HomeMy WebLinkAbout2.0 PC Staff ReportPC 4/25/01
PROJECT INFORMATION AND STAFF COMMENTS
PROJECT: Spring Valley Metropolitan Districts No. 1 and No. 2, Service
Plan
LOCATION: The proposed district is located in portions of Sections 14-16,
21-23, 26-29, 32-34 T6S., R88W; more practicallydescribed
as the Spring Valley PUD, located approximately 6 miles
southeast of Glenwood Springs, off of CR 114 and 115
I. PROJECT DESCRIPTION
The Spring Valley Development, Inc., is proposing to create the Spring Valley Metropolitan
Districts No. 1 and No. 2. The proposed District No. 1 boundaries includes 5,916.695 acres
of land and District No. 2. includes 5.813 acres of land located in the Spring Valley area of
the County. The larger district, No. 1, will be the service district and be responsible for, or
contracting for, managing the construction and operation of facilities and improvements for
the Spring Valley PUD. The smaller district, No. 2, will be responsible for providing the
fuinding and tax base needed to support the financial plans for capital improvements.
The existing district has 999 EQR's or an estimated Populations Equivalent of 2997 people.
There is an estimated 1,195 undeveloped EQR's or a Population Equivalent of 3,585 people.
The District projects that two other districts in the vicinity of the present day facilities will be
merged with the MVMD at some time in the future, which would result in a total of 3217
EQR's or a population equivalent of 9651 people.
The proposed GCSA would have a projected total of 462 EQR's and a Population Equivalent
(PE) of 1383 people, based upon the Comprehensive Plan designations. Based upon the
existing underlying zone district designations in the same area, the applicants project a
maximum of 840 EQR's or population equivalent of 2520 people. The applicant's also
included an analysis of "densities based upon discussions with individual landowners and
estimates of development densities consistent with the expressed intentions of adjacent
landowners." This projection would result in 955 EQR's and a PE of 2885 people.
The existing wastewater treatment facility can treat up to 325,000 gpd , with an ultimate
capacity of 650,000 gpd or 6,500 people approved by a site application from the CDPHE.
After further evaluation by the District Board, the ultimate plant size was defined as 891,450
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gpd. The proposed Garfield County Service Area would have a separate treatment facility
located at one of three potential sites in the proposed service area. There are two potential
sites at the Ranch at Roaring Fork, two on the Clifford Cerise property and one on the St.
Finnbar Ranch property. It is anticipated that the first phase of the plant would be 100,000
gpd to 200,000 gpd, depending on some pending development approvals.
The MVMD also provides domestic water service to residents within the existing service
district boundary. (See supplements pgs. ) Any property within the GCSA
would be required to enter into a pre -inclusion agreement, requiring the dedication of
wholesale and retail water facilities necessary to meet the needs of the development.
Additionally, each water system has to have interconnecting transmission lines that are
properly oversized to allow for the connection to a larger district owned system. The water
system will consist of pressurized water mains within a single pressure zone. The range of
water demand is from 192.50 gpm Maximum Daily Demand for the Comprehensive Plan
projections of 462 EQR to 397.92 gpm Maximum Daily Demand for the Landowner
projection of 955 EQR. An existing well field serves the MVMD properties and there are
two other potential well field sites to the west on the Dennis Cerise Ranch and the Preshana
property.
The estimated cost of the construction of a new 286,000 gpd sewage treatment facility and
associated infrastructure was developed for the three different sites. If the plant is built on
the Ranch at Roaring Fork property, it would cost $4,507,119 to build it. If the plant is built
on the Cerise property, it would cost $3,927,009 to build it. If the facility is built on the St.
Finnbar property, it would cost $4,019,190 to build. The annual operating costs are
estimated at $97,767 for the 286,500 gpd plant. There is no financial analysis of the water
system included in the application.
A property owner in the proposed District service area will make capital cost contrlbutions to
fund construction of the plant and related infrastructure and receive credit for tap fees that
would normally be collected. Operation and maintenance costs may be funded by any or all
of the following: (1) monthly user service fees, (2) reasonable mill levy assessment; (3) tap fee
proceeds designated for operational expenditures, including reserve and replacement fund to
be collected by the District upon the sale of each tap; (4) an operation surcharge whereby
parties financing the District's facility upgrade and expansion will fund any shortfall the
District experiences for operation and maintenance of the plant prior to efficient operational
capacity. The District may also issue tax exempt revenue bonds guaranteed secured by credit
enhancements provided by developers.
II. ISSUES AND COMMENTS
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A. Colorado Revised Statutes - C.R.S. 32-1-101, et. seq.
Within 30 days of the filing of a service plan with the County Clerk and Recorder, the
Clerk and Recorder is required to deliver the service plan to the Planning Commission
for review and recommendation. The Planning Commission is required to make a
recommendation to the Board of County Commissioners to take one of the following
actions:
1. Approve, without condition or modification, the service plan.
2. Disapprove the service plan.
3. Conditionally approve the service plan subject to additional information being
submitted or the modification of the proposed service plan.
The Board of County Commissioners "shall disapprove the service plan unless
evidence satisfactory to the Board of each of the following is presented":
1. There is sufficient existing and projected need for organized service inthe area
to be serviced by the proposed special district.
2. The existing service in the area to be served by the proposed special district is
inadequate for present and projected needs.
3. The proposed special district is capable of providing economical and sufficient
service to the area within its proposed boundaries.
4. The area to be included in the proposed special district has, or will have, the
financial ability to discharge the proposed indebtedness on a reasonable basis.
The Board of County Commissioners may disapprove the plan if evidence satisfactory
to the Board of any of the following, at the discretion of the Board, is not presented:
1. Adequate service is not, or will not be, available to the area through the
County or other existing municipal or quasi -municipal corporations, including
existing special districts, within a reasonable time and on a comparable basis.
2. The facility and service standards of the proposed special district are
compatible with the facility and service standards of each County within which
the proposed special district is to be located and each municipality which is an
interested party under Section 32-1-204(1).
3. The proposal is in substantial compliance with a master plan adopted pursuant
to Section 30-28-108, C.R.S..
4. The proposal is in compliance with any duly adopted county, regional or state
long-range water quality management plan for the area.
5. The creation of the proposed special district will be in the best interests of the
area proposed to be served.
