that Fountain Hills shares this issue with Cave Creek and Carefree who were also responding to similar
requests pursuant to similar "cease and desist" orders. He noted that the Town of Carefree had made their
application for a variance and was either at or very close to the granted status. He believed that Cave Creek
L. recently submitted their application for the same. Mr. Farrell said Waste Management's representative Jason
Town Council Minutes Regular and Executive Session 2/15/01
Page 15 of 18
Rose, was present to answer any questions. Mr. Farrell said the Council needed to decide if they wanted Waste
Management to prepare a plan for Fountain Hills. The Council could adopt that plan and seek the variance to
allow customers to continue to have two pickups weekly, one refuse and one ecology. The Council could also do
nothing in which case Waste Management would discontinue the ecology pickup and go to twice a week refuse
collection.
Vice Mayor Wyman MOVED to authorize town staff and the town attorney to proceed with the variance
procedure as presented and Councilwoman Fraverd SECONDED the motion.
Mayor Morgan asked if Waste Management currently collected garbage once a week from their customers. Mr.
Rose responded yes. Mayor Morgan made the point that with only two in her household,they would never make
it from pickup to the next with garbage pickup once a week. She pointed out that in the summer the smell in her
garage was awful and she had garbage picked up twice a week. She did not understand how the Council could
possibly be thinking of having garbage pickup only once a week. Mr. Rose said Waste Management would
continue the recycling pickup, but if they were to go to a twice a week pickup only one of the pickups would be
for garbage pickup. He pointed out that by continuing the garbage pickup once a week and recycling once a
week it would keep the rates in check, protect the environment, and eliminate trucks going up and down the
Town's streets that have to pick up trash. Mayor Morgan pointed out it did not eliminate the ones picking up
bottles and glass.
Councilman Kavanagh asked if Waste Management would be able to continue garbage pick up service for those
residents who want to continue with that type of service or would anyone contracting with Waste Management
be forced to have one garbage pickup and one recycling pickup per week. Mr. Rose replied no, there were some
customers who had trash pickup twice a week and that option would continue. Mr. Rose pointed out that there
were some 1300 in Fountain Hills who recycled. Councilman Kavanagh clarified that it would be the customer's
choice which type of service they used and it could be either twice a week pickup of refuse or once a week
pickup of refuse and once a week pickup of recycling. Mr. Rose stated that it gave them the opportunity to
ce, continue to offer recycling in the community.
Councilman McNeill felt the County and State were getting a little picky. He said he was a customer who
utilized the once a week garbage pickup with once a week recycling pickup. He noted that in his mind it was all
refuse, as he did not want to see it again. It had some recycling value but it was still refuse. He was curious if it
had been that well defined between the two types of garbage. Mr. Farrell said yes. He had spoken with an
attorney who also represents waste issues, Mr. Doug Jordan. Mr. Farrell stated that he had been provided with
the regulations, which were also available to anyone via the Internet, which were codified in the administrative
code and the county. In reading those regulations he felt it was clear that the requirement for the refuse/garbage
pickup was not consistent with the recycling restrictions. He was sure that if it had some validity, he was sure
that Mr. Jordan was capable of having made it. He noted that it was not a hyper technical situation as far as the
County was concerned. Mr. Farrell commented on an additional piece of information that he did not have when
he wrote the staff report that might help determine the Council's decision. He referred to State Statute A.R.S. 9-
500.07 states that a city or town should provide its residents with an opportunity to engage in recycling and
waste reduction. He noted that it was the Council's call but it seemed to him that in Fountain Hills situation they
were not depriving any residents of a service that they already had by applying for the variance. Mr. Farrell
reiterated that the Town had to apply for the variance. He reminded the Council that Mr. Rose had stated that
customers would not be forced to change their type of pickup. By not applying for this variance it would force
some the residents to give up something that they may think is a benefit.
Councilwoman Ralphe asked if the fees charged to the hauler would cover all of the employment cost, including
fringe benefits, etc. Mr. Farrell responded that the amount of required staff time would be to inspect a
percentage number of containers (perhaps 25%) annually. The fee schedule provided by Mr. Jordan, which he
thought Carefree was adopting, called for a variety of fees that the hauler would pay. It appeared for the amount
of staff time that would be required the fees were adequate. Mr. Farrell noted that Mr. Nordin would make that
Town Council Minutes Regular and Executive Session 2/15/01
Page 16 of 18
decision as to who would make the inspections. Councilwoman Ralphe asked if new employees would be
needed for this type of limited role. Mr. Nordin responded no.
