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11 EASTERN TRANS CORR 12-16-02
AGENDA REPORT MEETING DATE: DECEMBER 16, 2002 NO. 11 12-16-02 TO: WILLIAM A. HUSTON, CITY MANAGER FROM: PUBLIC WORKS DEPARTMENT/ENGINEERING DIVISION SUBJECT: PROPOSED AMENDMENTS TO THE FOOTHILL/EASTERN TRANSPORTATION CORRIDOR AGENCY'S JOINT POWERS AGREEMENT SUMMARY The Foothill/Eastern Transportation Corridor Agency (F/ETCA) is requesting that the City of Tustin, an F/ETCA member, adopt amendments to the F/ETCA Joint Powers Agreement as stated in the "Second Amended and Restated Joint Exercise of Powers Agreement Creating the F/ETCA". The amendments will establish the legal framework for a potential consolidation of the San Joaquin and Foothill/Eastern Transportation Corridor Agencies. These amendments provide for consolidation only if the Transportation Corridor Agency (TCA) boards make the determination that consolidation is financially feasible next year. Seventy five percent of the member agencies must approve the amendments to allow the TCA Boards to move forward with the consolidation process. RECOMMENDATION It is recommended that the City Council adopt the proposed amendments to the F/ETCA Joint Powers Agreement as stated in the "Second Amended and Restated Joint Exercise of Powers Agreement Creating the F/ETCA". (TCA Staff Report Attachment A). FISCAL IMPACT None at this time. BACKGROUND The Transportation Corridor Agencies represents two joint powers authorities responsible for the construction and operation of Orange County's 51 mile public toll-road system. Eighteen cities and three County Supervisorial Districts are represented on the San Joaquin Hills (SJHTCA) and the F/ETCA Board of Directors. A single administrative staff operates the road as a system and serves both agencies, even though the agencies are legally and financially separate entities. Toll Revenue Bonds were issued in 1993 to fund construction of the San Joaquin Hills Toll Road. In 1997, the SJHTCA exercised its only opportunity under Federal tax laws to refinance a majority of the debt on a tax exempt basis. After the 1997 refinancing, revenues and transactions continued to grow but not at a sufficient level to keep pace with an escalating debt service structure. Subsequently, Fitch Investor Services, one of the three rating agencies that rates TCA bonds downgraded the SJHTCA's bonds to investment grade. Immediately following the downgrade, the SJHTCA Board of Directors commenced an effort to evaluate all financial options available to the agency to establish long term financial stability. The conclusion of the analysis was that the only viable option for establishing long-term financial stability for the toll-road system Proposed Amendments to the Foothill/Eastern Transportation Corridor Agency's Joint Powers Agreement December 16, 2002 Page 2 and ensure market access for the Foothill-South project was to consolidate the two agencies. Consolidation allows the two agencies to restructure debt payments on a tax free basis, streamline operations, diversify the revenue base, and structure the ability to complete the toll road system. Adopting the proposed amendments to the existing Joint Powers Agreements, specifically provides the existing agencies the authority to create a new, consolidated agency, establishes a 21-member Board of Directors for the new consolidated agency, maintains the current 2/3 quorum, establishes a supermajority voting requirement, provides for the administration of the Development Impact Fee Program, and applies the indemnity, arbitration, and third-party beneficiary provisions of the existing JPAs. Adopting the amendments does not create the consolidated agency, but establishes the legal groundwork for the creation of a new, consolidated agency, only if the boards vote to proceed with consolidation next year. Once a draft financial plan is developed, TCA staff will bring a financial plan for a consolidated agency to the boards in spring 2003 for a final decision on whether or not to proceed with consolidation. The attached TCA staff Report provides detail documentation of the Agency's history along with an analysis of the proposed amendments. Director of Public Works/City Engineer Attachment: TCA City Council Staff Report TDS:ccg:Foothill ETCA proposed amend,doc TRAIVSPORTA TIOIV CORRIDOR AGENCIES 125 PACIFICA, SUITE 100, IRVINE CA 92618-3304 949/754-3400 FAX 949/754-3467 MEMORANDUM DATE: TO: FROM: SUBJECT: November 7, 2002 Tustin City Council W.D. Kreutzen, CEO, Transportation Corridor Agencies Proposed Amendments to the Foothill/Eastem Transportation Corridor Agency's Joint Powers Agreement The Foothill/Eastem Transportation Corridor Agency (F/ETCA) requests that the City of Tustin, a member of the F/ETCA, adopt the proposed amendments to the F/ETCA Joint Powers Agreement as stated in the "Second Amended and Restated Joint Exercise of Powers Agreement Creating the F/ETCA" (Attachment A). I. BACKGROUND About the TCAs and The Toll Roads The Transportation Corridor Agencies are two joint powers authorities responsible for building and operating Orange County's 51-mile public toll-road system. The system includes state routes 73,241,261 and a portion of the 133. The San Joaquin Hills Transportation Corridor Agency (SJHTCA) oversees the 73 Toll Road, which runs 15 miles from Newport Beach at Jamboree Road to the 1-5 in San Juan Capistrano. The Foothill/Eastern Transportation Corridor Agency (F/ETCA) oversees the 241,261, and 133 Toll Roads, a 36-mile system that runs from the 91 Freeway in Anaheim Hills and ends in Irvine (261) and at Oso Parkway near Rancho Santa Margarita (241). As part of the state highway system, The Toll Roads are owned and maintained by the California Department of Transportation (Caltrans). The California Highway Patrol enforces public safety and toll-payment laws on The Toll Roads. TCA Staff Report Page 2 of 8 The Formation of the Joint Powers Authorities In the 1970s, county traffic studies identified the need for two major highways -- one near the coast and one in inland Orange County -- to help meet the needs of a fast-growing population and economy. The San Joaquin Hills and Foothill/Eastern Transportation Corridors were sketched out on county road plans as freeways, but with shrinking state and federal transportation funds, local officials needed to find alternative funds for new roads. In the 1980s, local elected, appointed, and business leaders led the effort to form joint powers authorities to plan, design, finance and construct the planned corridors. The San Joaquin Hills Transportation Corridor Agency (SJHTCA) and the Foothill/Eastern Transportation Corridor Agency (F/ETCA) were created in 1986. Formation of the TCAs required approval by the County of Orange and each city in the area benefited by the corridors to join one or both of the Joint Powers Authorities. In 1986, the County of Orange and 10 cities (Anaheim, Costa Mesa, Irvine, Orange, Newport Beach, San Clemente, San Juan Capistrano, Santa Ana, Tustin, and Yorba Linda) approved Joint Powers Agreements (JPAs) to form the TCAs. Between 1988 and 2001, eight additional cities joined the TCAs (1988 - Mission Viejo; 1989 - Dana Point; 1990 - Laguna Niguel; 1992 - Lake Forest and Laguna Hills; 1999 - Laguna Woods; 2000- Rancho Santa Margarita; 2001 - Aliso Viejo). In 1987, the state legislature approved legislation that gave the both agencies the authority to collect tolls. This meant that corridor construction would be funded through bonds backed by future toll revenues or user fees, an important turning point in the way infrastructure projects were funded since traditional tax dollars to fund transportation improvements were not available. Taxpayers and TCA member agencies are not liable for toll road debts. Once the bonds are repaid, the TCAs are mandated by legislation to be dissolved. At that time, the toll roads will become freeways. Eighteen cities and the three County Supervisorial Districts are currently represented on the TCA Boards of Directors. The SJHTCA and F/ETCA Boards of Directors govem policy decisions affecting the toll-road system. A single administrative staff operates the roads as a system and serves both agencies, even though the agencies are legally and financially separate entities. The Toll Roads Today Today, because of the foresight of local elected, appointed, and business leaders, the 51- mile toll-road network is a critical piece of Southern Califomia's regional transportation system. Nearly 250,000 trips are taken on The Toll Roads everyday, saving toll-road drivers an estimated 21 minutes per trip and significantly alleviating congestion on the I- 5,405, SR-55, SR-91 freeways as well as major arterial roads. Seventy-five percent of TCA Staff Report Page 3 of 8 the toll-road system is completed, with the final 16-mile segment of the 241, Foothill- South, in the environmental planning stages. Toll revenue bonds to fund construction of the San Joaquin Hills (73) Toll Road were issued in 1993. The 73 Toll Road opened in 1996. In 1997, the SJHTCA exercised its only opportunity under federal tax law to refinance a majority of the debt on a tax-exempt basis. This financing took advantage of changes in the project's risk profile and a historically low interest rate environment. The result was more than $220 million in cash- flow savings and a stronger credit profile. After the 1997 refinancing, revenue and transactions continued to grow by more than 10% per year, but not at a sufficient level to keep pace with projections and an escalating debt service structure. The TCAs closely monitored the road's revenue performance, made changes to the marketing program, and kept rating agencies and investors apprised of the situation. In response, to further strengthen the SJHTCA's financial picture, the Board adopted a Revenue Stabilization Plan that included: · Defeasing $45 million in debt with fimds received from the Orange County bankruptcy settlement (Feb. 2000) · Implementing a $1 transponder maintenance fee for accounts that did not attain $25 in monthly tolls (July 2000) · Implementing an unscheduled toll increase at all ramp plazas (July 2000) · Transitioning toll operations from Lockheed Martin lMS (Dec. 2000) · Implementing a scheduled toll rate increase at the mainline plaza (July 2001) · Implementing an unscheduled toll increase at the mainline toll plaza for cash customers and FasTrak peak-hour pricing (Feb. 2002). In addition, the TCA's CEO has been implementing agency-wide cost-cutting measures since FY 2000 while continuing to be mindful of maintaining customer service. Today, revenue from the 73 Toll Road is at 77% of the revenue projections set during the 1997 refinancing. Phases of the Foothill and Eastem Toll Roads opened between 1993 and 1999. In late 1999, the Foothill/Eastern Transportation Corridor Agency exercised its only opportunity to refinance to also take advantage of an improved risk profile and lower interest rates. The Foothill/Eastern Corridor is currently running at approximately 107% of revenue projections established in 1999. This positive performance is due, in part, to the fact that the F/ETCA benefited from the experiences and lessons learned from the SJHTCA. In February 2002, Fitch Investor Services, one of the three ratings agencies that rates TCA's bonds, downgraded a portion of the SJHTCA's bonds to a non-investment grade rating. Moody's Investors Service and Standard & Poor's have maintained their rating of SJHTCA's bonds as investment-grade. Immediately following the downgrade, the SJHTCA Board of Directors hired two independent financial consultants to work with staff and to independently evaluate all financial options available to the agency to establish long-term financial stability. TCA Staff Report Page 4 of 8 II. DISCUSSION: Consolidation: The Proposed Solution In early 2002, a group of TCA finance staff, bond underwriters, legal counsel, and the board's independent financial consultants analyzed more than a dozen financial options -- including seven ways to restructure the SJHTCA's debt, consolidating the agencies, requesting financial help from an outside government agency, or not pursuing any financial restructuring (keeping the status quo). (Attachment C, Consolidation Briefing Packet, pg. 7 and 10.) Based on the analysis, which assumes that the SJHTCA's revenues increase at a conservative 4% annual growth rate, the agency would not generate enough revenue to meet debt-service coverage requirement past 2005 and would likely default on a portion of the annual bond payments in 2012. As a result, the SJHTCA Board could lose control of its ability to set toll rates as early as 2005. Toll rates would be required to be set as high as necessary to maximize revenue. Toll-road patrons would be forced to bear the burden of higher tolls. A downgrade and ultimate default by the SJHTCA could also have a negative effect on other government agencies regionally. Default by a public agency makes the market skeptical about the willingness or ability of other local government agencies, especially related entities such as TCA member cities, the County, etc. to repay debt. Ultimately, a default by the SJHTCA could cost the F/ETCA and related jurisdictions access to the market, additional interest costs, or require other costly credit enhancements. The financial analysis also examined the possibility of a grant, loan or acquisition by an outside government entity, but concluded that such action would be highly unlikely. A loan or grant of at least $680 million would be needed to avoid a debt-coverage violation and default. A buyout would require the purchasing entity to pay off the SJHTCA's entire $1.8 billion outstanding debt, a significant amount for any state or local government agency to bear in this environment of tight tax revenues and budget shortfalls, especially for a road that is already constructed and operating. Furthermore, a default by SJHTCA would greatly impair F/ETCA's ability to finance Foothill-South, the final segment of the 241 Toll Road. Assuming the construction of that project required an $800 million financing, the F/ETCA could face interest rate penalties between $10 million and $20 million per year for 40 years, a cost that would likely make the project infeasible to finance. After exhaustive analyses, the conclusion was that consolidating the SJHTCA and F/ETCA into a single agency was the only viable option for establishing long-term financial stability for the toll-road system and ensuring market access for the Foothill- South project. Consolidation allows the two agencies to restructure debt payments on a TCA Staff Report Page 5 of 8 tax-free basis, streamline operations to reduce costs, diversify the revenue base, and strengthen the Agencies' ability to complete the toll-road system. In April 2002, the SJHTCA board unanimously agreed to ask that the F/ETCA consolidate into a single joint powers authority (Attachment D). In June 2002, the F/ETCA Board of Directors unanimously voted to proceed with the potential consolidation of the agencies as a way to ensure long-term financial stability for The Toll Roads and completion of Foothill-South (Attachment E). The Consolidation Process A number of steps must occur before the TCA Boards make a final decision on whether or not to consolidate. The TCA Boards took a major step in October 2002, by selecting a 21-member board structure to govern the consolidated agency, if it is created. The 21- member structure ensures that one representative from each city and County jurisdiction currently represented on the existing TCA Boards will have a seat on the new board (Attachment F). The remaining steps toward a final decision on consolidation are as follows: SJHTCA & F/ETCA Review Amendment to Exisiting JPAs Member Agencies Approve JPA Amendments SJ HTCA & F/ETCA Create Consolidated JPA New JPA Votes to Acquire Agencies Nov 2002 Nov 2002 - Jan 2003 May 2003 May 2003 Along with approving a board structure in October 2002, the TCA Boards also authorized TCA legal counsel to draft amendments to the agencies' existing Joint Powers Agreements that would specifically allow for the consolidation of the Agencies. III. PROPOSED AMENDMENTS TO THE JOINT POWERS AGREEMENTS On November 14, 2002, the TCA boards reviewed the proposed amendments to Joint Powers Agreements that would specifically authorize the creation of a new, consolidated transportation corridor agency (Attachment A "Second Amended and Restated Joint Exercise of Powers Agreement Creating the F/ETCA"). The TCA Boards unanimously recommended that TCA member agencies, including the City of Tustin, adopt the amendments (Attachment F). The amendments are designed to be simple and to leave the existing JPA provisions in place to the maximum extent possible. Amendments to the original JPAs must be approved by three-quarters of each TCA's member agencies. The proposed amended JPAs includes new language to do the following: TCA Staff Report Page 6 of 8 ae b, Specifically authorize the Boards of Directors of the SJHTCA and F/ETCA to join together to form a new joint-powers transportation corridor agency. Section 5.1 of the existing Joint Powers Agreements state that the "Board is authorized to make or perform any agreement to join with said agencies (other major thoroughfare and bridge agencies) in the planning and implementation of said thoroughfares and bridges, when for any purpose otherwise permitted by law, the Board deems it appropriate." While it appears with this language that the Boards have the authority to create a new consolidated JPA, the TCA Boards and staff considered it appropriate to request specific authorization from the member agencies because of the required changes in the voting structure. The specific language providing for this authorization is included in Section 2.3(m) of the amended JPAs (Attachment A and B). This added language specifically cites Government Code Sections 6500 et. Seq. as the legal authority (other than the existing agreements) for joining of the two JPA's. Section 6500 et. Seq. of the Government Code simply defines public agencies. In 1999, the state Legislature amended the Joint Exercise of Powers Act ("JPA Act") to include JPA's in the definition of public agencies. Section 6502 gives specific authority for JPAs to contract with each other. Establish a 21-member Board of Directors, maintain the current two-thirds quorum requirement for board meetings, and establish a voting requirement of the lesser of 16 or 77% of the board members present to approve an item. Section 2.3 (m) of the amended JPA also establishes the board structure, maintains the use of alternates, and specifies voting requirements of the proposed consolidated agency. Both Boards unanimously approved this structure in October. The supermajority voting requirement is necessary to ensure that the consolidated agency is not controlled by either existing agency as required by federal tax law. As stated in Section 2.3 (m): "A Joint Transportation Corridor Agency Agreement shall provide that: (i) the board of directors of such Joint Transportation Corridor Agency shall be composed of one (1) voting member appointed by the legislative body of each city that is a party to either or both this Agreement and the F/E Agreement from time to time, and three (3) voting members from the County of Orange, said members to be the duly elected supervisors for the Third, Fourth, and Fifth County of Orange Supervisorial Districts, (ii) each such board member shall also have an alternate appointed by the legislative body of the relevant City or the County appointing such board member consistent with this agreement, (iii) not less than two-thirds (2/3) of the members of such board shall constitute a quorum for the purposes of transaction of business relating to the Joint Transportation Corridor Agency, and (iv) such board may adopt any motion, resolution or order and take any other action they deem appropriate by a vote of the lesser of (a) sixteen (16) such board members, (b) seventy-seven percent (77%) of those board members present and qualified to vote, or (c) such lesser TCA Staff Report Page 7 of 8 number or percentage of votes (but not less than a majority) that is the requisite vote necessary to maintain the tax-exempt status of debt issued by the Joint Transportation Corridor Agency, as supported by an opinion of a nationally recognized bond counsel selected by such board. C. Provide for administration of the Development Impact Fee program by the consolidated agency if the existing agencies decide to delegate such duty to the consolidated agency. Development Impact Fees are an important source of revenue that will continue to be used by the consolidated agency, if created, to repay construction debt already issued and to fund toll-road improvements. The amendment, as stated in Section 4, does not change the current Development Impact Fee program, but clarifies that the consolidated agency will be responsible for the program if the amended JPAs are adopted. Simply stated, the amended JPA allows the joint Transportation Corridor Agency to manage the funds collected pursuant to the fee program. d. Apply the indemnity, arbitration, and third-party beneficiary provisions of the existing Joint Powers Agreements to the consolidated agency. This means that member agencies will continue to be protected from debts, liabilities, and obligations of the joint transportation corridor agency, and that arbitration provisions outlined in the existing JPAs will apply to the consolidated agency. The indemnity provisions are stated in Section 8.2. The arbitration provisions are stated in Section 11.4. and the third-party beneficiary provisions are stated in Section 11.9. IV. NEXT STEPS Three-quarters of the member agencies of the SJHTCA and F/ETCA must approve the proposed amendments to the JPAs. Approval by member agencies would allow the SJHTCA and F/ETCA Boards to move forward with the consolidation process. Approval by TCA member agencies does not create the consolidated agency, but it establishes the legal groundwork for the creation of a new, consolidated agency only if the Boards vote to proceed with consolidation next year. Before consolidation can occur, TCA staff must develop a viable financial plan based on the results of the traffic and revenue study, which is currently in progress. The traffic and revenue study will evaluate future projected traffic levels based on the latest socio- economic data, land-use plans, and historical toll-road traffic data to determine projected revenue for the agencies. The study will also take into account recent major land-use planning decisions such as the reuse of the E1 Toro base, the donation of Irvine Co. land in east Orange to permanent open space, and the development of the Rancho Mission Viejo property. Once the traffic and revenue study is completed next spring, TCA staff will determine if a viable financial plan can be developed for a consolidated agency. Once a viable finance plan is developed, the SJHTCA and F/ETCA Boards will then make the final decision on TCA Staff Report Page 8 of 8 whether or not to form a new, consolidated agency. The board of the consolidated TCA will then consider the finance plan and decide whether to acquire the assets of the existing SJHTCA and F/ETCA. The rating agencies and financial markets are watching the TCAs for progress toward a long-term financial solution. While downgrades in and of themselves don't immediately affect toll-road drivers, they signal a loss of confidence by the market and can ultimately negatively impact the ability of the TCAs and possibly its member agencies to access the market to finance future projects. By approving the proposed amendments to the JPAs, member agencies are sending a strong signal to the markets that they are committed, along with the TCAs, to a long-term financial solution for the toll-road system. Approving the amendments now ensures that the consolidation process moves on schedule. It is important that TCA knows now whether the amended JPAs are acceptable by the member agencies before funds are spent on financial consultants needed to perform due diligence on the financial plan and acquisition of the existing TCA's assets. V. CONCLUSION Adopting the amendments to the existing SJHTCA and F/ETCA Joint Powers Agreements specifically provides the existing TCAs the authority to create a new, consolidated agency, establishes a 21-member Board of Directors for the new consolidated agency, maintains the current 2/3 quorum requirement, establishes a supermajority voting requirement, provides for the administration of the Development Impact Fee Program, and applies the indemnity, arbitration, and third-party beneficiary provisions of the existing JPAs. Adopting the amendments does not create the consolidated TCA, but establishes the legal groundwork for the creation of a new, consolidated agency, only if the SJHTCA and F/ETCA Boards vote to proceed with consolidation next year. EXHIBIT A F!RSTSECOND AMENDED AND RESTATED JOINT EXERCISE OF POWERS AGREEMENT CREATING THE FOOTHILL/EASTERN TRANSPORTATION CORRIDOR AGENCY TABLE OF CONTENTS Page II. PURPOSE AND POWERS 2.1 Agency Created ................................................................................................................................... 4 2.2 Purpose of the Agreement; Common Powers to be Exercised ...................................... 4 2.3 Powers. III. ORGANIZATION 3.1 Membership,. ............................................... 3.2 Board ...................................................... 3.3 P rin c ~_a..l__O_ _ffi c_e_.. 3.4 Meetings ......................................................................................................................... 7 3.5 Quorum. 3.6 Powers m~d Limitations Thereon. 3.7 Minutes. 3.8 Rules. 3.9 Vote or Assent of Parties .......................................... ~ ....................................................................................................................... .8._ 3.10 Officers. 3.11 Committees .................................................................................................................... 8 3.12 Additional Officers. IV. 3.13 Bonding Requirement. 3.14 Status of Officers and Employees .................................................................................. 9 FEES ......................................................................................... ,..:.~.~....9... 4.1 4.2 Imposition of Major Thoroughfare and Bridge Construction Fee by Parties ................ 9 Annual Review of Fees ................................................................................................................. L0.. 4.3 Payment ........................................................................................................................ 10 go TABLE OF CONTENTS (cont'd) Page 4.4 Compensation of Agency for Acquisition of Rights-of-Way ...................................... 11 RELATIONS WITH OTHER MAJOR THOROUGHFARE AND BRIDGE FEE AGENCIES ........................................................................................................ 11 VI. 5.1 Joint Action with Other Agencies ............................................ ,_..._..:~., .................................................................... !....!. 5.2 Communications Between Corridor Agencies ..................................... 11 5.3 Lending and Borrowing Funds Between Agencies ...................... , ....... ._.., .... .:..: .......... .:.:.:.:.! 2 BUDGET AND DISBURSEMENTS ........................................... 12 ..6._:.1 Annual Budget ................................................................................................................................................................ !..g 6.2 Disbursements. 6.3 Accounts ...................................................................................................................... 12 6.4 Expenditures Within Approval Annual Budget ........................................................... 12 6.5 Audit ................................................................................................. _ ....................................................... !_3. VII. SECURITIES ...................................................................... 13 7.1 Securities ...................................................................... ,.., .......... _._.._::_.,..: .... :.....:..,.:..:.....:_.........~..:.~:._....,.-_,..............:.:..:..,..(.3.. VIII. LIABILITIES. ..... 13 8.1 Liabilities ........................................................... 13 8.2 Hold Harmless and Indemnify ..................................................................................... 13 IX. ADMISSION AND WITHDRAWAL OF PARTIES .......... 14 9.1 Admission of New Parties .......................... 14 9.2 Withdrawal ................................................................. 14 X. TERMINATION AND DISPOSITION OF ASSETS ....................................................... 15 10.1 Termination. .. 15 ..................................... 15 XI. 10.2 Distribution of Property and Funds. MISCELLANEOUS 11.1 Amendments. 11.2 Notice. TABLE OF CONTENTS (cont'd) Page 11.3 Effective Date ............................................................... 11.4 Arbitration ................................................ .............. , ............................................... ~. :.:_._....1....6. ,.. 17 11.5 Partial Invalidity ........................................................................................................ 11.6 Successors ........................................................... 11.7 Assignment. 11.8 Execution. 11.9 Third Party Beneficiary ................................................................................................ 17 iii F!RSTSECOND AMENDED AND RESTATED JOINT EXERCISE OF POWERS AGREEMENT CREATING THE FOOTHILL/EASTERN TRANSPORTATION CORRIDOR AGENCY THIS F~iRSTSECOND AMENDED AND RESTATED AGREEMENT is made and entered into, pursuant to Sections 11.1 and 11.3, by and among the following public agencies as of the 2! st ...... day of October , ! 988,_2_0_Q0_.~ the date on which ~t_e_n_ or more of the following public agencies executed this Fi,:stSecond Amended and Restated Joint Exercise of Powers Agreement Creating the Foothill/Eastern Transportation Corridor Agency: a. County of Orange b. City of Anaheim c__. City of Dana Point d.._.:, c-,-. City of Irvine e_. City of Lake Forest f. d~. City of Mission Viejo K- ~City of Orange ~_.._ Cit¥ o._f.___R_a_n~.~.p.._S_~t_a_.~a_..r.g~..t~ i_. ~City of San Clemente i.... g~-. City of San Juan Capistrano k_. h~-. City of Santa Ana 1_:_ ~City of Tustin m_~. ~City of Yorba Linda RECITALS A. The California State Legislature adopted Chapter 708, Statutes 1984, adding Section 66484.3 to the Government Code authorizing the County of Orange and any city within the County of Orange to require by ordinance the payment of a fee as a condition of approval of a final map or as a condition of issuing a building permit, for the purpose of defraying the actual or estimated cost of constructing bridges over waterways, railways, freeways, and canyons or constructing major thoroughfares. B. The Parties to this Agreement have territorial jurisdiction within the Area of Benefit of the Foothill and Eastern Transportation C,~r':i.d,~.;~C__o_._rfi.'__d.o_r.~, and desire to impose such a fee pursuant to Government Code Section 66484.3 in order to finance the planning, acquisition and construction of major thoroughfares and bridges in the Foothill and Eastern Transportation Corridors. The Parties hereto have the common power to conduct such transportation planning, financing and construction. C. It has been determined by the Parties hereto that it is in the best interests of the respective Parties to join together to administer the funds provided by these fee programs, and to plan, acquire and constr;,ctconstruct said thoroughfares and bridges. D. Each of the Parties is authorized to contract with each other for the joint exercise of any common power under Article 1, Chapter 5, Division 7, Title 1 of the Government Code of the State of California-. (th_e '_~.~Jpint_ P_p~_er.s_A_c...tD. With the adoptio..n..._.of Chap_.t.e_r 64_9...., Stat....u._t..~_s 1999, the California State Legislature amended the Joint Powers Act to authorize any joint powers authority formed pursuant to the Joint Powers Act to enter__i._n__t.o_~...ggr_.e._e_~_.eBt_......w.j...t.h._Q...t.h....~r "public agencies" (as defined in the Joint Powers Act) to jointly exercise any power common to the contracting Parties. E. The Parties have determined that is in their best interest to authorize the Agency ..f_ormed pursuant to this Agreement to exercise the authority provided b¥_t_h.e_..J._oj_n_t_...._P_..o.~..e.r_s...._A_.._c..t_...t~) enter into agreement with other pubic agencies for the purpose of jointly exercising any power common to the Agency and any other such public agencies. F_. E. The Parties hereto recognize that, in order to serve the purposes stated herein, the imposition of fees in excess of the above-described fees should not be required or recommended as a condition to any annexation, incorporation or other reorganization involving territory claimed or controlled by the Parties hereto. G___. .C-.The Parties hereto recognize that, in order to serve the purpose stated herein, additional funding other than that received-from the above-described fees must be obtained. Each Party has agreed to cooperate in obtaining additional financing, including, but not limited to, debt financing, assessment districts, special legislation, toll revenue financing, Arterial Highway Financing program funds and other forms of governmental grants-in-aid. H. G. The Parties hereto recognize that in accordance with the principals of sound community planning, future land use decisions should not upset the balance between land use intensity and adequate transportation facilities. I_. t-t. It is anticipated by the Parties hereto that any major thoroughfares or bridges constructed pursuant to this Agreement shall comport with those standards for scenic highways set forth in Streets and Highways Code Section 261. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the Parties hereto agree as follows: DEFINITIONS 1.1 meanings: For the purposes of this Agreement, the following words shall have the following tLT~t a. "Agreement" means this ..... Second Amended and Restated Joint Exercise of Powers Agreement, as amended from time to time. b. "Agency" means the FOOTHILL and EASTERN TRANSPORTATION CORRIDOR AGENCY. c. "Annual Budget" means the approved budget applicable to the expenses of administration of the Agency. d. or their alternates. "Board Members" means those persons serving as members of the Board e. "Board" means the governing body of the Agency. f. "Ex Officio Members" means Board Members who do not have a vote in Agency matters and whose presence shall not be counted in determining whether a quorum sufficient to transact Agency business exists. g. "Chief Executive L ..... C~,,,.~_~_~.,~.S~. means the chief operating employee selected by the Board to manage the day-to-day activities the Agency, including, but not limited to, the appointment and removal of all employees of the Agency except \Vhose.t_h_o_s_e_. described in ~' .... *',-,- r employee of any Section 3.11 below. The Chief Executive iD ......... Office shall not be an individual Party. h. "Fiscal Year" means July 1st to and including the following June 30th. i_.. "Joint Transportation Corridor Agency" ha.s...._t, be__~_.e_a_ni._n_g_a~s~.ig_n...e_O__s...u_c.b. term in Section 2.3(m). "Joint Transportation Corridor Agency Agreement" has the meaning assigned such term in Section 2.3(m). k_,. ¢"Party" means each of the public entities which becomes a signatory to this Agreement, accepting the rights and obligations of the Agency hereunder, including any public entity executing an amendment of the original agreement as hereinafter provided. 1. ~¢-. "Quarter" means July 1 st to and including September 30th, October 1 st -- -- to and including December 31 st, January 1 st to and including March 31 and April 1 st to and including June 30th. m. "SJH Agency" means the San Joaquin Hills Transportation Corridor _A_ge__n_c_5_.~fo. rmed .b3ct. he_parties to the SJH Agreement. n___. "SJH Agreement" means that certain Second Amended and Restated Joint Exercise of Powers Agreement Creating the San Joaquin Hills Transportation Corridor_A_ge.g..c..y.,. II. PURPOSE AND POWERS 2.1 Agency Created. There is hereby created a public entity to be known as the "FOOTHILL/EASTERN TRANSPORTATION CORRIDOR AGENCY." The Agency is formed by this Agreement pursuant to the provision of Article 1, Chapter 5, Division 7, of Title 1 of the Government Code of the State of California. The Agency shall be a public entity separate from the parties hereto. 2.2 Purpose of the Agreement; Common Powers to be Exercised. Each Party has the common power to plan for, acquire, construct, maintain, repair, manage, operate, and control facilities for one or more of the following purposes: a. The financing of and the imposing of fees for the planning and construction of major thoroughfares and bridges; b. The power to plan for, acquire, and construct environmentally-sensitive thoroughfares and bridges to conform to the technical standards of the Califomia Department of Transportation (CALTRANS) and the Federal Highway Administration (FHWA) whenever possible. The purpose of this Agreement is to jointly exercise the foregoing common powers to undertake such studies and planning relative to the Foothill and Eastern Transportation Corridors as may be necessary to establish Areas of Benefit, to recommend to the Parties the adoption of local ordinances and the undertaking of all acts necessary for the imposition of fees by the Parties pursuant to Government Code Section 66484.3 and to fund, plan, acquire, and construct the major thoroughfares and bridges in the Foothill and Eastern Transportation Corridors. Except for maintenance of the facilities relating to collection of tolls and insuring that the major bridges or thoroughfares constructed pursuant to this Agreement comport to those design elements incorporated into Interstate 280 near the San Francisco Bay Area, the Agency shall not maintain or operate, or incur liability for the maintenance or operation of the facilities constructed pursuant to this Agreement, except as otherwise provided herein. Board planning policy has and shall continue to respond to those various memoranda of understanding, resolutions, minute orders and policy statements of Parties, attached as Exhibit "A" to the prior form of this Agreement and collectively incorporated in the "Issues Inventory Manual" adopted by the Board on August 13, 1987. 2.3 Powers. The Agency shall have the power in its own name to do any of the following: a. To exercise jointly the common powers of the Parties in studying and planning ways and means to provide for the financing, and construction of the Foothill and Eastern Transportation Corridors; b. To make and enter into contracts; c. To contract for the services of engineers, attomeys, planners, financial consultants, and separate and apart therefrom to employ such other persons, as it deems necessary; d. To appoint agents; e. To lease, acquire, construct, manage, maintain and operate any buildings, works or improvements; f. To acquire, hold, or dispose of property by any lawful means, including without limitation, gift, purchase, eminent domain lease, lease purchase or sale; forth; go To incur debts, liabilities, or obligations subject to limitations herein set h. To receive gifts, contributions and donations of property, funds, services and other forms of financial assistance from persons, firms, corporations and any govemmental entity, i. To sue and be sued in its own name; j. To apply for an appropriate grant or grants under any federal, state, or local programs for assistance in developing any of its programs; k. To adopt rules, regulations, policies, by-laws and procedures governing the operation of the Agency; 1. To exercise those powers authorized in Chapter 5 (commencing with Section 31100) of Division 17 of the Streets and Highways Code in accordance with Government Code Section 66484.3(0; and m. To enter into a joint powers agreement with any__p._t__tb.!~._c_...a_ge__n_.c.y_.a...u_.t.h.._o_~.z..e._d by Government Code Section 6500 et seq. for the purpose ofjointly exercising common powers under Government Code Sections 6500 et. seq. and 66484.3. Any. such agreement with the...S...JH Agency for the joint planning, financing and construction of major thoroughfares and bridges (a ~Joint Transportation Corridor Agency Agreement") shall provide for the formation of a sep_a._.r..a.t.e. authority (a "Joint Transportation Corridor Agency") to carry out the purposes of such Joint .T_.r_a..n._sp_ortation Corridor Agency Agreement. Such Joint Transportation. comdor.....Age._n...cy Agreement shall provide that: (i) the board of directors of such Joint Transportation Corridor __A_&e_ncy _s_ha_l! be composed of one (_..l_)y__o_ting member appointed by the. legislative body of..e_..a..5._h.. city that is a party to either or both this Agreement and the SJH Agreement from time to time, and three (3) voting members from the County of Orange, said members to be the duly elected supervisors for the Third, Fourth and Fifth County of Orange Supervisorial Districts,, (ii) each such board member shall also have an alternate appointed by the legislative body of the_relev~._nt City or the County appointing such board member consistent with this agreement, (iii) not less than two-thirds (2/3) of the members of such board shall constitute a _q.u_o__~__m_....£9_r_th_e...p..u_.rp.9..._s_e..s_....~.f the transaction of business relating to the Joint Transportation Corridor Agency, and (iv) such _b_p~..d_....ma¥_.a_d_o.p_t__an_y_motion, resolution or order and take any other action they deem approp.n_'_.a...t_e... bva vote of the lesser of (a) sixteen (16) such board members, (b) seventy seven percent (77%) .o_f those board members present and qualified to vote, or (c) such lesser number or p._e_r_c_e_nt..a£~...9._f votes (but not less than a majority) that is the requisite vote necessary to maintain the tax-exempt ._s._t._a_t_.u_.s_.9..~...d_e_b._t_i~._s__u..e.._d__.b.y...t_h__e..J_gj~t T_.ransportation Corridor Agency,....a._s_ supported by..a.~._.pp.i..n.i_o..n...pf a nationally recognized bond counsel selected by such board. n. To the extent not herein specifically provided for, to exercise any powers in the manner m-~and according to the methods provided under applicable laws. III. ORGANIZATION 3.1 Membership. The Parties to the Agency shall be the public entities which have executed or hereafter execute this Agreement, or amendment, thereto~ and which have not, pursuant to the provisions hereof, withdrawn therefrom. 3.2 Board. a. The Board shall consist of the following: (i) one Voting Board Member appointed by the legislative body of each of the following Parties pursuant to Section 3.1 above: The cities of Anaheim:,__D._ao_a_.P__o_i_n_t., Irvine, ©rarmeLake Forest, Mission Viejo, Orange, Rancho Santa Margarita, San Clemente, San Juan Capistrano, and Santa Ana, Tustin and Yorba Linda. (ii) twothree voting Board Members from the County of Orange, said members to be the duly elected supervisors for the Third,...[9.....u..g...h.. and Fifth County of Orange Supervisorial Districts. (iii) The Board may, from time to time, appoint additional ex officio members. b. Except for ex officio members, each Board Member shall be a current member of the legislative body of the Party each member represents. c. Each Board Member shall also have an alternate appointed by the legislative body of the Party represented by such Board Member. With the exception of the alternates to the Board Members representing the County of Orange, an alternate Board Member must also be a current member of the legislative body of the Party such alternate represents. An alternate Board Member shall assume all rights and duties of the absent Board Member. d. Each Board Member and alternate shall hold office from the first meeting of the Board after appointment by the city council or Board of Supervisors until a successor is named. Board Members and alternates shall be appointed by and serve at the pleasure of their appointing body and may be removed at any time, with or without cause, at the sole discretion of the legislative body of the Party such Board Member represents subject, however, to the provisions of Section 3.2 a.(ii). e. A Board Member shall receive only such compensation from the Agency for his/her services as may be approved by not less than two-thirds (2/3) of the Board Members. f. A Board Member may be reimbursed for expenses incurred by such Board Member in the conduct of the business of the Agency. 3.3 Principal Office. The principal office of the Agency shall be established by the Board and shall be located within the County of Orange. The Board is hereby granted full power and authority to change said principal office from one location to another in the County of Orange. Any change shall be noted by the secretary of the Board under this Agreement but shall not be considered an amendment to this Agreement. 3.4 Meetings. The Board shall meet at the principal office of the Agency or at such other place as may be designated by the Board. The time and place of regular meetings of the Board shall be determined by resolution adopted by the Board; a copy of such resolution shall be furnished to each Party. Regular, adjourned, and special meetings shall be called and conducted in accordance with the provisions of the Ralph M. Brown Act, Government Code Section 54950 seq., as amended. 3.5 Quorum. Not less than two-thirds (2/3) of the Board Members shall constitute a quorum for the purposes of the transaction of business relating to the Agency. 3.6 Powers and Limitations Thereon. All of the powers and authority of the Agency shall be exercised by the Board, subject however, to the reserved fights of the Parties as herein set forth. Unless otherwise provided herein, each Board Member or participating alternate Board Member shall be entitled to one vote, and except as otherwise provided herein, a vote of the majority of those present and qualified to vote may adopt any motion, resolution, or order and take any other action they deem appropriate. 3.7 Minutes. The secretary of the Agency shall cause to be kept minutes of regular, adjourned regular and special meetings of the Board, and shall cause a copy of such minutes to be forwarded to each Board Member and to each Party. 3.8 Rules. The Board may adopt from time to time rules and regulations for the conduct of its affairs consistent with this Agreement. 3.9 Vote or Assent of Parties. The vote, assent, or approval of Parties in any matter requiring such vote, assent or approval hereunder shall be evidenced by a certified copy of the action of the governing body of such Party filed with the Agency. It shall be the responsibility of the Chief Executive Di. rect,.~r.._O_f~_c_e.r to obtain certified copies of said actions. 3.10 Officers. There shall be selected by the Board from its membership, a chairman and a vice chairman. The Board shall appoint a secretary who may be a Member. The Board shall appoint an officer or employee of the Board or an officer or employee of a Party to hold the offices of treasurer and auditor for the Agency. Such offices may be held by separate officers or employees or may be combined and held by one such officer or employee, as provided by the Board. Such person or persons shall possess the powers and the duties of, and shall perform the treasurer and auditor functions for the Agency and those functions required by Government Code Sections 6505, 6505.5, and 6505.6, including any subsequent amendments thereto. The chairman, vice chairman, secretary, treasurer and auditor shall hold office for a period of one year commencing July 1st of each year. Except for the Chief Executive D i,:ect.,~':.O_f.~_c_e_r, any officer, employee, or agent of the Board may also be an officer, employee or agent of any of the Parties. The appointment by the Board of such a person shall be evidence that the two positions are compatible. 3.11 Committees. The Board may, as it deems appropriate, appoint committees to accomplish the purposes set forth herein. Any meeting of such a Cemmitt:eecommittee shall be deemed to be a meeting of the Agency for compensation purposes only and all such meetings shall be open to all Board Members, unless the presence of Board Members who are not members of such committee would violate the provisions of the Ralph M. Brown Act, Government Code Section 54950 et seq., as amended. 3.12 Additional Officers. The Board shall have the power, upon the approval of not less than two-thirds (2/3) of the Board Members, to appoint such additional officers as may be appropriate. Such officers may also be, but are not required to be, officers and employees of a Party. 3.13 Bonding Requirement. The officers or persons who have charge of, handle, or have access to any property of the Agency shall be so designated and empowered by the Board. Each such officer or person shall be required to file an official bond with the Board in an amount which shall be established by the Board. Should the existing bond or bonds of any such officer or persons be extended to cover the obligations provided herein, said bond shall be the official bond required herein. The premiums on any such bonds attributable to the coverage required herein shall be appropriate expenses of the Agency. 3.14 Status of Officers and Employees. All of the privileges and immunities from liability, exemption from laws, ordinances and rules, all pension, relief, disability, workers compensation, and other benefits which apply to the activities of officers, agents, or employees of any of the Parties when performing their respective functions shall apply to them to the same degree and extent while engaged in the performance of any of the functions and other duties under this Agreement. None of the officers, agents, or employees appointed by the Board shall be deemed, by reason of their employment by the Board, to be employed by any of- the Parties or, by reason of their employment by the Board, to be subject to any of the requirements of such Parties. FEES 4.1 Imposition of Major Thoroughfare and Bridge Construction Fee by Parties. On or before the effective date of this Agreement (or, in the case of a new Party, on or before the date on which that Party becomes signatory to this Agreement), each Party shall require by ordinance the payment of a fee as a condition of issuance of a building permit within the Area of Benefit, for the purposes of defraying the actual or estimated cost of ce'nstr~cti~n may'.;rconstructing major thoroughfares and bridges, in accordance with California Government Code Section 66484.3. Said fee shall be in the form, and in those amounts set forth in the "Major Thoroughfare and Bridge Fee Program For the San Joaquin Hills Transportation Corridor and Foothill/Eastern Transportation Corridors," attached hereto as Exhibit "A" and incorporated by reference herein. The imposition of said fee by each Party shall be a condition precedent to that Party's participation in the Agency, and each Party covenants to continue the imposition of such fees as required herein and as required by provisions of any applicable bond indentures. 4.2 Annual Review of Fees. At least once annually, the Board shall undertake a review of the above-described fee program and may, upon approval of not less than two-thirds (2/3) of its Members, modify the fee to be imposed by the Parties hereto. Each Party shall impose said revised fee within one hundred twenty (120) days, and ifa Party fails to impose said fees, repeals the enabling ordinance or fee requirement or otherwise disables itself from the collection and remittance of said fees to the Agency, on the effective date of any such action or upon expiration of the 10 aforementioned time period, whichever is sooner, such action shall be deemed the withdrawal of that Party from the Agency, subject to the conditions specified in Section 9.2 below. If the Agency has entered into a Joint Transportation Corridor Agency Agreement pursuant to which a Joint Transportation Corridor Agency has been formed as authorized by Section 2.3 of this Agreement, such Joint Transportation Corridor Agency Agreement may provide that the board of directors of the Joint Transportation Corridor Agency shall be responsible for undertaking the annual or more frequent review of the above-described fee program, and shall have the power to modify the fees to be imposed by__the Parties hereto ..u_pg...n._ approval of such modification by such board of directors in accordance with the terms of the Joint Transp_o._.rt_.a_t.i..pn_.C..P._m.'...d_ or Agency Agreement. I.n such event, each Party shall impose said revised fee as provided herein as if such revised fee had been approved by the Board in accordance with this Section 4.2. 4.3 Payment. Each Party agrees to hold said fees in trust for the Agency, and to pay said fees to the Agency in quarterly payments, within sixty (60) days after the end of each quarter. The Board may authorize an audit of any Party to determine whether said payments of fees accurately reflect each Party's obligations under this Agreement. Unpaid fees shall bear interest at a rate to be determined by the Board. In the event that any Party fails to remit said fees to the Agency, said failure may be deemed by the Board to be a withdrawal of that Party fi.om the Agency subject to the conditions specified in Section 9.2 hereof. In the event that any dispute arises as to the amount of fees assessed any person under the fee program, any aggrieved person may appeal the decision of a Party hereto regarding the appropriate amount of the assessment to the Agency, in accordance with the rules and regulations established by the Agency, which decision shall be final. In the event that any Party hereto becomes a Party to litigation regarding the legality of the fee program, the Board, where it deems appropriate, may defend such action or lend other-assistance to said Party in said action. If the Agency has entered into a Joint Transportation Corridor Agency Agreement pursuant to which a Joint Transportation Corridor Agency has been formed as authorized hy Section 2.3 of this Agreement, such Joint Transportation Corridor Agency Agreement may authorize the Joint Transportation Corridor Agency to .manage the funds collected pursuant ..t.0 said fee program. In such event, each Party agrees (i) to hold said fees in trust for the Joint Tr._a...n_sportation Corridor Agency, (ii) to .~ay such fees to the Joint Transp...9.rt__a_t_i_~_n_._C...~.__d_.o...r Agency as provided herein with respect to the Agency, (iii) to permit the Joint Transportation Corridor Agency to audit such Party as provided herein with respect to the Agency, and (iv) thai in the event any dispute arises as to the amount of fees assessed any person under the fee program, if the Joint Transportation Corridor Agency Agreement so._provides,__s33_c_h.._di_s_p._t_t.t_..e__.....s..h.._a.!! be managed by the Joint Transportation Corridor Agency and its board of directors in the same manner as described in the third.p.aragraph.p_...f__this Secti9n 4.3 .with respe%..t...o_..t.~_e Ag..e..~)...C..y. 4.4 Compensation of Agency for Acquisition of Rights-of-Way. 11 When it is within its power to do so, each Party shall be individually responsible for the preservation and acquisition by dedication pursuant to Title 7, Divisions ~1 and 2_2_.. of the Government Code of rights-of-way and similar property interests within its territory which are necessary to accomplish the purposes of this Agreement. !n tln~ The event that a Party fails to acquire these rights-of-way by the above-mentioned means after the route alignments for the Foothill and Eastern Transportation C,~rrid,,,'rsCorfidor areis established and accepted by the Agency, or fails to preserve such rights-of-way and property interests by the above-mentioned means which were established by the County of Orange prior to such establishment and acceptance by the Agency, that Party shall compensate the Agency for all costs (including attorneys' fees) incurred by the Agency in acquiring said fights-of-way and property interests.._!_f the Agency has entered into a Joint Transportation Corridor Agency Agreement pursuant to .w. ki_ch_.~_J.~in__t.T__ra_n_sportation Corridor Agency has been formed as authorized b¥__S__e_c_t_io_...n.._.2_._3_..._o...f this Agreement, the Joint Transportation Corridor Agency shall be entitled to enforce the [..e_s_pective obligations of each Party_arising pursuant to this Section 4.4. V. RELATIONS WITH OTHER MAJOR THOROUGHFARE AND BRIDGE FEE AGENCIES 5.1 Joint Action with Other Agencies. In the event that other major thoroughfare and bridge fee agencies are formed for the purpose of planning, coordinating, acquiring, financing, constructing, maintaining, repairing, managing, operating and controlling major thoroughfares and bridges in the San .!oaquin Hi!! sFoothill and Eastern Transportation Cc~':'ri &:.', rCorridors or other transportation corridors, the Board is authorized to make or perform any agreement to join with said agencies in the planning and implementation of said thoroughfares and bridges, when for any purpose otherwise permitted by law, the Board deems it appropriate. 5.2 Communications Between Corridor Agencies. In the event that the agencies described in Section 5.1 above (other than the Joint _.T._r_an_s_portation Corridor Agenc__y) are formed, the chairman or his designate shall meet with the chairmen, or their designates, of said agencies at least quarterly, for the purpose of coordinating the planning, financing and construction activities of the various agencies. 5.3 Lending and Borrowing Funds Between Agencies. When it is found to be beneficial to the purposes of the Agency and otherwise permitted by law, and serves the general purpose of improving transportation facilities in Orange County, the Board is authorized to lend and borrow available funds and services to or from the agencies described in Section 5.1 above, upon the approval of not less than two thirds (2/3) of the Board Members. The Board shall specify the date and manner in which the funds or services shall be repaid and may provide for the payment of interest on the loan. VI. 12 BUDGET AND DISBURSEMENTS 6.1 Annual Budget. The Board shall adopt upon the approval of not less than two thirds (2/3) of the Board Members, an annual budget, for the ensuing fiscal year, pursuant to procedures developed by the Board. 6.2 Disbursements. The auditor shall draw warrants upon the approval and written order of the Board. The Board shall requisition the payment of funds only upon approval of such claims or disbursements and such requisition for payment in accordance with rules, regulations, policies, procedures and bylaws adopted by the Board. 6.3 Accounts. All funds will be placed in object accounts and the receipt, transfer, or disbursement of such funds during the term of this Agreement shall be accounted for in accordance with generally accepted accounting principles applicable to governmental entities. There shall be strict accountability of all funds. All revenues and expenditures shall be reported to the Board. 6.4 Expenditures Within Approval Annual Budget. All expenditures within the designations and limitations of the approved annual budget shall be made upon the approval of the Chief Executive DircctorOfficer in accordance with the rules, policies and procedures adopted by the Board. Notwithstanding the above, no expenditures shall be made for the purpose of the acquisition of rights-of--way or similar property interests except upon the approval of not less than two-thirds (2/3) of the Board Members. No expenditures in excess of those budgeted shall be made without the approval of not less than two-thirds (2/3) of the Board Members to a revised and amended budget which may, from time to time, be submitted to the Board. 6.5 Audit. The records and accounts of the Agency shall be audited annually by an independent certified public accountant and copies of such audit report shall be filed with the County Auditor, State Controller and each Party no later than fifteen (15) days after receipt of said audit by the Board. VII. SECURITIES 7.1 Securities. 13 Upon the approval of the Board, the Parties, or the Agency, may participate in any statutory power for the issuance of securities to finance the fees authorized by Government Code Section 66484.3, including the power to establish one or more community facilities districts under the Mello-Roos Community Facilities District Act of 1982, Government Code Section 53311, et seq., or any other applicable legislation. Other than the fees specified herein, no funds of a Party shall be utilized as security or as a source for the payment or redemption of any securities of the Agency without the consent of the legislative body of that Party. Upon the approval of not less than two-thirds (2/3) of the Board Members, the Agency may participate in the above-mentioned statutory powers for bond financing of the fees specified herein; provided, however, that the fees collected by any Party may be excluded as security for or as a source for such financing if the Board, upon the approval of not less than two- thirds (2/3) of its Members, so provides. VIII. LIABILITIES 8.1 Liabilities. The debts, liabilities, and obligations of the Agency shall be the debts, liabilities, or obligations of the Agency alone and not of the Parties, unless expressly specified herein. 8.2 Hold Harmless and Indemnify. Each Party hereto agrees to indemnify and hold the Agency and the other Parties harmless from any liability for damages, actual or alleged, to persons or property arising out of or resulting from negligent acts or omissions of the indemnifying Party or its employees. We~,,:~~ ..W_h__.e_r_e_ the Agency, the Board itself or its Members' agents or employees are held liable for injuries to persons or property, each Party's liability for contribution or indemnity for such injuries shall be based proportionately upon the fees paid by each Party. In the event of liability imposed upon any of the Parties or upon the Board created by this Agreement, for injury which is caused by the negligent or wrongful act or omission of any of the Parties in the performance of this Agreement, the contribution of the Party or Parties not directly responsible for the negligent or wrongful act or omission shall be limited to One Hundred Dollars ($100.00). The Party or Parties directly responsible for the negligent or wrongful acts or omissions shall indemnify, defend, and hold the Agency and all other Parties harmless from any liability for personal injury or property damage arising out of the performance of this Agreement. If the Agency enters into ..a_Joint Transportation Corridor Agency Agreement pursuant to which a Joint Transp_o_g_..a_._t.i.....o.....n_.. Corridor Agency is formed, then each Party agrees to hold harmless and indemnify the Joint Transportation Corridor Agency, the board of directors of the Joint Transportation Corridor Agency, and the members of such board of directors of the Joint Transportation Corridor Agency, for_._all matters within the scope of the indemnities made bxd_.th_e_.P__art_i...e_s_i_n_thi_s__S_..e__c_t_i_o__n.. 8.2 with respect to the Agency, the Board and its Members, to the same extent as such !..~n..d...e...m-~.i.~t!.e..s~.~..~.~e--m-a~..d~e-.~t-~-t--h-e-A-g.e.n--c~.~B~p~[d and its Members. IX. 14 ADMISSION AND WITHDRAWAL OF PARTIES 9.1 Admission of New Parties. It is recognized that public entities, other than the original Parties, may wish to participate in the Agency. Additional public entities may become Parties to the Agency upon such terms and conditions, including, but not limited to, financial contributions, as provided by the Board and upon the unanimous consent of the Parties evidenced by the execution of a written amendment to this Agreement, executed by all of the Parties, including the additional Party. 9.2 Withdrawal. It is fully anticipated that each Party hereto shall participate in the Agency until the purposes set forth in Section 2'~2~.:_..2_. above are accomplished. The withdrawal of any Party, either voluntarily or involuntarily pursuant to Sections 4.2 and 4.3 above, unless otherwise provided by the Board, shall be conditioned as follows: (i) in the case of a voluntary withdrawal, written notice shall be given one hundred and twenty (120) days prior to the end of a fiscal year, (ii) the fee program established by the a~2PaEt__y- pursuant to this Agreement shall remain in effect for a period of at least four (4) years after the adoption and for any additional period of time in which the Agency has theretofore made a financial commitment secured by the receipt of such fees, including by way of illustration, but not limitation, bonds which have been issued or authorized for issuance by the Agency, and letters of credit or other reimbursement obligations owed to financial institutions which have secured such bonds or other parties advancing funds to the Agency; (iii) said withdrawal shall not relieve the Party of its proportionate share of any debts or other liabilities incurred by the Agency prior to the effective date of the Party's withdrawal, nor any liabilities imposed upon or incurred by the Party pursuant to this Agreement prior to the effective date of the Party's withdrawal; and (iv) said withdrawal shall result in the forfeiture of that Party's rights and claims relating to distribution of property and funds upon termination of the Agency, as set forth in Section 10.2 below. 15 X, TERMINATION AND DISPOSITION OF ASSETS 10.1 Termination. The Agency shall continue to exercise the joint powers herein until the termination of this Agreement and any extension thereof as provided in this Section 10.1 or until the Parties shall have mutually rescinded this Agreement; provided, however, that the Agency shall continue to exist for the purposes of disposing of all claims, payment of debt service with respect to bonds which have been issued or which have been authorized for issuance and satisfaction of other covenants contained in the resolution and trust indenture relating to said bonds, reimbursement owed to financial institutions which have secured such bonds or other parties advancing funds to the Agency and satisfaction of other covenants contained in reimbursement agreements with such financial institutions, establishment and collection of tolls and development fees, the maintenance of toll collection facilities and the facility in accordance with the California Department of Transportation agreements, distribution of assets and all other functions necessary to conclude the affairs of the Agency. Termination shall occur upon the written consent of all of the Parties, or upon the withdrawal from the AgenCy of a sufficient number of the Parties to leave less than ~six Parties remaining in the Agency, or upon transfer of title to the corridor to the California Department of Transportation and full satisfaction of all outstanding financial obligations of the Agency. However, no such termination shall occur until all reimbursement obligations owed to financial institutions securing bonds have been paid and all other financial and contractual obligations of the Agency have been satisfied. 