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The following are responses to the statutory criteria:
1. There is sufficient existing and projected need for organized service in the
area to be serviced by the proposed special district
The area has approved developments requiring central sewage treatment.
Two developments adjacent to the Ranch at Roaring Fork were approved
with the requirement that the Ranch's central sewage disposal system be
available for the projects. There is another development with conditional
approval inside the R at RF, that is required to have a central sewage disposal
system available prior to final approval. The other property proposed for
inclusion in the district have no specific identified need for organized service,
other than one proposed development and a few landowners projected
development density that is not consistent with any comprehensive plan
designations. There is no projected need for central water supply systems for
the area. The application includes projections for the provision of central
water supply to the area, based upon the same assumptions made for central
sewage treatment. It is noted that any entity annexing to the District would
be required to give up all water rights and design a water system that could be
a part of a larger system.
2. The existing service in the area to be served by the proposed special district
is inadequate for present and projected needs.
The only existing system in the GCSA is the Ranch at Roaring Fork system
and it is inadequate to meet the immediate and near future demands for
sewage treatment for the existing and proposed development in the area. The
present system is at capacity and there are other property owners within the
proposed district boundaries wanting service. The R at RF has a site
application on file with the Colorado Department of Public Health and
Environment (CDPHE), that could meet the needs of the two developments
adjacent to the Ranch property and the one development included in the
Ranch's boundaries. The other properties to be included in the district would
far exceed any capabilities of the existing or proposed treatment capabilities
of the R at RF. The MVMD does not have the capacity to serve the proposed
GCSA with their existing treatment facility, but had identified the possibility
of forced mains and lift stations being used along with an expanded facility.
The MVMD board has eliminated this option as being viable for the entire
proposed service area due to the length of the service.
3. The proposed special district is capable of providing economical and
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sufficient service to the area within its proposed boundaries.
The proposed district will need to invest between $3.9 to $4.5 million to build
all of the infrastructure to meet the proposed demand for sewage treatment
facilities on one of the alternative sites. Of that cost, in every alternative,
$2.1 million will be the cost of the new treatment facility. The remaining
portions of the costs would be for sewer lines and other infrastructure. .
Two of the treatment facilities are being designed to treat 960 EQR's, the
proposed Ranch treatment facility is designed for 813 EQR's . The Ranch
site is identified as being designed for 813 EQR's because there was no
proposed cost to Ranch residents for tap fees, in return for a site for a
treatment facility. The Ranch and Cerise facilities are capable of treating
288,000 gpd and the St. Finnbar facility would have a capacity of 200,000
gpd. These numbers do not make any sense, given the intent of the District
according to the written text stating that the facility would treat 286,000 gpd
and 955 EQR's. It is difficult for staff to say that the applicant's appear to be
capable of providing "economical and sufficient service", when there no
certainty as to which design will be used and whether or not it is sufficient.
The service plan states that each development will be obligated to develop a
water system that will serve the individual development and be capable of
being connected to a larger system. There is a discussion of the size and
capacity , but no discussion of the economics of the proposed system. There
is no projected cost of the proposed facilities, it appears that each
development will have to pay for their share. It is not clear how that will
occur based upon the information in the application, since not all of the
projected development would occur at the same time. Some properties
would have to be improved prior to service being available for some of the
other properties, requiring potential storage facilities inconsistent with the
proposed plan..
4. The area to be included in the proposed special district has, or will have,
the financial ability to discharge the proposed indebtedness on a
reasonable basis.
The district has a commitment from the Dennis Cerise property owners to pay
for the cost of the capital improvements. This project is proposing
development densities inconsistent with the Comprehensive Plan, that may not
be approved as proposed. If the development is not approved as proposed,
the financing plan for the project will suffer a substantial loss of projected up
front capital. Staff would question the viability of the District's ability to
discharge any indebtedness, if the initial system is not financed as proposed.
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Blake Jordan, bond counsel for the County, has previously provided some
suggested language for inclusion in a Service Plan that has been used by other
Counties in the approval of a Service Plan. Staff would suggest that if the
Service Plan amendments are to be approved, the suggested language be
included as a part of the final Service Plan amendments.
The following discussion addresses the reasons the Board of County Commissioners
may deny a service plan:
1. Adequate service is not, or will not be, available to the area through the
County or other existing municipal or quasi -municipal corporations,
including existing special districts, within a reasonable time and on a
comparable basis.
The service plan notes that the existing MVMD facilities could be expanded
at the existing site to treat over two million gallons per day, if a 1.5 mgd
mechanical plant were built on the undeveloped parcel north of the existing
ponds. This would accommodate the 9651 people in the existing district and
the projected 2885 people in the GCSA. There is discussion of the feasibility
of utilizing the existing facility to treat sewage for the area, but it was rejected
by the district board due to the need to use force mains and lift stations for the
proposed service area.
2. The facility and service standards of the proposed special district are
compatible with the facility and service standards of each County within
which the proposed special district is to be located and each municipality
which is an interested party under Section 32-1-204(1).
The CDPHE has proposed preliminary standards for ammonia for the Roaring
Fork river that would only require treatment facilities along the river having to
meet secondary treatment standards. This would allow aerated lagoon
technology to be used to treat sewage in the Roaring Fork river valley, which
may allow for the expansion of the existing facilities..
3. The proposal is in substantial compliance with a master plan adopted
pursuant to Section 30-28-106, C.R.S..
The Garfield County Comprehensive Plan, Study Area I notes three different
designations on the Proposed Land Use Districts Map. The proposed new
service area is split fairly evenly between Medium Density Residential (6 to
less than 10 ac/du) and areas identified as Low Density Residential (10 and
greater ac/du) and a smaller area of Existing Subdivision. The projected
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densities in Table 3.2 in the application are consistent with the Comprehensive
Plan designations. The projected zoning densities appear to be higher than
staff calculated. (See pg. ) Staff calculations for zoning densities are
similar to the projected comprehensive plan densities If the application had
stayed with those projections, staff would not have any significant
disagreement with the Comprehensive Plan discussion.
The application goes one step further and projects additional density in excess
of the Comprehensive Plan designations in "the event that property owners
may elect to amend the Garfield County Comprehensive Plan to allow higher
density." Table 3.4 projects development densities 82% higher than the
existing Comprehensive Plan densities and 49% above the projected existing
zoning projection. It is staffs position that the District has developed a plan
that drives land use decisions. The County's acceptance to the proposed
density would be tantamount to acknowledging the densities noted in the
service plan. Any approval of this plan must very clearly state, that the
County is not accepting as inevitable the approval of any increased density. If
the higher density is appropriate, the Planning Commission should be making
the decision to designate the area as a High Density (1 unit/less than 2 acres)
as a part of a comprehensive plan amendment process, not a service plan
amendment.
