Banning 2015 Water Bond Complaint to SEC

Banning Utility Authority 2015 Water Enterprise Revenue Bond $25,365,000

On August 19, 2015, the City of Banning acquired a $25,365,000 Water Enterprise Revenue Bond to refinanced/refunded the Water Enterprise portion of the 2005 Bond.

Page 1 of the 2015 Water Bond states that $29,165,000 of the 2005 Water Bond was outstanding. However; page 6 Estimated Sources and Uses allocated $31,178,706.16 to pay off the 2005 Water Bond.

Page 6 also states that $1,602,496.59 was deposited into a Water Project Fund. The 2015 Bond does not specifically list how the $1.6 Million would be used. Page 23 referenced the City’s Capital Improvement Project and various projects that cost far more than $1.6 Million.

Page 6 also lists $7,642,838.16 in other Sources of Fund to bring the total Sources of Funds to $33,007,838.16.

Out of the $33,007,838.16 Sources of Funds recorded in the 2015 Water Bond: $29,165,000 was used to pay off the 2005 Water Bond, $226,635.41 was allocated for ‘Cost of Issuance’ expenses, which leaves $3,616,202.75.

The City of Banning claims that no Requisitions have been submitted to the 2015 Bond Trustee U.S. Bank National Association, which is a ridiculous claim because the Requisitions paying off the 2005 Water Bond and the lawyers & consultants’ fees would have been submitted immediately after acquisition of the Bond.

But more importantly; the Bond’s 2017 Continuing Disclosure Statement dated March 30, 2018, states that all of the Bond’s Fund Accounts are empty.

Either the Continuing Disclosure Statement is forged and bond money remains in the bond fund accounts or the City of Banning has submitted Requisitions to the Bond Trustee to transfer the money out of the accounts and the 2015 Water bond fund accounts are indeed empty.

Security and Sources of Payment for the Bonds:

Page 7 states that “.. the Bonds are payable from Net Water Revenues..”

Pages 29 - 32 explain State Law and how the City of Banning circumvented the Laws to acquire the 2015 Bond without voter approval. Page 31 states: “The Authority believes that its current water rates comply with the requirements of Proposition 218..”

California State Laws requires Voter Approval to acquire debt for infrastructure improvements because the only source of revenue for government agencies is the taxpayer. Because the 2015 Bond acquired additional money that was supposed to be used for infrastructure; the City violated Article XIIIC of the California Constitution.

Water Sources and Supply:

Banning’s 2015 Water Bond pages 13 - 22 talk about the City of Banning’s water supply and specifically references Banning’s participation in the San Timoteo Water Management Authority (STWMA) and the 2004 Adjudication of the Beaumont Basin on page 14.

The S.E.C. will remember that STWMA and the 2004 Adjudication of the Beaumont Basin was the creation of former Beaumont City Attorney Joe Aklufi in order to circumvent State and Federal Laws and Overdraft the Beaumont Basin.

The Beaumont Basin has been in Overdraft since 2000. Banning’s 2015 Water Bond uses the Adjudication to claim water Capacity in the Beaumont Basin, but the percentage of space owned in a depleted Basin is irrelevant.

STWMA Members Yucaipa, Banning, and Beaumont were all supposed to construct Recycled Water Facilities. All three Cities acquired bond debt in the early/mid 2000’s, but only Yucaipa constructed their Facility. To this day neither Beaumont nor Banning has a Recycled Water Facility or has a recycled water facility planned in the immediate future.

Page 15 references Recycled Water Use and states “The City has not constructed the facilities required to provide recycled water as expected. Although the City anticipates that a recycled water facility will be constructed by 2020, there can be no assurances that the facility will be completed by the current expected timeline.”

Banning Staff:

The City of Banning had an honest Public Works Director, Duane Burk, who was fired six months before Banning acquired the 2015 Water Bond.

Banning Interim City Manager/Executive Director Dean Martin resigned on October 20, 2015, just a couple months after the 2015 Water Bond was acquired. Michael Rock served as City Manger from November, 2015 to June 15, 2017.

Alex Diaz, who was the City’s Police Chief served as both the Chief of Police and City Manger from June, 2017 until his resignation on March 13, 2018. As of the date of this writing; Finance Director Rochelle Clayton is Interim City Manager.

Banning’s 2015 Water Bond lists Urban Futures as the Bonds’ Financial Advisor and Willdan Financial Services as the Bonds’ Dissemination Agent. Willdan also produced the Bond’s Continuing Disclosure Statements.

Both Urban Futures and Willdan Financials were listed on the City of Beaumont’s Subpoenas issued by the Securities and Exchange Commission on April 22, 2016.