10.2 Distribution of Property and Funds. In the event of the termination of this Agreement, any property interest remaining in the Agency following the discharge of all obligations shall be disposed of as the Board shall determine with the objective of returning to each Party or former Part a proportionate share of the contributions made to such properties gbv such Parties, less previous distributions, if any, provided however that said funds also shall be expended to construct major arterial transportation facilities which accomplish the purposes of the San Joaquin Hills Transportation Corridor, to the extent legally possible. In the event of the termination of this Agreement, any funds remaining following the discharge of all obligations shall be disposed of by returning to each Party (excluding withdrawn Parties as provided in Section 9.2 hereof) a proportionate share of such funds equal to the percentage of the contribution made by each Party, less each Party's proportionate share of previous distributions, if any, provided that said funds shall be expended to construct major arterial transportation facilities which accomplish the purposes of the San Joaquin Hills Transportation Corridor, to the extent legally possible. 16 XI. MISCELLANEOUS 11.1 Amendments. This Agreement may be amended with the approval of not less than three-fourths (.¢143/4) of all Parties; provided, however, that no amendment may be made which would adversely affect the interests of the owners of bonds, letters of credit or other financial obligations of the Agency. 11.2 Notice. Any notice or instrument required to be given or delivered by depositing the same in any United States Post Office, registered or certified, postage prepaid, addressed to the Parties, shall be deemed to have been received by the Party to whom the same is addressed at the expiration of seventy-two (72) hours after deposit of the same in the United States Post Office for transmission by registered or certified mail as aforesaid. 11.3 Effective Date. This Agreement shall be effective at such time as this Agreement has been executed by any '~eig~ten or more of the Parties enumerated in the introduction of this Agreement. 11.4 Arbitration. Any controversy or claim between any two or more Parties, or between any such Party or Parties and the Agency, in respect to the Agency's operations, or to any claims, disputes, demands, differences, controversies, or misunderstandings arising under, out of, or in relation to this Agreement, shall be submitted to and determined by arbitration. To the extent not inconsistent herewith, the rules of the American Arbitration Association shall apply. The Party desiring to initiate arbitration shall-give notice of its intention to arbitrate to every other Party and the Agency. Such notice shall designate as "respondents" such other Parties as the initiating Party intends to have bound by any award made therein. Any Party not so designated but which desires to join in the arbitration may, within ten (10) days of service upon it of such notice, file a response indicating its intention to join in and to be bound by the results of the arbitration, and further designating any other Parties it wishes to name as a respondent. Within twenty (20) days of the service of the initial demand for arbitration, the American Arbitration Association, hereinafter referred to as "AAA," shall submit simultaneously to the initiating and to all Parties named as respondents or filing a response therein, an identical list of names and persons chosen from the AAA National Panel of Arbitrators which persons shall be, to the extent possible, persons first in the field of transportation as well as public law. Each Party to the dispute shall have seven (7) days from the mailing date in which to cross off any names indicating the order of his or her preference, and return the list to the AAA. If a Party does not return the list within such time period, all persons named therein shall be deemed acceptable. From among the persons who have been approved on both lists, in accordance with the designated order of mutual 17 preference, the AAA shall invite the acceptance of an arbitrator to serve. If the Parties fail to agree upon one of the persons named, the acceptable arbitrator is unable to act, or if for any other reason the appointment cannot be made from the submitted list, the AAA shall have the power to make the appointment of the arbitrator from other members of the panel without the submission of any additional list. The arbitrator shall proceed to arbitrate the matter in accordance with the provisions of Title 9 of Part 3 of the Code of Civil Procedure. If the Agency enters into a Joint .Tr .an__s_portation Corridor Agency_Agreement pursuant to which a Joint Transp.o_rtati.9_..n._.C_9__m'.._d.....o...r Agency is formed as authorized by Section 2.3 of this Agreement, then each Party agrees that the arbitration provisions in this Section 11.4 shall aP_p_ly to. any controversy or claim between any... such Party or Parties and the Joint Transportation Corridor Agency arising under, out of, or in r~!..a..ti_o._._n__t_.o__t..hi_s._A_gre em_e_ot_.. 11.5 Partial Invalidity. If any one or more of the terms, provisions, sections, promises, covenants or conditions of this Agreement shall to any extent be adjudged invalid, unenforceable, void or voidable for any reason whatsoever by a court of competent jurisdiction, each and all of the remaining terms, provisions, sections, promises, covenants and conditions of this Agreement shall not be effected thereby and shall be valid and enforceable to the fullest extent permitted by law. 11.6 Successors. This Agreement shall be binding upon and shall inure to the benefit of the successors of the Parties hereto. 11.7 Assignment. The Parties shall not assign any rights or obligations under this Agreement without written consent of all other Parties. 11.8 Execution. The Board of Supervisors of the County of Orange and the city councils of the cities enumerated herein have each authorized execution of this Agreement, as evidenced by the authorized signatures below, respectively. 11.9 Third Party Benefic_ia_ry~. In the event that the Agency enters into a Joint Transportation Corridor Agency ~gr_e_..em_e__n_t pursuant t o which a J o int Tran spg_~at i_o_n.._C_o_m_' _d_o r _A_g_e_..n_c..y._i_s.._f_o_~_e_d___a_s__~u_th~_a~_..hy Section 2.3 of this Agreement, such Joint Transportation Corridor Agency shall be a third party .b....~....n_e.~_c._i_a._ry_._of_._t_l_~_provisions of this Agre_e_rn_e_.n_t_c_r_e_a_t.ing obliga__t_!_o_.n_s_~q_r_the .b_e._.n._e~Lg_f_s_u.c__.h._j_p.i.....n_! Transportation Corridor Agency. 18 IN WITNESS WHEREOF, this Second Amended and Restated Joint Exercise of Powers Agreement Creating the Foothill and Eastem Transpo~ati_o_..n__Corridor Ag_e_n__c.y_s_h__a!_!___b_..e.__e_._fg.e.c_t.iy~ as of the date that not less than three-fourths (3/4) of the Parties listed below have authorized execution hereof, as evidenced by the authorized signatures below, respectively COUNTY OF ORANGE ...................... By: .............. Name: Date: SIGNED AND CERTIFIED THAT A COPY OF THIS DOCUMENT HAS BEEN DELIVERED TO THE CHAIRMAN OF THE BOARD: Nanle: Clerk of the Board of Supervisors Date: APPROVED AS TO FORM: County Counsel By: Date: 19 ATTEST: CITY OF ANAHEIM Clerk of the City of Anaheim By: May_or By: Dated: APPROVED AS TO FORM: By: ..................... _Cj_ty_C__oun s e_! ATTEST: CITY OF DANA POINT Clerk of the City of Dana Point By: MaT_o_.r_ By: Dated: APPROVED AS TO FORM: By: City Counsel ATTEST: CITY OF IRVINE Clerk of the City oflrvine By: Mayor By: Dated: APPROVED AS TO FORM: By: City. Counsel 20 ATTEST: CITY OF LAKE FOREST Clerk of the City of Lake Forest By: May_or. By: Dated: APPROVED AS TO FORM: By: ......................... _C_i!Y Counsel ATTEST: CITY OF MISSION VIEJO Clerk of the City of Mission Viejo By: MayEr. By: Dated: APPROVED AS TO FORM: By: City Counsel ATTEST: CITY OF ORANGE Clerk of the City of Orange By: Mayor By: Dated: APPROVED AS TO FORM: By: City Counsel 21 ATTEST: CITY OF RANCHO SANTA MARGARITA Clerk of the City..o_f_ ............................................................ '__By_;_ ...................................................................... 'Rancho Santa Margarita Mayor By: Dated: APPROVED AS TO FORM: By: City Counsel ATTEST: CITY OF SAN CLEMENTE Clerk of the City of San Clemente By: By: Mayor Dated: APPROVED AS TO FORM: By: City._C_ou_.n_s_e.! ATTEST: CITY OF SAN JUAN CAPISTRANO Clerk of the City of San Juan Capistrano By: May9_.r. By: Dated: APPROVED AS TO FORM: By: C i t ¥_C_o__u_n_s_e_!. 22 ATTEST: CITY OF SANTA ANA Clerk of thc City of Santa Ana By: ............................... Mayor By: Dated: APPROVED AS TO FORM: By: ........................... C_jt¥_ Counsel ATTEST: CITY OF TUSTIN Clerk of the City of Tustin By: Maypr By: Dated: APPROVED AS TO FORM: By: City___Cou_ns__el ATTEST: CITY OF YORBA LINDA Clerk of the City of Yorba Linda By: Mayor By: APPROVED AS TO FORM: City Counsel 23 BRIEFING PACKET TRANSPORTATi~ R~,AGENCIES Introduction Organizational Charts of Agencies Map of the Toll Road System Key Benefits Common Questions Status Quo Analysis Process Preliminary Timeline Alternative Scenarios/Consequences Letter from Linda Lindholm, Chairman of the San Joaquin Hills TCA to Scott Diehl, Chairman of the Foothill/Eastern TCA and Board of Directors Press Releases Articles, Editorials, and Endorsements 02 03 04 O5 O6 O7 O8 O9 10 11 12 13 BACKGROUND The Transportation Corridor Agencies are made up of two public agencies (joint powers authorities)-- the San Joaquin Hills Transportation Corridor Agency and the Foothill/Eastern Transportation Corridor Agency-- which were formed by the California state legislature in 1986 to plan, finance, construct, and operate Orange County's 67-mile public toll-road system. Fifty-one miles of the system are complete, including the ,San Joaquin Hills (73) Toll Road from Newport Beach to ,San Juan Capistrano; and the Foothill/Eastern Toll Roads (241, 261, 133) from the Riverside (91) Freeway to Rancho Santa Margarita in south Orange County. As separate legal entities, elected officials appointed from respective jurisdictions to serve on the Board of Directors of each agency. The Boards are the policy-making body, setting direction on toll rate and fee structures, budgetary decisions, and major operational, administrative, and cons- truction issues. The agencies' finances are sepa- rate although a single, 80-member staff serves both. The San Joaquin Hills Transportation Corridor Agency is a joint powers authority consisting of the cities of Aliso Viejo, Costa Mesa, Dana Point, Irvine, Laguna Hills, Laguna Niguel, Laguna Woods, Mission Viejo, Newport Beach, San Clemente, San Juan Capistrano, Santa Ana, County of Orange 3rd District, and County of Orange, 5th District. The Foothill/Eastern Transportation Corridor Agency is a joint powers authority consisting of the cities of Anaheim, Dana Point, Irvine, Lake Forest, Mission Viejo, Orange, Rancho Santa Margarita, San Clemente, San Juan Capistrano, Santa Ana, Tustin, Yorba Linda, County of Orange 3rd District, County of Orange 4th District, County of Orange 5th District. TRANSPORTATION CORRIDOR AGENCY CONSOLIDATION BRIEFING BOOK CONSOLIDATION Revenue for the 73 Toll Road has grown on average by 13.5% over the last three years, however it has not kept pace with the projections developed in 1997. Since January 2000, the San Joaquin Hills Transportation Corridor Agency (SJHTCA) Board of Directors has sought plans to establish long-term financial stability -- one option is consolidation of the two agencies. Before consolidation can occur a number of steps are necessary, including a new traffic and revenue study to determine the financial feasibility of creating a new joint powers authority (JPA). The new JPA, if approved by the Boards of Directors of both agencies and member agencies of the current Joint Powers Authorities, would acquire the assets of the existing agencies. The proceeds from the purchase would then be used to Issue $4-plus billion in new toll-revenue bonds to retire the Foothill/Eastern and San Joaquin Hills Transportation Corridor Agencies' outstanding debt. If a viable finance plan is developed, a vote by both boards would be necessary to finalize consolidation. Then the new joint agency would vote to issue new debt and aquire the existing agencies. All analysis are expected to be complete to allow for a decision by summer of 2003. TRANSPORTAT,ON CORRIDOR AGENC'f I02-B I CONSOLIDAT!ON BRIEFING BOOK TRANSPORTATION CORRIDOR AGENCY 03I C ONSOLIDATION BRIEFING BOOK [FOOTHILL/EASTERN TCA] Anaheim Dana Point Irvine Lake Forest Mission Viejo Orange Rancho Santa Margarita San Clemente San Juan Capistrano Santa Ana Tustin Yorba Linda County of Orange, 3rd District County of Orange, 4th District County of Orange, 5th District [SAN JOAOUIN HILLS TCA] Aliso Viejo Costa Mesa Dana Point Irvine Laguna Hills Laguna Niguel Laguna Woods Mission Viejo Newport Beach San Clemente San Juan Capistrano Santa Ana County of Orange, 3rd District County of Orange, 5th District Communications & Public Affairs [STAFF] [80 EMPLOYEES] Engineering & Finance Environmental Toll Operations ONE TOLL ROAD SYSTEM. TRANSPORTATION CORRIDOR AGENCY 103- CONSOLIDATION BRIEFING BOOK Aliso Viejo Anaheim Costa Mesa Dana Point Irvine Laguna Hills Laguna Niguel Laguna Woods Lake Forest Mission Viejo Newport Beach Orange Rancho Santa Margarita San Clemente San Juan Capistrano Santa Ana Tustin Yorba Linda County of Orange, 3rd District County of Orange, 4th District County of Orange, 5th District [STAFF] [80 EMPLOYEES] Communications Engineering & Finance Toll Operations & Public Affairs Environmental ONE TOLL ROAD SYSTEM. To Los Angeles IRVINE RANCH MAINLINE TOLL PLAZA To Long Beach COSTA MESA ANAHEIM ORANGE SANTA ANA YORBA LINDA ANAHEIM HILLS Coal Cyn To Orange County WINDY RIDGE MAINLINE TOLL PLAZA ORANGE GROVE MAINLINE TOLL PLAZA TOMATO SPRINGS MAINLINETOLL PLAZA FOOTHILL RANCH RANCHO SANTA MARGARITA LAKE FOREST CATALINA VIEW MAINLINE TOLL PLAZA CORONA DEL LAGUNA BEACH LAGUNA WOODS LAS FLORES COTO DECAZA VIEIO LAGUNA NIGUEL DANA POINT SAN CLEMENTE Foothill South t Planning Stage To San Diego N TRANSPORTAT:ON CORRIDOR AGENCY I 04 . CONSOLiDATiON BRiEFiNG BOOK TRANSPORTATION CORR!DOR AGENCY I 05 CONSOLIDATION BRIEFING BOOK Consolidation will allow for a restructure of toll road debt within realistic revenue assumptions. Consolidation strengthens the finances of the entire toll road system, strengthening Foothill-South financing. Consolidation offers the best chance of keeping toll rates down. Consolidation does not require taxpayer dollars. Consolidation represents good government. Together, the San Joaquin Hills and Foothill/Eastern Agencies will be able to reduce costs by streamlining operations and diversifying revenues and expenses. Consolidation will not affect the nearly 250,000 drivers who use The Toll Roads every day. Commuters will continue to save time and stress by using The Toll Roads. TRANSPORTATION CORRIDOR AGENCY ]05-BI CONSOLiDATiON BRIEFING BOOK WHAT DOES CONSOLIDATION MEAN? Consolidation means the existing San Joaquin Hills and Foothill/Eastern agencies would combine to form a new single agency that would manage The Toll Roads as one system. The new agency would issue toll-revenue bonds to retire the debt and purchase the assets of the existing agencies. WHY ARE THE AGENCIES CONSIDERING CONSOLIDATING INTO A NEW AGENCY? Consolidation allows the two agencies to restructure future debt payments on a tax-free basis, streamline operations to reduce costs, diversify the sources of revenue, and benefits plans to complete the toll road system. WILL TOLL RATES GO UP? Consolidation offers the best chance of keeping toll rates down over time and reduces the chance of unscheduled increases. Without a successful consolidation of the Agencies, tolls on the 73 Toll Road will rise to reach maximum revenue. Consolidation allows the new agency to realign future debt payments with updated revenue projections, and allows it to diversify its sources of revenue. WHY ARE THERE TWO AGENCIES NOW? In the 1980s, when the idea of creating a new agency to build the planned corridors arose, cities adjacent to the roads wanted to ensure they would have a voice in decisions about the fees that would be charged to developers. These fees that would be used to partially fund corridor construction. Two agencies were identified as the best way to accommodate this goal. HOW DID YOU COME UP WITH THIS SOLUTION? A group of TCA finance staff, bond underwriters, legal counsel, and two independent financial consultants hired by the SJHTCA Board analyzed 14 options -- including seven ways to restructure the Agency's debt, consolidating the Agencies, requesting financial help from an outside government agency, or not pursuing any financial restructuring (keeping the status quo). After an exhaustive review, consolidation was chosen as the most viable option for establishing long-term financial stability because it allows the Agencies to restructure debt to fit within updated revenue projections. TRANSPORTATION CORRIDOR AGENCY HOW WOULD THE CONSOLIDATED AGENCY'S BOARD BE STRUCTURED? On October 10, the San Joaquin Hills, and Foothill/Eastern Boards of Directors unanimously approved a governing structure for the proposed consolidated agency. The 21- member structure ensures that one representative from each city and county jurisdiction currently represented on the existing boards will have a seat on the new board. A supermajority of 77 percent (16 votes) would be required to approve an item to ensure that the new structure meets the federal tax law requirement that neither existing board has a controlling interest in governance of the new agency. I06-BI CONSOLIDATION BRIEFING BOOK WHAT APPROVALS ARE NEEDED? Before consolidation occurs, a number of steps are necessary. Seventy-five percent of TCA member agencies must approve amendments to the Joint Powers Agreements (JPAs) to create the legal framework for a new, consolidated agency. A new traffic and revenue study is also needed to determine the financial feasibility of a consolidated agency. Once member agencies approve the amended JPAs, and if studies determine consolidation is feasible, then a viable finance plan will be drafted. The TCA boards would review the finance plan and vote whether or not to consolidate the agencies. HOW WILL CONSOLIDATION AFFECT FOOTHILL-SOUTH? Consolidation potentially avoids the negative financial penalty that a default by the SJHTCA would have on the future bond issue to fund Foothill-South construction. Consolidation provides the new JPA with an opportunity for tax-free restructuring of all outstanding debt of both agencies now and once more in the future. DOES CONSOLIDATION OF THE TCAs AFFECT THE 91 TOLL ROAD? No. The 91 Express Lanes, a lO-mile toll facility in the median of the Riverside (91) Freeway, is owned by a private company but is in the process of being purchased by the Orange County Transportation Authority, a separate agency that is the local transportation planning authority. TRANSPORTATION CORRIDOR AGENCY WHAT HAPPENS WITH DEVELOPMENT IMPACT FEES? The development impact fee program will not change. A study on projected development impact fees will be conducted in conjunction with the new traffic and revenue study. The development impact fee study will use the latest land-use plans to determine projected revenue for the new agency. Expenditures of such funds will continue to be restricted to support the debt of the individual projects. WHAT IS THE FINANCIAL STATUS OF THE FOOTHILL/EASTERN AGENCY? The F/ETCA is currently exceeding the projections prepared in 1999 partly because of the knowledge learned through financing the San Joaquin Hills Toll Road. TCA staff is closely watching changes in land-use that could affect the performance of the F/ETC in the future. WHAT IS THE FINANCIAL STATUS OF THE SAN JOAQUIN HILLS AGENCY? Since its opening in 1996, the San Joaquin Hills Toll Road has grown substantially but has under performed against the initial and revised toll revenue projections (currently the 73 Toll Road is running at 77% of revenue projections). Toll revenues are the major source of repayment of the outstanding bonds. (The roads were constructed using proceeds from a 1993 Non-Recourse Tax-Exempt Bond Issue.) 06-CI CONSOLIDATION BRIEFING BOOK When the Finance Working Group and the San Joaquin Hills Board's consultants met to discuss options for long-term financial stability, they analyzed the option of choosing no financial restructuring or consolidation and continuing current efforts to increase revenue and reduce expenses. It was concluded that revenue would have to grow at 11.$% annually to meet the San Joaquin Hills Agency's current debt service coverage ratio (1.3x debt service), or by 7.5% to achieve 1.Ox coverage- growth rates that both the Finance Working Group and the financial markets believe are too aggressive. The key financial outcomes of doing nothing, assuming the consensus 4.09% revenue growth rate, are:. · Rate covenant violation in Fiscal Year 2005 · Draw on the Federal Line of Credit in Fiscal Year 2005 · Default on the debt service payment in Fiscal Year 2012 · Extension of the debt by 21 years from 2036 to 2057 The key market impacts would be: · The bonds would be downgraded to non-investment grade status by both Moody's and S&P rating agencies · Upon downgrade, there would be an immediate cost to the bond insurer to establish additional reserves · Upon downgrade, there would be an immediate loss in market value to all bond funds holding SJHTCA debt · Upon downgrade, there would be a cash loss to all bond funds required to sell non-investment grade paper The key impacts outside the SJHTCA would be: · Patrons would be forced to pay higher toll rates as Trustee maximizes revenue stream · Negative impact on future borrowing costs for member agencies · Premium on Foothill-South debt ranging from $10 to $20 million per year for the life of the bonds up to loss of market access · Premium to enter market for capital improvement projects These outcomes will result in trustee enforcement of the covenants under the Indenture beginning in 2005, which includes commissioning of a traffic and revenue consultant to recommend changes in toll rates and operations in an effort to achieve required coverage. This process could continue annually, ultimately eliminating the Board's ability to set toll rates for many years. Without a $680 million loan from another entity that would not have to be paid back for 50 years, consolidation is the only viable long term financial solution. TRANSPORTATION CORRIDOR AGENCY 07 CONSOLIDATION BRIEFING BOOK JUNE 27, 2002 BOARD CHAIRS CREATE AND APPOINT MEMBERS TO FOUR JOINT AD HOC COMMITTEES FINANCIAL ISSUES This Committee will analyze and make recommendations to the full boards on various financial issues including: development impact fee studies; traffic and revenue studies; timeline for financial issues resolution; plan of finance for new JP^; other financial options; and impacts on Foothill-South. OPERATIONAL ISSUES This Committee will analyze and make recommendations to the full boards on various operational issues including: violation fee and fine levels; transponder maintenance fees; toll road pricing; core contracts; and technology development and replacement. NEW BOARD STRUCTURE/LEGAL ISSUES This Committee will analyze and make recommendations to the full boards on various organizational/legal issues including: composition of the acquiring JPA Board of Directors; voting structure; committee structure; Board Member compensation; liability issues; strategy for member agency presentations; and timeline. CAPITAL IMPROVEMENT PROGRAM This Committee will analyze and make recommendations to the full boards on various ClP issues including: Foothill- South; SR-241/SR-91 direct connectors; phase II of SR-73 Glenwood/Pacific Interchange; OCTA proposed purchase of CPTC Express Lanes; Proposed Caltrans' Choke Point Projects; SR-133 widening; and SR-73 widening. The Ad Hoc Committees will review options and make recommendations to the ful board prior to a vote on consolidation. TRANSPORTATION CORRIDOR AGENCY I 08I CONSOLIDA ION BRIEFING BOOK OCTOBER 2002 SJHTCA & F/ETCA approval of new JPA board structure. NOVEMBER 2002 SJHTCA & F/ETCA approval of amended JPAs. NOV 2002- JAN 2003 Member agency approval of amended JPA. MARCH 2003 Receipt of Traffic and Revenue study. APRIL 2003 Completion of appraisal study. MAY 2003 Final approval of consolidation by existing SJHTCA & F/ETCA boards. MAY 2003 First meeting of new JPA. Vote to acquire existing agencies. JUNE/JULY 2003 Acquisition financing and close. Step i Step 2 Step 3 Step 4 Nov 2002 Nov 2002 - Jan 2003 May 2003 May 2003 Amendment will give F/ETCA & SJHTCA authority to create a new JPA with a 21-member board structure and super majority vote TRANSPORTATION CORRIDOR AGENCY I 09 CONSOLIDATION BRIEFING BOOK OVERVIEW Assuming 4.09% revenue growth, SJH will not meet coverage in 2005 - and will fall short of its debt payments in 2002. · Moody's and S&P will most likely down grade SJH bonds immediately. 73 Toll Road tolls, fees and fines will be raised to the most aggressive rates possible - loss of local control. (If SJHTCA does not meet the required bond coverage ratio, the bond insurer will require that the Board of Directors make pricing decisions to maximize revenue) · Bond holders and insurer will make pricing decisions to maximize revenue. Independent financial analysts predict that if SJH is in default, financing for Foothill-South will be impacted by $10- 20 million per year in added interest cost (risk premium). TRANSPORTATION CORRIDOR AGENCY 10 ] CONSOLIDATION BRIEFING BOOK T RAN:i$~P 0 R.TAT 1 0 N CORRiDOR,A- San Joaquin Hills Corridor Agency Chairwoman: Linda Lindholm Laguna Niguel TRANSPOFITA TION COl=II=lIDO,el AGENCIES Foothill/Eastern Corridor Agency Chairman: Scoff Diehl San Clemente May 28, 2002 Chairman Scott Diehl Foothill/Eastern Transportation Corridor Agency 125 Pacifica, Ste. 100 Irvine, CA 92618 Chairman Diehl and members of the Foothill/Eastern Transportation Corridor Agency Board of Directors: On April 25, 2002, the San Joaquin Hills Transportation Corridor Agency Board of Directors voted unanimously to approach the directors of your Board, the Foothill/Eastern Transportation Corridor Agency, to consider consolidation into a new single Joint Powers Agency. This letter, accompanied by the attached staff report, is a request to join with us as we work to ensure that Orange County's public toll-road system continues to be an example of local govemment finding a way to solve local issues. This new JPA would issue new tax-exempt, non- recourse, toll-revenue debt and assume the assets of both existing Agencies. While the Agency has been able to pay its operating costs and debt service payments, we have known for some time the San Joaquin Hills Agency's revenue is running below projections. Since 1999 the San Joaquin Hills Board has taken a number of steps to improve revenue, including defeasing debt using proceeds from the Orange County bankruptcy, increasing tolls, and deducing spending- all in an attempt to close the widening gap between actual and projected revenues. In February 2002, Fitch Investor Services downgraded the 73 Toll Road's debt to non-investment grade. The San Joaquin Hills Agency Board of Directors took immediate action to hire two independent financial analysts to work with staff, review findings, and make recommendations with a goal of finding a stand-alone solution for the Agency's long-term financial stability. Under average annual review growth rate assumption of 4.00%, as discussed in the San Joaquin Hills Agency staff report and reports from the independent financial analysts, there is not a viable stand-alone solution for the San Joaquin Hills financial situation today. This is a function of the capital structure not matching the revenue stream. Short of an infusion of an excess of $400 million in funds from another entity in the form of a grant or a loan that would not be repaid until after 2036, under the present capital structure, the San Joaquin Hills Agency will be in default of its rate covenants in 2005, and will not be able to make debt service payments in 2012. This means that as early as 2005, the San Joaquin Hills Agency Board of Directors will lose control over the setting of toll and fee rates. Walter D. Kreutzen, Chief Executive Officer 125 PACIFICA, SUITE 100, IRVINE CA 92618-3304 · P.O. BOX 53770, IRVINE CA 92619-3770 ~ 949/754-3400 FAX 949/754-3467 ~ thetollroadso com Members: Allso Viejo o Anaheim · Costa Mesa ~ County of Orange ~ Dana Point ~ Irvine ~ Laguna Hills · Laguna Niguel o Laguna Woods o Lake Forest Mission Viejo o Newport Beach ~ Orange ~ Rancho Santa Margarita · San Clemente o San Juan Capistrano o Santa Ana o Tustin o Yorba Linda (~ Prinled on Re~ y( led Paper Page Two Under a single-agency scenario, outstanding debt will be restructured to fit within a newly projected revenue stream based on a now mature toll-road system. The benefits to the Foothill/Eastern Agency include the ability to also restructure Foothill/Eastern debt in light of changes to development plans in the area of the Foothill and Eastern Toll Roads (241,261,133.) Consolidation is expected to also increase organizational efficiencies and reduce operation costs. If a single agency is formed, there is a possibility that revenues collected on the Foothill and Eastern Toll Roads would be needed to subsidize debt associated with the San Joaquin Hills (73) Toll Road. But, I hope that you will agree, that the risk of allowing an Orange County government agency default will have a residual effect on all local governmental entities, both monetarily and politically, and that by diversifying the toll-road system's revenue base, both Agencies as one will benefit in the long nm. Moreover, a single-agency approach is a local solution that retains local control and does not require taxpayer bailout. The San Joaquin Hills Agency and Foothill/Eastern Agency were formed in 1986 because Orange County's leaders realized that if they did not find a way to improve the County's highway infrastructure locally, the county's economy and quality of life would be negatively impacted. To date, we have been successful. We have worked hard to provide reliable transportation alternatives and we care too much to let it fail. With 80,000 people a day using the 73 Toll Road and 220,000 a day using Orange County's public toll-road network, there is no question that The Toll Roads are making a difference in peoples' lives. And there is no question that the system must be completed. The idea developing public-private partnerships to meet local infrastructure needs is still considered to be innovative. TCA pioneered this concept, building 51 miles of new state highways with virtually no taxpayer dollars. Organizations all across over the country are watching us to see if what we are doing works so that maybe they can find a similarly innovative way to meet their own transportation needs. We would like to work together in finding an even more efficient and financially sound way to continue managing our high-quality toll-road system, which provides an invaluable transportation alternative to hundreds of thousands of Orange County residents, businesses, and commuters every day. By voting yes on StafFs recommendations at your June 5, 2002 Operations and Finance Committee and at your Board Meeting on June 13, 2002, we can start the process of creating a new, single agency that continues the mission of both agencies - enhancing mobility and improving the quality of life for all Orange County residents. Sincerely, Linda Lindholm Chairman, San Joaquin Hills Transportation Corridor Agency · San Joaquin Hills toll road agency unanimously votes to pursue consolidation with sister agency. - April 25, 2001 · Foothill/Eastern toll road committee recommends pursuing consolidation with sister agency. - June 5, 2002 · Majority supports completion of 241 Toll Road. - July 11, 2002 · Toll Road board to pursue consolidation with sister agency. - June 13, 2002 · Toll agencies' boards approve governing body for proposed consolidation. - October 12, 2002 TRANSPORTATION CORRID CONs BOOK T R A N $ P O R T A T I O N C O R~t~E_wR I D O R A G E N C I ~ FOR IMMEDIATE RELEASE Lisa Telles (949) 754-3411 Clare Climaco (949) 754-3417 San Joaquin Hills toll road agency unanimously votes to pursue consolidation with sister agency Move seen as way to establish long-term financial stability; Toll road customers will not be affected IRVINE, Calif. (April 25, 2001) - The San Joaquin Hills Transportation Corridor Agency Board of Directors today unanimously decided to take the first steps toward consolidation with the Foothill/Eastern Transportation Corridor Agency, a move designed to establish long-term financial stability for the San Joaquin Hills (73) Toll Road. "Today's unanimous vote is a giant step toward long-term financial stability. Consolidation offers the best chance of keeping toll rates down in the future," said Linda Lindholm, chair of the San Joaquin Hills board. Consolidation was recommended as the San Joaquin Hills Agency's best, most viable option to meet its debt obligations, retain local control of toll rates, and establish long-term financial stability by a finance working group composed of Salomon Smith Barney, TCA finance staff and independent financial consultants to,the Board - Evensen Dodge and Public Finance Management. Currently, the toll road system is governed by two separate boards of directors composed of local elected officials. The San Joaquin Hills board oversees the 73 Toll Road and the Foothill/Eastern board directs the 241,261 and 133 Toll Roads. Consolidating the two Agencies into a new, single agency will not affect the approximately 220,000 people who use the 51 miles of Toll Roads every day. -more- 125 PACIFICA, IRVINE, CA 92618 949.754.3400 