The Water and Sewer Services Goal states the following:
To ensure the provision of legal, adequate, dependable, cost effective and
environmentally sound sewer and water services for new development.
The following objectives are relevant to the proposed service plan :
7.1 Development located adjacent to municipalities or sanitation districts
with available capacity in their central water/sewer systems will be
strongly encouraged to tie into these systems.
7.4 Development will be required to mitigate the impact of the proposed
project on existing water and sewer systems.
7.5 Garfield County will strongly discourage the proliferation of private
water and sewer systems.
The following policies are relevant to the proposed service plan :
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7.1 All development proposals in rural areas without existing central
water or sewer systems will be required to show that legal, adequate,
dependable and environmentally sound water and sewage disposal
facilities can be provided before project approval.
7.2 Where logical, legal and economic extension of service lines from an
existing water and/or sewage system can occur, the County will
require development adjacent to or within a reasonable distance, to
enter into the appropriate agreements to receive service. The burden
of proof regarding logical, legal and economic constraints will be on
the developer.
The proposed service plan amendment as written is not consistent with the
Comprehensive Plan in terms of the basis of the proposed projections that are
used to determine the theoretical size of the GCSA treatment facility. The
district's justification for needing to project densities inconsistent with the
Comprehensive Plan is due to their desire to avoid the need to amend the
service plan. Staff would argue that the majority of the expense has already
been incurred already and if justified, an amendment could be developed.
4. The proposal is in compliance with any duly adopted county, regional or
state long-range water quality management plan for the area.
The Water Quality Management Plan for Region 11(208 Plan) does not really
address the need for additional point source discharge points on the Roaring
Fork River. The County Engineer has been working on an updated 208 Plan
for the County for the last few months, but there is no new document
available yet that would support or oppose the development of new expanded
point source treatment in the area. The applicant cites a 208 Plan that has not
been adopted by Garfield County and technically is the guiding document for
Eagle and Pitkin counties.
5. The creation of the proposed special district will be in the best interests of
the area proposed to be served
If development is to occur in the proposed service area, a central sewage
disposal system is the preferable method of treating sewage, as opposed to
individual sewage disposal systems. Having a central sewage disposal system
in the area would allow for the clustering of development densities, with
higher net densities for the area. The projection of higher densities for the
area is not consistent with the present development projections in the area and
in that sense, may not be in the best interest of the area to be served.
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B. Other Comments:
1. County Engineer: Bob Szrot, Garfield County Engineer reviewed the initial
application and identified a number of issues and concerns. (See pgs. )
At the Planning Commission meeting, he noted that the supplemental information had
met his concerns.
2. Ranch at Roaring Fork HOA: The R at RF HOA has not agreed to annex to the
MVMD. (See pgs. ) Additionally, the Ranch is pursuing the approval
of a site application for a sewage treatment facility that would have capacity to handle
the sewage from the Ranch , Preshana Farm PUD and the St Finnbar Ranch
developments. The most recent letter is in response to the notice sent out regarding
the Commissioner's hearing.
3. Eagle County.: Eagle County was given the opportunity to review the application.
(See pg. ) They have determined that the proposed application would
represent a substantial change to the existing service plan, subject to their review
processes. No additional responses have been received.
4. Town of Basalt: Enclosed is a resolution from the Town of Basalt, opposing the
proposed service plan amendment. (See pgs. )
1II. RECOMMENDATION
The Planning Commission recommended that the Board of County Commissioners
Disapprove the proposed service plan amendments based upon the lack of satisfactory
evidence that:
1. There is sufficient existing and projected need for organized service in the area
to be serviced by the proposed special district.
3. The proposal is in substantial compliance with a master plan adopted pursuant
to Section 30-28-106 C.R.S..
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Garfield County
Building & Planning
Memo
To: Planning Commission
From: Mark Bean, Director
Date: 6/6/01
Re: Spring Valley Metropolitan District Service Plan
At the April 25th meeting of the Planning Commission, the Spring Valley Metropolitan Districts No. 1 and
No. 2 Service Plan was initially reviewed. Given the Commission's and staffs concems, the applicants
requested a continuance to the June 13th meeting to respond to the various issues.
All of the attached documentation is in response to the Commission, staff and consultants comments.
Blake Jordan of Sherman and Howard LLC and Alan Matlosz and Salem Rihani of George K. Baum &
Co. have provided comments about the proposed service plan. The applicant has responded to these
comments and the request of the Planning Commission, in the attached documents.
Neither the staff or the consultants have had an opportunity to respond in writing, given the timing of the
information submitted. We will provide additional comments at the meeting.
1
Sherman & Howard L.L.c.
Board of County Commissioners
Garfield County
109 8th Street, Suite 200
Glenwood Springs, Colorado 81601
ATTORNEYS & COUNSELORS AT LAW
633 SEVENTEENTH STREET, SUITE 3000
DENVER, COLORADO 80202
TELEPHONE: 303 297-2900
FAX: 303298-0940
OFFICES IN: COLORADO SPRINGS
RENO • LAS VEGAS • PHOENIX
May 8, 2001
Re: Comments on Service Plan for proposed Spring Valley Ranch
Metropolitan District Nos. 1 and 2
Ladies and Gentlemen:
We are special counsel to the County with respect to the review of the above -
referenced Service Plan for the proposed Spring Valley Ranch Metropolitan District Nos. 1 and 2
(collectively, the "Districts"). This letter is in response to a request from the County Attorney's
office to review and comment on the Service Plan, with an emphasis on the financial provisions
therein.
1. Overview of the Dual District Structure
The Service Plan describes a two district structure in which one district is the "control
district" (referred to in the Service Plan as the service district) and the other district is the "financing
district". The purpose of the two district structure is to allow the developer to remain in control of
the development through the entire development period, without the risk that the voters inside the
financing district can interrupt the issuance of bonds for improvements, or take other actions which
would affect the developer's ability to pursue the development to completion.
