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6.C. - Page 23 of 57
<br />liabilities incurred, earned, or expected to be earned by the date of withdrawal, including
<br />but not limited to the Revenue Bonds, as determined by the Board.
<br />b. The provision to the SBWMA of a written notice of intent to withdraw from the SBWMA
<br />at least six (6) months prior to the end of the current Rate Year, specifying the date on
<br />which the Member intends to withdraw.
<br />c. The approval of such withdrawal by a 4/5 affirmative vote of Equity Members.
<br />Liquidation Amount: The substantive question raised by Atherton's potential withdrawal from the JPA is how to calculate
<br />the "liquidation in full of its proportion of any and all existing debts, obligations, and liabilities incurred, earned or expected to
<br />be earned by the date of withdrawal, including, but not limited to the Revenue Bonds, as determined by the Board." While
<br />Burlingame considered withdrawing in 2009, it did not do so and no other Member has proposed withdrawing from the
<br />Authority since it was established in 1999, so there is no specific precedent to consider when addressing this question.
<br />Based on communications from Atherton that it might consider withdrawing, the Authority, in late 2019, asked its bond
<br />consultants, KNN Public Finance, LLC., to calculate the portion of SBWMA's outstanding bond obligations attributable to the
<br />Town, and to describe a method for retiring that proportional share through a legal defeasance of the bonds. A copy of
<br />KNN's letter was provided to Atherton in December 2019. KNN calculated Atherton's proportionate bond share based on its
<br />proportion of overall franchise tonnage, which over the past three years has been approximately 3.25%. Applying this factor
<br />to the outstanding bond obligations, and calculating the costs for legal defeasance, KNN calculated that Atherton's
<br />proportionate share for liquidating its bond obligations upon withdrawal would be approximately $2,087,908.00. This number
<br />only takes into account Atherton's share of bonded indebtedness; it does not include other obligations and liabilities.3 Staff
<br />is in the process of calculating that number.
<br />We note that Atherton has made a number of arguments in its letter of intent suggesting that it is entitled to a proportionate
<br />share of the Authority's assets upon its withdrawal, and that its liability obligations should be offset from this share. These
<br />arguments are based on Article 16, Termination, of the JPA, which provides that upon mutual termination of the Authority by
<br />the members, if there is no successor agency to the Authority, "all assets and liabilities shall be apportioned to each Member
<br />in proportion to the contribution of each current Members' ratepayers' total contribution during the Term of this Agreement. A
<br />reference to ratepayers' contribution means payment of Collection fees under each jurisdiction's respective Uniform
<br />Franchise Agreement.'
<br />The Authority does not agree that the provisions of Article 16, dealing with termination of the agency, impliedly apply to
<br />Article 15 when a Member decides to withdraw. It is a fundamental principle of contract interpretation that when something is
<br />not included in a term, it is meant to be excluded. In this case, Article 15 does not include any language related to the
<br />Authority's assets, it very specifically refers to it liabilities. If the Members had desired to include assets in Article 15, they
<br />would have done so, as evidenced by the fact that they are included in Article 16. Nor does the Authority view Article 15's
<br />requirement that a Member pay its proportionate share of debt and liabilities upon its withdrawal as violative of the equitable
<br />principle of unjust enrichment. The Members entered the JPA in furtherance of their mutual interests, and incurred debt in
<br />reliance upon each Members participation. The JPA document, which the Members approved, provides that the burden
<br />created by the withdrawal of a Member should fall on the Member, not the Authority.
<br />Process: According to Article 15, the withdrawal process requires that the Board determine the amount required to liquidate
<br />the withdrawing members share. Once that number is determined by the Board, 4/5 (four-fifths) of the Member Agencies
<br />are required to approve the withdrawal. This process is similar to that required when the JPA is amended: upon approval by
<br />the Board of the liquidation amount, and Atherton's commitment to pay that amount, each Member Agency's governing
<br />board will be required to place the matter on its agenda for consideration. We believe the individual Member Agency's must
<br />approve the withdrawal based upon their own local rules, typically by a majority of members present. We do not believe the
<br />3 This number was calculated based on interest assumptions that were current in December 2019. The number would have to be recalcu!ated based on
<br />the current market to determine a final number for withdrawal.
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