FAX 949.754.3467 73 Toll Road Board Votes to Pursue Consolidation; Page 2 At its June meeting, the Foothill/Eastern Board of Directors will to consider formation of a new joint powers agency to acquire the assets of both the San Joaquin Hills and Foothill/Eastern Transportation Corridor Agencies. As a prelude to today's decision, the Finance Working Group analyzed 14 options that included maintaining the status quo, or no financial restructuring. Under that scenario, the San Joaquin Hills Agency would miss crucial bond covenants as early as 2005 and would default payment by 2012 unless revenues grew at a rate of 11.5 percent annually, which is optimistic given the maturity of the road. Prior to payment default, the road would fail to meet its rate covenant, which would result in a requirement by a third party to set tolls at maximum levels, effectively eliminate the board's ability to establish rates, according to their reports. To model the Agency's future financial picture, the Finance Working Group agreed that a 4.09 percent annual revenue growth would be reasonable. While the growth rate must be independently evaluated by a traffic and revenue consultant, the assumed 4.09 rate would likely be supported by the bond market. The current financing plan assumes a 5.9 percent average annual growth rate starting in 2002. In addition to consolidation, the board also decided to explore opportunities for financial contributions from outside government agencies to improve San Joaquin Hills finances on its own. The consolidation process requires consent from the Foothill/Eastern board and will require a new traffic and revenue study. The ultimate result would be creation of a new Joint Powers Authority (JPA), made up of members from both boards and new members. The new JPA would acquire the assets of both agencies and issue $4-plus billion in new debt in order to retire the outstanding debt of both agencies. The existing agencies' boards could remain in place to serve in an advisory capacity to a new board, collect development impact fees and oversee planning for the Foothill-South project. -more- 125 PACIFICA, IRVINE, CA 92618 949.754.3400 FAX 949.754.3467 73 Toll Road Board Votes to Pursue Consolidation; Page 3 The 73 Toll Road opened to traffic in 1996. After a 1997 refinancing that reduced debt service, revenue and transactions continued to increase but not as fast as projected. Since 2000, the Agency has experienced double-digit increases in toll revenue, growing by more than 10 percent per year. Currently the 73 Toll Road carries 80,000 trips each weekday relieving traffic on Pacific Coast Highway, Moulton Parkway, I-5 and 1-405. In 2002, the gap between actual and projected revenue has continued to widen. In February, the agency implemented unscheduled toll increases and the board hired two independent financial consultants, Evensen Dodge and Public Financial Management, experts in national transportation financing, to review the situation. About TCA Approximately 200,000 trips are taken on The Toll Roads daily, saving drivers an estimated 20 minutes per trip. The Toll Roads also are helping alleviate growing traffic congestion on nearby freeway segments and arterial streets. Studies show that without The Toll Roads, traffic on key freeway segments would increase from 3 to 25 percent and from 5 to 65 percent on arterial roads. The Toll Roads are operated by the Transportation Corridor Agencies, two joint powers authorities formed by the California state legislature in 1986 to plan, finance, construct, and operate Orange County's 67-mile public toll road system. Fifty-one miles of the system are complete, including the San Joaquin Hills (73) Toll Road from Newport Beach to San Juan Capistrano; and the Foothill/Eastern Toll Roads (241,261,133) from the 91 Freeway to Rancho Santa Margarita in south Orange County. The San Joaquin Hills Transportation Corridor Agency is a joint powers authority consisting of the cities of Aliso Viejo, Costa Mesa, Dana Point, Irvine, Laguna Hills, Laguna Niguel, Laguna Woods, Mission Viejo, Newport Beach, San Clemente, San Juan Capistrano, Santa Ana, County of Orange 3r~ District, and County of Orange, 5th District. -more- 125 PACIFICA, IRVINE, CA 92618 949.754.3400 FAX 949.754.3467 73 Toll Road Board Votes to Pursue Consolidation; Page 4 The Foothill/Eastern Transportation Corridor Agency is a joint powers authority consisting of the cities of Anaheim, Dana Point, Irvine, Lake Forest, Mission Viejo, Orange, Rancho Santa Margarita, San Clemente, San Juan Capistrano, Santa Ana, Tustin, Yorba Linda, County of Orange 3r~ District, County of Orange 4th District, County of Orange 5th District. **Note: For additional Toll Road facts, Q&As, and style guide information, visit the Newsroom section of the TCA website www. thetollroads, com** 125 PACIFICA, IRVINE, CA 92618 949.754.3400 FAX 949.754.3467 T R A N $ P O R T A T I O N C O R R I D O R A G_wE N C I ~ N FOR IMMEDIATE RELEASE Clare Climaco (949) 754-3417 Foothill/Eastern toll road committee recommends pursuing consolidation with sister agency Creation of new, single agency to run 73, 241, 261 and 133 toll roads could streamline operations, reduce costs, restructure debt IRVINE, Calif. (VVed., June 5, 2002) - The Operations and Finance Committee of the Foothill/Eastern Transportation Corridor Agency, the public agency that manages the Foothill (241) and Eastern (241/261/133) Toll Roads, voted unanimously to move forward with the process of consolidating into a new, single agency with its sister organization that runs the San Joaquin Hills (73) Toll Road. Consolidation allows the two agencies to restructure debt payments on a tax-free basis, streamline operations to reduce costs, diversifies the revenue base, and benefits plans to complete the toll-road system, according to a report by TCA staff and independent financial consultants. "This is a first step in a complicated process that we hope will result in a decision to establish long-term financial stability for The Toll Roads," said Scott Diehl, Chairman of the Foothill/Eastern Transportation Corridor Agency Board of Directors. Linda Lindholm, chairwoman of the San Joaquin Hills Board of Directors, presented a written request to the Foothill/Eastern Board for consolidation into a single agency, after the San Joaquin Hills Board unanimously approved the request in April. "By diversifying the toll-road system's revenue base, both agencies as one will benefit in the long run," Lindholm stated in the letter. "Moreover, a single-agency approach is a local solution that retains local control and does not require taxpayer bailout." 125 PACIFICA, IRVIN'E, CA 92618 949.754.3400 FAX 949.754.3467 Today's committee recommendation will be considered by the Foothill/Eastern Agency's Board of Directors on June 13. If approved, the Board will direct TCA staff to start preparing for consolidation, which could take up to one year, and authorize the formation of a joint ad-hoc committee made up members of both boards to oversee the process and develop options for the structure of a new board of directors. Before consolidation occurs a number of steps are necessary, including a new traffic and revenue study to determine the financial feasibility of creating a new joint powers authority (JPA). The new JPA, if approved by the Boards of Directors of both agencies and city and county jurisdictions that are members of the current Joint Powers Authority, would acquire the assets of both agencies and issue $4-plus billion in new toll-revenue bonds to retire the agencies' outstanding debt. If studies determine consolidation is feasible, a viable finance plan will be drafted and a vote by both boards would be necessary to finalize consolidation. Once the boards approve the new JPA structure, it must be approved by city and county jurisdictions that are members of the current Joint Powers Authority. A report presented to the Foothill/Eastern committee today by TCA finance staff, bond underwriters, legal counsel, and independent financial consultants of the San Joaquin Hills Board concluded that consolidation benefits both agencies by allowing a new agency to restructure debt payments according to revenue projections that are based on historical traffic data, the latest socio-economic data, and current land-use plans. Consolidation would also avoid the negative financial impact that a default by the San Joaquin Hills Agency could have on Foothill/Eastern Agency and other regional government entities. According to the report, the Foothill/Eastern Agency could pay between $10 million to $20 million per year in higher interest rates for the life of the bonds that would be issued to construct the final segment of the 241 Toll Road, known as Foothill-South. Consolidation also gives the new agency an opportunity to restructure its debt tax-free if necessary in the future, options that both agencies have already exercised, and allows the agency to diversify its revenue base. Consolidating the two agencies is not expected to affect the approximately 220,000 people who use the 51-mile public toll-road system every day and offers the best chance of keeping toll rates down in the future. 125 PACIFICA, IRVINE, CA 92618 949.754.3400 FAX 949.754.3467 Consolidation was recommended to the San Joaquin Hills Board in April after an analysis by TCA finance staff, bond underwriters, legal counsel, and independent financial consultants hired by the San Joaquin Hills Board. Their report, which analyzed 14 options based on an 4.09 percent annual revenue growth rate assumption, concluded that consolidation was the most viable option to establish long-term financial stability for the San Joaquin Hills Agency - absent a minimum $400 million grant or loan. The San Joaquin Hills Agency would have to increase revenues at 11.5 percent annually - an optimistic rate given the maturity of the 73 Toll Road - to avoid a rate covenant violation and default. Failure to meet its rate covenant and default would result in a third party setting tolls at maximum levels, effectively taking toll-rate control away from the San Joaquin Hills Board. A decision to move forward with consolidation does not preclude the possibility for a loan, grant, or other assistance from outside government entities to improve the San Joaquin Hills Agency's finances. A special joint-board meeting between the two agencies will be held after the regular board meetings on June 13 to discuss issues, questions, and details related to the consolidation process. About TCA More than 220,000 trips are taken on The Toll Roads daily, saving drivers an estimated 20 minutes per trip. The Toll Roads also are helping alleviate growing traffic congestion on nearby freeway segments and arterial streets. Studies show that without The Toll Roads, traffic on key freeway segments would increase from 3 to 25 percent and from 5 to 65 percent on arterial roads. The Toll Roads are operated by the Transportation Corridor Agencies, two joint powers authorities formed by the California state legislature in 1986 to plan, finance, construct, and operate Orange County's 67-mile public toll road system. Fifty-one miles of the system are complete, including the San Joaquin Hills (73) Toll Road from Newport Beach to San Juan Capistrano; and the Foothill/Eastern Toll Roads (241,261,133) from the 91 Freeway to Rancho Santa Margarita in south Orange County. 125 PACIFICA, IRVINE, CA 92618 949.754.3400 FAX 949.754.3467 The San Joaquin Hills Transportation Corridor Agency is a joint powers authority consisting of the cities of Aliso Viejo, Costa Mesa, Dana Point, Irvine, Laguna Hills, Laguna Niguel, Laguna Woods, Mission Viejo, Newport Beach, San Clemente, San Juan Capistrano, Santa Ana, County of Orange 3rd District, and County of Orange, 5th District. The Foothill/Eastern Transportation Corridor Agency is a joint powers authority consisting of the cities of Anaheim, Dana Point, Irvine, Lake Forest, Mission Viejo, Orange, Rancho Santa Margarita, San Clemente, San Juan Capistrano, Santa Ana, Tustin, Yorba Linda, County of Orange 3rd District, County of Orange 4th District, County of Orange 5th District. 125 PACIFICA, IRVINE, CA 92618 949.754.3400 FAX 949.754.3467 T R A N $ P O R T A T I O N C O R R I D O R A G E N C I E $ FOR IMMEDIATE RELEASE Clare Climaco (949) 754-3417 Toll-road board to pursue consolidation with sister agency Creation of new, single agency to run 73, 241, 261 and 133 toll roads could streamline operations, reduce costs, restructure debt IRVINE, Calif. (Thurs., June 13, 2002) - The Board of Directors of the public agency that manages the Foothill (241) and Eastern (241/261/133) Toll Roads, voted unanimously to move forward with the process of consolidating into a new, single agency with its sister organization that runs the San Joaquin Hills (73) Toll Road. Consolidation allows the two agencies to restructure debt payments on a tax-free basis, streamline operations to reduce costs, diversifies the revenue base, and could benefit plans to complete the toll-road system, according to a report by TCA staff and independent financial consultants. "This is a first step in a complicated process that we hope will result in a decision to establish long-term financial stability for The Toll Roads," said Scott Diehl, Chairman of the Foothill/Eastern Transportatio~ Corridor Agency Board of Directors. '~Ve are looking forward to working with the Foothill/Eastern Transportation Corridor Agency Board of Directors to reach a solution that makes good financial sense, streamlines operations, and is seamless to our ridership," said Linda Lindholm, Chairwoman of the San Joaquin Hills Transportation Corridor Agency Board of Directors. Today's vote directs staff to investigate the possibility of consolidating into a single agency, a complex process which could take up to one year, and authorizes the formation of a joint ad-hoc committee made up members of both boards to oversee the process and develop options for the structure of a new board of directors. A special joint-board meeting between the two boards 125 PACIFICA, IRVINE, CA 92618 949.754.3400 FAX 949.754.3467 was held after the vote to discuss issues, questions, and details that will be studied during the consolidation process. Before consolidation occurs a number of steps are necessary, including a new traffic and revenue study to determine the financial feasibility of creating a new joint powers authority (JPA). The new JPA, if approved by the Boards of Directors of both agencies and city and county jurisdictions that are members of the current Joint Powers Authority, would acquire the assets of both agencies and issue $4-plus billion in new toll-revenue bonds to retire the agencies' outstanding debt. If studies determine consolidation is feasible, a viable finance plan will be drafted and a vote by both boards would be necessary to finalize consolidation. Once the boards approve the new JPA structure, it must be approved by city and county jurisdictions that are members of the current Joint Powers Authority. A report presented to the Foothill/Eastern committee today by TCA finance staff, bond underwriters, legal counsel, and independent financial consultants of the San Joaquin Hills Board concluded that consolidation benefits both agencies by allowing a new agency to restructure debt payments according to revenue projections that are based on historical traffic data, the latest socio-economic data, and current land-use plans. Consolidation would also avoid the negative financial impact that a default by the San Joaquin Hills Agency could have on Foothill/Eastern Agency and other regional government entities. According to the report, the Foothill/Eastern Agency could pay between $10 million to $20 million per year in higher interest rates for the life of the bonds that would be issued to construct the final segment of the 241 Toll Road, known as Foothill-South. Consolidation also gives the new agency an opportunity to restructure its debt tax-free if necessary in the future, options that both agencies have already exercised, and allows the agency to diversify its revenue base. Consolidating the two agencies is not expected to affect the approximately 220,000 people who use the 51-mile public toll-road system every day and offers the best chance of keeping toll rates down in the future. Consolidation was recommended to the San Joaquin Hills Board in April after an analysis by TCA finance staff, bond underwriters, legal counsel, and independent financial consultants hired by the San Joaquin Hills Board. Their report, which analyzed 14 options based on an 4.09 ~ 125 PACIFICA, IRVINE, CA 92618 949.754.3400 FAX 949.754.3467 percent annual revenue growth rate assumption, concluded that consolidation was the most viable option to establish long-term financial stability for the San Joaquin Hills Agency - absent a minimum $400 million grant or loan. The San Joaquin Hills Agency would have to increase revenues at 11.5 percent annually - an optimistic rate given the maturity of the 73 Toll Road - to avoid a rate covenant violation and default. Failure to meet its rate covenant and default would result in a third party setting tolls at maximum levels, effectively taking toll-rate control away from the San Joaquin Hills Board. A decision to move forward with consolidation does not preclude the possibility for a loan, grant, or other assistance from outside government entities to improve the San Joaquin Hills Agency's finances. About TCA More than 220,000 trips are taken on The Toll Roads daily, saving drivers an estimated 20 minutes per trip. The Toll Roads also are helping alleviate growing traffic congestion on nearby freeway segments and arterial streets. Studies show that without The Toll Roads, traffic on key freeway segments would increase from 3 to 25 percent and from 5 to 65 percent on arterial roads. The Toll Roads are operated by the Transportation Corridor Agencies, two joint powers authorities formed by the California state legislature in 1986 to plan, finance, construct, and operate Orange County's 67-mile public toll road system. Fifty-one miles of the system are complete, including the San Joaquin Hills (73) Toll Road from Newport Beach to San Juan Capistrano; and the Foothill/Eastern Toll Roads (241,261,133) from the 91 Freeway to Rancho Santa Margarita in south Orange County. The San Joaquin Hills Transportation Corridor Agency is a joint powers authority consisting of the cities of Aliso Viejo, Costa Mesa, Dana Point, Irvine, Laguna Hills, Laguna Niguel, Laguna Woods, Mission Viejo, Newport Beach, San Clemente, San Juan Capistrano, Santa Ana, County of Orange 3rd District, and County of Orange, 5= District. The Foothill/Eastern Transportation Corridor Agency is a joint powers authority consisting of the cities of Anaheim, Dana Point, Irvine, Lake Forest, Mission Viejo, Orange, Rancho Santa 125 PACIFICA, IRVINE, CA 72618 949.754.3400 FAX 949.754.3467 Margarita, San Clemente, San Juan Capistrano, Santa Ana, Tustin, Yorba Linda, County of Orange 3~ District, County of Orange 4t" District, County of Orange 5t" District. 125 PACIFICA, IRVIN-E, CA 92618 949.754.3400 FAX 949.754.3467 T R A N $ P 0 R T A T ! 0 N FOR IMMEDIATE RELEASE Clare Ciimaco (949) 754-3417 Majority supports completion of 241 Toll Road Poll shows public supports toll roads despite controversies; Most believe roads can be built in an environmentally sensitive way IRVINE, Calif. (July 11,2002) - A majority of Orange County voters continue to support the extension of the Foothill (241) Toll Road to complete the county's public toll-road system despite recent controversial news about toll roads, according to a new poll released by the county's toil-road agencies. Support for Foothill-South, the proposed extension of the 241 Toll Road from its current end at Oso Parkway to the !-5 Freeway in San Clemente, remains strong countywide. In south Orange County, support increased by four points to 67 percent. In San Ciemente, support for the project remained steady compared to last year at 55 percent. Countywide, opposition to Foothill-South declined by four' points from 29 percent in 2001 to 25 percent this year. The survey also found: Roads and the environment are compatible. Nearly three-quarters, or 71 percent, of those surveyed countywide and 72 percent of San Clemente voters believe it is possible to build roads in an environmentally sensitive way. To date, TCA has preserved or restored more than 2,100 acres of sensitive native habitats through its environmental mitigation programs. Roads follow development, and do not encourage it. The survey also found that more than two-thirds, or 65 percent, of those surveyed countywide agree it is 125 PACIFICA IRVINE, CA 92618 949.754.3400 FAX 949.754.34~7 Page 2 a good idea to build new roads to alleviate traffic on existing roads because developers will build housing wherever they own land. Traffic relief and time savings. In South County, nearly 80 percent believe toll roads are a quick, stress-free way to get around Orange County and 76 percent believe the toll roads have helped relieve local traffic in Orange County. A majority of respondents countywide (55 percent) and in south Orange County (61 percent) believes traffic on the I-5 in south Orange County will be less congested when Foothill-South is built. Foothill-South is currently in the environmental review process. TC^, working with state and federal resource agencies, are studying the potential environmental impacts of six transportation alternatives for south Orange County - three toil-road routes with variations, an arterial road improvement plan, the widening of the I-5 Freeway, and a "no project" alternative. Survey methodology The poll, conducted in May, is based on completed surveys from 1,200 registered voters in three sections of Orange County - San Clemente, south Orange County, and North/Central Orange county. The sampling error ranges from 4.3 to 5.7 percent. About TCA More than 220,000 trips are taken on The Toll Roads daily, saving drivers an estimated 21 minutes per trip. The Toll Roads also are helping alleviate growing traffic congestion on nearby freeway segments and arterial streets. The Toll Roads are operated by the Transportation Corridor Agencies, two Joint Powers Authorities formed by the California state legislature in 1986 to plan, finance, construct, and operate Orange County's 67- mile public toll road system. Fifty-one miles of the system are complete. For additional facts, Q&As, and style guide information, visit the "Newsroom" section of the TCA Web site www.thetollroads.com. 125 PACIf:ICA. IRVINE~ CA 92618 949.754.3400 FAX Foothill-South Public Opinion Survey, May 2002 Strongly/Somewhat Support ~ Undecided Strongly/Somewhat Opposed 7% 10% Undecided Undecided Countywide San Clemente South County North/Central County Survey conducted by Decision Research for the Transportation Corridor Agencies Foothill-South Public Opinion Survey, May 2002 5% Undecided Strongly/Somewhat Agree Undecided Strongly/Somewhat Disagree 2% Undecided Countywide 7% Undecided South County Note: In 2002, voters in San Ciemente were asked if toll roads helped relieve traffic in San Clemente. Survey conducted by Decision Research for the Transportation Corridor Agencies North/Central County Foothill-South Public Opinion Survey, May 2002 % Undecided Agree ~ Undecided ~ Disagree Countywide 2% 3% 3% Undecided Undecided Undecided San ¢lemente South County Survey conducted by Decision Research for the Tronsportation Corridor Agencies North/Central County Foothill-South Public Opinion Survey, May 2002 9% Undecided OYes Undecided ~No South Orange County* Undecided Undecided Countywide North/Central County *This question was not asked in San Clemente. There, voters were asked if traffic on Avenida Pica will be greatly reduced when the Foothill-South is built (see Q74A) Survey conducted by Decision Research for the Transoortation Corridor Agencies Foothill-South Public Opinion Survey,.May ~2002 5% Undecided Strongly/Somewhat Agree ~ Undecided ~ Strongly/Somewhat Disagree 2% Undecided Undecided Countywide 6% Undecided San Clemente South COunty Survey conducted by Decision Research for the Transportation Corridor Agencies North/Central County T R A N S P 0 R T A T I 0 N C O R R I D O R A G E N C I E $ NEWS FOR IMMEDIATE RELEASE Clare Climaco (949) 754-3417 Toll agencies' boards approve governing body for proposed consolidation IRVINE, Calif. (Oct. 12, 2002) - Directors of the San Joaquin Hills and Foothill/Eastern Transportation Corridor Agencies voted unanimously today to form a 21-member governing board if the agencies choose next year to form a new, single agency to operate the 51-mile public toll road system. The 21-member structure ensures that one representative from each city and county jurisdiction currently represented on the existing boards will have a seat on the new board. A supermajority of 77 percent (16 votes) would be required to approve an item to ensure that the new structure meets the federal tax law requirement that neither existing board has a controlling interest in governance of the new agency. "Both boards worked together and spent a lot of time reviewing numerous options and we believe that this recommendation is the most fair and representative structure," said Linda Lindholm, chairwoman of the San Joaquin Hills Agency Board of Directors. '% 21-member board gives all the cities and supervisorial districts who are most directly affected by The Toll Roads a continued voice in managing a transportation system that is critical to our communities and our regional economy." "This decision is an important step toward ensuring the long-term financial stability of the toll road system and will strengthen our program to complete the toll-road system," said Scott Diehl, chairman of the Foothill/Eastern Agency Board of Directors. 125 PACIFICA, IRVIN-E, CA 92618 949.754.3400 FAX 949.754.3467 Currently, the Foothill/Eastern Transportation Corridor Agency, which manages the 241,261, and 133 Toll Roads, and the San Joaquin Hills Transportation Corridor Agency, which manages the 73 Toll Road, are legally separate entities with separate finances and debt, although the roads are operated as one system with a shared operations and administrative staff. Earlier this year, directors agreed to study the creation of a single agency as a way to streamline operations and to establish long-term financial stability for the toll-road system. A vote on whether or not to approve consolidation is expected to occur in spring 2003. Determining a board structure was the first major step toward consolidation, although other steps are required before consolidation occurs, including: Approval of an amendment to the existing joint-powers agreement (the legal document that created the agencies as joint powers authorities) by a two-thirds majority of the member cities and the county for each agency. A comprehensive traffic and revenue study to project future traffic and revenue levels for the new agency based on the latest information on land-use plans, population, housing, and other socio-economic factors. The study is currently underway and should be completed in spring 2003. Development of a viable financial plan using the results of a new traffic and revenue ';. study. The new agency, through the issuance of approximately $4 billion in new bonds to be paid by future toll revenUe, will acquire the assets of the existing agencies. The proceeds of the bond issue will be used to retire the outstanding debt. Once a viable financial plan is determined, the existing Boards will take a final vote to allow the creation of the new agency. Consolidating the two agencies is not expected to affect the nearly 250,000 people who use the 51-mile public toll-road system every day and offers the best chance of keeping toll rates down in the future. 125 PACIFICA, IRVINE, CA 92618 949.754.3400 FAX 949.754.3467 About TCA Nearly 250,000 trips are taken on The Toll Roads daily, saving drivers an estimated 20 minutes per trip. The Toll Roads also are helping alleviate growing traffic congestion on nearby freeway segments and arterial streets. Studies show that without The Toll Roads, traffic on key freeway segments would increase between 3 to 25 percent and between 5 to 65 percent on arterial roads. The Toll Roads are operated by the Transportation Corridor Agencies, two joint powers authorities formed by the California state legislature in 1986 to plan, finance, construct, and operate Orange County's 67-mile public toll road system. Fifty-one miles of the system are complete, including the San Joaquin Hills (73) Toll Road from Newport Beach to San Juan Capistrano; and the Foothill/Eastern Toll Roads (241,261,133) from the 91 Freeway to Rancho Santa Margarita in south Orange County. The San Joaquin Hills Transportation Corridor Agency is a joint powers authority consisting of the cities of Aliso Viejo, Costa Mesa, Dana Point, Irvine, Laguna Hills, Laguna Niguel, Laguna Woods, Mission Viejo, Newport Beach, San Clemente, San Juan Capistrano, Santa Ana, County of Orange 3rd District, and County of Orange, 5th District. The Foothill/Eastern Transportation Corridor Agency is a joint powers authority consisting of the cities of Anaheim, Dana Point, Irvine, Lake Forest, Mission Viejo, Orange, Rancho Santa Margarita, San Clemente, San Juan Capistrano, Santa Ana, Tustin, Yorba Linda, County of Orange 3r~ District, County of Orange 4"~ District, County of Orange 5th District. 