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6.C. - Page 12 of 57
<br />Scenario 3: the 2019 bonds consist of two series: 2019A, which refunded the 2009 bonds, and 2019B,
<br />which raised capital (new money) for future improvements. In this scenario NHA proposes the exclusion of
<br />defeasance costs related to the 2019B (new money) bonds, on the basis that the bond proceeds will be
<br />used for future improvements that will not benefit Atherton. If the defeasance costs for the 2019B (new
<br />money) bonds are excluded ($1,566,259) and the overpayment deducted ($581,386), the amount owed is
<br />$984,874.
<br />Scenario 4: this scenario combines Scenario 2 (taking into account a presumed future reduction in
<br />Atherton's proportion of the waste stream), and Scenario 3 (exclusion of the cost to defease the 2019B
<br />(new money) bonds, reducing the proportionate share to $903,623 ($322,238 with the overpayment
<br />deduction). This is the Scenario that Atherton proposes SBWMA accept in its Notice of Intent to Withdraw,
<br />without the deduction for overpayment.
<br />Scenario 5: this scenario includes Scenarios 2 and 3 and proposes additional reductions in the allocation of
<br />the 2019A bonds relating to the 2009 projects, similar to the argument made for the "overpayment"
<br />deduction, but in addition thereto. Under this scenario, SBWMA would end up owing $79,573 to Atherton.
<br />B. Other Costs
<br />HF&H Consultants, LLC: In addition to KNN, staff retained HF&H Consultants to determine whether there are other
<br />(unrelated to the bonds) financial obligations attributable to Atherton that should be included in the liquidation
<br />amount pursuant to Article 15.1.b. which requires the withdrawing Member to liquidate in full "its proportion of any and
<br />all existing debts obligations, and liabilities incurred, earned, or expected to be earned by the date of withdrawal." After
<br />examining SBWMA's financial records, HF&H concluded that there are no other existing debt obligations or
<br />liabilities that Atherton would be responsible for after its withdrawal on December 31, 2020, the only exception
<br />would be an insurance claim, were one to be filed prior to that time. (Attachment 5.) As discussed in the Fiscal
<br />Impact section below, after Atherton's withdrawal, ongoing operational expenses would be apportioned between the
<br />remaining Members, because under the JPA, once a Member withdraws, it is no longer responsible for SBWMA's
<br />continued operational expenses.
<br />Discussion
<br />Under the terms of the JPA, a Member Agency may not withdraw unless and until it has liquidated in full its
<br />proportion of any and all existing debts, obligations, and liabilities of, as determined by the Board. The JPA does not
<br />specify the formula to be used when calculating this liquidation cost, so it falls upon the Board to make a
<br />determination based on the information presented. Based on the analyses prepared by the financial consultants for
<br />SBWMA and Atherton, there are basically three options for the Board to consider:
<br />1) the KNN analysis which fully defeases the 2019A and B bonds based on franchise tonnage,
<br />2) the NHA analysis which calculates the amount based on franchise tonnage but excludes the 2019 (new
<br />money) bonds proposed by Atherton, or
<br />3) the NHA Scenario 4 analysis (without the overpayment deduction), proposed by Atherton.
<br />Option 1 — Full Defeasance of all 2019 bonds based on franchise tonnage (estimated cost $2,203,016).
<br />SBWMA's consultant, KNN, utilizes franchise tonnage to determine Atherton's share of liabilities, noting that "In our
<br />opinion, franchise tonnage is the most reasonable measure to use in determining a member's proportionate share
<br />of liability because it mirrors the long-standing practice of allocating costs." (Attachment 3, page 1.) Atherton's
<br />consultant, NHA, in its analysis, acknowledges that using franchise tonnage to calculate proportionate liability is the
<br />"simplest and most straightforward approach." (Attachment 2, page 2.) Staff recommends this option because it
<br />SBWMA BOD PACKET 8/20/2020 AGENDA ITEM: 5A - p4
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