This control structure is normally brought to fruition as follows. The control district
is established as a small district the property of which will always be retained by the developer or
parties under its control, thus assuring that the developer cannot be voted out of office. The
financing district is established as the district in which the development, and the assessed valuation
that enables the financing of improvements, will be located. The property of the financing district
will be sold by the developer to third parties, thus giving those third parties the right to vote inside
the financing district, and in a short time after sales begin, the developer can lose control over the
board of directors of the financing district. This loss of control can jeopardize the developer's ability
to pursue the development to completion. In order to guard against this, prior to the time the
financing district has any voters or property owners other than the developer, the two districts will
enter into an intergovernmental agreement which purports to give the control district power over
some or all of the finances of the fmancing district. We have not seen the type of agreement
Sherman & Howard L.L.C.
Garfield County, Colorado
May 8, 2001
Page 2
proposed here, but they typically provide that the financing district is required to produce moneys
for the construction of improvements when the control district decides it should, or in the alternative,
to pay levy taxes or otherwise produce revenue for the payment of bonds issued by the control
district for those improvements. This contractual obligation is usually approved at an election while
the developer retains control of both districts, and is characterized as a general obligation of the
financing district, for the payment of which it obligates itself to impose property taxes. The
agreement will usually assign to the control district the rights of the financing district to decide upon
the nature, location, and timing of the improvements to be financed. In this case it is also proposed
that the financing district assign to the control district the right to determine annual operations and
maintenance expenses, which obligation will also be characterized as a general obligation debt of
the financing district to the control district.
In this way, the developer attempts to assure itself that it can issue bonds, build and
maintain improvements, and generally control the finances of the financing district, even if the board
of the financing district objects, or decides not to build further improvements, etc. It is not entirely
clear that such agreements would be upheld in the event of a challenge, and we think it possible that
some of the control aspects involved here could be attacked on various grounds, depending upon the
circumstances. However, for purposes of this letter, it is presumed that the control aspects described
in the Service Plan and to be implemented through the intergovernmental agreement will be
enforceable.
While the control/financing district structure is one which the County has not seen
before, it should be noted that this is not an uncommon structure in special districts, and there are
many such control/financing district arrangements which have been approved by other counties.
Also, if viewed from the standpoint of the developer, it can be seen why such a structure is desired.
In order to create a development of this scope, improvements have to be phased, the phases have to
be carried out as planned, and anything which stops that progress risks the investment that the
developer has made, and may risk a default on bonds issued in anticipation of further development.
Developers are loathe to take the risk that the ultimate build -out of the development can be brought
to a halt by a vote of the financing district's board of directors or electorate; thus, they seek to do
away with that power by contract, while retaining the ability to impose a tax on the financing
district's land.
This structure has been discussed with County staff, and it was determined that the
situation should be analyzed on the assumption that the County is willing to approve the
control/finance district structure if appropriate restrictions are included in the Service Plan.
2. Suggested Changes to the Draft Service Plan
We have reviewed the Service Plan, and have the following comments. Most ofthese
comments are the result of discussions with County staff members and the County attorney.
Sherman & Howard L.L.c.
Garfield County, Colorado
May 8, 2001
Page 3
A. Addition of Mill Levy Limits. There are no debt limits in the Service Plan, nor
are there any limitations upon the Districts' ability to impose ad valorem taxes for their payment.
In general, the current draft permits the Districts to incur debt in whatever fashion state law permits.
In our discussions with staff, it was indicated that in light of the unique structure of these Districts,
some further controls should be considered, and the control most favored was one which required
that all obligations payable from ad valorem taxes (which would include the proposed
intergovernmental agreement between the two Districts) wouldbe payable solely from a limited mill
levy. This should assure the County that the financing District will not be forced to increase its mill
levies to an unreasonable amount.
In order to do this, we suggest the addition of the following provision:
The Districts shall not issue or incur any debt, bonds, notes, contracts,
or other obligations for the payment of which the Districts will be
contractually obligated to impose an ad valorem property tax, except
as described in this paragraph. The Districts may contractually
obligate themselves to impose an ad valorem property tax for the
payment of any bonds, notes, contracts, or other obligations
(including without limitation obligations issued or incurred for the
payment of capital costs, operations and maintenance costs, or any
other costs), only in an amount not in excess of ( ) mills for all
of such obligations; provided however, that in the discretion of the
obligated District, such obligations may provide that, in the event the
method of calculating assessed valuation is changed after the date of
the incurrence or issuance of such obligations, the mill levy limitation
provided herein may be increased or decreased to reflect such
changes, such increases or decreases to be determined annually by the
board of directors of the obligated District in good faith (such
determination to be binding and final) so that to the extent possible,
the actual tax revenues generated by the mill levy, as adjusted, are
neither diminished nor enhanced as a result of such changes. For
purposes of the foregoing, (i) a change in the ratio of actual valuation
to assessed valuation shall be deemed to be a change in the method
of calculating assessed valuation; and (ii) 2001 shall be the base year
for the ratio for actual valuation to assessed valuation.
The blank wouldbe filled in with a reasonable mill levy amount, as determined between the County
and the developer. The actual number will depend upon a variety of factors, such as the amount of
existing and predicted overlapping mill levies from other political subdivisions, the projections of
expenses and debt service for the Districts, and similar factors. It is not unusual to see this limit
being set at fifty (50) mills.
Sherman & Howard l..l..c.
Garfield County, Colorado
May 8, 2001
Page 4
This provision would provide a definitive limitation upon either Districts' ability to
obligate itself to impose ad valorem property taxes. Essentially, this shifts the risk of development
from the taxpayers of the financing District to the investors or to the issuer of any guarantee or other
credit enhancement (e.g., a letter of credit, bond insurance, etc.).
The addition of the above paragraph will require a substantial re -writing of much of
the Service Plan, which is currently predicated upon the issuance of unlimited mill levy bonds, and
no attempt is made herein to re -write all parts of the Service Plan which would be inconsistent with
the above concept.
It should be noted that the above provision does not control bonds payable from non -
ad valorem property tax sources, such as water and sewer revenue obligations. Controlling rates and
charges for those items is more complicated and, in any event, those amounts are required by law
to be reasonable in light of the service provided. However, if this is something about which the
County is concerned, we can draft a provision which requires (for example) periodic rate studies and
adherence to the recommendations of such studies. I note that even this is cold comfort, as rate
studies and their results are largely dependent upon the person or firm selected to make the rate
study. We will await further direction from the County on this issue.