125 PACIFICA, IRVINE, CA 92618 949.754.3400 FAX 949.754.3467 TRANSPORTATION CORRIDOR-AOErNCy Orange County Edition, Sunday, February 17, 2002 The Rosy Path Takes Its Toll What a reality check the financing of the San Joaquin Hills tollway has of planning. Optimistic predictions about growth and revenue provided the music to investors' ears to get the 15-mile corridor built. Today, with ever-increasing debt payments due and ridership falling well short of projections, the road has been assigned junk-bond status by one Wall Street rating agency, and the toll agency is trying to avoid falling short on promises made to investors. For years, the agency has been shuffling to make the picture look rosier. But it now seems clear the road is in real financial trouble. One lesson of the story is that you can always find a consultant to tell you what you want to hear when you are starting out. Back in 1992, advisors to the tollway were tallying lavish usage projections to get the bonds sold. And as so often seems the case on major infrastructure projects in Orange County, more modest plans fell on deaf ears. There was a time when there could have been a smaller road, and toll pricing might have been tailored more easily to accommodate fluctuating demand. With at lease one other major toll road in South County still on the drawing boards, and in environmentally sensitive lands at:that, the need for scaled-back ambitions and better financial scrutiny before laying pavement is obvious. Toll roads remain an alternative when roads are congested, or when new development is really far enough out of the way to require a fast, direct route. The other toll roads in the Transportation Corridor Agencies' portfolio, the Eastern and Foothill corridors, are doing better. However, the dynamics of making a toll road work are tricky enough to warrant more care in projections. And don't look to the state for a bailout; the quasi- public agency was created to build toll roads in Orange County precisely because the state couldn't afford to do it. If these roads are going to work, they must be a real choice, and motorists won't make the choice if they have free alternatives, or it's too expensive to ride. The success of the road improvements financed by Measure M sales-tax revenue during the 1990s has provided riders with a free route from the south to central parts of the county. Moreover, the optimistic job-growth projections for the toll-road corridor never materialized after that decade's recession. But as the county deals with another economic downturn, it is important also to look at the drivers' pocketbooks. Already paying gas taxes to finance roads, voters in Orange County decided in 1990 to pay the half-cent sales tax. Now, with the toll road in trouble, riders pay as much as $3 each way. Six dollars a day translates into about $120 a month to come out of a family budget. Looking at having to pay $1,400 a year for a toll road, most suburban families have to weigh choices on how to spend that money--on club teams, braces, summer vacation or whatever. When the economy is soft, people will forgo the extras. Without a bigger base of people who must ride to avoid delay, the road today looks as if it were built too soon. In the meantime, the corridor must deal with the financial reality. A refinancing and consolidation with boards of the other corridors may provide a short-term fix and is probably the best interim solution. The corridor agencies do need to keep the system afloat to meet current obligations. But sooner or later, they have to find a better way to get more cars on the road. RF_ Ib- ER Friday, April 26, 2002 73 toll board pursues bailout Transportation · Merger with successful 241 would shift $14 million a year to 73. By JOEL ZLOTNIK and HEATHER LOURIE The Orange County Register The financially beleaguered San Joaquin Hills (73) Toll Road would be bailed out by its richer eastern sister under a proposal approved Thursday. The board that runs the 73 voted unanimously to seek a merger with the Foothill/Eastern (241/261/133) Toll Road after receiving a financial analysis that said the 73 would otherwise default on its bond payments in 2012. "This option is a lifejacket that if we don't take, we'll drown," said board member William Ossenmacher, a Dana Point councilman. The 73, which runs from San Juan Capistrano to Newport Beach, has failed to meet traffic projections since it opened in 1996. The 241, from Rancho Santa Margarita to Anaheim Hills, has exceeded projections. The merger would shift $14 million a year from the 241 to the 73. Foothill/Eastern customer Drew Kovacs, 48, of Huntington Beach said the merger is the wrong way to solve problems on the 73. "Why should I salvage something on the other side of town for poor management?" he asked. "The 241 people shouldn't be bailing out the 73." But member of the 241 board say the 73's default would hurt the agency's credit as it seeks to borrow money for a 16-mile extension of the Foothill (241) Toll Road to San Clemente. In February, the 73's bonds were downgraded to "junk" status by a Wall Street rating agency. The separate 241 board is scheduled to consider the consolidation proposal June 13. Board members said they need to look at the details by are open to the idea to protect the integrity of the whole toll-road system. "We have the responsibility to do what' best for all of Prange County and not just one board or another," said Scott Diehl, chairman of the 241 board and a San Clemente councilman. Orange County Edition, Friday, April 26, 2002 Toll Board Sees a Merger as Cure for Ills Roads: Underused, debt-ridden San Joaquin route would gain in pact with busier Foothill and Eastern turnpikes. By DAVID KEYES TIMES STAFF VgRITER Faced with a shortage of customers and dire financial warnings, directors for the San Joaquin Hills toll road on Thursday authorized a merger with a second county toll agency in an effort to deal with the turnpike's growing debt. The unanimous vote comes nearly three months after a major Wall Street ratings agency downgraded more than $1 billion in San Joaquin toll road bonds to junk status because traffic and revenue for the 15-mile highway continued to fall far short of projections. Board members for the second t~fl agency, which oversees the other two Orange County tollways, the Eastern and Foothill, are scheduled to cast a deciding vote on a merger June 13. The San Joaquin has struggled financially from the start, never quite recovering from its early years, when revenue dipped to only 50% of projections. A panel of financial analysts, which examined the toll agency's ledger books and recommended a merger, said that even with an infusion of as much as $400 million, the agency would fail to establish long-term financial stability. Directors of the San Joaquin were warned Thursday that without quick actionwsuch as a merger--the agency would miss crucial bond payments as early as 2005 and would probably default by 2012 unless revenue grew 11.5% annually. The toll for drivers on the San Joaquin was recently raised to a maximum of $3 for a one-way trip, which could eventually generate needed revenue--or, as some suggest, discourage customers. A further rate hike is not anticipated right now. A merger of the two toll agencies, creating a single board and combining all revenue and debt, would put the joint debt at roughly $4 billion. critics have previously worried that while a merger could prop up the San Joaquin's sagging finances, it could drag down the more successful Eastern and Foothill tollways. That second toll agency is operating at a much healthier 110% of projected revenue. At least one of its board members is eager to consider a merger. "I believe the toll roads have been a success, and we want to continue along in that vein," said Peter Herzog, a Lake Forest city councilman. "This is just some of the bumps and grinds." The San Joaquin, which stretches from Newport Beach to San Juan Capistrano, has had its share of bumps. In January, revenue was 82% of projections but has since slipped to 77%, said board Chairwoman Linda Lindholm, a Laguna Niguel city councilwoman. "Each month it went down, and when it hit 77%, I told myself I don't think we are going to make our debt [payments]," Lindholm said. "Now is the time to take these steps." If the board failed to act, it ran the risk of creating a domino effect that could further erode Wall Street's ratings of the toll bonds, undermine the agency's borrowing ability and affect other toll agencies, analyst Mark T. Young said. Previous downgrades have already hurt toll road investors by lowering the value of $789 million in uninsured bonds issued in 1997 and $220 million in revenue bonds sold in 1993. An additional $795 million in San Joaquin Hills bonds sold by the agency in 1997 still retain an AAA rating because they are insured. Scott Diehl, chairman of the Foothill/Eastern toll board, said a decision whether to merge will come down to "what is the best for all of Orange County." The Foothill/Eastern agency still hopes to add a 16-mile southern extension that would eventually serve San Clemente and push into San Diego County. "I can't tell you what the vote will be in two months, but we would be foolish if we didn't take a look at what is the best structure for us," Diehl said. "We still have quite a bit of [research] for our board to do." A merger would allow the joint $4 billion in debt to be restructured under a new agency, analysts said. They added that consolidation would add efficiency and streamline operations. The San Joaquin toll road opened in 1996. After its first year, revenue was 50% short of projections. Bonds had been sold in 1993 assuming that annual revenue would grow an average of 6.6%. The agency refinanced a majority of its debt in 1997, reducing the interest rate from 7.6% to 5.7%, resulting in significant long-term savings. Revenue and traffic have increased in recent years, but not enough. The San Joaquin board also instructed its staff to work with a Foothill/Eastern agency committee to plan for a new board structure, select traffic and revenue consultants and prepare a joint powers agreement. COUNTY RF_FjISTER Friday, April 26, 2002 2 tollways already share same staff By JOEL ZLOTNIK The Orange County Register The board of the San Joaquin Hills (73) Toll Road on Thursday asked for a merger with the Foothill/Eastern (241/261 / 133) Toll Road, which is more financially stable. Q. Aren't the toll roads already one operation? A. Although the tollways share the same staff and marketing, they are legally separate. They were built using separate bonds, and the debt is paid off by customers and taxpayers paying separately depending on which road they use or live near. And elected officials from different areas sit on two separate boards. Q. What would be the process to merge them? A. The consolidation proposal needs approval of the Foothill/Eastern board. The board is expected to consider the plan at its meeting June 13. If approved, the process would begin to create a new joint-powers authority. That authority would acquire the assets and pay the debt of the existing agencies and refinance the debt of both roads. Before final sign-off on the merger, officials would conduct and consider results of a $2.5 million study to predict revenue and traffic on the two roads. Q. How will the people who sit on both boards maintain their fiduciary responsibility to each in evaluating this deal? A. Four officials sit on both toll-road boards - Supervisor Todd Spitzer, Supervisor Tom Wilson, h'vine Councilwoman Beth Krom and San Juan Capistrano Councilman David Swerdlin. Wilson and Swerdlin were absent from Thursday's meeting. Krom said that she has constituents who use both roads and that she looks at the issue from their perspectives. She said serving on both boards giver her the chance to view the toll roads as one system. "It's not such a schizophrenic position," she said. Wilson said board member could vote in favor of the merger for the 73 and be opposed to it from the 24 l's perspective. "We want to do the right thing for both and have to look at them individually," Wilson said. Q. Would a merger be fair to the people who paid taxes for the 241, or those who pay tolls on the 2417 A. Officials said the overall health of Orange County's toll-road system needs to be maintained. Commuters should see no impact on tolls because of the consolidation. "It seems like the best way to go to keep everything going," said 241 board member Mike Duvall, a Yorba Linda councilman. "I just think right now they need a little bit of a helping hand." If the 73 goes into default, analysts said, it could threaten the ability to finance the proposed southern extension of the 241. Q. What is the problem on the 73? A. The 73 has failed to meet established revenue and traffic projections. Revenue was at 77 percent of projections for all of 2001. Because of the shortfalls, the ongoing ability to repay bonds used for the road's construction is in question. According to the financial analysts, if financing isn't restructured, the TCA would default on bond payments beginning in 2012. Q. Wasn't there another toll-road issue this week? A. Yes, but it involved separate agencies. The Orange County Transportation Authority on Monday agreed to buy the 91 Express Lanes from a private tollway company for $207.5 million. The express lanes are in the center of the Riverside (91) Freeway in Anaheim Hills. · Contact Zlotnik at (949) 92-0484 or email j zlotnik~ocregister.com Orange County Edition, Sunday, May 12, 2002 Tollways Should Act as One The San Joaquin Hills toll road always has been the troubled relative among Orange County's' quasi-pubic toll roads. Now the family is about to take remedial action, and while there may be some risk, there really is no good alternative. From the beginning, the San Joaquin was dubious proposition, stirring fierce opposition in Laguna Beach before it cut a swath through pristine coastal hills. While serving new suburban areas like Aliso Viejo and providing an alternate route north for an older one like Laguna Niguel, it has never had enough high growth areas along it's route to provide sufficient paying customers. And the perceived environmental damage was even high after the initial outcry. When a national convention of environmental writers visited Laguna canyon a few years ago, panelists gave them a grim assessment of the damage to the land and the community psyche caused by the road's construction. Recently the toll road's directors authorized a merger with the more successful agency that overseas the other two Orange County tollways, the Eastern and Foothill corridors. The merger vote is scheduled next month, and there appears to be a sound basis for allowing this merger to go forward. ; The Foothill tollway has been so successful that it recently announced a $12.8 million project to add a new northbound lane to clear bottlenecks. Northbound ridership is said to be about 4,600 cars in peak hours, and the area between Bake and Santa Margarita parkways is especially crowded. Although there are serious questions about plans to extend the Foothill corridor south through sensitive environmental lands near san Onofre, the justification for northern parts of the roads was much easier to see. Without the Foothill, Coto de Caza, Portola Hills, Lake Forest and parts of Mission Viejo would have been less viable as residential communities serving employment centers to the north. The road was a necessity, not merely an alternative to other northbound routes, the way the San Joaquin Hills corridor was. The San Joaquin rout didn't give northbound commuters along the coast a compelling alternative once improvements at the E1 Toro Y on the San Diego Freeway eased at the bottleneck. The Foothill, by contrast, was a logical artery to serve new communities in a growing part of the region. Without the merger of a successful arm the toll roads with the unsuccessful one, the San Joaquin would face a troubled furore going it alone. Several months ago, a major Wall Street rating agency downgraded more than $1 billion in San Joaquin road bonds to junk bond status. A merger makes possible a restructuring of debt, and the flexibility to streamlined operations. Officials have long been searching for a way to price the San Joaquin out of its ridership problems. The agency refinanced its debt in 1997, realizing the savings from a reduction in interest rates, a good move. But the traffic is still not enough to generate sufficient revenue. Simply raising the price of trips, as happened recently, creates its own problems. A steady stream of increases risks alienating the roads regular customers and makes it harder to attract new ones. THE BOND BtlYER Print Edition, Monday, June 22, 2002 California Toll Road Agency Says Yes To Merger San Francisco- The Foothill/Eastern Transportation Corridor Agency board of directors, which operates a toll road in Orange County Calif., voted unanimously yesterday to move towards consolidating itself with its financially struggling neighbor, the San Joaquin Hills Transportation Corridor Agency. The agencies will take various steps to form a joint powers agency next spring and issue about $4 billion in toll revenue bonds to restructure both agencies' debt. The San Joaquin TCA hired Salomon Smith Barney Inc.; Stradling, Yocca, Carlson & Rauth; Nossaman, Guthner, Knox & Elliot; and Gardner Underwood & Bacon and Public Financial Management as financial and legal consultants earlier this year to determine how best to repair the agencies flagging finances. The agency operates the San Joaquin Toll Road. The San Joaquin agency, with about $2 billion and insured and uninsured debt outstanding, is headed towards default. The group's analysis in April found the best solution is to create a new agency that would acquire assets of both agencies, according to agency documents. The San Joaquin board approved a consolidation in late April. Next TTCA must combine both boards and select traffic, revenue and socioeconomic consultants to help develop a viable finance plan. The staff will present a drat~ plan to rating agencies, bond insures, and potential investors for feedback on debt structure. Assuming the structure is viable, both boards may approve a consolidation by May 2003, according to agency documents. Friday, July 5, 2002 Toll-road finances made easier By JONATHAN LANSNER The Orange County Register The toll-road saga in this tom is one of those ugly financial stories with too many zeros in it. Big numbers create headaches for most people and often muddle the underlying message. Remember, it appears the 91 Express Lanes are in good financial shape. The 73 toll road can't pay its bills. And the jury's out on the Foothill/Eastern - - although the county toll-road czars want to merge it with the failing 73 in an odd rescue attempt. But let's look at this mess in dollar figures that most folks can understand by translating some recent traffic figures. To make the math work, we'll make some broad assumptions. We'll create price tags for the three roads by using what the Orange County Transportation Authority wants to pay for the 91 and by using the outstanding debts on the 73 and Foothill/Eastern. A first sign of the problems is that the price tags of the 73 and the Foothill/Eastern are each nine times that of the 91. But take that disparity to a more down-to-earth level: what the asphalt on the three roads is worth per foot. The 91 is the bargain of the bunch at $1,000 per foot. Next comes the Foothill/Eastern at $1,500, and then the 73 at $3,800. This makes sense. The 91 was a simple addition to an existing freeway, with just one entrance and exit. The Foothill/Eastern and the 73 are more complex transportation projects. They were cut through mountains and have multiple exits and entrances. Now that intricacy has a decided value: oppommity for extra customers. Combined, the Foothill/Eastern and the 73 carry 10 times more drivers than the 91. But that extra traffic comes at a high cost. The 91's price tag is equal to $27 for every driver's trip in a year. The Foothill/Eastern is far more pricey on that per-driver basis, at $32. Then there's the 73 -- way out there at a per-driver cost of $68. Of course, just attracting customers isn't enough. The next question is how much every driver is worth to the cash register. The 91 takes in 28 cents per mile from the typical driver. The 73's tally is relatively on par at 15 cents per mile. That's because most 73 drivers go most of the 15 miles and pay the $3 toll over Windy Ridge. The Foothill/Eastern revenue runs low at about 4 cents per mile. It's so minimal because there are many ways to use the road for short and cheap local trips. Finally, let's look at each road's total revenue vs. what we've decided the enterprise is worth. OCTA plans to pay the 91's private owners roughly $10 for each $1 of the current year's tolls and fees. Debts on the Foothill/Eastern are equal to $23 for every $1 of revenue. The 73's price tag runs at $30 per. I hope using figures that would fit into most people's checkbooks helps you understand just how far out of whack the finances of the 73 and the Foothill/Eastern are when compared with a profitable endeavor like the 91. Unfortunately, it will take far more zeros -- yes, that means billions -- to fix these two messes. Orange County Edition, Sunday, July 7, 2002 Tollway Trial at a Dead End in California Transit: Pay-as-you-go highways have become a political nightmare. But backers say that with new approach, the roads can live up to early hype. By DAN WEIKEL TIMES STAFF WRITER Political and financial problems have led many state leaders to conclude that California's nearly two- decade experiment with toll roads has failed, despite fervent hopes and vast investments. When the state first embraced toll roads, think tanks, politicians and government officials couldn't find enough superlatives to describe them. Whether government-run or privately owned, toll roads were transportation's future--an effective way to build highways when the state had little money for new construction. So enthusiastic was the Legislature that it helped create seven of them--five in Orange County. Today, the governor says "Freeways should remain free." California legislators speak openly of scrapping the toll-road experiment. Even the most ardent supporters are tempering their positions. "I've been burned, and the public has been burned by the whole thing," said state Sen. Tom McClintock (R- Thousand Oaks), who supported legislation that approved the 91 Express Lanes on the Riverside Freeway and three other privately owned tollways. "We must never allow the state's obligation to build a first-rate public highway system to be compromised again." The Express Lanes created such a political nightmare that the Orange County Transportation Authority wants to buy the project and put it into the public's hands. Three other toll roads in the county are straggling with lower-than-expected revenue. A fifth proposed tollway in Orange County and another in the Bay Area have been stalled by political opposition and financial problems. The only tollway project untainted by controversy is a proposed segment of California 125 near the Mexican border in San Diego County. It may provide the last chance to prove that a privately owned toll road can work in California. Construction on the $425- million highway is scheduled to begin by year's end. Toll road advocates concede that the experiment has not gone well. But they say tollways remain a viable alternative in a state straggling to meet its growing transportation demands. Federal and state gas taxes, supporters say, will not provide enough money to pay for billions of dollars in needed highways. And the state, they note, had to close a $23- billion budget gap this year. "There probably isn't much support for this idea anymore. That is a shame," said Irvine City Councilman Mike Ward, who sits on the OCTA board of directors. "When a mistake is made, the pendulum always swings too far the other way." McClintock and other disaffected politicians should not be so hard on the measures they helped to make law, Ward said, because they supplied necessary freeways much faster and cheaper than the state could. Unlike the eastern United States, where turnpikes have been widely accepted, California has little experience with toll roads and turned to them only when no alternative could be found. The Legislature began supporting them in 1986 when it created the Transportation Corridor Agencies, a government entity based in Irvine. Financed by $4 billion in bond sales, the TCA built a 51-mile network of highways, including the Foothill, the Eastern and the San Joaquin Hills toll roads slicing through the canyons and hills in eastern and southern Orange County. Three years later, the Legislature approved four more that would be owned and financed by private companies--The Mid-State Tollway in Alameda and Contra Costa counties; the segment of California 125 in San Diego County; a proposed extension of the Orange Freeway in Orange County and the 91 Express Lanes. Facing an acute shortage of transportation funds at the time, legislators said tollways would take the pressure off snarled freeways and accommodate future residential and commercial development, particularly in fast-growing Orange County. Disenchantment with the pay-as- you-go highways took root in 1995 when public opposition to the Mid- State Tollway began to grow. The 40-mile, $600-million route that was to mn through the East Bay was abandoned in 2001. In Orange County, the state recently terminated the franchise agreement for the proposed extension of the Orange Freeway, an 11-mile road that was to follow the Santa Ana River, connecting the Santa Ana and San Diego freeways. Caltrans officials say Amcrican Transportation Development did not begin construction on time, leaving them no choice but to cancel the contract. The Arizona-based company is contesting the matter in court. Default on Bonds Feared Meanwhile, traffic and revenue on the 16-mile San Joaquin Hills toll road has lagged so badly behind projections that the Transportation Corridor Agencies may default on $1 billion in bonds by 2012. TCA officials are considering an administrative merger of the ailing road with the Foothill' and the Eastern tollways, two routes that--so far--are ahead of revenue projections. But there is concern that dramatic cutbacks in commercial and residential development in east Orange County might affect those two roads as well, putting them in the same situation as the San Joaquin Hills. New traffic studies have been ordered. Legislative opposition to toll roads began to build in 2000 when a little-known agreement between Caltrans and the owners of the 91 Express Lanes came to light. The clause gave the owners of the Express Lanes power to block major improvements to the Riverside Freeway, one of the most congested routes in Southern California. The owners of the four-lane tollway, which runs for 10 miles down the middle of the Riverside Freeway, used the so-called noncompete clause to halt lane additions Caltrans wanted to build. The clause, which was negotiated by Caltrans and never subject to legislative approval, can prevent improvements along 30 miles of the Riverside Freeway if they take business away from the Express Lanes. In effect, the state had turned over control of a portion of a public highway to a private company. Less restrictive noncompete agreements are in place on the roads operated by the Transportation Corridor Agencies. They require that the TCA be compensated for any revenue loss caused by improvements to several public highways, including stretches of the Santa Aha and San Diego freeways. Noncompete agreements are necessary, toll-road operators say, because no one would invest in the project without some assurances the highway would survive economically. In other words, the more congested the freeway, the more drivers will mm to toll roads. After years of supporting the Express Lanes, the Orange County Transportation Authority is now trying to buy the tollway for $207.5 million. If the deal is made, OCTA wants to lift the controversial noncompete clause and make hundreds of millions of dollars in improvements to the Riverside Freeway. "The whole concept of noncompete clauses has put a stranglehold on the state's ability to make improvements to highways," said Orange County supervisor and OCTA board chairman Todd Spitzer, who has led the effort to buy the toll lanes. "Government should not abdicate its responsibility to provide infrastructure." Future Backing Unlikely Largely because of noncompete clauses, members of the Assembly and Senate Transportation Committees say it is unlikely the Legislature will support more toll roads. State Sen. Kevin Murray (D- Culver City), chairman of the Senate Transportation Committee, has called noncompete clauses "a scam." "The Express Lanes have been ... so controversial, I don't know any one who would want to front one of these things right now," said Steven Schnaidt, staff director of Murray's committee. In campaigning for reelection, Gov. Gray Davis has said he is against toll roads, especially those privately owned. His opponent, Bill Simon Jr., favors the for-profit operations. Even less restrictive agreements like the TCA's are in question. McClintock said he would "strenuously object" to toll road deals that would interfere with construction on state highways. Support for toll roads has eroded so much in the Capitol that OCTA officials say they are having a hard time getting support for a bill that would help complete the authority's purchase of the 91 Express Lanes. OCTA, which wants to maintain the toll lanes for awhile, needs state approval to charge tolls. Toll road advocates agree that noncompete clauses are a weakness in the effort to build more toll roads in California. "We probably won't see privately owned tollways like the 91 anymore," said Robert Poole Jr., president of the Reason Foundation and a leading proponent of private highways. "The idea is very much alive. It is just going to be done differently." Poole and other toll road supporters point to the Transportation Corridor Agencies as a better model. The TCA's more moderate noncompete agreement requires the agency to be compensated for improvements to nearby highways if they take away so many paying customers that the operation can't pay its bills. "We've lost momentum. The support is not where it was 15 years ago when the TCA was created or 12 years ago when the private toll roads were approved," said Walter Kreutzen, the TCA's chief executive officer. "But when the population grows and the traffic gets bad, toll roads will be one of the solutions." As the debate continues, a private venture is moving ahead with California 125 in San Diego County. California Transportation Ventures Inc. plans to build a four-lane, 12- mile highway from California 905 to San Miguel Road near California 54. The north-south corridor across Otay Mesa will serve traffic going to and from the U.S.-Mexico border. The tollway has no significant competition from public highways and the road's noncompete agreement was revised so it cannot be used to halt construction of public roads called for in the area's regional transportation plan. The pact, however, allows the company to collect for lost revenue if competing highways draw motorists away. "With as much blood, sweat and tears as we have put into this thing, I will be proud if we're the last remaining private toll road in the state," said Kent Olsen, president of California Transportation Ventures. Orange County Edition, Thursday, July 18, 2002 Toll Road Boards Get Merger Talks Started Transportation: Agencies survey a plan some say can save the ailing San Joaquin Hills turnpike. By DAVID HALDANE TIMES STAFF WRITER Orange County's two toll road agencies met Wednesday to discuss merging, a proposal some say might save the financially ailing San Joaquin Hills toll road as well as the plans to build another tollway south of Mission Viejo. The first of many expected workshops on the proposal was devoted to reviewing the legal complexities of melding the independent boards and seeihg whether the idea is politically and economically feasible. "This kicked it off," said Clare Climaco, a spokeswoman for the Transportation Corridor Agencies, regarding the 90-minute meeting on new board structure and legal issues. The San Joaquin Hills Transportation Corridor Agency and the Foothill/Eastern Transportation Corridor Agency both are under the umbrella of the TCA, but each is financed separately and run by a separate board. The San Joaquin board suggested the consolidation in April, and a month later the Foothill/Eastern board agreed to study the idea. Proponents say the merger could save the San Joaquin Hills toll road, which has failed to meet traffic and revenue projections since opening from Costa Mesa to San Juan Capistrano in 1996. "This is the beginning of a yearlong process," Walter D. Kreutzen, chief executive of the Irvine-based TCA, said when the merger plans were announced. "Although we don't know yet whether a merger will work, I don't think there is any other way to go right now." At Wednesday's meeting, legal consultants outlined several ways the boards could combine. One major problem is financing. Because a consolidated agency would have to sell bonds to pay off debts and finance the roads, its governing board could not be controlled by a majority of members from either of the old agencies' boards. "The important thing is that in order for the market to accept this transaction it has to know that the new board will not be controlled by either of the previous existing agencies," Climaco said. "Determining a potential board structure is really fundamental to the process." Orange County Edition, Sunday, September 1, 2002 Toll-Road System Deserves Support By DICK ACKERMAN Dick Ackerman (R-Irvine) is a state senator. Toll roads have been in the news a lot lately, and some people wonder if they were a mistake. To the contrary, Orange County's public toll road system has breathed life into the local economy and is a symbol of innovation. When our civic leaders realized in the early 1980s that Interstate 5 would not be able to accommodate impending population growth, additional freeways were mapped out. Unfortunately, the state said that it had no money to build them. Absent tax dollars, the only way th~ roads could be built was to finance them through bonds and make them toll roads. This is a public toll-road system, however, and once the bonds are paid off, they will serve as "freeways," as they were originally planned. But with California currently running $24 billion in the red, it's a good thing Orange County didn't wait for the state to come up with the funding. Without the toll roads, Interstate 5 would be as congested as the Riverside Freeway, businesses in the area would be suffering, and the quality of life in Orange County would be substantially affected. The toll roads have played a key role in fueling Orange County's economic engine. Western Digital, Oakley, Black & Decker and other companies probably would not be headquartered in southern Orange County if it weren't for the convenient access that toll roads provide. The economic vitality of these and other businesses in Orange County depend on an efficient ground transportation system. With freeway congestion worsening daily, it is essential that clients and customers have an alternative such as the toll roads, which give them convenient access to central and southern Orange County businesses. It is important to note that the Transportation Corridor Agencies, which built and operate the toll roads, are two joint powers authorities. These are public agencies governed by elected officials from the cities and unincorporated county areas adjacent to the toll roads. Elected representatives, not private investors, sit on the two boards of directors and make policy decisions to help enhance mobility in Orange County. That is why I am conceptually in favor of the Orange County Transportation Authority's efforts to take over the 91 Express Lanes. Assembly Bill 1010, which recently passed a Senate committee vote, would give OCTA the authority to collect tolls until the cost of the construction of the lanes has been paid off. If OCTA gets the authority to collect tolls, safeguards like those that exist in the TCA toll road system must be put in place to ensure that Orange County taxpayers are not at risk. The TCA is considering a consolidation of its boards to reduce bureaucracy and increase efficiency. The proposed consolidation will also allow the new board to refinance its debt, which would probably ease the financial pressure on the San Joaquin Hills tollway and renew Wall Street's faith in the leadership of the agency. We need to run our governmental agencies more like businesses to encourage the development of entrepreneurial solutions to our regional problems, especially our increasing need to improve our crumbling infrastmcture. Fifty-one miles of the planned 67-mile toll road system have been built; now we just have to finish the job. The Foothill tollway now ends at Oso Parkway. If the final connection is built, the toll road system would be complete, and residents and businesses in San Clemente would have a much- needed alternative to Interstate 5. But the toll roads have proved to be more than just a convenient alternative. They are a necessity for many of the 220,000 daily users who rely on them to get to work. Alternative roads are needed, not only for the continued success of local businesses, but also for anyone who prefers spending more time with their loved ones to sitting in traffic. The continued financial health of the toll roads must be taken seriously because independent public agencies like the TCA are an integral part of our county's economic health. The TCA is taking the necessary steps to preserve the financial integrity of the toll roads while providing convenient alternatives to congested freeways. Orange County Edition, Friday, October 11, 2002 Tollway Agencies Create Board to Oversee Merger Highways: Move could help San Joaquin Hills road avoid bond default, fund proposed project. From a Times Staff Writer The boards of Orange County's two toll road agencies Thursday unanimously approved a new 21-member governing body that would oversee a probable merger, the first step in an effort to save the financially ailing San Joaquin Hills toll road. If the merger is completed, the board would control all of the county's tollways, replacing two governing bodies that now run the San Joaquin Hills and Foothill/Eastern toll roads. The board would include representatives from the 18 cities and three county supervisorial districts through which the highways run. The merger is necessary, officials say, to ensure that more than $1 billion in bonds sold to pay for the San Joaquin Hills toll road don't go into default, as they are expected to do by 2012. The tollway, which runs from Newport Beach to San Juan Capistrano, has failed to meet traffic and revenue projections since opening in 1996. Merging the toll roads would also help the Irvine-based Transportation Corridor Agencies, which administers the two, to successfully sell bonds for the proposed Foothill South tollway, which would stretch from Mission Viejo to south of San Clemente. "This will make us a better security risk and the bonds that we would sell in the future would be at a better interest rate," said Scott Diehl, chairman of the Foothill/Eastern corridor agency. "We're trying to be as efficient as we can be. Merging makes a lot of sense," he said. But the merger is contingent on the findings of a $1.84-million traffic and revenue study, which is expected to be completed early next year. TRAIVSPORTA TIOiV COI=II=IIOOR AGENCIES 125 PACIFICA, SUITE 100, IRVINE CA 9261B-3304 949/754-3400 FAX 949/754-34G7 EXHIBIT C MEMORANDUM April 25, 2002 TO: San Joaquin Hills Board of Directors FROM: San Joaquin Hills Finance Working Group SUBJECT: Analysis of Options for Long-Term Financial Stability FINANCE WORKING GROUP RECOMMENDATION The Finance Working Group consisting of Senior TCA Finance Staff, Salomon Smith Barney (Underwriters), Stradling, Yocca, Carlson & Rauth (Bond Counsel), Nossaman, Guthner, Knox & Elliott (Agency Counsel), Evensen Dodge (Board's Co-Independent Financial Consultant), Public Financial Management (Board's Co-Independent Financial Consultant) makes the following recommendation: 1. Authorize the Chairwoman to present a formal request to the Foothill/Eastern Board of Directors to agendize and discuss, at their June Board Meeting, the formation of a new Joint Powers Authority to acquire both the San Joaquin Hills and Foothill/Eastern Transportation Corridor Agencies. 