Bonds recently issued for Anaheim Convention Center challenged by activist group.

LOS ANGELES — An activist organization has threatened to file a lawsuit in an attempt to invalidate $265 million in bonds issued to expand the Anaheim convention center.

"The basic issue is that they have not followed the procedure required for taking out bond debt," said Greg Diamond, counsel for the Coalition of Anaheim Taxpayers for Economic Responsibility.

The bonds, priced for the Anaheim Public Financing Authority by book runner Citi on March 25, are slated to close on May 14, according to the bond's official statement.

The deal consists of $258 million of tax-exempt bonds, as well as $7 million of taxable bonds maturing in 2015 and 2016. The proceeds are to refund 1992, 1993, 2002A and 2010 lease revenue bonds and provide $200 million to finance the convention center expansion.

The bonds received AA-minus ratings from Fitch Ratings and Standard & Poor's with a stable outlook.

CATER has until May 10 to file a lawsuit - or 60 days after the council voted to approve selling the bonds on March 7, Diamond said. He said he plans to file the lawsuit some time before the deadline.

He said the city needed to have the debt approved by voters, which was not done.

City spokeswoman Ruth Ruiz sent an emailed response from the city attorney regarding the convention center bonds.

"We have no comment on CATER's contentions, nor is it appropriate to comment when litigation has been threatened against the city on a vitally important community project," City Attorney Michael Huston said in the emailed response.

Diamond said the issue involves the status of the Anaheim Public Financing Agency.

"It is a joint powers authority of the Anaheim City Council and the Anaheim Redevelopment Agency," Diamond said.

California redevelopment agencies were dissolved under state law in early 2012.

"Since the city is the successor agency, the JPA is basically just the city council and the city council," Diamond said.

The city council is supposed to be winding down the activities of the redevelopment agency rather than starting new ones, he said.

He said the JPA allowed the city to sidestep the requirement to go to voters before issuing bond debt.

"The argument is that if something is an agreement between the city council and itself, it would be subject to the requirements of what the city council can and cannot do," Diamond said. "The city on its own would have to go to voters before issuing bonds for something of this size."

He added the city council "took off their city council hat and put on the public financing agency hat and passed it."

An amended version of the official statement posted on the Municipal Securities Rulemaking Board's EMMA website discloses the receipt after the signing of the bond purchase contract of the letter from Diamond threatening a lawsuit.

The city and authority believe, but don't guarantee, that they will prevail in such a lawsuit, the amended official statement says.

The city is also tangling with CATER over the ballpark used by the Angels of Major League Baseball.

CATER has sued the city over the renewal of a lease agreement with team owner Arte Moreno.

The agreement is still under negotiations, according to Ruiz.

A sticking point for CATER is a proposal to give Moreno a 60-year lease for $1 annually that would allow development of 152-acres, now used as parking for a variety of uses near the baseball stadium, into commercial uses.

CATER's lawsuit argues that the Brown Act, or the state's open meetings law was violated, since a report that the council is basing its decision on was not made available to the public. In its demurrer, the city said it provided CATER with a copy of the report within days after the council meeting.

"One problem we have with is the stadium lease keeps the Angels through 2027 while the ground lease for the parking area would be through 2075," Diamond said.

In the emailed response, the city attorney said the litigation is pending, but the city "recently filed a demurrer asking the court to dismiss a number of CATER's claims."

The city is "aggressively defending the approvals that CATER has challenged," according to the emailed response. A hearing on the city's demurrers is scheduled for May 22.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.