B. Addition of Debt Limit. County staff has suggested that the total permissible
obligations of the financing District be limited to a particular principal amount. In order to do this,
the following phrase could be added to the Service Plan:
The maximum principal amount of any bonds, notes, or other
evidences of a borrowing issued by any of the Districts shall be
limited to $
It is quite common for such limitations to be included in service plans. However, it should be noted
that a principal amount limit is not a completely effective method of controlling the amount of debt
incurred. For example, a contract to pay a certain number of mills per year for operations and
maintenance has no principal amount, and thus cannot be analyzed under this provision. However,
that would be controlled by the mill levy limitation provision above. Also, even in a traditional
borrowing which does have a principal amount, there are many ways of reducing that principal
amount while at the same time producing more proceeds than would otherwise be the case, such as
the issuance of premium bonds. Premium bonds bear an interest rate which is higher than market,
and are thus sold at a premium (i.e., for an amount greater than their face amount). For example, if
the interest rate is high enough above market, you can produce $10,000,000 in proceeds from an
$8,000,000 bond issue. However, regardless of whether something is characterized in terms of
principal and interest, or in terms of an annual mill levy, the mill levy limitations above will control
it.
Sherman & Howard L.L.c.
Garfield County, Colorado
May 8, 2001
Page 5
C. Control Over Operations and Maintenance Expenses. Another item of
concern to County staff was the fact that all operations and maintenance expenses would be
controlled by the control District. If this is of concern, then the sections which make the financing
District contractually responsible for the operations and maintenance costs as determined by the
control District should be removed. These provisions are also pervasive, and no attempt has been
made herein to re -write those sections; however, it is a relatively straightforward task once the
decision has been made to do it.
It should be noted that this may be unpopular with the developer since the developer
seeks to assure itself that it can always maintain the improvements at a particular level, and require
the financing District to pay for it, regardless of any disagreement by the financing District. If that
is the case and the County wishes to consent to the developer's proposal to control the operations
costs through the control District, the mill levy limitations above (which would apply to an
operations and maintenance obligation payable from ad valorem taxes) might be considered
sufficient protection. So long as there are mill levy limitations in place, putting the financing
District in charge of the amount of operations and maintenance costs it wants to fund is more of a
policy issue than a financial issue.
D. Annexations. It is recommended that the Service Plan be changed to provide
that inclusions of property in an amount greater than a certain aggregate number of acres will be
deemed to be a material modification of the Service Plan. If this is added, the statement at the end
of Chapter 1 (3) that states the opposite should be removed, and the following substituted in its
place.
The annexation to the District of any property in excess of _ acres
in the aggregate shall be considered a material modification of this
Service Plan.
E. County Obligations. It is recommended that this sentence in Chapter 1 (6)
(B) be removed:
In this manner, Garfield County can be assured that the risks of
development and the responsibility for repayment of debt issued for
the Project will be borne solely by the residents and property owners
of the Project and will not become the responsibility, in any degree,
of the County.
Besides the fact that nothing in the dual district structure provides any such assurance, this language
implies that under some circumstance, the County might be responsible for such obligations. That
is not true, and there should be nothing in the Service Plan suggesting otherwise. Instead, consider
the following instead:
Sherman & Howard L.L.c.
Garfield County, Colorado
May 8, 2001
Page 6
All financial obligations issued or incurred by the Districts shall state
therein that they are solely the obligation of the issuing or incurring
District, and that Garfield County is not in any way liable for the
District's obligations.
F. Obligations Issued to the Developer. It is likely that the developer will
initially cause the Districts to issue bonds to the developer. While this is not at all uncommon, the
terms of such financings can sometimes be disadvantageous to the Districts since they have no
bargaining power at the time such a financing is concluded. If this is of concern to the County, we
suggest the addition of the following:
Any bonds, notes, contracts, or other financial obligations issued to
the Developer as consideration for a loan or advance shall be subject
to redemption, at the option of any District which is obligated for the
payment thereof, on any date after issuance, at a price of par and
accrued interest, without redemption premium, and shall not be issued
at a net effective interest rate higher than % in excess of the rate
per annum determined on the date of issuance pursuant to the most
recent "Bond Buyer Weekly Yields 20 G.O." index (the "Index")
published in the "Bond Buyer" as the general obligation bond yield
for 20 year maturity general obligation bonds, or if such Index
becomes unavailable, such other index as may be determined by the
District to be comparable to the Index.
The foregoing shall not apply to obligations issued or sold in a public
offering. As used herein, "Developer" includes Spring Valley
Development, Inc., its successors and assigns, and any entity which
owns or controls Spring Valley Development, Inc. or which is owned
or controlled by Spring Valley Development, Inc.
Again, so long as the mill levy limitations are in place, this may be unnecessary; however, this
provision will protect the Districts from certain abuses which we have discussed with staff, and
which could result in the Districts having debt obligations which would require an extraordinarily
large amount of money to pay or refund.
G. Contingent Obligations. One issue we have discussed with County staff is
the issuance of so-called contingent obligations. This is usually an obligation that the development
projections show cannot be paid, and is usually issued to and held by the developer against the event
that the projections are exceeded. If interest on such amounts compounds, it can result in an
extraordinarily large amount due in 20 years.
Sherman & Howard Ian
Garfield County, Colorado
May 8, 2001
Page 7
The contingency to which such obligations are subject is not made clear in the Service
Plan, but it is likely that a limited mill levy obligation is contemplated. If the foregoing
recommendations for mill levy and debt limitations are included, this may become a moot point.
However, if the County believes that the Districts should issue debt only within the debt limits of
the Service Plan, the following sentence should be removed from Chapter V:
Districts shall also be entitled to issue contingent repayment
obligations in amounts which exceed the estimated general obligation
debt estimated in this Service Plan on condition that the provisions of
such contingent repayment obligations are in compliance with state
law and are subject to the limitations of state law regarding the
limitations on issuance of general obligation debt.
H. Private Improvements. We were informed that it is the developer's intent that
the roads inside the development be private roads, perhaps owned by the homeowner's association
or some other private entity. If this is the case, I question the District's ability to fmance them with
public money. Even assuming the District has the state law power to do this, it seems unlikely to
us that bonds issued to pay for privately owned improvements would be exempt from federal income
tax, and I have no doubt that the projections of debt service expenses contemplate tax-exempt rates.
