Financing Miscellaneous
OUNTyoLMONROE
KEY WEST ~ :~ORIDA 33040
~ BOARD OF COUNTY COMMISSIONERS
MA YOR Wilhelmina Harvey, District 1
Mayor Pro Tern Shirley Freeman, District 3
George Neugent, District 2
Nora Williams, District 4
Mary Kay Reich, District 5
County Attorney's Office
502 Whitehead street
Third Floor, Rear
Key West, Florida 33040
(305) 292-3478
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March 21, 2000
Mr. Danny L. Kolhage
Clerk of the Circuit Court
310 Fleming Street
Key West, FI. 33040
RE: E911 Service and Equipment
Dear Danny:
As requested, we have examined certain documents relating to the captioned matter,
including:
(1) Special Service Arrangement Contract (the "Service Contract") between Monroe
County as "Customer" and BellSouth Telecommunications, Inc. as "Company," for the
"installation and maintenance of Customer provided Positron E911 equipment and other
software and equipment." This document bears no stated effective date, but was executed
by Mayor Harvey on 4/14/99.
(2) "Payment Agreement" dated June 9, 1999 between Monroe County as "Customer"
and BSFS as "Funder," for funding the "Service Payment" (defined therein as a "one-time up-
front paymenf' to BellSouth, payable pursuant to the "Special Service Arrangement
Agreement dated 6/9/99"). We have found no "Special Service Arrangement" dated
6/9/99; rather, the only such document in our file or in the file of the Emergency
Communication Department is the Service Contract referenced in (1) above.
(3) Opinion letter from Nabors, Giblin & Nickerson, P A to you dated October 8, 1999.
(4) Letter of December 22, 1999 to BSFS from Finance Director Sandra Carlile requesting
confirmation of the $1,618,620.00 principal balance due from Monroe County to BSFS as of FY
end 9/30/99 for "Enhanced 9-1-1 Emergency Telephone System," with a hand-written
response thereon from LW Middleton, Vice President, dated 2/17/00 the "The above-stated
amount is part of a transaction which has not yet closed or been funded."
Danny L. Kolhage
March 21, 2000
Page 2
Our review of the above documents raised more questions than it answered. If we were to
assume that the hand-written insertion of the 6/9/99 date at page 2 of the Payment
Agreement was an error, and that the intent was to refer to the Service Contract (document
(1), above} rather than some other document, I am unable to discern what "one-time up-
front payment" is due to BellSouth (and, therefore, fundable under the Payment
Agreement). The sums specified at pages 4-15 of the Service Contract add up to less than
$200,000 - substantially less than the $1,618,620 set forth in Exhibit A to the Payment
Agreement.
The Service Contract refers repeatedly to, and itemizes, "Customer provided Positron E911
equipment." Emergency Communications Department informs me that BellSouth, as
recently as this month, valued the Positron equipment used in the 911 service at $874,669.
The above-referenced documents do not address purchase of any such equipment.
However, I understand that approximately $415,000 was recently paid to BellSouth on a 911-
related invoice, a figure consistent only with a purchase of equipment. Further, BSFS' 2/17/00
reply (Document (4), above) adds to the confusion, although it's possible that the reply was
meant to relate back to 9/30/99.
In short, unless there is another document which has been overlooked, I am unable at this
time to render a final opinion on the questions posed. If, as BSFS as stated to Norm Leggett,
the Payment Agreement is not in effect, it would appear that there is no contract obligating
Monroe County to pay more than the $415,000 previously invoiced and paid for the Positron
E911 equipment already in service.
JTH :rj
J es T. Hendrick
ounty Attorney
cc: County Administrator
Public Safety Director
Communications Director
FEE 17 2000 12:01 FR LEGAL
.. - "'" J. L- . ~ "-' I ,... .6.J -' I ..,J I;. \)I...... .I. r .
LeN;;)! l'il,;!