2. Upon approval, in concept by the Foothill/Eastern Transportation Corridor Agency Board, direct staff to: a. Work with the San Joaquin Hills Financing Ad Hoc Committee and the Foothill/Eastern Long Term Financial Planning Ad Hoc Committee to develop options for a new, combined board structure. b. Coordinate the selection of traffic and revenue and socioeconomic consultants between the two agencies. c. Prepare the necessary legal documents to effect the formation of the new Joint Powers Agency ("JPA"). d. Develop a viable plan of finance with updated traffic and revenue, development impact fee, and operating expense forecasts that addresses and implements long- term financial stability for the new JPA. e. Present the draft plan of finance to rating agencies for feedback on debt structure. f. Assuming a viable financial structure, present financing structure to both Boards for approval to finalize consolidation by May 1, 2003. 3. Concurrent with recommendations 1 and 2, authorize Staff to continue exploring opportunities for an equity contribution or other forms of financial assistance from another government entity to improve the SJHTCA's finances on a stand-alone or consolidated basis. April 25, 2002 Report No. 12 Page 2 of 11 SUMMARY The Finance Working Group and the Board's Independent Financial Consultants were charged with exploring all financial options available to establish long-term financial stability for the Agency on a stand-alone basis. Among the options to be explored was a potential consolidation with the Foothill/Eastern Agency. In addition, the group was to address potential operational and policy changes to enhance revenue and reduce operating costs. The analyses are now complete and the conclusion of the Finance Working Group is that absent a grant or loan (to be repaid after 2036) in excess of $400 million, there is no stand-alone financial restructuring available that establishes long-term financial stability. In order to avoid a rate covenant violation, which results in loss of the Board's discretion relative to the financial activities of the Agency, the only viable and recommended solution, based on exhaustive financial modeling, is to approach the Foothill/Eastern Board and request that they consider consolidation of the two Agencies. Consolidation of the two Agencies allows all debt of both agencies to be restructured and eliminates the currently cumbersome operating procedures providing for a more efficient and streamlined organization. DISCUSSION The subsequent discussion will be presented in the following order: I. II. III. IV. V. VI. VII. Background: Non-Recourse Toll Revenue Financing Current Financial Picture Analyses & Options for Long-Term Financial Stability Finance Working Group Recommendation Analysis of Options not Recommended Our Contract with SJHTCA Bondholders Conclusion I. Background: Non-Recourse Toll Revenue Financing In 1993, the San Joaquin Hills 'Transportation Corridor Agency ("SJHTCA") successfully financed $1.2 billion of non-recourse toll revenue bonds, which, at the time, represented the largest start-up, private toll-road financing by a public agency in U.S. history. The innovative public/private partnership enabled the construction of a new 15-mile state highway which today serves more than 80,000 people a day- with no new general taxes and very little state dollars. (For additional historical background, please see Attachment A, "The Toll Roads: Historical Finance Perspective. '9 The 1993 financing- detailed in SJHTCA's 1993 Official Statement - was based on the assumption that annual revenues would grow by an average of 6.6% which was greater than the 6% average annual growth in debt service. According to the 1993 projections, transactions would grow annually by an average of 2.7%. Projections of future transactions and revenue were the result of a detailed study by Wilbur Smith & Associates based on the most current land- use development plans, the Orange County Traffic Analysis Model ("OCTAM") and the most current socio-economic data available at that time. April 25, 2002 Report No. 12 Page 3 of 11 The completed toll road (SR 73) opened to traffic in 1996. After one year of operations, revenue levels were approximately 50% of 1993 projections. In 1997, as interest rates neared historic lows, the SJHTCA exercised its only opportunity under tax law to refinance a majority of the debt on a tax-exempt basis. The refinancing provided cash flow savings of $277 million between 2000 and 2012 and reduced the average interest rate from 7.6% to 5.7%, resulting in long-term cash flow savings without extending the sunset date of the Agency. After the 1997 refinancing, revenue and transactions continued to grow by double-digit percentages, but not at a sufficient level to make up for the initial revenue shortfall that occurred between 1993 and 1997. Staff and the Board closely monitored the road's revenue performance, made changes to the marketing program, and kept rating agencies and investors apprised of the situation. In response, to further strengthen the Agency's financial picture, the Board adopted a Revenue Stabilization Plan that included: Defeasing $45 million in debt with funds received from the Orange County bankruptcy settlement (Feb. 2000) · Implementing a $1 transponder maintenance fee for accounts that did not attain $25 in monthly tolls (July 2000) Implementing an unscheduled toll increase at ramp plazas (July 2000) · Transitioning toll operations from Lockheed Martin IMS (Dec. 2000) · Implementing a scheduled toll rate increase at the mainline plaza (July 2001) · Approving an unscheduled toll increase at the mainline toll plaza for cash customers and FasTrak peak-hour pricing (Dec. 200 l) II. Current Financial Picture Since 2000, SJHTCA toll revenues have grown more than 10% per year; however, in 2002 the gap between actual and projected revenue has continued to widen due to greater than anticipated diversion following the July 2001 mainline toll increase. In keeping with the Agency's Revenue Stabilization Plan, the Board implemented an unscheduled toll increase at the mainline toll plaza for cash customers and FasTrak peak-hour pricing in February 2002. The Agency's CEO has been implementing cost-cutting measures with the intent of maintaining customer service since FY 2000. In February 2002, Fitch IBCA, a nationally recognized rating agency, downgraded the SJHTCA's bonds from BBB- to BB, a non-investment grade rating. Immediately following the downgrade, the Board again reaffirmed their unanimous commitment to long-term financial stability by creating the SJHTCA Financial Consultant Ad Hoc Committee comprised of Chairwoman Lindholm and Directors Craycraft, Dahl, Ficke, Lautenschleger, Spitzer, and Wilson. The Ad Hoc Committee retained co-independent financial consultants -- Evensen Dodge and Public Financial Management, both experts in municipal bond finance. The consultants' analyses, as stated in their scope of work, included: April 25, 2002 Report No. 12 Page 4 of 11 · Examination of all options available to establish long-term financial stability for the SJHTCA on a stand-alone basis · Evaluation of potential consolidation of the SJHTCA and F/ETCA · Consideration of other options such as renegotiation of equipment leases · Recommendations on minimizing violation or image-based revenue losses The Board also authorized Staff to continue the Agency's focus on implementation of cost- saving measures. Though the Board approved $14.7 million in budgeted toll operations expenditures for Fiscal Year 2002, staff estimates it will spend $13.6 million through the end of the fiscal year, for a net savings of $1.1 million, or 13%. III. Analyses & Options for Long-Term Financial Stability For the past three years the existing Finance Working Group, made up of Senior Finance Staff, the Senior Underwriter (Salomon Smith Bamey), Bond and Tax Counsel (Straddling, Yocca, Carlson & Rauth), and Agency Counsel (Nossaman, Guthner, Knox & Elliott) have been analyzing both short and long-term options to respond to the financial performance of SJHTCA. During the past two months, Evensen Dodge and Public Financial Management have joined the Finance Working Group in order to perform the analyses requested of them by the Board. The financial modeling performed by Finance Staff and Salomon Smith Barney was provided to Evensen Dodge and Public Financial Management in order to receive their objective input. The independent financial consultants performed additional financial model development and analysis, as they deemed necessary to cover their scope of work. The goal of each of the options analyzed was to provide for payment of debt service in each year and to maintain the 1.3x rate covenant discussed above. Assumptions As with any long-term financial analysis, basic assumptions must first be made in order to develop an analytic framework or model with which to test the available options. Future toll revenue growth is the single most critical variable. Toll revenues are a function of transactions and toll rates, which are in mm influenced by traffic congestion on competing roads, the value of time, inflation, time of day, and many other variables. It is important to note that the assumptions used in the Finance Working Group's analyses were determined by consensus of the group as well discussions with rating agencies and MBIA, (the insurer of a majority of the bonds), as to "acceptable levels of growth" without the benefit of a new, comprehensive Traffic & Revenue Study. The assumptions are just that: they cannot substitute for a detailed Traffic & Revenue Study. A Traffic & Revenue Study uses sophisticated modeling to attempt to forecast these variables based on new land-use development plans, socio-economic data, and historical data of actual traffic and revenue numbers. The Board took the first step toward obtaining a new study, by approving the RFP process for a new Traffic & Revenue consultant at the April Board Meeting. April 25, 2002 Report No. 12 Page 5 of 11 Using all available information, the Finance Working Group determined an assumption of 4.09% (7.25% for fiscal year 02/03 and 4% thereafter) to be a reasonable average annual growth rate over the next 40+ years for financial modeling purposes only. The Finance Working Group does not possess the expertise to make a forecast, but an assumption was necessary in order to model the impact of the various possible alternatives that could be presented to the Board. As a frame of reference, the 1997 financing plan assumed a 5.9% average annual revenue growth rate from 2002 to 2036. The 4.09% revenue growth assumption is critical because it underpins the analyses of all the debt-restructuring options. As such, the Finance Working Group members agreed that a new Traffic & Revenue study would be a critical first step to any and all debt restructuring analysis and planning, including consolidation. If a Traffic & Revenue study outcome is lower or higher than the assumptions used in these analyses, then the menu of options and their outcomes may differ from this report. Other assumptions for analysis purposes only include: · Use of the $4.3 million Toll Revenue Stabilization Fund, of which $1 million is used in Fiscal Year 2003 · A proposed $2 per month transponder fee and threshold increase to $30 · Paid by plate fees of $2 per image and DMV fees of $3 per hold · Three percent per year increase in operating expenses after Fiscal Year 2003 · Development Impact Fees as forecast in the 1997 Official Statement · Three percent of all violation images are unprocessable. The proposed fees and fines were incorporated into the financial model for planning purposes only. The Finance Working Group recognizes that Board approval is necessary to implement such changes. Both of the Board's independent financial consultants recommended higher increases than proposed by staff to the violations fees and fines structure as a way to recover costs associated with processing toll violations images and as a method to change costly patron behavior. For a detailed description of the Finance Working Group's assumptions, please see Attachment B, "Financial Options Analysis, April 2002, "pages 6-26. Particular attention should be paid to page 18, maintenance fees and page 24, violation fees. Both assumptions need approval by the Board of Directors.before they can be assumed in a final plan. April 25, 2002 Report No. 12 Page 6 of 11 Options Based on the 4.09% annual average revenue growth rate assumption, the Finance Working Group analyzed the following options: No financial restructuring, i.e. keeping the status quo by continuing to identify ways to increase revenue and reduce expenses Seven specific tax-exempt options for restructuring the Agency's debt · A "restructuring combination" option that includes three of the most viable tax- exempt restructuring options · A taxable debt restructuring option · A loan/grant from an outside government agency · Acquisition of SJHTCA by an outside government agency and keeping the corridor as a toll road · Acquisition by an outside government agency and making the corridor a freeway · Consolidation of the SJHTCA and F/ETCA into a new, single JPA For detailed analyses of all the options, please see Attachment B, "Financial Options Analysis, April 2002, "pages 28-76. The Finance Working Group believes that the analysis of these options gives the Board information to move forward with long-term financial solutions. Moody's and S&P have indicated they are looking for positive, decisive actions from the Board that show a commitment to long-term financial solutions. None of the stand-alone options provide for a long-term financial solution and SJHTCA risks being downgraded by Moody's and S&P in taking the stand-alone course of action. Some stand-alone options may forestall such action, but no option prevents a downgrade. While members of the Finance Working Group took different approaches to the analysis of financial options, in the end, all agreed on key issues and recommendations. All agreed that none of the seven tax-exempt restructuring options alone would create enough debt relief to improve the Agency's long-term financial stability beyond 2005, assuming a 4.09% revenue growth rate. The taxable restructuring option - the goal of which would be to ease debt service requirements by extending debt- was also not feasible because the assumed revenue stream would not support larger payments created by a higher taxable interest rate structure. (Attachment C "Summary of Financial Options" attempts to capture the issues, challenges, controlling parties, and key outcomes of the remaining options, each of which is discussed below.) April 25, 2002 Report No. 12 Page 7 of 11 IV. Finance Working Group Recommendation Consolidation The Finance Working Group believes that consolidation is the Agency's best, most viable option to meet its debt obligations, retain control of toll rate setting, and establish long-term financial stability. Consolidating the SJHTCA and F/ETCA is a process that will require approval of the F/ETCA Board of Directors and will require a new Traffic & Revenue Studies for both Agencies. Consolidation is also likely to require approval of amendments to the existing joint powers agreements.' The ultimate result would be the creation of a new Joint Powers Agency, made up of members of both Boards and new unrelated members as required under tax law. The new JPA would issue $4+ billion in new tax-exempt non-recourse toll revenue bonds in order to defease the debt of the SJHTCA and the F/ETCA and acquire the assets of both Agencies. The existing Agencies' Boards of Directors could remain in place to serve in an advisory capacity to the new Board, collect Development Impact Fees, oversee construction of Foothill-South and advise members of the new JPA. The benefits of consolidation include: Long-term financial restructuring for both Agencies to re-align debt service with forecasted revenues · An opportunity for tax-free restructuring of all outstanding debt now and once more in the future · Lower future revenue growth requirements for both roads and possibly lower tolls over time · The ability to negotiate more favorable debt coverage requirements under a new Bond Indenture · Enhancements to the market view of the Transportation Corridor Agency ("TCA") credit · Board control of toll rate and fee setting · Increased efficiency by streamlining operations and ultimately reducing costs · Establishment of long-term financial stability without financial support that uses taxpayer dollars from another entity.' The challenges of consolidation are: · The new Traffic & Revenue Study might forecast annual revenue growth for the combined system that would be so low as to preclude any financial restructuring for either Agency · The rating agencies may still downgrade SJHTCA bonds during the implementation period · Market capacity for a $4+ billion bond issue payable over a longer period of time · Obtaining an independent market valuation for the acquisition price of the Agencies · Recent proposed changes to IRS regulations which make structuring the finance plan more difficult April 25, 2002 Report No. 12 Page 8 of 11 The process for establishing a new JPA is complex and could take up to a year. Major steps include: · SJHTCA Board request that the F/ETCA Board consider consolidation · F/ETCA Board agree to consider consolidation · Amend scope of work for traffic and revenue consultant to study a combined revenue forecast · Develop and obtain approval of a Board structure for the new JPA. · Amend the existing JPAs, subject to approval of three-fourths of the parties to each agreement · Finalize the consolidated finance structure · SJHTCA and F/ETCA vote to effect consolidation · New JPA hires an independent third party to value the SJHTCA and F/ETCA to determine a fair market value purchase price · New JPA approves a plan of finance to issue $4+ billion in toll revenue bonds to acquire the respective assets from SJHTCA and F/ETCA and defease all outstanding bonds Concurrent Staff Recommendation: Involvement from Outside Government Entities The Finance Working Group analyzed three options -- A loan/grant from an outside government entity, acquisition by an outside government entity and the project remains a toll road, and acquisition by an outside government entity and the project becomes a freeway. (Details of these options are presented on pages 71- 76 of Attachment B and on page 3 of Attachment C.) In order to stabilize SJHTCA on its own, in addition to a possible financial restructuring combination, an outside entity would need to provide an estimated $680 million to defease or repurchase enough debt to meet the Agency's 1.3x debt coverage ratio. The consensus was that this would be extremely difficult to secure, given the shortage of state, federal, or local transportation funds. Existing transportation dollars are already earmarked for specific projects, so a grant from another government entity will likely require the diversion of funds from existing programs. In spite of these daunting constraints, Staff is recommending concurrent pursuit of an equity contribution, in the form of a grant, long-term (40 year) loan, or acquisition by another government entity as a way to potentially resolve the financial issues facing SJHTCA. One of the Board's independent financial consultants, Public Financial Management, recommended that the Agency examine the possibility of consolidation with the F/ETCA and the 91 Express Lanes as a way to boost revenue and diversify risk on the toll road system. (Information on the 91 express lanes is not readily available and the Finance Working Group therefore did not analyze this for financial viability or willingness on the part of the 91 Express Lanes owners to participate in such an action.) (See Attachment D for "Independent Consultants' Analysis" and supporting presentations.) April 25, 2002 Report No. 12 Page 9 of 11 The Finance Working Group also believes that an acquisition by an outside government entity is unlikely as it would require the purchasing agency to find funds to retire SJHTCA's entire $2 billion outstanding debt. The Agencies were created to plan, finance, design and construct the toll roads precisely because of a lack of state and federal transportation funds for new roads. Further analysis of an outside acquisition would require the SJHTCA Board to direct staff to pursue the option and, most likely, a reciprocal action by the potential acquiring entity's policy- making body. Moreover, Staff believes that involvement from an outside government entity (whether through a loan, grant, or acquisition) would mn contrary to TCA's accomplishment to date of building and operating 51 miles of new state highways with virtually no tax dollars. TCA's innovative financing plan has been a model for other government entities, such as the Alameda Corridor, the Pocahontas Parkway in Virginia, the Southern Connector in South Carolina and Northwest Parkway in Colorado, all of which sought ways to fired much-needed transportation infrastructure projects in an era of shrinking public resources. V. Analysis of Options Not Recommended No Restructuring Option The Finance Working Group and the Board's consultants analyzed the option of choosing no financial restructuring and continuing current efforts to increase revenue and reduce expenses. It was concluded that revenue would have to grow at 11.5% annually to meet the Agency's current debt service coverage ratio (1.3x debt service), or by 7.5% to achieve 1.0x coverage -- growth rates that the Finance Working Group and the financial markets believe are too aggressive. The key financial outcomes of this option, assuming a 4.09% revenue growth rate, are: · Rate covenant violation in Fiscal Year 2005 · Draw on the Federal Line of Credit in Fiscal Year 2005 · Default on debt service payments in Fiscal Year 2012 Extension of the debt by 21-years from 2036 to 2057 These outcomes will result in trustee enforcement of the covenants under the Indenture beginning in 2005, which includes commissioning of a traffic and revenue consultant to recommend changes in toll rates and operations in an effort to achieve required coverage. This process could continue annually, ultimately eliminating the Board's ability to set toll rates for many years. (Reference Exhibit B pages 31 - 35) April 25, 2002 Report No. 12 Page 10 of 11 Combination of Restructuring Options A combination of the three tax-exempt restructuring options (surety substitution, fixed-to- floating swap, and Series 1993 refunding) would require policy actions to ensure revenue growth of 9.9% year-over-year to achieve a 1.3x debt coverage ratio, or 6.4% to achieve 1.0x debt coverage. The conclusion of the Finance Working Group is that even if the combination of restructuring options was feasible, under the reasonable growth assumption of 4.09%, the SJHTCA would face its first rate covenant violation in Fiscal Year 2007 and first default on debt service in Fiscal Year 2008. (Reference Exhibit B pages 61-64) Renegotiation of Debt with the Markets The Finance Working Group believes the Agency is not in a position to aggressively negotiate with the financial markets. Negotiation requires funds with which the Agency can make an offer to bondholders. Funds this Agency does not have. In addition, a majority of the bonds are insured and will be paid on a timely basis by MBIA. The remaining bondholders would have no incentive to accept lower payments and give up their right to eventually get paid, even it means they will get paid later than they had originally expected. While investors will ultimately get paid, they will take financial losses upon an additional downgrade by either rating agency. They will either incur market value losses due to reduced value of the bonds or cash losses if their portfolio parameters do not allow them to hold non- investment grade debt and they are required to sell. At the point of an additional downgrade, most losses will have occurred, thus making the negotiating position of the Agency even less viable. VI. Our Contract With SJHTCA Bondholders In 1993, when the Agency completed its landmark-financing plan, it entered into a contract with the investors who purchased bonds and made construction of the San Joaquin Hills Toll Road possible. This contract, also known as the Agency's Indenture of Trust, clearly outlines the Agency's responsibilities to its investors. In 1997, the Agency entered into a new Indenture of Trust with its 1997 bondholders. As both 1993 and 1997 debt are still outstanding, both of these contacts remain in force. Under the contract, the SJHTCA is required to maintain a revenue coverage ratio of 1.3x debt service. If the coverage requirement is not met, but the Agency can continue to meet debt service payments through other funding sources (such as the Federal Line of Credit or Debt Service Reserve Fund), the Agency would be in violation of its rate covenant. If the Agency cannot make its debt service payments, then it is default. (Details about the consequences of a rate covenant violation and default are outlined on pages 18-21 of Attachment A.) April 25, 2002 Report No. 12 Page 11 of 11 A downgrade and ultimate default could also have a negative ripple effect on other government agencies seeking to issue future bond debt, including the F/ETCA and all TCA member Agencies. Because of the direct losses incurred by the markets on such a large and visible Orange County issue, the Finance Working Group, based on input from their underwriting and trading desks, the Board's independent financial consultants and unrelated investment bankers, believe the market penalty cost to the Foothill/Eastern Agency for its future debt offerings would be significant- in the range of $10 - $20 million a year- in additional interest cost. This additional cost would be a burden to all users of the Foothill/Eastern Toll Road upon financing of the Foothill-South project. Because members of the SJHTCA Board also represent the County and various member cities, it is likely that a default by SJHTCA would taint each of the jurisdictions represented by the Board. Default by a public agency also makes the market skeptical about the willingness or ability of other local government agencies, such as member cities, the county, and school districts,' to repay debt. The cost may be assessed in the form of higher interest, increased disclosure or tighter controls. VII. Conclusion The Finance Working Group analyzed 14 different options for establishing SJHTCA's long-term financial stability. Based on an assumed 4.09% annual average revenue growth rate, the Finance Working Group believes that consolidating with the F/ETCA is the SJHTCA's best, most viable option to meet its debt obligations, fulfill its fiscal responsibilities as a government agency, retain local control of toll setting, and establish long-term financial stability. The Finance Working Group recognizes that consolidating the two Agencies into a new Joint Powers Agency is complex and challenging undertaking and will not be immediate. The viability of consolidation rests on the outcome of a new Traffic & Revenue study. The Finance Working Group recommends that the Board engage a Traffic & Revenue consultant and initiate the consolidation process. Concurrent with this process, staff also recommends continuing to explore opportunities for equity contributions from outside government agencies while the Traffic and Revenue Study is being conducted. INDEX OF ATTACHMENTS A: "The Toll Roads: Historical Financial Perspective" B: "Financing Options Analysis" C: "SJHTCA: Summary of Financing Options" D: "Independent Consultant Analysis," plus supporting presentations TRAIVSPORTATION CORRIDOR AGENCIES 1£5 PACIFICA, SUITE 100, IRVINE CA 9£61B-3304 949/754-3400 FAX 949/754-3467 i EXHIBIT D MEMORANDUM DATE: TO: FROM: SUBJECT: June 5, 2002 Foothill/Eastern Transportation Corridor Agency Board of Directors Colleen Clark, Chief Financial Officer Mary Lou Woods, Director of Finance Request by San Joaquin Hills TCA to Consider Formation of a New Joint Powers Agency to acquire the assets of both the Foothill/Eastern and San Joaquin Hills Agencies STAFF RECOMMENDATION o Direct staff to take the actions necessary to create a new Joint Powers Authority, which could, if created, acquire the assets of both the Foothill/Eastern and San Joaquin Hills Agencies, and direct staff to a. bo co do e. Work with a joint Ad Hoc Committee of both Boards to evaluate and develop options for a new combined Board structure. Coordinate the selection of traffic and revenue and socioeconomic consultants between the two agencies. Prepare the necessary legal documents to effect the formation of the new Joint Powers Agency ("JPA"). Develop a viable plan of finance with updated traffic and revenue, development impact fee, and operating expense forecasts that addresses and implements long-term financial stability for the new JPA. Present the draft plan of finance to rating agencies, bond insurers and potential investors for feedback on debt structure. Assuming a viable financial structure, present financing structure to both Boards for approval to finalize consolidation by May 2003. Formation of New Joint Powers Agency June 5, 2002 2002F-022 Page 2 of 15 SUMMARY A Finance Working Group for the San Joaquin Hills TCA, consisting of TCA Finance Staff, Salomon Smith Barney (Underwriters), Stradling, Yocca, Carlson & Rauth (Bond and Tax Counsel), Nossaman, Guthner, Knox and Elliot (Agency Counsel), Evensen Dodge and Public Financial Management (the SJHTCA Board's Co-Independent Financial Consultants) were charged with exploring all financial options available to establish long-term financial stability for the SJHTCA on a stand-alone basis. Among the options explored was a potential consolidation with the Foothill/Eastern Agency. In addition, the group was directed to address potential operational and policy changes to enhance revenue and reduce operating costs. The analyses were completed in April and presented to the San Joaquin Hills Board of Directors on April 25. The conclusion of the Finance Working Group was, that absent a grant or loan (to be repaid after 2036) in excess of $400 million, there is no stand-alone financial restructuring available that will establish long-term financial stability for the San Joaquin Hills Agency. The only other viable and recommended solution, based on exhaustive financial modeling, was consolidation of the two Agencies. The San Joaquin Hills Board approved the recommendation authorizing the San Joaquin Hills Chairwoman to request that the Foothill/Eastern Board consider consolidation (cover letter). If finalized, the resulting entity will be streamlined into a single more efficient and cost effective organization. Furthermore, while the benefits of restructuring the SJHTCA debt through consolidation are clear, Foothill/Eastern will also benefit from a consolidation for the following reasons. Consolidation avoids the negative impact that a SJHTCA default would have on any future Foothill-South borrowing and it provides the new JPA with an opportunity for tax-free restructuring of all outstanding debt now and once more in the future. DISCUSSION The subsequent discussion will be presented in the following order: Io II. III. IV. V. VI. VII. Background: Non-Recourse Toll Revenue Financing SJHTCA - Current