Perhaps the developer or its counsel could explain what their plan is in this regard. In any event, if
the roads or any other improvement the District will fmance are going to be privately owned and not
open to the general public, and the developer cannot explain how the Districts will finance them
within the bounds of the law, I suggest removal of these as items to be financed. The County may
also wish to consider a provision in the Service Plan which provides:
All improvements, facilities, and other properties paid for or financed
by either of the Districts shall be public improvements, owned by the
District or another appropriate political subdivision of the State.
H. Miscellaneous Changes. We recommend the removal or modification of this
sentence in Chapter VI A:
The County will work only with the District or its agents who will
retain responsibility for assuring that plans submitted to the County
for approval are consistent with any requirements for review.
I'm not certain what this sentence is intended to do, but its wording implies that the County is
making a commitment of some sort, and the Service Plan should not contain any County
commitments.
Sherman & Howard L.L.c.
Garfield County, Colorado
May 8, 2001
Page 8
We also recommend the removal of the following italicized phrase from this sentence
in Chapter VII (A)(2):
Material modifications of this Service Plan, except as contemplated
herein, shall be subject to approval by the County in accordance with
the provisions of § 32-1-207, C.R.S.
Material modifications of the Service Plan are subject to such approval already, without the Service
Plan having to so provide. However, the italicized language implies that some material
modifications can be made without that approval, which is not the case I think this sentence intends
to say is that some things may not be material modifications because of the language of the Service
Plan, but this language is unnecessary to achieve that result since, if it is permitted by the Service
Plan, it is not a material modification.
3. Conclusion
We believe that with certain changes the needs of both the County and the developers
can be met with respect to this development. We look forward to working with you on this project.
Sincerely,
SHERMAN & H WARD, L.L.C.
Blake T. Jordan
cc: Alan Matlosz, George K. Baum & Company
MAY.18.2001 4:27PM GEORGE K BAUM & CO
George Baum & Cmpany
INVESTMENT BANKERS SINCE 1928
May 18, 2001
Garfield County Commissioners
109 8th Street, Suite 200
Glenwood Springs, Colorado 81601
Dear Commissioners:
NO.051 H.d/11:1
At your request, George K. Baum & Company has been asked to review the Service Plan for the
proposed Spring Valley Metropolitan Districts #1 and #2. Specifically, we have focused our review
on the financial plan of the Service Plan and the financial feasibility of the District. As required in
Section 32-1-203, C.R.S., in reviewing a service plan the County Commissioners must determine
that "The proposed special district is capable of providing economical and sufficient service to the
area within its boundaries" and that "The area to be included in the proposed special district has, or
will have, the financial ability to discharge the proposed indebtedness on a reasonable basis,"
A Summary of the Financial Plan
The plan is to form two metropolitan districts to serve 5,948 acres. District #1 will be the financing
district and will include all but a small portion of the total area. This district will issue the proposed
general obligation bonds. District #2 will be the service district. It will issue the revenue bonds and
receive by contract various revenues including the transfers of property taxes levied by District #1
for operating purposes.
The total number of homes in the development is projected to be 577 of which 75 would be
affordable units and not included within the Districts. The average price of a home is estimated at
$2.04 million. There will be two golf courses, a community center and an equestrian center. This
development is proposed to be a very upscale project and therefore requires a significant amount of
public improvements. The Plan proposes the issuance of $57,850,000 of general obligation bonds
by District #1 and $30,535,000 of revenue bonds by District #2. The estimated total mill levy that
is necessary to service the debt is 20.25 mills. The operating mill levy is estimated to be 24.74 mills
for a total levy of 45 mills.
Proposed Public Improvements
A metropolitan district, like other independent local governments in Colorado, has the ability to
finance public improvements through the issuance of bonds, notes, or other methods. These
improvements must be `public" in order for the financing to comply with State statutes as well as
Federal law. The proposed improvements are as follows:
717 Seventeenth Street Sulte 2500 • Denver, Colorado 80202-3354
Phone (303)292-1600
MAY.18.2001 4:27PM GEORGE K BAUM & CO
NO.051 P.3/18
The total of the capital improvements are then inflated by 3% annually to the year in which they are
planned to be constructed for a grand total of $51,123,768. All of these improvements are planned
to be made by 2006.
There has been some question as to whether all these improvements are indeed public, In Chapter
III of the Service Plan, there is discussion of turning over improvements to a homeowners
association. If that were to occur, the improvements would no longer be public. In addition, private
roads or trails which could not be accessed by the public could not be financed by the Districts.
Furthermore, there is quite a bit of money raised for operation of the Districts. If the golf courses,
equestrian center and community center are private facilities, they cannot be financed through
Districts nor can they be operated with public money.
The costs of the improvements may need some further analysis. The amount anticipated to be spent
on road improvements seems high for 502 homes despite the large size of the Districts. Likewise,
more information should be obtained about the $6.5 million common utility trench.
Debt Issuance
The Service Plan proposes the issuance of general obligation bonds by District #1 and revenue bonds
by District #2. The schedule of bond issuance is as follows:
District # 1 - General Obligation Bonds
Roads
25,723,702
Drainage
1,394,030
Domestic water system
5,076,264
Wastewater system
2,279,014
Trail systems
1,525,776
Common trench utility
6,351,046
Engineering
2,786,170
District organization costs
200,000
Total
45,336,002
The total of the capital improvements are then inflated by 3% annually to the year in which they are
planned to be constructed for a grand total of $51,123,768. All of these improvements are planned
to be made by 2006.
There has been some question as to whether all these improvements are indeed public, In Chapter
III of the Service Plan, there is discussion of turning over improvements to a homeowners
association. If that were to occur, the improvements would no longer be public. In addition, private
roads or trails which could not be accessed by the public could not be financed by the Districts.
Furthermore, there is quite a bit of money raised for operation of the Districts. If the golf courses,
equestrian center and community center are private facilities, they cannot be financed through
Districts nor can they be operated with public money.
The costs of the improvements may need some further analysis. The amount anticipated to be spent
on road improvements seems high for 502 homes despite the large size of the Districts. Likewise,
more information should be obtained about the $6.5 million common utility trench.