615 771 6187 TO 913052953660 P.02/02
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BRANCH OPF1CE
3111 OVERSEAS HIGHWAY
MARATHON, FLORIDA 330S0
TEl. (305) 289-6027
December 22, 1999
iDannp lL. jl{olbage
CLERK OF 11iE CIRCUIT COURT
MONROE COUNTY
500 WHITEHEAD SlREET
I<EY WEST, Fl.ORIDA 33040
TEL. (305) 292-3SSO
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BRANCH OFFICE
88820 OVERSEAS HTCHW A Y
PLANT A TION KEY, F1.0RlOA 33010
TEL_ (305) 852-7145
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BellSouth
Financial Services
501 Corpora.te Centre Drive.~ Suite 600
FnuUdin, ~.37067
Attn: Lawrence W. Middleton
Dear Mr. Middleton:
'In connection with their examination of Our financial statements, please confirm directly to our
auditors, Kemp & Green, P.A., P.O. Box 1529, Key Wesr, Florida 33041. the principal balance
due from Monroe County as listed below for the fiscal year ending September 30. 1999:
Enhanced 9-1-1 Emergency Telephone System- $1.618.620.00
If the amOWlt shown is in agreement with your records at that dare, please sign in the place
provided below and return this letter directly to our auditors in the enclosed envelope.
If the amount is not in agreement with your records. please note the amount shown in your
records and any information which may reconcile the difference on the back of this letter and
send it directly to our auditors in the enclosed envelope.
Sincerely, .
~~~
Sandra. Carlile
Finance Director
~he above stated amount is CorreCl as of9130/99 with the following exceptions (ifany);
~g..o()~ \J~~~iL.,~ ~
. Signature . Title Date
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** TOTAL PAGE.02 **
NABORS, GIBLIN & NICKERSON, P.A.
ATTORNEYS AT LAW
THE POINTE, SUITE 10SO
2502 ROCKY POINT DRIVE
TAMPA, FLORIDA 33607
LYNNE F. BACHRACH
SARAH M. BLEAKLEY
WARREN S. BLOOM
FREDERICK L. BUSACK
HARRY F. CHILES
MAUREEN MCCARTHY DAUGHTON
VIRGINIA SAUNDERS DELEGAL
L. THOMAS GIBLIN
ERIK P. KIMBALL
HEATHER J. MELOM
STEVEN E. MILLER
MARK T. MUSTIAN
ROBERT L. NABORS
GEORGE H. NICKERSON. JR.
STEN T. SLIGER
JOSEPH B. STANTON
GREGORY T. STEWART
JOHN R. STOKES
CHRISTOPHER M. TRABER
WILLIAM D. TYLER
MICHAEL L. WATKINS
JEAN E. WILSON
TELEPHONE (BI3) 281-2222
TELECOPY (813) 281-0129
October 8, 1999
SUITE Boa
31S SOUTH CALHOUN STREET
TALLAHASSEE, FLORIDA 323al
IBSa) 224-4a70
TELECOPY IBSa) 2 24-4a7 3
SIGNATURE PLAZA laso
20. SOUTH ORANGE AVENUE
ORLANDO. FLORIDA 32BOI
VIA FACSIMILE
(407) 426-7595
TELECOPY '407) 426-B022
WILLIAM J. ROBERTS
OF COUNSEL
Honorable Danny Kolhage
Clerk of Circuit Court, Monroe County
500 Whitehead Street
Key West, Florida 33040
Re: Transaction Between Monroe County and BellSouth
Telecommunications, Inc. and Affiliates
Dear Mr. Kolhage:
This letter is written in connection with our recent conversations concerning certain
transactions that have been completed between the County and BellSouth
Telecommunications, Inc. and certain of its affiliates ("BellSouth"). You provided us with
various documentation relating to such transactions. The documentation raises certain issues
and concerns that are summarized below.
It appears that BellSouth intended the Payment Agreement to constitute a tax-exempt
obligation of the County. The Payment Agreement contains certain language relating to tax-
exemption status and separately states an interest component for the required payment
stream. The Agreement also contemplates the execution of an IRS Form 8038-G and
includes a form of County Attorney opinion that includes statements relating to tax
exemption issues. All of the foregoing is evidence of Bell South's intention that this be a tax-
exempt obligation. There are several problems with this scenario.
First, you have indicated that to your knowledge no Form 8038-G was executed or
filed with the Internal Revenue Service. Second, it does not appear that the County Attorney
Hon. Danny Kolhage
October 8, 1999
Page 2
executed or delivered the opinion required by the Payment Agreement. Third, the items that
were fmanced pursuant to the Payment Agreement appear to include certain maintenance
services, although the documentation is somewhat unclear on this point. As you know, there
are certain provisions in the Internal Revenue Code that limit and restrict the use of proceeds
of tax-exempt obligations for working capital needs. Failure to the file a Form 8038-G or
using the Payment Agreement to fund prohibited working capital needs could result in the
obligation created by the Payment Agreement being characterized as taxable. In such event,
the provisions of Section 5.2( c) of the Payment Agreement may obligate the County to repay
amounts to BellSouth for any federal income taxes BellSouth is liable for with respect to the
Payment Agreement.
