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<br />be enacted. Under the Bighorn case, local voters could adopt an initiative measure that reduces
<br />or repeals the City’s rates and charges, though it is not clear whether (and California courts
<br />have not decided whether) any such reduction or repeal by initiative would be enforceable in a
<br />situation in which such rates and charges are pledged to the repayment of bonds or other
<br />indebtedness. There can be no assurance that the courts will not further interpret, or the voters
<br />will not amend, Article XIIIC and Article XIIID to limit the ability of local agencies to impose,
<br />levy, charge and collect increased fees and charges for water, or to call into question previously
<br />adopted water rate increases.
<br />
<br />Effect of Proposition 218 on the City; Possible Limitations on Enforcement Remedies.
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<br />The general financial condition of the City may be affected by provisions of Article XIIIC
<br />and Article XIIID. In particular, provisions of Article XIIIC (i) require taxes for general
<br />governmental purposes to be approved by a majority vote and taxes for specific purposes, even
<br />if deposited into the General Fund, to be approved by two-thirds vote, (ii) require any general
<br />purpose tax which the City imposed, extended or increased, without voter approval, after
<br />December 31, 1994, to be approved by majority vote on November 5, 1998 and (iii) provide that
<br />all taxes, assessments, fees and charges are subject to reduction or repeal at any time through
<br />the initiative process, subject to overriding constitutional principles relating to the impairment
<br />of contracts. Provisions of Article XIIID that affect the ability of the City to fund certain services
<br />or programs that it may be required or choose to fund include (i) adding notice, hearing, protest
<br />and, in some cases, voter approval requirements to impose, increase or extend certain
<br />assessments, fees and charges and (ii) adding stricter requirements for finding individualized
<br />benefits associated with such levies.
<br />
<br />The ability of the City to comply with its covenants under the 2017 Installment Purchase
<br />Contract and to generate Net Revenues sufficient to pay the 2017 Installment Payments and,
<br />therefore, the principal of and interest on the Bonds may be adversely affected by actions and
<br />events outside of the control of the City and may be adversely affected by actions taken (or not
<br />taken) under Article XIIIC or Article XIIID by voters, property owners, taxpayers or payers of
<br />assessments, fees and charges. Furthermore, any remedies available to the owners of the Bonds
<br />upon the occurrence of an event of default under the 2017 Installment Purchase Contract are in
<br />many respects dependent upon judicial actions which are often subject to discretion and delay
<br />and could prove both expensive and time consuming to obtain. In addition to the possible
<br />limitations on the ability of the City to comply with its covenants under the 2017 Installment
<br />Purchase Contract, the rights and obligations under the Bonds and the Indenture may be subject
<br />to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium
<br />and other laws relating to or affecting creditors’ rights, to the application of equitable principles,
<br />to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies
<br />against cities in the State of California.
<br />
<br />Based on the foregoing, in the event the City fails to comply with its covenants under the
<br />2017 Installment Purchase Contract, including its covenants to generate sufficient Net
<br />Revenues, as a consequence of the application of Article XIIIC and Article XIIID, or to pay
<br />principal of or interest on the Bonds, there can be no assurance that available remedies will be
<br />adequate to fully protect the interests of the holders of the Bonds.
<br />
<br />Proposition 26
<br />On November 2, 2010, State voters approved Proposition 26 which amended certain
<br />sections of Article XIIIC. The proposition attempts to define “tax” as used within Article XIIIC
<br />as “any levy, charge, or exaction of any kind imposed by a local government, except the
<br />following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to
<br />the payor that is not provided to those not charged, and which does not exceed the reasonable
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