Debt Issuance
The Service Plan proposes the issuance of general obligation bonds by District #1 and revenue bonds
by District #2. The schedule of bond issuance is as follows:
District # 1 - General Obligation Bonds
2
December 1, 2004
$14,000,000
December 1, 2006
$21,000,000
December 1, 2020
$10,000,000
December 1, 2024
$12,850,000
2
1
MAY.18.2001 4:28PM GEORGE K BAUM & CO
District # 2 - Revenue Bonds
NO.051 P.4/18
IDecember 1, 2002 I $30,535,000
The general plan is to issue the revenue bonds first which would be secured by various development
fees and a letter -of -credit obtained by the developer. The first set of improvements would be
constructed and as development occurs and the option of issuing general obligation bonds becomes
a reality, the revenue bonds would be repaid from the proceeds of the new general obligation bonds.
The schedule of issuing general obligation bonds is dependent upon the rate of development and the
subsequent rate of growth in assessed valuation. The fact that the initial development risk is being
borne by the developer is a good idea. This way, if development does not occur as rapidly as
planned, the few new property owners will not be stuck with a huge tax bill. However, the financing
plan does not make sense.
Why issue bonds by District #2 only to have them paid off by bonds from District #1? General
obligation bonds of District #1 could be issued with credit support from the developer and that credit
support could be released through some mechanism as development occurs. Using the two district
financing structure is cumbersome and does not provide any economic advantage. A more important
potential problem is the "public purpose" of issuing general obligation bonds to pay off revenue
bonds. The new bonds do not construct any new facilities and they are shown at a higher interest
rate. There are many legal questions that need to be answered before we could be satisfied that this
financing structure could be used.
The schedule of general obligation bond issuance raises some serious concerns as well. Voted
authorizationfor debt issuance in 2001 would become stale by 2020 or 2024. There would have to
be another vote to approve those bonds. The proceeds from the revenue bonds alone are not
sufficient to install all the necessary improvements. The Districts are dependent on development
fees. Therefore, if development is slow, all of the improvements will not be in place for the residents
until some unknown future date. A very specific schedule of improvements and a description ofhow
these improvements, or lack thereof, will affect the quality of the development should be prepared.
The first bond issue would be revenue bonds to fund the first $29 million of improvements.
Schedule 1 which lists the improvements shows that these would be completed by 2006. It is unclear
from the financial plan how these are being funded but it is probably through a combination of the
proceeds from the revenues bonds, development fees, and small portion of the proceeds from the
general obligation bonds. It appears that the majority of the proceeds from the general obligation
bonds will be used to pay off the revenue bonds. The Plan needs a specific breakdown of each bond
issue and what that bond issue is paying for.
Hall the improvements are being constructed by 2006, and the revenue bonds are being paid off by
the general obligation bonds issued in 2004 and 2006, then what is the purpose of the bond issues
planned for 2020 and 2024? Are these proceeds being used to repay the developer? Overall, the
plan for issuing bonds is unclear and needs to be changed before the County could determine if it
were feasible.
3
MAY.18.2001 4:29PM GEORGE K BAUM & CO
NO.051 P.5/18
Development Projections
Because there is no development currently on this property, development needs to occur according
to plan to provide the tax base and the fees to repay the bonds and operate the Districts. The Service
Plan includes a series of projections to show how the bonds would be repaid and how services would
be financed. The development projections and the subsequent financial pro forma for the Districts
include too many schedules with too many tables. The plan needs to be simpler. The format of the
financial plan with such a complex set of schedules only confuses the reader.
Although the developer many firmly believe that he can build 502 (or is it 484?) homes at an average
price of $2 million, there is no data provided to support this assumption. There needs to be a market
study completed which demonstrates that this type of very expensive development is feasible in
Garfield County. If the average housing price is less than expected or the rate of development is
slower than expected, the Districts would require much higher mill levies.
George K. Baum & Company has reviewed the schedules and attempted to recreate them to the best
of our abilities. We could come pretty close but could not exactly duplicate the Plan's numbers. We
did use the new assessed valuation ratio of 9.15% for residential properties which would reduce the
numbers. We did not identify any mathematical errors however, we do recommend that any revised
financial plan include the new assessment ratio.
For our next step, we performed a series of sensitivity analyses on the projections to see what
happens to the debt service mill levy requirements. Those scenarios are attached. We looked at the
mill levy impact on the debt service for the general obligation bonds only. The revenue bonds are
proposed to be backed by a letter -of -credit from the developer and would be paid of in 2006. The
operating mill levy would be fixed and could not adjust.
Schedule 1 - 50% of Planned Buildout - In this scenario, the debt service mill levy starts at 40 mills
in 2008 and reaches a high of 65.80 mills in 2010. The analysis shows the payments through 2027
at which point all bonds are issued. No adjustment has been made for the number of homes, but the
value of the homes was reduced by 50% to an average price of around $1 million. We are not
suggesting that there is a market for homes at that price. This analysis simply shows the effect on
the mill levy if the value is half of that shown in the Service Plan.
Schedule 2 - 50% Residential Buildout at 50% of Market Value/50% Commercial Buildout - In this
scenario, not only are the homes worth less, but the development is slower as well. The
mathematical result is residential value of 25% of the projected number. In addition, we have
assumed that the commercial value is 50% ofprojected, This result might happen if only one of the
golf courses is built. The effect here is much more dramatic. The debt service mill levy starts at
136.49 but levels out at about 95 mills. This tax rate would be almost five times that projected in
the service plan.
4
MAY.18.2001 4:30PM GEORGE K BAUM & CO
NO.051 P.6/18
The bottom line is that if development does not occur as planned, a much higher debt service mill
levy would be required. Without good reliable information showing that the type and level of
development proposed in the Service Plan could be achieved, one would have to assume that a mill
levy much higher than the proposed 20.25 would be required to service the debt.
Operating Expenses
District #2 would received various revenues to provide service to the residents of the development.
When the development is built out, that revenue is projected to be $5 million in 2021 and over $9
million in 2042. The 24.75 mills for operating is very high. Furthermore, it is not clear what all this
money would be used for. Looking at Exhibit 1 for District #2, in 2021, there is an administration
expense of $976,655, community operations expenses of $1,459,048, and traffic control/security
expense of $930,147. It is important to note that public revenues need to be spent on public facilities
and public programs. Because the golf courses, community center and equestrian center are not
public buildings, no public funds could be spent on those facilities. There could be public programs
at those facilities, however.