The documentation provided causes other concerns unrelated to the tax issues
described above. First, the Payment Agreement contains a "Nonsubstitution" provision in
Section 3.4. Such provisions have been declared to be unenforceable under Florida law by
the Florida Supreme Court. Although the provision states that it won't apply if it would
affect the validity of the Agreement, it should have been stricken. Second, Sections 3.2 and
3.3 of the Payment Agreement should contain certain standard language approved by Florida
Courts in order to make it clear that the payment obligation is not a "general obligation"
under the laws of the State of Florida. It would be preferable that this payment obligation
be satisfied only with non-ad valorem revenues. Finally, the documentation includes a UCC
Financing Statement that refers to an attachment for a description of the collateral assigned
thereto. The attachment is not included in the documentation. As you know, under Florida
law the County may not place a lien on any of its tangible property. Without a copy of the
attachment, it is not possible to determine if this law has been followed.
In summary, the Payment Agreement appears to create a payment obligation for the
County. It seems as though BellSouth intended to characterize this payment obligation as
a tax-exempt obligation although it is uncertain whether all of the steps required to
accomplish this were taken. According to the terms of the Payment Agreement, the County
could be liable to BellSouth for any federal income tax ramifications to BellSouth should the
obligation be deemed to be taxable. The payment obligation does not appear to be any
different from any other lease or lease-purchase arrangement the County has likely enteredsin the past. It is a year-to-year obligation and according to Section 3.2, the County could
choose not to budget enough funds to make its payments in any given year. Upon proper
notification to BellSouth, the Agreement would then terminate.
Hon. Danny Kolhage
October 8, 1999
Page 3
If you have any further questions or concerns with respect to the foregoing, please
give me a call.
Sin~eIY, Z/Y1~
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Steven E. Miller
cc: Ms. Lavon Wisher
FEE 17 2000 12:01 FR LEGRL
515 771 5187 TO 913052953550
P.01/02
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TFS
TELECOM RNANCIAL SERVICES LEGAL DEPARTMENT
501 Corporate Centre Drive - Suite 600
Fronk/in, TN 37067
Tel. (615) 771-6100
Fax (615) 771-6187
DATE: c>2. -I 7
TO:~~o?~ euLJ_
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FAX; ....::L 'f~ .. i "6 C)
VOICE:
FAX:
VOICE:
COPIES TO:
FAX:
VOICE:
FAX:
VOICE:
RE: +AD~' 6,
FROM: ~RRY MIDDLETON (615) 771006180
de: 591-6180
o PAUL SCHUSTER
Admin. Assist.
(615) 771-6181
de: 591-6181
o CAROL DULANEY
(615) 771006183
de: 591-6183
o MARGE DANKO
Admin. Assist.
(615) 771~6182
de: 591-6162
o CHRIS SPURGEON (615) 771-6184
de: 591-6184
NUMBER OF PAGES TO FOllOW: ..L
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faCSimile to us by mail. Thank you.
Comments
IF YOU EXPERIENCE PROBLEMS WITH THIS TRANSMISSION, PLEASE CALL
clwordlfacsi.doe
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BRANDi OFFICE
3117 OVERSEAS HIGHWAY
MARAlHON, FLORIDA 33050
TEL. (305) 289-6027
FAX (305) 289-1745
CLERK OF 1HE CIRCUIT COURT
MONROE COUNTY
500 WHITEHEAD STREET
.KEY WFST, FLORIDA 33OtO
TEL. (305) 292-3550
FAX (305) 295-3660
BRANCH ames
88820 OVERSEAS HIGHWAY
PLANTATION .KEY, FLORIDA 33070
TEL. (305) 852-7145
FAX (30!1) 852-7146
October 20, 1999
James Roberts
County Administrator
5100 College Road
Wing II Room 212
Key West, FL 33040
James T. Hendrick
County Attorney
502 Whitehead street
3rd Floor - Rear
Key West, FL 33040
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Dear Sirs:
I am enclosing herewith a copy of a letter from Steven Miller of
the Nabors, Giblin law firm, the County's current bond counsel,
concerning that certain Payment Agreement between Monroe County
and BSFS dated June 9, 1999, and approved by the Board of County
Commissioners on the same date.
Mr. Miller's comments have been provided to me based upon my
request that he examine this document in relation to the County's
existing debt obligations and the references and conditions
concerning the tax exempt status of this agreement.
Without reiterating Mr. Miller's specific comments, I am
concerned with several issues concerning this agreement.