Financial Picture Analyses & Options for SJHTCA Long-Term Financial Stability Discussion: Impacts/Issues Foothill/Eastern TCA Staff Recommendation Discussion of Options not Recommended to the SJHTCA Board Conclusion Formation of New Joint Powers Agency June 5, 2002 2002F-022 Page 3 of 15 I. Background: Non-Recourse Toll Revenue Financing In 1993, the SJHTCA successfully financed $1.2 billion of non-recourse toll revenue bonds, which, at the time, represented the largest start-up, private toll-road financing by a public agency in U.S. history. The innovative public/private partnership enabled the construction of a new 15-mile state highway (with no new general taxes and very little state dollars) which today serves more than 80,000 people a day. (For additional historical background, please see Attachment A, "The Toll Roads: Historical Finance Perspective. ") The 1993 financing - detailed in SJHTCA's 1993 Official Statement - was based on the assumption that annual revenues would grow by an average of 6.6% which was greater than the 6% average annual growth in debt service. According to the 1993 projections, transactions would grow annually by an average of 2.7%. Projections of future transactions and revenue were the result of a detailed study by Wilbur Smith & Associates ("WSA") based on the most current land-use development plans, the Orange County Traffic Analysis Model ("OCTAM") and the most current socio-economic data available at that time. In 1995, the Foothill/Eastern Agency with, three miles of roadway operating, another four miles nearing completion, updated OCTAM data, strengthened investment policies following the Orange County Pool bankruptcy, and armed with the knowledge that California was suffering through a full economic restructuring, entered the market with a $1.5 billion financing. To insure that the effects of the Southern California economic restructuring were taken into account, an independent socioeconomic consultant was hired by WSA, to validate that inputs to the traffic model were as realistic as possible. The four letter of credit banks involved in the transaction also hired an independent traffic consultant (Vollmer) to opine on the reasonableness of the traffic forecast. The completed toll road (SR 73) opened to traffic in 1996. After nearly one year of operation, revenue levels were approximately 50% of 1993 projections. In 1997, as interest rates neared historic lows, the SJHTCA exercised its only opportunity under federal tax law to refinance a majority of the debt on a tax-exempt basis. The refinancing provided cash flow savings of $277 million between 2000 and 2012 and reduced the average interest rate from 7.6% to 5.7% without extending the sunset date of the Agency. After the 1997 refinancing, revenue and transactions continued to grow by double-digit percentages, but not at a sufficient level to make up for the initial revenue shortfall that occurred between 1996 and 1997. Staff and the Board closely monitored the road's revenue performance, made changes to the marketing program, and kept rating agencies and investors apprised of the situation. In response, to further strengthen the SJHTCA's financial picture, the Board adopted a Revenue Stabilization Plan that included: Formation of New Joint Powers Agency June 5, 2002 2002F-022 Page 4 of 15 · Defeasing $45 million in debt with funds received from the Orange County bankruptcy settlement (Feb. 2000) · Implementing a $1 transponder maintenance fee for accounts that did not attain $25 in monthly tolls (July 2000) Implementing an unscheduled toll increase at all ramp plazas (July 2000) · Transitioning toll operations from Lockheed Martin IMS (Dec. 2000) · Implementing a scheduled toll rate increase at the mainline plaza (July 2001) · Approving an unscheduled toll increase at the mainline toll plaza for cash customers and FasTrak peak-hour pricing (Dec. 2001) Through experience and operating history on both corridors, it became clear that the demographics in counties surrounding Orange County had a significant impact on performance of the roads and that more in depth analysis was required to insure inputs to the traffic model would yield the best possible results. Therefore, in 1999, benefiting from the lessons learned from the previous three financings, the Foothill/Eastem Agency hired its own independent socioeconomic consultant to perform an extensive analysis of Orange, Riverside, and San Diego Counties. The resulting traffic forecast reflected downward adjustments to the Orange County Projection Model (County of Orange demographic modeling tool) and a reduction in future inflation rate assumptions. This resulted in a forecast that was conservative enough to be achievable. II. SJHTCA-Current Financial Picture Since 2000, SJHTCA toll revenues have grown more than 10% per year; however, in 2002 the gap between actual and projected revenue has continued to widen due to greater than anticipated traffic diversion following the July 2000 ramp plaza increases and the July 2001 mainline increases and due to overall lower traffic within the north/south corridor (all major highways traveling in the general direction of the SJHTC). In keeping with the SJHTCA Revenue Stabilization Plan, the Board implemented an unscheduled toll increase at the mainline toll plaza for cash customers and FasTrak peak-hour pricing in February 2002. The Agency's CEO has been implementing cost-cutting measures since FY 2000 while continuing to be mindful of maintaining customer service. In February 2002, Fitch IBCA, a nationally recognized rating agency, downgraded the SJHTCA's bonds from BBB- to BB, a non-investment grade rating. Moody's Investors Service and Standard & Poor's, also nationally recognized rating agencies, maintained their ratings pending action by SJHTCA to address the financial issues. Immediately following the Fitch downgrade, the Board again reaffirmed their unanimous commitment to long-term financial stability by creating the SJHTCA Financial Consultant Ad Hoc Committee comprised of Chairwoman Lindholm and Directors Craycraft, Dahl, Ficke, Lautenschleger, Spitzer, and Wilson. The Ad Hoc Committee retained co-independent financial consultants - Evensen Dodge and Public Financial Management, both experts in municipal bond finance. The consultants' analyses, as stated in their scope of work, included: Formation of New Joint Powers Agency June 5, 2002 2002F-022 Page 5 of 15 · Examination of all options available to establish long-term financial stability for the SJHTCA on a stand-alone basis · Evaluation of potential consolidation of the SJHTCA and F/ETCA · Consideration of other options such as renegotiation of equipment leases · Recommendations on minimizing violation or image-based revenue losses The Board also directed Staff to continue the Agency's focus on implementation of cost- saving measures. Though the Board approved $14.7 million in budgeted toll operations expenditures for Fiscal Year 2002, staff estimates it will spend $13.6 million through the end of the fiscal year, for a net savings of $1.1 million, or 7.5%. III. ~.nalyses & Options for SJHTCA Long-Term Financial Stability For the past three years the existing Finance Working Group, made up of TCA Finance Staff, the Agency's Senior Underwriter (Salomon Smith Barney), Bond and Tax Counsel (Stradling, Yocca, Carlson & Rauth), and Agency Counsel (Nossaman, Guthner, Knox & Elliott) have been analyzing both short and long-term options to respond to the financial performance of SJHTCA. In March, the SJHTCA Board's co-independent financial consultants, Evensen Dodge and Public Financial Management joined the Finance Working Group in order to perform the analyses requested of them by the Board. The financial modeling performed by Finance Staff and Salomon Smith Barney was provided to Evensen Dodge and Public Financial Management in order to receive their objective input. The independent financial consultants performed additional financial model development and analysis, as they deemed necessary to meet the objectives outlined in their scope of work. The goal of each of the options analyzed was to provide for payment of debt service in each year and to maintain the 1.3x rate covenant. Assumptions As with any long-term financial analysis, basic assumptions must first be made in order to develop an analytic framework or model with which to test the available options. Future toll revenue growth is the single most critical variable. Toll revenues are a function of transactions and toll rates, which are, in mm, influenced by traffic congestion on competing roads, the value of time, inflation, time of day, and many other variables. It is important to note that the assumptions used in the SJHTCA's Finance Working Group's analyses were determined by consensus of the group as well discussions with rating agencies and MBIA, (the insurer of a majority of the bonds), as to "acceptable levels of growth" for preliminary financial modeling purposes. A detailed Traffic & Revenue Study is necessary for any marketable financing option. A Traffic & Revenue Study uses sophisticated modeling to attempt to forecast these variables based on new land-use development plans, socio-economic data, and historical data of actual traffic and revenue numbers. The Foothill/Eastern and San Joaquin Hills Boards approved solicitation of requests for proposals from Traffic and Revenue Consultants in the month of April. Recommendation for award of a Traffic and Revenue Consultant contract is Formation of New Joint Powers Agency June 5, 2002 2002F-022 Page6 of 15 currently scheduled for both Boards' July 2002 meeting. This is the first step in the process to develop a viable financial plan for both agencies. Using all available information, the SJHTCA Finance Working Group determined an assumption of 4.09% (7.25% for Fiscal Year '03 and 4% thereafter) to be a reasonable average annual growth rate over the next 40+ years for financial modeling purposes only. The Finance Working Group does not possess the expertise to make a forecast, but an assumption was necessary in order to model the impact of the various possible alternatives that could be presented to the Board. As a frame of reference, the 1997 SJHTC financing plan assumed a 5.9% average annual revenue growth rate from 2002 to 2036. The 4.09% revenue growth assumption is critical because it underpins the analyses of all the debt-restructuring options. As such, the SJHTCA Finance Working Group members agreed that a new Traffic & Revenue study would be a critical first step to any and all debt restructuring analysis and planning, including consolidation. If a Traffic & Revenue study outcome is lower or higher than the assumptions used in these analyses, then the menu of options and their outcomes may differ from this report. Other assumptions for analysis purposes only include: Use of the $4.3 million SJHTCA Toll Revenue Stabilization Fund, of which $1 million is used in Fiscal Year 2003 · A proposed $2 per month transponder fee and threshold increase to $30 · Paid by plate fees of $2 per image and DMV processing fees of $3 per hold · Three percent per year increase in operating expenses after Fiscal Year 2003 · Development Impact Fees as forecast in the 1997 Official Statement · Three percent of all violation images are unprocessable. The proposed fees and fines were incorporated into the financial model for planning purposes only. The Finance Working Group recognizes that Board approval is necessary to implement such policy changes and, in fact, Board direction since the preparation of this financial analysis differs from the assumptions contained herein. Such changes, however, do not affect the outcome or recommendations in this report. Both of the Board's independent financial consultants recommended higher fees and fines than proposed by staff in the FY'03 budget as a way to recover costs associated with processing toll violations images and as a method to change costly patron behavior. For a detailed description of the Finance Working Group's assumptions, please see Attachment B, "Financial Options Analysis, April 2002, "pages 6-26. Formation of New Joint Powers Agency June 5, 2002 2002F-022 Page 7 of 15 Options Based on the 4.09% annual average revenue growth rate assumption, the SJHTCA Finance Working Group analyzed the following options: · No financial restructuring, i.e. keeping the status quo by continuing to identify ways to increase revenue and reduce expenses · Seven specific tax-exempt options for restructuring the Agency's debt · A "restructuring combination" option that includes three of the most viable tax-exempt restructuring options · A taxable debt restructuring option · A loan/grant from an outside government agency · Acquisition of SJHTCA by an outside government agency and keeping the corridor as a toll road · Acquisition by an outside government agency and making the corridor a freeway · Consolidation of the SJHTCA and F/ETCA into a new, single JPA For detailed analyses of all the options, please see Attachment B, "Financial Options Analysis, April 2002, "pages 28-76. Members of the SJHTCA Finance Working Group took different approaches to the analysis of financial options. In the end, however, all agreed on key issues and recommendations. Each of the seven tax-exempt options would require annual growth greater than that originally projected and none of the seven tax-exempt restructuring options alone would create enough debt relief to improve the SJHTCA's long-term financial stability beyond 2005, assuming a 4.09% revenue growth rate. The taxable restructuring option - the goal of which would be to ease debt service requirements by extending debt- was also not feasible because the assumed revenue stream would not support larger payments created by a higher taxable interest rate structure. Focusing on the grant and loan options, the SJHTCA Finance Working Group concluded that to stabilize SJHTCA on its own, in addition to a possible financial restructuring combination, an outside entity would need to provide an estimated $680 million to defease or repurchase enough debt to meet the Agency's 1.3x debt coverage ratio. A loan or grant of over $400 million would be necessary to just meet 1.0x coverage. The group's consensus was that funding of this magnitude would be extremely difficult to secure, given the shortage of state, federal, and local transportation funds. Existing transportation dollars are already earmarked for specific projects, so a grant or loan from another government entity will likely require the diversion of funds from existing programs or scheduled projects. Staff will, however, continue to pursue outside funding sources and report back to the boards if other entities are willing to offer such assistance. (Details of these options are presented on pages 71-76 of Attachment B and on page 3 of Attachment C.) Formation of New Joint Powers Agency June 5, 2002 2002F-022 Page 8 of 15 Given the options and related analyses, the SJHTCA board concluded that they had been provided with sufficient information to move forward with a long-term financial solution. As no stand-alone option (absent a significant grant/loan or buyout as described above) produced a long-term financial solution, they voted unanimously to approach the F/ETCA board and request consolidation into a new JPA. Feedback from the financial market has been positive since the actions taken by the San Joaquin Hills Board in April. Market attention has now shifted to the Foothill/Eastern Board and its willingness to participate in a solution. A positive, decisive action from the F/ETCA Board, accepting SJHTCA's proposal will demonstrate such commitment. IfF/ETCA chooses not to move forward with development of a new JPA and gathering of all of the data necessary to determine if revised revenue numbers allow for a combination of the two agencies, the only apparent viable option to San Joaquin Hills will be eliminated. As a result, the SJHTCA would face additional downgrades by both S&P and Moody's within a relatively short period of time. While a positive decision by the F/ETCA Board may forestall such action, it is not guaranteed to prevent it. The financial market is aware that this is only the first step in bringing the two agencies together, but that it is the critical step in allowing the process to move forward. IV. Discussion: Impacts/Issues Foothill/Eastern TCA On April 18, the SJHTCA Finance Working Group met with the F/ETCA Long Term Financial Plan Ad Hoc Committee to discuss the San Joaquin Hills financial situation and the impacts thereof on the F/ETCA. Committee members requested additional information about potential impacts of consolidation on Foothill-South, potential loans from F/ETCA to SJHTCA, and whether Foothill/Eastern could acquire the other Agency. Following is a summary of each of these issues. What are the Impacts of Consolidation on Foothill- South ? Concern was raised as to whether a combination of the two agencies would impair the ability to provide future funding for Foothill-South. Based on analysis (historical reactions of the market in similar situations) of the Finance Working Group, discussions with other members of the Agency's investment banking team (Bear Steams, UBS PaineWebber, Goldman Sachs) and discussions with members of the banking community outside the Agency's own team (Merrill Lynch and Raymond James), the Finance Working Group concluded that failure to move forward with consolidation of the two agencies and ultimate default by the San Joaquin Hills on its debt service obligations would greatly impair Foothill/Eastern's ability to finance Foothill-South. The projected additional interest rate 'penalty' was estimated to be between 1% and 2%. Assuming an $800 million financing, this penalty would cost the F/ETCA between $10 million and $20 million per year for the life of the bonds, in added debt service. Some of the banking team members believed that even if the numbers worked with such an interest rate penalty, there may not be enough buyers willing to put money into a project where Formation of New Joint Powers Agency June 5, 2002 2002F-022 Page 9 of 15 common board members closed out a viable financial solution for their sister agency. In summary, given SJHTCA's likely default, Foothill-South's financial viability is at much greater risk if consolidation is not pursued than if it is. Annual Loans by F/ETCA to SJHTCA One committee member asked if it was possible for Foothill/Eastern to loan money, as needed each year to SJHTCA rather than consolidate. While that analysis was performed as part of the options reviewed for SJHTCA, it was not included in the overall presentation because it could not be done. Following is a summary of that analysis. Under the Agency's enabling legislation (Government Code Section 66484.3), for F/ETCA to loan money to SJHTCA, F/ETCA must make the following three findings. , F/ETCA will benefit from construction of the road to be constructed by SJHTCA or will benefit by sharing of revenues . F/ETCA will possess adequate financial resources to fund all costs of construction of existing and future projects that it plans to undertake prior to the final maturity of the loan, after funding of the loan, and taking into consideration its then existing funds, its present and future obligations, and the revenue and fees it expects to receive; and . The loan will not materially impair its financial condition or operations during the term of the loan The estimated annual loan requirements assuming 4.09% average annual growth in revenue on the SJHTC and assuming some amount of financial restructuring is possible (which is dependent on the bond insurer's willingness to increase their exposure to what, at the time, will be a non investment grade credit), range from a low of $792,000 in 2009 to a high of $54 million in 2026 for a total, excluding interest, of $789 million. Because all SJHTCA cash flow must be used to pay debt service and fill the Debt Service Reserve Fund, repayment of any kind cannot begin until 2042 (the date when debt related to the short-term restructuring fixes is estimated to mature). If short-term restructuring fixes are not possible, the amounts range from a low of $910,000 in 2005 and grow to nearly $64 million in 2026 for a total, excluding interest, of $1.1 billion. Given the size of the required loans and the extended length of repayment, it would not be possible for the F/ETCA to make findings 2 and 3 as required under the legislation because final maturity of the loan would extend beyond the final maturity date of the existing Foothill/Eastern bonds and therefore the existence of the Agency. Furthermore, even assuming all excess revenues are 'pledged' to help the SJHTCA, F/ETCA, based on current projections, does not generate enough excess revenue to cover the shortfall in years 2011-2028. Formation of New Joint Powers Agency June 5, 2002 2002F-022 Page 10 of 15 In summary, under the current financial structure, the F/ETCA is not projected to have sufficient cash flow to handle the SJHTCA's projected shortfalls, nor can it make the findings required under its legislative authority that it would be able to fund all future construction prior to the maturity of the loan. Acquisition of San Joaquin Hills by Foothill/Eastern In order to meet the acquisition tests under federal tax law, the acquiring party must be unrelated to the party being acquired. Because eight of the member agencies that serve on the Foothill/Eastern Board also serve on the San Joaquin Hills Board, F/ETCA could not meet the unrelated party test. Without the ability to meet this test, Foothill/Eastem would have to acquire San Joaquin Hills and leave the existing debt in place, thereby simply moving the financial problem from the SJHTCA to F/ETCA. V. Staff Recommendation Consolidation A downgrade and default by the SJHTCA will likely have a negative ripple effect on other govemment agencies seeking to issue future bond debt. Due to the relationship between the two toll roads, that negative effect will extend beyond the San Joaquin Hills to the F/ETCA and all TCA member Agencies. Because of the direct losses incurred by the markets on such a large and visible Orange County issue, the SJHTCA Finance Working Group, based on input from the underwriting teams' trading desks, the Board's independent financial consultants and investment bankers outside the Agencies' current banking team, believe that the market penalty cost to the F/ETCA for its future debt offerings would be significant- in the range of $10 - $20 million a year- in additional interest cost. This additional cost would be a burden to all users of the Foothill/Eastern Toll Road upon financing of the Foothill-South project. There are several jurisdictions represented on both the 'San Joaquin Hills and Foothill/Eastern boards. These overlapping jurisdictions, including the County and six member cities would be directly affected by deciding not to pursue a consolidation option resulting in a default by San Joaquin Hills. In addition, the SJHTCA Finance Working Group believes that other member cities, represented only on the F/ETCA Board, would also be negatively affected by a decision not to pursue consolidation, as it is a viable option involving two related agencies. When a public agency does not pursue a reasonable and viable option to ensure repayment of a debt obligation, it calls into question the willingness of the members of that board to protect bondholder interests in other situations. The doubt on the part of investors may be assessed in the form of higher interest rates, increased disclosure, required credit enhancement or tighter controls. Formation of New Joint Powers Agency June 5, 2002 2002F-022 Page 11 of 15 Because of this ripple effect and potential market penalty, staff, supported by the analysis of the SJHTCA Finance Working Group, recommends consolidation with the F/ETCA. If successful, it will allow the new JPA to better align its debt obligations with projected future revenues. Consolidation is also a solution that does not require taxpayer dollars and allows the agencies to streamline operations, thus reducing costs. Approval of the staff recommendation does not guarantee that a consolidation will be successful, as its final outcome is dependent on the revised revenue stream as projected by the Traffic and Revenue Consultant and market conditions at the time. A vote to move forward with consolidation today says that the cities and the county are, once again, willing to pursue the best non tax-based solution for transportation in Orange County. If consolidation ultimately does not work it will be due to lack of projected future traffic or projected changes in development patterns, not because of an unwillingness to address the problem. Approval by the F/ETCA Board today will serve to soften the negative market reaction should consolidation not be feasible, as both boards will have done everything legally available to help rectify the financial situation. The consolidation process will require new traffic & revenue studies for both corridors, amendments to the existing joint powers agreements by the member agencies, and creation of a new JPA. The new Joint Powers Agency, in order to qualify as an acquisition financing under federal tax law, cannot be controlled by either the existing F/ETCA Board or SJHTCA Boards. Some or all members of both Boards could sit on the new Board but new additional unrelated members must be added to dilute the controlling interest. Since the exact composition can take on a number of forms, detailed discussion was deferred until both boards were in agreement to move forward with the concept of consolidation; at which time, each board could appoint a committee to work through the issues of a new board structure. The new JPA would issue $4+ billion in new tax-exempt non-recourse toll revenue bonds in order to defease the debt of the SJHTCA and the F/ETCA and acquire the assets of both Agencies. The benefits of consolidation to the F/ETCA include: · Long-term financial restructuring for both Agencies to re-align debt service with forecasted revenues and using existing mature revenue stream and current land use plans · Avoidance of an estimated $10-$20 million per year of additional interest cost upon financing of Foothill South · An opportunity for tax-free restructuring of all outstanding debt now and once more in the future · Lower future revenue growth requirements for both roads and possibly lower tolls over time · The ability to negotiate more favorable debt coverage requirements under a new Bond Indenture Formation of New Joint Powers Agency June 5, 2002 2002F-022 Page 12 of 15 Enhancements to the market view of the Transportation Corridor Agency ("TCA") credit as an Orange County Toll Road System Maintenance of TCA Board control over toll rate and fee setting · Increased efficiency by streamlining operations and ultimately reducing costs · Establishment of long-term financial stability for SJHTCA without financial support that uses taxpayer dollars from another entity. The challenges of consolidation are: · A new Traffic & Revenue Study might forecast annual revenue growth for the combined system that would be so low as to preclude any financial restructuring for either Agency · Under the growth rate used for financial modeling purposes, of 4.09%, F/ETCA would need to 'subsidize' SJHTCA debt service by $14 million per year · The rating agencies may still downgrade SJHTCA bonds during the implementation period · Market capacity for a $4+ billion bond issue payable over a longer period of time · Obtaining an independent market valuation for the acquisition price of the Agencies The process for establishing a new JPA is complex and could take up to a year. Major steps include: · F/ETCA Board direction to pursue consolidation · Selection of a Traffic and Revenue Consultant to study a combined revenue forecast · Development and approval of a Board structure for the new JPA. · Amendment to the existing JPAs (requires approval of three-fourths of the parties to each agreement) · Finalize a consolidated finance structure · SJHTCA and F/ETCA vote to effect consolidation · New JPA hires an independent third party to value the SJHTCA and F/ETCA to determine a fair market value purchase price · New JPA approves a plan of finance to issue $4+ billion in toll revenue bonds to acquire the respective assets from SJHTCA and F/ETCA and defease all outstanding bonds A critical component of any financing is the ongoing relationship with current and potential bondholders. The final structure and pricing of a successful financing reflects the ability of the underwriters to bridge the gap between the goals of the issuer and the goals of the investors. In restructuring scenarios, this process is even more complex as the new financing must support defeasance of the debt of the old financing. It is at this time (when it is known what is needed), that the potential to negotiate concessions with existing bondholders has the greatest chance of success. Concessions can occur in more than one form. They may come in the form of bondholders agreeing to take less than Formation of New Joint Powers Agency June 5, 2002 2002F-022 Page 13 of 15 they may be owed on existing debt or they may come in the form of lower interest rates on a future 40+year transaction. Once all of the pieces of the puzzle are in place, the value of each of those concessions can be weighed to insure the best position for the new JPA. As with each of the four financings done in the past, staff and the underwriting team will negotiate the most favorable terms possible to secure the transaction. Staff will provide that analysis to the board when a consolidated structure is presented for approval. VI. Discussion of Options Not Recommended to the SJHTCA Board No Restructuring Option The Finance Working Group and the Board's consultants analyzed the option of choosing no financial restructuring and continuing current efforts to increase revenue and reduce expenses. It was concluded that revenue would have to grow at 11.5% annually to meet the Agency's current debt service coverage ratio (1.3x debt service), or by 7.5% to achieve 1.0x coverage -- growth rates that the Finance Working Group and the financial markets believe are too aggressive. The key financial outcomes of this option, assuming a 4.09% revenue growth rate, are: Rate covenant violation in Fiscal Year 2005 · Draw on the Federal Line of Credit in Fiscal Year 2005 · Default on debt service payments in Fiscal Year 2012 Extension of the debt by 21 years from 2036 to 2057 These outcomes will result in trustee enforcement of the covenants under the Indenture beginning in 2005, which includes commissioning of a traffic and revenue consultant to recommend changes in toll rates and operations in an effort to achieve required coverage. This process could continue annually, ultimately eliminating the Board's ability to set toll rates, fees and fines for many years. (Reference Exhibit B pages 31 - 35) Combination of Restructuring Options A combination of the three tax-exempt restructuring options (surety substitution, fixed- to-floating swap, and Series 1993 refunding) would require policy actions to ensure revenue growth of 9.9% year-over-year to achieve a 1.3x debt coverage ratio, or 6.4% to achieve 1.0x debt coverage. The conclusion of the Finance Working Group is that even if the combination of restructuring options was feasible, under the reasonable growth assumption of 4.09%, the SJHTCA would face its first rate covenant violation in Fiscal Year 2007 and first default on debt service in Fiscal Year 2008. (Reference Exhibit B pages 61-64) Formation of New Joint Powers Agency June 5, 2002 2002F-022 Page 14 of 15 Renegotiation of Debt with the Markets The Finance Working Group believes that at this time the Agency is not in a position to aggressively negotiate with the financial markets. Any buyout of investor holding, even at cents on the dollar, requires funds that the San Joaquin Hills Agency does not have and could not raise without a permanent financial solution. In addition, a majority of the bonds are insured and will be paid on a timely basis by MBIA, so there is little incentive to negotiate. The remaining bondholders, while they will incur market value losses or potentially cash losses, if required to sell San Joaquin Hills bonds, may not want to give up their right to eventually get paid in full and with interest, even it means they will get paid later than they had originally expected. The losses will occur if the Agencies do not pursue a viable solution and, in that case, there would not likely be a marketable transaction to fund an investor buyout. While on a stand-alone basis, renegotiation is not currently viable, it may be appropriate as part of a consolidated financing plan. Acquisition by Another Governmental Entity The SJHTCA Finance Working Group considered an acquisition by an outside government entity to be unlikely, as it would require the purchasing agency to find funds to retire SJHTCA's entire $2 billion outstanding debt. The Agencies were created to plan, finance, design and construct the toll roads precisely because of a lack of state and federal transportation funds for new roads. The SJHTCA Board directed staff to continue to pursue this option in addition to consolidation. A reciprocal action by the potential acquiring entity's policy-making body is likely to be required upon formal request. Further analysis can occur at that time. VII. Conclusion Creation of a new Joint Powers Agency to acquire both the Foothill/Eastern and San Joaquin Hills Agencies appears to provide a viable long-term financial solution for San Joaquin Hills, helps Foothill/Eastern and member agencies avoid costly future penalties on their own future bond offerings and allows the Agencies to continue to provide affordable transportation