City bets on $52M settlement; eyes more interfund borrowing
August 25, 2012 6:40 PM
Brooke Edwards Staggs, City Editor
VICTORVILLE • The city is $1.8 million short on its debt payments for a power plant that never got built, with a little more than two months to come up with the funds or face another default.
Victorville is banking on an approved $54 million settlement with the power plant’s designer to cover the payments, though that settlement is under appeal in Riverside County.
If the settlement doesn’t come through in time, City Manager Doug Robertson says they’ll once again use restricted water district funds — a practice the San Bernardino County Grand Jury flagged as potentially illegal.
Payment is due Nov. 1 on an $83 million bond Victorville took out in 2007 to fund construction of the Foxborough power plant.
Foxborough was supposed to generate power at a 10 percent discount for businesses at the industrial park on Nisqualli and Hesperia roads. Instead, the power plant’s price skyrocketed from $22 million to $120 million before construction really got underway. Victorville walked away from the venture nearly five years ago and has been trying to sell off equipment purchased for the plant ever since.
Victorville sued Foxborough designer Carter & Burgess in 2009 for breach of contract, negligence, fraud and more. A Riverside judge awarded the city $52.1 million in December 2010 and later tacked on another $1.9 million in attorney fees. However, Jacobs Engineering, which now owns Carter & Burgess, appealed the ruling and that suit is still pending.
“It appears the case will be heard by the appellate court within the next three to four months,” Robertson said in an email. “We believe the Carter & Burgess lawsuit proceeds will be available within this fiscal year to cover those costs but purposely did not budget for the receipt of those funds as they are not guaranteed.”
The backup Robertson plans to recommend is using reserve funds in the Victorville Water District, pending approval from the City Council.
“The funds are available and it would be better to keep the lender the same as the other borrowed funds,” he said.
The city’s utility fund has already borrowed $22 million from its water district, using money collected from residents’ water bills for capital costs and operation expenses for Foxborough and to generate energy at Southern California Logistics Airport.
State law dictates funds collected by residents to improve their water system can only be used for that purpose, beyond investments or short-term loans. But with no payments made on the 3-year-old loans, the grand jury pointed out in its June 29 report that they’re looking more and more like long-term loans — or even permanent transfers, in violation of Proposition 218.
The grand jury also flagged the legality of a city loaning money it knows won’t be paid back.
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