Tait Votes Against Defending City From CATER Lawsuit

Anaheim Insider here.

At the end of Tuesday’s Anaheim City Council meeting, City Attorney Michael Houston reported out actions taken during closed session.

With respect to closed session item number 1, “CATER et al versus Anaheim Public Financing Authority .” the City Successor Agency to the Redevelopment Agency and the Anaheim Public Financing Authority met in joint closed session and by a vote of 4 to 1, with the Mayor voting “no,” approval was given to defend litigation entitled “CATER and IOC, or Coalition of Anaheim Taxpayers for Economic Responsibility and the Inland Oversight Committee, v. the Anaheim Public Financing Authority et al,” with respect to an action alleging that actions taken on May 11 relating to the issuance of bonds violated various provisions of the California Constitution and the City Charter.

So, Mayor Tait voted against defending his city from a lawsuit filed by the non-profit arm of his re-election campaign. Why? Maybe the Mayor can explain at the next council meeting why he doesn’t won’t a fight a bogus lawsuit that is seriously jeopardizing the Anaheim Convention Center’s ability to keep its biggest convention, NAMM, and sign other big conferences like the American Heart Association.

On the other hand, Tait joined the rest of the council in voting to defend the city from OCCORD’s lawsuit against the May 2103 economic assistance agreements with the GardenWalk Hotels. Why one and not the other?

 

8 comments

  1. BigBoxOfRedWhine

    I know no more about what goes on in closed session than you do (or, pen-name aside, at least I’m assuming that!), but perhaps I can guess at an explanation for the Mayor’s vote? The bond issuer, Citigroup (2013 net revenues $76.4 Billion, securities 32% of that) walked away from the deal, citing “concerns over impending litigation”. Now, from a recent announcement, ( http://finance.yahoo.com/news/legal-expenses-drag-down-citigroup-4q-earnings-140359352–finance.html ) they spend almost as much ($1.3 billion in legal and related expenses ) in only 3 months as Anaheim’s entire Government Assets ($1.6 Billion), so perhaps THEY have a good reason NOT to consider the suit “frivolous”? or else WHY would they decide to PASS on $300 Million in financing business? Just PERHAPS, the Mayor saw that, and didn’t want to WASTE TAX MONEY USELESSLY? Of course, our City Attorney Dept., (without the controls or spending approval requirements of most other City Departments), is probably HAPPY for the extra income (Helping the recovery by creating jobs, you know!) plunging ahead anyway! Without rehashing details of the City’s recent large legal bills, I seem to recall we had another Mayor back in 2007 who evidently didn’t consider the legal climate important when doubling down on suit expenses – What was that guy’s name, Curt, something? If I recall, that didn’t work out too well.

  2. Anaheim Insider

    That’s quite a speculative answer on your part. The City Attorney doesn’t earn more income by defending more cases. Citigroup pulling out of the deal doesn’t mean the city would lose the lawsuit. In fact, I’ll bet you dollars to donuts that CATER loses this lawsuit.

    • BigBoxOfRedWhine

      Why would they pass up $300M in business? Any idea of an explanation other than their stated one? I’m stuck.

  3. They would pass up on it because litigation is going to delay the deal and the planned construction; better to re-engage with the city after the litigation issue is resolved than tie up capital for months without forward movement. Additionally, the litigation delay very likely means it will cost the city more taxpayer dollars to finance this than the original amount. Citi can use their capital for other projects and likely cut a more favorable deal with the city after the lawsuit is resolved. Its not good business sense to tie up $300 million and be unable to touch it or have the project move forward in a timely manner. Better to withdraw the funding until obstacles are cleared and have the capital available for lots of other uses. This isn’t rocket-science.

    • You know it’s a fixed term bond, right Dan?

      They get a return the second it’s put out to market. Alternative employment of capital had nothing to do with it. Material risk the investment (i.e., not getting their money back) did.

      • I think what Dan is saying is that this litigation is going to delay when they can “go to market.” Thus, why have money waiting around doing nothing when you can pull it out and invest it somewhere else, get a return on it and then come back to Anaheim once they are actually ready to go to market.

        • If that’s what he’s saying, then he’s wrong.

          Citi is the market. This was an attempt to sell bonds to Citi. They balked. They didn’t balk because they wouldn’t get a return (alternate opportunities for capital). They balked because they wouldn’t get their money back if a court ruled the council authorized the bonds illegally.

          In other words, the money wouldn’t be waiting around doing nothing. It’d be getting a return as soon as it were bought by Citi.

          It would be correctly stated that Citi found the risk of buying bonds today unacceptable. Once the risk is removed (not the opportunity for earning a return) they might reconsider.

          That of course assumes their objection is based on the lawsuit and not on something more material like the city’s ability to pay the bond back due to an inherent error in revenue collection forecasts. If that’s the case, the deal was DOA.

  4. Dan Chmielewski

    I think big banks are skittish on buying bonds from someone who lacks the ability to pay them back. By delaying the expansion, Anaheim lacks the ability to go after the big conventions that its certainly capable of hosting. Not unlike giving an outrageous mortgage to someone without a full time job. Once the lawsuit is resolved, Citi and Anaheim can get back to the table but Citi can and will likely get a better deal. Why buy the bonds if there are bumps in the road. Citi wants smooth sailing. I understand the city’s outside legal counsel tried to assure Citi the lawsuit has little chance to succeed, but in the wake of the 2008/2009 fiscal crisis, big banks are being extra cautious. The more important things is the families of these building trades who were counting on the work. How big was your check to CATER Ryan?

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