First, to the best of my knowledge, and as of this date, neither
the County Attorney's opinion nor the IRS Form 8038-G have been
produced. Furthermore, Mr. Miller raises the questions
concerning the use of the funds that must be clarified before the
possibility of the tax exempt status can be ascertained. The
agreement appears to make the County responsible for any IRS
assessments which may result from this obligation being
considered taxable to BSFS. Under these circumstances, what is
the potential liability to the County and what affect will it
have on the payment schedule?
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Roberts/Hendrick
October 20, 1999
Page 2
The agreement also makes reference to a "Service Contractor
Acknowledgement". No one seems to know what this is or where it
is!
Mr. Miller refers to an attachment to the UCC Financing Statement
which describes the covered property. That attachment has since
been provided to us and I have attached a copy to this letter for
your reference. Is it appropriate for Monroe County to execute
this Financing Statement securing its interest as described on
the attachment?
In connection with the Payment Agreement, the Board of County
Commissioners approved and executed a Special Service Arrangement
Agreement dated April 19, 1999 between the County and Bell South
Communications, Inc. That Special Service Arrangement Agreement
includes a list of equipment and services. After reviewing both
the Payment Agreement and the Special Service Arrangement
Agreement, it is not clear to me who owns the equipment. Monroe
County has made an initial payment of $415,000 based upon these
two agreements and a billing from Be11South. I have asked the
County staff to identify this payment to the purchase of specific
equipment as outlined in the agreement. If a determination is
made that Monroe County does not own the equipment, then I will
require an identification of what is being purchased by the
initial payment. As you know some advance payments are statutory
and authorized, while others are not.
Finally, the words "private" and/or "proprietary", "confidential
and proprietary" and statements that the information may not be
disclosed or released and other similar language is printed in
many places on both documents. Please be advised that unless
someone can direct me to specific statutory references to the
contrary, I intent to treat any and all documents associated with
these agreements as public records pursuant to the provision of
Chapter 119 of the Florida Statutes.
Sincerely yours,
\d~
L~ihage
Clerk of the Circuit Court
and ex officio Clerk to the
Board of County Commissioners
DLK:icd
Enclosures
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NABORS, GIBLIN & NICKERSON, P.A.
ATTORNEYS AT LAW
THE POINTE, SUITE 1080
2502 ROCKY POINT DRIVE
TAMPA, FLORIDA 33607
LYNNE F. BACHRACH
SARAH N. BLEAKLEY
WARREN S. BLOON
FREDERICK L. BUSACK
HARRY F. CHILES
NAUREEN NCCARTHY DAUGHTON
VIRGINIA SAUNDERS DELEGAL
L. THONAS GIBLIN
ERIK P. KINBALL
HEATHER J. NELON
STEVEN E. NILLER
NARK T. NUSTIAN
ROBERT L. NABORS
GEORGE H. NICKERSON, JR.
STEN T. SLIGER
JOSEPH B. STANTON
GREGORY T. STEWART
JOHN R. STOKES
CHRISTOPHER N. TRABER
WILLIAN D. TYLER
NICHAEL L. WATKINS
J(AN E. WILSON
TELEPHONE (813) 281.2222
TELECOPY (813) 281.0129
October 8, 1999
VIA FACSIMILE
SUITE 1100
31. SOUTH CALHOUN STREET
TALLAHASSEE:. FLORIDA 32301
111.0) 224.4070
TELECOPY '11.0) 224.4073
SIGNATURE PLAZA 10110
201 SOUTH ORANGE AVENUE:
ORLANDO, FLORIDA 3280'
140714211-7.11.
TELECOPY 1407) 4211-8022
WILLIAN J. ROBERTS
OF COUNSEL
This letter is written in connection with our recent conversations concerning certain
transactions that have been completed between the County and BellSouth
Telecommunications, Inc. and certain of its affiliates ("BellSouth"). You provided us with
various documentation relating to such transactions. The documentation raises certain issues
and concerns that are summarized below.
(j) .,,11- It appears that BellSouth intended the Payment Agreement to constitute a tax-exempt
~ A"obligation of the County. The Payment Agreement contains certain language relating to tax-
q-; ~~ xemption status and separately states an interest component for the required payment
()rp ~tream. The Agreemellt also contemplates the execution of an IRS Form 8038-G and
~ 0 includes a form of County Attorney opinion that includes statements relating to tax
vJ.G V exemption issues. All of the foregoing is evidence of Bell South's intention that this be a tax-
~ exempt obligation. There are several problems with this scenario.
