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Clef OF SAN BERNARDCo - REQUOT FOR COUNCIL AC'-ON
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From: JAMES F. PENMAN
Subject: LEASE/PURCHASE WITH
PACIFICORP CORPORATION
Dept: City Attorney
Date: December 17, 1987
Synopsis of Previous Council action:
Resolutions 87-345, 87-346, 87-347 adopted on October 5, 1987
Recommended motion:
1. Assign to City Attorney for review by Bond Counsel; or
2. Adopt Resolution authorizing City Attorney contract re-write
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Signature
Contact person:
LEK von KAESBORG III
Phone:
5355
Supporting data attached:
Ward:
FUNDING REQUIREMENTS:
Amount:
Source:
Finance:
Council Notes:
75-0262
Agenda Item No.
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CICt OF SAN BERNARDQo - REQUOT FOR COUNCIL AC'..JoN
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STAFF REPORT
The staff reports, bid spec. F-87-38 and Resolutions 87-345,
87-346, 87-347 submitted to the Council on October 5, 1987
made no mention of a Municipal Bond. The contract package
received in the purchasing Department on December 10, 1987
requires the City, among other things, to allow Pacificorp
Corporation (PCC) to assign the subject contract pursuant
to the terms of Sections 103 and 265 of the Internal Revenue
Code. These sections describe, in essence, the tax advan-
tages to holders of Municipal Bonds.
Part of the contract requires the City of waive all rights
against whatever Corporation PCC assigns the contract. (9.1)
Neither can the City, under the terms of this contract, abate
any payment for any reason. (4.3)
This Agreement also limits how the City may use the equip-
ment, it is lease/purchasing. (lO.l(c))
A nearly identical lease/purchasing Agreement was entered
into by the City and a company called Municipal Leasing
Corporation (M.L.C.) for the purpose of lease/purchasing
some trucks. When the City, because of the confusion caused
when M.L.C. assigned the contract to Ford Motor Credit Cor-
poration, withheld payment, one of the City's trucks was
repossessed.
It is our belief that M.L.C. is now the same company as PCC.
The apparent advantage of this type of Agreement is that the
City receives a slightly lower interest rate because the in-
terest received from a Municipality is virtually tax free.
This makes the contract very profitable and therefore easy to
assign for a profit if the Assignee is well protected from
the Municipality.
The nature of this Agreement's tax consequences and the
severity of its terms as presented to the City, indicate that
Bond Counsel approval is required before it is accepted.
Attached as Exhibit "A" is the contract submitted to the City
by Pacificorp.
An alternative contract is being prepared and will be passed
out at the Council meeting.
75-0264
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STAFF REPORT
December 17, 1987
Page 2
The contract was not received in time to be reviewed prior
to the regular Agenda deadline.
If this item is not acted upon at the December 21, 1987
Council meeting, it will delay the purchase of the furniture
to City Hall.