Councilwoman Fraverd asked Mr. Rose what the inspectors were inspecting for. Mr. Farrell quoted from a Mr.
Rose's documentation. He read that "inspections would determine compliance with laws and regulations
insuring that the residents keep the container reasonably clean and free from fly larva, intense odors, and
unusually high number of flies. He noted that inspections would also insure that the haulers were providing fly
tight containers that were in good conditions. The Town Inspector would maintain an inspection log recording
the date, address, condition of the container, and the action taken. He said it was a relatively simple law.
Councilwoman Fraverd said that if the residents were recycling something those were not things that were likely
to draw flies. Mr. Farrell agreed but said the premise was that fly larva and the presence of flies and odors were
the reasons that the State and the County mandated twice a week garbage collection. If the situation was
currently without fly larva, odors, and flies once a week that was what the variance was for. Councilwoman
Fraverd asked if it was the garbage container and not the recycling container that the inspectors would be looking
at. Mr. Farrell said that was correct, the inspectors would be inspecting 25% of their containers each year
because it was presumed that the other company was in compliance. The enforcement there would come from
the County health department and not from the Town. If the Town were to find that Waste Management was not
in compliance then the variance would be revoked and they must then go the twice a week garbage pickup and
replace the container that didn't meet the standards.
Councilman Wyman said that one of the things that he liked about the refuse end of it was that the containers
were large enough to hold a week's worth of garbage. If refuse were defined to include recyclables, customers
would want it collected twice a week for sure. He said he would hate to see the recycling service disrupted in
any serious way.
Councilman Kavanagh asked if the Council were to grant the variance and some unanticipated negative
consequence were to occur, could the Council rescind the variance. Mr. Farrell reiterated that the Town did not
have the authority to grant the variance. The Town would make an application to the County for it. If something
of negative consequence were to occur, the Town could request that the County revoke the variance. The
decision to grant or to revoke was with the County and not the Town. Councilman Kavanagh asked Mr. Rose if
they anticipated any rate change based upon this action. Mr. Rose stated that he felt this action would prevent
rates from escalating because there would not be the twice a week pickups going to the landfills. He said by
doing this the rates should remain in check because customers were recycling the material instead of disposing it
in the landfill. Councilman Kavanagh asked if separate trucks were used. Mr. Rose said yes.
Peter Putterman, 16739 E. El Lago Blvd.
He wanted to know if the variance were approved by County, would Waste Management give the Town an
opportunity to expand the recycling program to accept more items for recycling. He also asked if the verbiage of
the application stated that two pickups were required or did it make the second pickup optional for Waste
Management, thereby making sure that the recycling program was continued and did not get dropped because it
became unprofitable at some point in the future.
Mr. Rose responded if there were commodities that the customers wanted to recycle that were not currently
available, his company would be interested to know what they were. He felt that they could talk to the recycling
companies about those commodities. Mr. Rose assured the Council and Mr. Putterman that the recycling pickup
would be a mandatory part of the pickup arrangement.
The motion CARRIED unanimously.
AGENDA ITEM#13- CALL TO THE PUBLIC.
Mr.Freedman, 14950 E. Golden Eagle
LHe said he was a new resident. He complained about service at the post office.
Town Council Minutes Regular and Executive Session 2/15/01
Page 17 of 18
Mayor Morgan announced that the Council would be going back into executive session after a fifteen-minute
recess.
r Councilwoman Ralphe MOVED that the Council recess the regular session at 9:00 p.m. and reconvene the
executive session at 9:15 p.m. and Vice Mayor Wyman SECONDED the motion, which carried unanimously.
AGENDA ITEM#14-ADJOURNMENT.
Councilwoman Fraverd MOVED to adjourn and Councilman McNeill SECONDED the motion, which
CARRIED unanimously. Mayor Morgan adjourned the meeting at 10:47 p.m.
TOWN OF FOUNTAIN HILLS
By: 1".1-/
Sharon Morgan,Ma or
ATTEST: (}Ct44...-1.(--61
Cassie B. Hansen,
Director of Administration/Town Clerk
PREPARED BY: )C `/ -
Bev Bender,Executive Assistant
CERTIFICATION
I hereby certify that the foregoing minutes are a true and correct copy of the minutes of the Regular and
Executive Meeting held by the Town Council of Fountain Hills on the 15h day of February 2001. I further
certify that the meeting was duly called and that a quorum was present.
DATED this 1st day of March 2001.
Cassie B. Hansen,
Director of Administration/Town Clerk
Town Council Minutes Regular and Executive Session 2/15/01
Page 18 of 18