~
(c.,)
C;;v
Honorable Danny Kolhage
Clerk of Circuit Court, Monroe County
500 Whitehead Street
Key West, Florida 33040
Re: Transaction Between Monroe County and BellSouth
Telecommunications, Inc. and Affiliates
Dear Mr. Kolhage:
First, you have indicated that to your knowledge no Form 8038-G was executed or
filed with the Internal Revenue Service. Second, it does not appear that the County Attorney
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m~;;.;;~m:~:L'_"
Hon. Danny Kolhage
October 8, 1999
Page 2
executed or delivered the opinion required by the Payment Agreement. Third, the items that
were fmanced pursuant to the Payment Agreement appear to include certain maintenance
services, although the documentation is somewhat unclear on this point. As you know, there
are certain provisions in the Internal Revenue Code that limit and restrict the use of proceeds
of tax-exempt obligations for working capital needs. Failure to the file a Form 8038-G or
using the Payment Agreement to fund prohibited working capital needs could result in the
obligation created by the Payment Agreement being characterized as taxable. In such event,
the provisions of Section 5.2( c) of the Payment Agreement may obligate the County to repay
amounts to BellSouth for any federal income taxes BellSouth is liable for with respect to the
Payment Agreement.
The documentation provided causes other concerns unrelated to the tax issues
described above. First, the Payment Agreement contains a "Non substitution" provision in
Section 3.4. Such provisions have been declared to be unenforceable tmder Florida law by
the Florida Supreme Court. Although the provision states that it won't apply if it would
affect the validity of the Agreement, it should have been stricken. Second, Sections 3.2 and
3.3 of the Payment Agreement should contain certain standard language approved by Florida
Courts in order to make it clear that the payment obligation i., not a "general obligation" ^ -.J
under the laws of the State of Florida. It would be preferable that this payment Obligation...., (Y ro ~
be satisfied only with non-ad valorem revenues. Finally, thc docwnentation includes a UCC .~ J
Financing Statement that refers to an attachmeut for a desc,iption of the collateral assigned I ';~ J
thereto. The attachment is not included in the documentation. As you know, under Florida J IV' \
law the County may not place a lien on any of its tangible property. Without a copy of the II I
attachment, it is not possible to detennine if this law ~~:;. been followed. ....------'
('eU I
In summary, the Payment Agreement appears 't~cre!lJ~_fl paymenLobligatioR for th~""\)
CO~t seems as though BellSouth intended to characterize this payment obligation as
atax-exempt obligation although it is unc. el1ain 'fhether aJI of th. e steps required to
accomplish this were taken. According to the terms o/fthe Payment Agreement, the County
co~1d b.e liable to BellSouth for any. fl ederal income t~ ramifications to BellSouth should the
oblIgation be deemed to be taxable. The payment obligation does not appear to be any
different from any other lease or lease-purchase arr gement the County has likely entered
in the past. It is a year-to-year obligation and according to Section 3.2, the County could
ch~ose ~ot to budget enough funds to make its paYplents in any given year. Upon prope
notification to Bell~~tb, the ~eement would ther. tenninate.
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Emergency Communications
I 0600 Aviation Boulevard
Marathon, FL 33050-3058
Phone: (305) 743-7570
County Ext: 6035
Fax: (305) 289-6078
('.- ,-...--
BOARD OF COUNTY COMMISSIONERS
MAYOR Wilhelmina Harvey, District 1
Mayor Pro tern Shirley Freeman, District 3
George Neugent, District 2
Nora Williams, District 4
Mary Kay Reich, District 5
O~~TcY ~o?~~E
(305) 294-4641
MEMORANDUM
TO:
RON GITTO, SYSTEMS MANAGER
BELL SOUTH TELECOMMUNICATIONS vJ
TINA WARREN, 9-1-1 DATABASE COORDINATOR v\
EMERGENCY COMMUNICATIONS
FROM:
DATE:
AUGUST 20, 1999
SUBJECT:
PAYMENT AGREEMENT
Attached, you will find two (2) copies of the payment agreement between BSFS and Monroe
County. The County has executed and so has BSFS, however, the document also requires a
signature from BellSouth Telecommunications, Inc. Could you please sign and return one copy
to me? I am enclosing the Fed Ex envelope provided by L. Middleton ofBSFS so you can
forward the remaining signed copy to BSFS.
Thanks for your help!
TMW
cc: G.N. "Norm" Leggett, Senior Director/9-1-1 Coordinator, Emergency Communications
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