Because the significant amount of revenue projected to operate the Districts, and because District#2
will be controlled by the developer, there needs to be much more detail as to what kinds of public
services would be provided. The County should know what are public facilities and what are private
and how they will be maintained and operated. As in the analysis of for the debt service levy, if
development does not meet projections, how would the District fund all these services?
Financial Capacity of the Developer
Although this type of analysis does not usually include a discussion of the developer and its capacity
to perform as proposed in the Service Plan, it is impossible to ignore certain facts about Atlantic Gulf
Communities, Inc. Attached is an article dated May 2, 2001 found on the Bloomberg Electronic
News Service which reports that Atlantic Gulf filed for Chapter 11 bankruptcy protection. Near the
end of the article is a discussion of the history of the company and the fact that it was formerly
known as General Development Corp. and that according to this article, four executives of that
company were convicted of "conspiring to bilk 10,000 Florida home buyers out of $117 million
through deceptive sales practices."
With this information in hand, it is important to understand that once formed, the Spring Valley
Metropolitan Districts are independent local governments subject to minimal oversight. Although
there is no indication that any similar problem would occur with this development, the County needs
to evaluate its appropriate level of future involvement with this project.
5
MAY.18.2001 4:31PM GEORGE K BAUM & CO
Conclusion
NO.051 P.7/18
As currently presented, it is not clear that the Spring Valley Metropolitan Districts meet the financial
standards set forth in the Colorado Special District Act. The financial plan needs to be changed to
address the questions raised in this letter. Once amended, a new Service Plan could be submitted to
the County for review.
I hope this analysis is helpful to Garfield County. We would be happy to meet with you to discuss
this project in more detail.
Sincerely,
GEORGE K. BAUM & COMPANY
Alan T, Matlosz
First Vice President
ATM/dn
Enclosures
6
Salem Rihani
Analyst
M Y.1B.2 e1 4:31P GEORGE K B U & CO N .0 1 P.8/18
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NO.051 P.16/18
064n Equity GN
BN May 12001 11:62
Atlantic Gulf Communities Files for Chapter 11 (Correct) Page 1/3
Atlantic Gulf Communities Files for Chapter 11 (Correct)
(Introduces name of speaker in d paragraph.)
Wilmington, Delaware, May 1 (Bloomberg) -- Atlantic Gulf
Communities Inc., a developer that once was one of Florida's
largest landowners, filed for Chapter 11 bankruptcy protection in
the face of continuing losses.
The Miami -based developer of home lots in Florida, Texas,
North Carolina and Colorado listed 3148.5 million in assets and
3170.2 million in debts in papers filed today in U.S. Bankruptcy
Court in Wilmington, Delaware,
The company's goal in the Chapter 11 case is to restructure
its business and continue operations, Atlantic Gulf Chief
Executive Patrick Ahern said.
"We're hopeful of having the reorganization completed in
about 120 days," Ahern said.
The company has secured a 32 million credit line from
existing lenders so it can continue selling developed real estate
during the court -supervised Chapter 11 reorganization, Ahern said,
The company in April delayed filing its annual report with
Copyrigght 2001 BLOOMBER6 L,P, FranKfurtJ69-920410 Hong Kong;2-977-6000 Londonu207-330-7500 New YorK 212-318-2000
Prinoeton'609-279-3000 Singapore'63-212-1000 8 dney'2-9777-8686 Tokyo'3-3201-8900 Sao Paulo+l1-3048-4500
1720-231-0 05 -May -01 7118114
Elltriattg
MAY.18.2001 4:37PM GEORGE K BAUM & CO
•
<MENU> to return to headlines.
NO.051 F.1(/1H
064n Equity C:14
Searoh 1111111111111111111 00' Options J RelatedInfo 8N FAay 2 2001 Me
Atlantic Gulf Communities Files for Chapter 11 (Correct) Page 2/3
the U.S. Securities and Exchange Commission. Atlantic Gulf said in
a regulatory filing that recently it has reduced its operations,
sold assets to reduce debt, fired workers and moved its offices.
Last August, Atlantic Gulf reported a $9.3 million second
quarter loss, compared with a $13.7 million loss in the second
quarter of 1999.
Atlantic Gulf, which was at one time controlled by a real
estate fund managed by financier Leon Black's Apollo Advisors and
Morgan Stanley, Dean Witter & Co., hired an investment banker in
1999 to explore "strategic alternatives."
The company's largest unsecured creditor is former executive
vice president and chief operating officer John Laguardia, who is
owed $349,000 from a legal judgment, court papers show. Laguardia
in November was named president of ALH II Inc., a holding company
involved in the consolidation of regional homebuilders in the
Southeast.
Atlantic Gulf's second- and third-largest unsecured creditors
are Broad River LLC, which is owed $138,514, and American Stock
Transfer, owed $114,763, according to court papers.
The land development company was once known as General
—Development Corp. which filed for bankruptcy in 1990,
Copyrigght 2001 BLOOMBBR6 L.P. FranKfurt'69-920410 Hong Kong'2-977-6000 London'207-330-7300 Hew York'212-318-2000
Prinoeton'609-279-3000 Singapore'65-212-1000 Sdney�2-9777-8686 Tokyo'3-3201-8900 Sao Paulo'11-3048-4500
1720-231-0 05 -May -01 7120:15
MAY.18.2001 4:38PM GEORGE K BRUM & CO NO.051 P.18/18
<MENU> to return to headlines.
Search immomigE00 1 Options �J Related Info J
064n Equity CN
BN May 2 2001 11:42
Atlantic Gulf Communities Files for Chapter 11 (Correct) Page 3/3
Four former GDC executives were convicted in 1992 of
conspiring to bilk 10,000 Florida home buyers out of $117 million
through deceptive sales practices. The company pleaded guilty to
fraud, agreed to set up a %169 million restitution fund and
reorganized with new management. The company emerged from
bankruptcy as Atlantic Gulf in 1992.
Atlantic Gulf shares fell 15 cents to 55 cents in over—the—
counter trading today.
--Jeff St.Onge in Wilmington, Delaware (302) 984-3362 or
Jstonge@Bloomberg net through the Washington newsroom (202) 624-
1917/ta/gcb
Story illustration: To graph Atlantic Gulf's stock performance
Compared to relevant indexes, enter
AGLFE US <Equity> COMP D <GO> .
Copyright 2001 BL00MBERG L.P. Frankfurt'69-920410 Hong Kong'2-977-6000 London'207-330-7500 New York'212-318-2000
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