solutions to all of Orange County. Staff recognizes that consolidating the two Agencies into a new Joint Powers Agency is a complex and challenging undertaking and will not be immediate. The viability of consolidation rests on the outcome of a new Traffic & Revenue study and market conditions at the time. Given the time required to complete a transaction of this magnitude, it is important that the process start now. Moving forward with the consolidation today sends a message to the financial markets that, together, the Agencies are willing to try to work to realign the capital structure and sets the timeline to develop a viable plan of finance before the end of the next fiscal year. The SJHTCA Finance Formation of New Joint Powers Agency June 5, 2002 2002F-022 Page 15 of 15 Working Group will continue to look for equity contributions for the SJHTCA while the Traffic and Revenue Study is in process and will bring any such opportunity back to the Boards should they materialize. INDEX OF ATTACHMENTS A: "The Toll Roads: Historical Financial Perspective" B: "Financing Options Analysis" C: "SJHTCA: Summary of Financing Options" D: "Independent Consultant Analysis," plus supporting presentations ., TRANSPORTATION CORRIDOR AGENCIES 125 PACIFICA, SUITE '100, IRVINE CA 9261B-3304 949/754-3400 FAX 949/754-,34~7 EXHIBIT E MEMORANDUM DATE: TO: FROM: SUBJECT: September 19, 2002 Foothill/Eastern TCA Board of Directors San Joaquin Hills TCA Board of Directors Board Structure Ad Hoc Committee Proposed Board Structure for a Combined San Joaquin Hills Joint Powers Authority Foothill/Eastern and BOARD STRUCTURE AD HOC COMMITTEE RECOMMENDATION: o , o o Approve the Board of Directors structure as described herein, for the proposed combined Joint Powers Agency. This structure maintains a voting seat for all existing 21-member agencies and requires a super majority vote to approve any major action. Maintain the quorum requirements of the two existing JPAs which states that 2/3 of the membership must be present. Authorize TCA legal counsel, under the direction of the CEO, to prepare a draft amendment to the existing Joint Powers Agreements to allow for the creation of a new JPA. Direct staff to present the draft JPA amendment to key staff at each member agency for comment, and return to the boards with the proposed final draft. ISSUE In April and June, the San Joaquin Hills TCA Board and the Foothill/Eastern TCA Board, respectively, voted to approve the concept of consolidation of the two agencies. In order to insure that the consolidation can be accomplished in a timely fashion after receipt of revised traffic and revenue projections and approval by both boards, a structure for the proposed new JPA needs to be developed and approved. Proposed Board Structure for Combined Agencies September 19, 2002 2002J-019 Report No. 9 Page 2 of 6 BACKGROUND: Following the 1997 refunding of the San Joaquin Hills TCA outstanding bonds, staff and the Board continued to monitor the San Joaquin Hills Toll Road's performance in comparison to the newly revised projections. Transactions on the road continued to grow by double-digit percentages, but not enough to keep pace with the revised revenue projections. Several measures were taken in an attempt to put actual revenues back in line with projections. Those measures included using proceeds returned from the Orange County bankruptcy to defease $45M of outstanding bonds, toll rate increases, changes to the violation collection processes and several cost cutting measures. Despite the persistence of the Board and the continued positive revenue growth, in February 2002, Fitch Investors Service downgraded the outstanding SJHTCA bonds from BBB- to BB. While clearly disappointed in Fitch's decision, but focused on maintaining the two remaining ratings from Standard and Poor's and Moodys, the SJHTCA Board took immediate action. A Board committee was appointed by the Chairwoman Lindholm to further review the financial issues, and two independent financial consultants were hired to assist the Board in looking for a long-term financial solution. On April 5, 2002, the Agency's finance staff, Salomon Smith Barney (underwriter of the Agency's bonds), legal and tax counsels and the two Board-appointed financial advisors presented their findings to the committee. Following a four hour, 90-page presentation, the committee concluded that the best and most viable long term financial solution was to request that the Foothill/Eastern Board consider combining with the SJHTCA to form a new Joint Powers Agency. The new JPA could then issue bonds, the proceeds of which would be used to acquire all the outstanding assets of both agencies. On April 25, 2002, the SJHTCA Board took action to make such a request of the Foothill/Eastern Board. Throughout the month of May, the Foothill/Eastern Board was briefed on the financial issues related to the San Joaquin Hills Corridor Agency, the analysis completed by the SJHTCA Finance Working Group and the impacts to the Foothill/Eastern Agency. On June 13, 2002, the Foothill/Eastern Board of Directors voted to support the concept of consolidation and took actions necessary to fund a traffic and revenue study. Immediately following that meeting, both the Foothill/Eastern and San Joaquin Hills Agency Boards met jointly to outline the issues and concerns of each member relative to the proposed consolidation. Following the meeting, Chairman Diehl and Chairwoman Lindholm categorized all the issues and appointed four separate committees, comprised of members from each board to address each item. The committees are as follows, New Board Structure/Legal Issues, Operational Issues, Capital Improvement Program and Financial Issues. Each committee was charged with analyzing their assigned issues and bringing a recommendation back to the full Boards. The Board Structure/Legal Issues Ad Hoc Committee was the first to meet due to the fact that none of the committees would be needed if concurrence on a new board structure could not be achieved Proposed Board Structure for Combined Agencies September 19, 2002 2002J-019 Report No. 9 Page 3 of 6 DISCUSSION: The New Board Structure/Legal Issues Ad Hoc Committee is comprised of members from each Agency. The Foothill/Eastern TCA BOard Members include: Chairman Diehl, and Board members Coontz and Worley. The San Joaquin Hills Board Members include: Chairwoman Lindholm and Board Members Hack and O'Neil. There is one member who is a member of both boards, Supervisor Wilson. The Committee held their first meeting on July 17 and was briefed by both bond and tax counsel on the constraints under federal tax law and the physical constraints of the Agencies in developing a board structure. The new structure will need to meet the criteria necessary to allow the new JPA financing to be classified as an acquisition financing rather than an advance refunding. These constraints are discussed below in order to provide a framework for further analysis. Federal Tax Law Constraint One of the major criteria that must be satisfied in order for bonds of the proposed JPA to be considered acquisition bonds rather than an advance refunding bonds is absence of control of the proposed JPA by either the Foothill/Eastern or the San Joaquin Hills Agencies. In simple terms, this means that members of the Board of Directors of the Proposed JPA whose votes would be sufficient to approve actions of the Proposed JPA may not consist of or be appointed by a majority of the board of directors of either of the existing Agencies. Physical Constraint There are currently a total of 21 member agencies (counting each of the three supervisorial districts) represented on the TCA boards. Of that amount, seven are exclusive members of the Foothill/Eastern Board ("Foothill/Eastern Exclusive Members"), six are exclusive members of the San Joaquin Hills Board ("San Joaquin Hills Exclusive Members") and eight are common to both boards ("Common Members"). The eight Common Members constitute a majority of both TCA boards. In the absence of other facts, by simply "combining" these two boards, each TCA would be deemed as having a controlling interest in the new JPA. Any resulting financing therefore would be considered a refunding of both agencies and its bonds would not be eligible for tax-exempt treatment under federal tax law. Options In order to accomplish the "absence of controlling interest" requirement, the entity must not be controlled by either existing TCA's. This may be accomplished by either 1) adding outside directors (not currently a member agency) or 2) by changing the voting structure. The Committee analyzed several variations of these two premises. Proposed Board Structure for Combined Agencies September 19, 2002 2002J-019 Report No. 9 Page 4 of 6 ANALYSIS Proposed Board Structure- Dilution of Membership Two potential options were analyzed under this category: (1) one that focused on retaining all existing 21 members; and (2) a smaller board consisting of 9 members. In order to meet the absence of controlling interest criteria, ten additional outside members would need to be added to the existing 21, bringing total membership to 31. (See Attachment A) Actions would require a majority vote of the 31 members to pass. A variation on this approach focused on a nine-member board. (See Attachment B) In this situation, each existing TCA board would appoint 3 members to serve on the New Board. Only one of the appointed members from each TCA could be from the common member group. Three additional members must then be added from outside the member agencies group in order to dilute control. Membership from the existing TCA boards could rotate to the new board at predetermined intervals. Committee View Both structures that would dilute membership were ultimately rejected. While the larger board allows all current member agencies to retain a seat at the table, thirty-one members was considered too large to be efficient or effective. In addition, concerns were raised about adding members to the board who were not accountable to the political constituents of the affected cities. The smaller nine- member board, while manageable in size, was not considered to supply adequate representation. In addition, some control would be placed with the "outside" directors, potentially unaffected, by the location and usage of the roads or the fee program. Proposed Board Structure - Change in Voting Structure A change in voting structure could be accomplished in several different ways. The Committee discussed a population based plan, a plan with geo-political subgroups and plans that required a super majority voting element. Committee View Population Based The population based plan whereby members would receive greater weighted voting power based on the population of their city was rejected, as there was no direct relationship between population size and road usage or revenues. Any new board developed under this plan could potentially lack representation on the highest impacted jurisdictions. In addition, some of the larger cities, based on population, have the smallest Development Impact Fee zones. Proposed Board Structure for Combined Agencies September 19, 2002 2002J-019 Report No. 9 Page 5 of 6 Geo-political Sub-groups This concept involved separating existing member agencies into geographical subgroups. Each subgi'oup, to comply with the "absence of control" requirements under tax law, could consist only of members from the Foothill/Eastern Exclusive, San Joaquin Hills Exclusive, or Common Members groups. Each subgroup would then select one or two (depending on the desired size of the board) members to serve on the New Board. Members could serve on the board for some predetermined period of time (Attachment C). This concept also lacked support of the committee primarily due to the fact that it was somewhat cumbersome and in some cases lacked regional commonality between the cities that needed to be grouped together for tax purposes. Super Majority Vote- Small Board Under this concept, each of the three existing groups, Foothill/Eastern Exclusive Members, San Joaquin Hills Exclusive Members and Common Members would appoint three representatives to serve on thc New Board. Thc existing F/ETCA and SJHTCA boards would remain in place in an advisory capacity. Chairpersons from the two advisory boards would automatically serve on thc New Board. Remaining members would then be selected from thc available spaces within their respective groups. All decisions of thc New Board would require a super majority to pass, seven out of nine members or 78% of the members present and voting at the time. (Attachment D). While members of the committee liked thc concept of a smaller board, they raised concerns about leaving thc two existing boards in place. As the existing F/ETCA and SJHTCA boards, under this approach, would only act in an advisory capacity, it was simply viewed as another layer of government with no real power. In addition, the Committee was concerned about lack of unity. If the New Board were truly one united entity working for the good of thc system, then continued separation would only lead to jurisdictional issues. Concerns were also raised about how the members would be selected to serve on the new board and how to ultimately present this to their individual jurisdictions when none, other than the existing Chairs, knew they would have direct representation. For the reasons stated above, this concept was ultimately not supported by thc majority of the Committee. Recommended Structure -Super Majority Vote - Existing Boards This plan provides that each of the existing 21 member agencies (including the 3 supervisorial districts) appoints one person to the New Board. All material decisions and actions must be passed by a super majority vote. Given that 16 (the number needed for a super majority) is greater than the total number of either current board, neither the F/ETCA nor the SJHTCA board would be deemed to have control. Super majority is therefore defined as 16 of the 21 members or 77% of the members present and voting (Attachment E). While the members of the Committee initially desired a smaller board, this concept was well received as it allowed each existing member agency to retain its representation on the New Board. It also supported the concept of a unified entity working for the betterment of the entire system. Committee members acknowledged that those cities in the Common Member group who have two representatives, San Clemente, Dana Point and Mission Viejo, would have to choose between their representatives. Ultimately, however, that situation was deemed to be easier to overcome than having some member agencies without any representation in a given year. Obtaining a super majority vote did not raise any particular concerns, as there have been relatively few instances in Proposed Board Structure for Combined Agencies September 19, 2002 2002J-019 Report No. 9 Page 6 of 6 the agencies' history when an action did not pass with full support of the members present and voting. In addition, each member will, if they so desire, continue to have an appoinated alternate who can vote on their behalf. Other Issues A question was raised as to whether all three County Supervisors (a majority of the County Board) could be represented on the New Board without violating the Brown Act. Based on a legal analysis of Government Code Section 54952.2, and provided that no Board of Supervisors business is conducted, such representation would not be in violation of the Brown Act. While the majority of the Committee favored phasing out the existing F/ETCA and SJHTCA boards once the New Board is created and the financing complete, it is recommended that these two boards remain in place for some period of time following the creation of the new agency. Basically, once it is determined that they have fulfilled all of their functions, they can be dissolved. Alternatively, specifically for Foothill/Eastern, it may be appropriate to keep that board in place until an alignment is selected for Foothill South and the environmental process is complete. A contract between the New Board and the existing Foothill/Eastern Board could delegate those voting rights to the existing F/ETCA board. For both Agencies, because of the existing Major Thoroughfare and Bridge Fee Program, development impact fees would still need to be accounted for separately and tracked to specific expenditures within the respective areas of benefit. The existing F/ETCA and SJHTCA boards could delegate their authority to the New Board following their dissolution. CONCLUSION The New Board Structure/Legal Issues Ad Hoc Committee analyzed five separate potential board structures for the New Board. After a significant amount of discussion, a 21-member board structure, with a super majority voting requirement was the committees' recommendation. This alternative was selected because it provides for representation of every existing member agency and focuses the organization on making decisions for a unified system. TRANSPORTATION CORRIDOR AGENCIES ?25 PACIFICA, SUITE 100, IRVINE CA 92618-3304 949/754-3~ FAX 949/754-3467 EXHIBIT MEMORANDUM DATE: TO: FROM: SUBJECT: November 14, 2002 Foothill/Eastern Board of Directors San Joaquin Hills Board of Directors Wally Kreutzen, CEO and Rob Thornton, TCA General Counsel Amendment to existing Joint Powers Agreement to authorize creation of a new consolidated Joint Powers Authority STAFF RECOMMENDATION: Recommend to TCA member agencies that they adopt the proposed amendments to the existing San Joaquin Hills and Foothill/Eastern Transportation Corridor Agencies Joint Powers Agreements as outlined in Attachment A, the "Second Amended and Restated Joint Exercise of Powers Agreement Creating the SJHTCA," and Attachment B, the "Second Amended and Restated Joint Exercise of Powers Agreement Creating the F/ETCA." The amended agreements would, in summary: a. Specifically authorize the Board of Directors of the SJHTCA and the F/ETCA to join together to form a new, consolidated joint-powers transportation corridor agency. b. Provide that the new consolidated joint powers transportation corridor agency shall have initially a 21-member Board of Directors comprised of a representative from each City that is a party to either or both of the Second Amended and Restated Joint Exercise of Powers Agreements and 3 representatives from the County, shall maintain the current two-thirds quorum requirement for board meetings, and shall establish a voting requirement of the lesser of 16 or 77% of the board members present to approve an item. c. Provide for administration of the Development Impact Fee program by the new consolidated Joint Powers Agency in the event existing TCAs decide to delegate such authority to the new consolidated joint powers transportation corridor d. agency. Apply the indemnity and arbitration provisions of the existing Joint Powers Agreements to the consolidated agency. Amended Joint Powers Agreements November 14, 2002 Report No. 13 File No. 2002J-022 Page 2 of 7 BACKGROUND: The Formation of the Joint Powers. Authorities In the 1970s, county traffic studies identified the need for two major highways -- one near the coast and one in inland Orange County -- to help meet the transportation needs of a fast-growing population and economy. The San Joaquin Hills and Foothill Transportation Corridors were sketched out on county road plans as freeways, but with shrinking state and federal transportation funds, local officials needed to find alternative funds to build new roads. In the 1980s, local city and county leaders led the effort to form joint powers authorities to finance and build the planned corridors. The San Joaquin Hills Transportation Corridor Agency (SJHTCA) and the Foothill/Eastern Transportation Corridor Agency (F/ETCA) were created in 1986. In 1987, the state legislature approved legislation that gave the TCAs the authority to construct the planned corridors as toll roads and to issue bonds supported by future toll revenues to fund construction of the toll roads. Formation of the Agencies required a vote from the County of Orange and each city in. the area of benefited by the corridors to join one or both of the Joint Powers Authorities. The existing JPAs require approval from three-fourths of the member agencies to amend the joint powers agreements. The Toll Roads Today Today, the 51-mile network is a critical piece of Southem California's regional transportation system. Nearly 250,000 trips are taken on The Toll Roads everyday, saving toll-road drivers an estimated 21 minutes per trip and significantly alleviating congestion on the 1-5, 405, and SR-55 freeways. Seventy-five percent of the toll-road system is completed, with the final segment of the 241, Foothill-South, in the environmental planning stages. The San Joaquin Hills (73) Toll Road opened in 1996. In 1997, SJHTCA exercised its only opportunity under federal tax law to refinance a majority of the debt on a tax-exempt basis to address a shortfall in projected revenue. After the 1997 refinancing, revenue and transactions continued to grow by more than 10% per year, but not at a sufficient level to make up for the initial revenue shortfall that occurred between 1996 and 1997. Today, revenue from the 73 Toll Road is at 77% of the revenue projections set during the 1997 refinancing. Phases of the Foothill and Eastern Toll Roads opened between 1993 and 1999. The Foothill/Eastern Transportation Corridor Agency has also exercised its only opportunity to refinance and is currently running at approximately 107% of revenue projections established in 1999. In February 2002, one of the three ratings agencies that rates TCAs' bonds downgraded a portion of the SJI-ITCA's bonds to a non-investment grade rating. Moody's Investors Service and Amended Joint Powers Agreements November 14, 2002 Report No. 13 File No. 2002J-022 Page 3 of 7 Standard & Poor's maintained investment-grade ratings. Immediately following the downgrade, the SJI-ITCA board hired two independent financial consultants to assist staff to independently evaluate all financial options available to the agency to establish long-term financial stability. In early 2002, a group of TCA finance staff, bond underwriters, legal counsel, and the board's independent financial consultants analyzed more than a dozen financial options. After exhaustive analyses, the conclusion was that consolidating the SJHTCA and F/ETCA into a single agency was the only viable option for establishing long-term financial stability for the toll-road system. In April 2002, the SJHTCA board unanimously agreed to ask that the F/ETCA consolidate into a single joint powers authority. In June 2002, the F/ETCA Boards of Directors unanimously voted to proceed with the potential consolidation of the agencies as a way to ensure long-term financial stability for The Toll Roads. The consolidation process In order to move forward with a potential consolidation, staff identified a number of steps that had to occur before the Boards could make a final decision whether or not to form a new, consolidated JPA. These steps included: · Completing a new traffic and revenue study to determine the financial feasibility of a single agency. The study is currently underway and is expected to be complete in March 2003. · Determine a new board structure for the consolidated JPA. · Prepare amendments to the existing joint powers agreements to specifically authorize the formation of a new consolidated JPA · Seek approval of the amended joint powers agreements fi.om TCA member agencies. · New JPA hires an independent third party to value the SJHTCA and F/ETCA to determine a fair market value purchase price. · Develop a draft finance plan for the consolidated J'PA to be reviewed by the boards. · A vote by SJHTCA and F/ETCA boards to finalize consolidation in May 2003. · New JPA approves a plan of finance to issue approximately $4+ billion in toll revenue bonds to acquire the respective assets fi.om SJHTCA and F/ETCA and defease all outstanding bonds. In October 2002, the two boards took a major step by voting unanimously to establish a 21- member governing body for the consolidated agency, if formed. The governing body would be comprised of a representative from all the cities and county Supervisorial districts currently represented on t_he two existing boards. Amended Joint Powers Agreements November 14, 2002 Report No. 13 File No. 2002J-022 Page 4 of 7 The process of amending the Joint Powers Agreements and creating a consolidated agency involves the following remaining steps: - Member Cities F/El*CA ~ Review i-----%~i Amendment to I ~i Approve £xi~tingjP~ II Amen°me"t Nov 2002 Nov 2002 -./an 2003 Receive Results of Traffic & Revenue Study & Develop Consolidated Finance Plan March 2003 SJmCA& F/ETCA create Consolidated JPA May 2003 New jpA Votes to Acquire A~encles I May 2003 Along with approving a board structure in October 2002, the boards also authorized TCA legal counsel to draft amendments to the agencies' existing Joint Powers Agreements that would allow for the creation of a new, consolidated agency. DISCUSSION: The recommended amendments to the JPA are structured to be simple and to leave the existing JPA provisions in place to the maximum extent possible. The amendments are shown in Attachment A, the "Second Amended and Restated Joint Exercise of Powers Agreement Creating the SJHTCA," and Attachment B, the "Second 3anended and Restated Joint Exercise of Powers Agreement Creating the F/ETCA." The amended JPAs includes new language to do the following: ao Specifically authorize the Boards of Directors of the F/ETCA and the SJHTCA to join together to form a new joint-powers transportation corridor agency. Section 5.1 of the existing joi~'~ powers agreements state that the "Board is authorized to make or perform any agreement to join with said agencies (other major thoroughfare and bridge agencies) in the planning and implementation of said thoroughfares and bridges, when for any purpose otherwise permitted by law, the Board deems it appropriate." While it appears with this language that the boards have the authority to create a new consolidated JPA, the TCA Boards and staff considered it appropriate to request specific authorization from the member agencies because of the required changes in the voting structure. The specific language providing for this authorization is included in Section 2.3(m) of the amended JPAs (Attachment A and B). This added language specifically cites Government Code Sections 6500 et. Seq. as the legal authority (other than the existing agreements) for joining of the two JPA's. Section 6500 et. Seq. of the Government Code simply defines public agencies. In 1999, the state Legislature amended the Joint Exercise of Powers Act ("JPA Act") to include JPA's in the definition of public agencies. Section 6502 gives specific authority for JPAs to contract with each other. Amended Joint Powers Agreements November 14, 2002 Report No. 13 File No. 2002J-022 Page 5 of 7 b, Establish a 21-member Board of Directors, maintain the current two-thirds quorum requirement for board meetings, and establish a voting requirement of the lesser of 16 or 77% of the board members present to approve an item. Section 2.3 (m) of the amended JPA also establishes the board structure, maintains the use of alternates, and specifies voting requirements of the proposed consolidated agency. Both boards unanimously approved this structure in October. The supermajority voting requirement is necessary to ensure that the consolidated agency is not controlled by either existing agency as required by federal tax law. As stated in Section 2.3 (m): "A Joint Transportation Corridor Agency Agreement shall provide that: (i) the board of directors of such Joint Transportation Corridor Agency shall be composed of one (1) voting member appointed by the legislative body of each city that is a party to either or both this Agreement and the F/E Agreement from time to time, and three (3) voting members from the County of Orange, said members to be the duly elected supervisors for the Third, Fourth, and Fifth County of Orange Supervisorial Districts, (ii) each such board member shall also have an alternate appointed by the legislative body of the relevant City or the County appointing such board member consistent with this agreement, (iii) not less than two-thirds (2/3) of the members of such board shall constitute a quorum for the purposes of transaction of business relating to the Joint Transportation Corridor Agency, and (iv) such board may adopt any motion, resolution or order and take any other action they deem appropriate by a vote of the lesser of (a) sixteen (16) such board members, Co) seventy-seven percent (77%) of those board members present and qualified to vote, or (c) such lesser number or percentage of votes (but not less than a majority) that is the requisite vote necessary to maintain the tax- exempt status of debt issued by the Joint Transportation Corridor Agency, as supported by an opinion of a nationally recognized bond counsel selected by such board. C. Provide for administration of the Development Impact Fee program by the consolidated agency if the existing agencies decide to delegate such duty to the consolidated agency. Development Impact Fees are an important source of revenue that will continue to be used by the consolidated agency, if created, to repay construction debt already issued and to fund toll-road improvements. The amendment, as stated in Section 4, does not change the current Development Impact Fee program, but clarifies that the consolidated agency will be responsible for the program if the amended JPAs are adopted. Simply stated, the amended JPA allows the joint Transportation Corridor Agency to manage the funds collected pursuant to the fee program. de Apply the indemnity, arbitration, and third-party beneficiary provisions of the existing Joint Powers Agreements to the consolidated agency. This means that member agencies will continue to be protected from debts, liabilities, and obligations of the joint transportation corridor agency, and that arbitration provisions outlined in the existing JPAs will apply to the consolidated agency. The indemnity provisions are stated in Section 8.2. The arbitration provisions are stated in Section 11.4. and the third-party beneficiary provisions are stated in Section 11.9. Amended Joint Powers Agreements November 14, 2002 Report No. 13 File No. 2002J-022 Page 6 of 7 N~ct Steps Approval of this item will allow staff to take the mended Joint Powers Agreements to the all TCA member agencies for approval as required to amend the JPAs. The amended J'PAs give the SJHTCA and F/ETCA boards the authority to create a new, consolidated joint powers authority, as stated in the "Second Amended and Restated Joint Exercise of Powers Agreements" (Attac~ents A and B). The amendments require approval by three-quarters of the members of each agency -- 10 for SJHTCA and for 10 for F/ETCA. The County of Orange is one member agency for the purposes of this vote. Approval of the amended J'PAs by the member agencies could take up to three months. It is important that the SJHTCA and the F/ETCA boards approve the amendment at this time to keep the consolidation process on schedule. It is also important that we know now whether the amended J'PAs are acceptable before funds are spent on financial consultants needed to perform due diligence on the financial plan and acquisition of the existing TCAs' assets. The ratings agencies and financial markets are watching the TCAs for progress toward a long- term financial solution. Taking no action risks the possibility that the SJHTCA's bonds will be downgraded. While downgrades in and of themselves don't immediately affect toll-road drivers, they signal a loss of confidence by the market and can ultimately hurt the Agencies' future financing ability. By approving the recommendation, the boards are taking another step forward and sending a strong signal to the markets that the agencies are committed to a long-term financial solution. Approval by TCA member agencies does not create the consolidated agency, but it establishes the legal groundwork for the creation of a new, consolidated agency only if the boards vote to proceed with consolidation next year. Before consolidation can occur, staff must develop a viable financial plan based on the results of the traffic and revenue study that is currently underway. Once the study is completed, staff will develop and bring back to the boards a viable financial plan for a consolidated agency in spring 2003. The SJHTCA and F/ETCA boards will then make the final decision on whether or not to proceed with formation of a new consolidated agency. The board of the consolidated agency will then consider the finance plan and decide whether to acquire the assets of the existing agencies. FUNDING: No funding required. CONCLUSION: Adopting the amendments to the existing Joint Powers Agreements specifically provides the existing agencies the authority to create a new, consolidated agency, establishes a 21-member Board of Directors for the new consolidated agency, maintains the current 2/3 quorum, Amended Joint Powers Agreements November 14, 2002 Report No. 13 File No. 2002J-022 Page 7 of 7 establishes a supermajority voting requirement, provides for the administration of the Development Impact Fee Program, and applies the indemnity, arbitration, and third-party beneficiary provisions of the existing JPAs. Adopting the amendments does not create the consolidated agency, but establishes the legal groundwork for the creation of a new, consolidated agency, only if the boards vote to proceed with consolidation next year. Once a draft financial plan is developed, staff will bring a t~mancial plan for a consolidated agency to the boards in spring 2003 for final decision on whether or not to proceed with consolidation.