Half Moon Bay Could Sink

Facing a legal judgment so large that that the city is threatened with bankruptcy or even dissolution, Half Moon Bay has retained Orrick, Herrington & Sutcliffe LLP as counsel and Piper Jaffray & Co. as financial consultant for its efforts to solve the problem. In late November a federal judge ruled against the city in a lawsuit brought by a developer. The judge agreed with the developer’s argument that Half Moon Bay, because of storm drains constructed by the city government, was responsible for turning the developer’s property into a wetland that cannot be developed under state law. The city had previously zoned the property for new homes. The judge awarded the developer $36.8 million in damages — a staggering amount for the city, which has an annual general fund budget in the $11 million range. Half Moon Bay, located on the Pacific coast about 30 miles south of San Francisco, has about 12,000 residents. Orrick Herrington was hired to represent the city in its appeal, conduct potential settlement negotiations, and to help with financing any such settlement. Piper Jaffray’s scope of work could include a financial analysis of the city’s ability to finance a resolution of the lawsuit and helping determine the best financial structure to fund such a resolution. According to the firm’s proposal letter, it is being retained as a consultant, not as an underwriter or financial adviser. According to Half Moon Bay’s most recent comprehensive annual financial report, as of June 30 the city only had $365,000 in outstanding bond debt. That debt represents the smallest part of a multi-city pool of lease revenue bonds issued in 2001 through the Association of Bay Area Governments. The deal was insured by Ambac Assurance Corp., according to ABAG.