A funny thing happened when Mr. Jon Paladini separated from the Town of Payson.  We researched new Town Legal, Ms. Christina Werther, to see if there would be a change in approach regarding citizens’ rights.  Based on her position in a Prescott Valley voter matter, it does not look like there will be.  Citizens’ rights will be placed second to the Town’s desires.  We thanked the people who did the heavy lifting in Prescott Valley, and they provided us with additional information on Mr. Paladini.  Turns out he may not have been the best choice to represent Payson.  You can learn more about that concern by visiting Arizonans for Promoting Integrity.  They discussed the relationship with Prescott, Pierce Coleman, and Mr. Paladini.  The post, City Needs to Sever Ties, delves into issues of domestic violence and contains a disturbing 911 call.

We discussed Mr. Paladini’s prior advice to the Town in our post-Paper Tigers and Bad Advice.  As found in the Town Council minutes, Mr. Paladini, during the August 21st Council meeting, advised:

Mr. Paladini responded that Towns did not go out to bid for professional services and State Law prohibited* asking for quotes from certain professionals such as Engineers.  Mr. Hamil explained bonds were on a negotiated basis by Council selection and not normally put out to bid.

*Emphasis added.

That State Law prohibits asking for bids from professionals came as a shocking statement to many.  Mr. Grant Hamil, Managing Director of Stifel Public Finance, echoed Mr. Paladini’s sentiment.  Possibly, they did not read the agreement from 2021 with Stifel.  Remarkable as Mr. Hamil was a signatory.  That agreement read in part as follows:

Furthermore, this engagement letter does not restrict Issuer from entering into the Issue with any other underwriters* or placement agents or selecting an underwriting syndicate that does not include Stifel.

*Emphasis added.

As always, the entire document is found below in .pdf format.

The discussion on placing the bond for bid was circumvented.  The misstatements by Mr. Paladini were never challenged.  The specific question of fees for the bond was never addressed, only the “competitive rates” during issuance.  How did the agreement on bond placement rates/costs come about?  The Town of Payson signed the engagement letter in May 2021 via Hedi Gregory, the Town’s Finance Manager. The fees were based on a fee schedule from the Strategic Alliance for Volume Expenditures Cooperative (S.A.V.E.). Each S.A.V.E. agency member includes language in their contracts, allowing other member agencies to purchase services under the contracting agency’s exact pricing, terms, and conditions.  In this case, the pricing was based on a contract from a Yuma School District bond issuance (Crane ESD Request for Proposals #C-005­1718). The “price list” terms reflect increasing costs for various terms and other issuance provisions.  The engagement letter states:

It is Issuer’s intent that Stifel serve as an underwriter or placement agent for the Issue, subject to satisfying applicable procurement laws or policies, formal approval by the Town Council of Issuer, finalizing the structure of the Issue and executing a bond purchase agreement or placement agent agreement, as applicable.

It is our understanding that you have the authority to bind the Issuer by contract* with us, and that you are not a party to any conflict of interest relating to the subject transaction.

*Emphasis added.

How does a Town Finance Manager enter into a contract worth $1,000,000.00 in fees without approval from the Council?  We also note that Stifel was open that their advice may not be strictly motivated by an altruistic goal of service to the community.  They clarify that they have a financial motivation, and the advice may will have a built in conflict of interest.  Money talks.

While this form of compensation is customary in the municipal securities market, it presents a conflict of interest* since the underwriters may have an incentive to recommend to the Issuer a transaction that is unnecessary or to recommend that the size of the transaction be larger than is necessary.*

*Emphasis added.

We don’t recall anyone on the Town Council acknowledging that Stifel’s recommendations may not be in the Town’s best interest.  The advice given by Special Counsel about repealing 401 and 402 appears to be worth exactly what the Town paid for it—nothing. (See below regarding Greenberg Traurig )

Consistent with open meetings, bond issuance discussions and decisions about terms had to be made, and should have been made, in a public forum.  For example, at some point, a decision was made on the term or length of the bond.  A decision on the dollar amount had to be made.  Stifel presented various value options from $50m to $70m.  Who decided on the value and the term?  The CIPCAC had no authority to do so; they could only recommend a course of action.  Nothing in the CIPCAC report limits fees, rates, or terms.  The only notice of the terms and other elements was provided when the meeting of August 21^st was announced.  The presentation of August 21^st would suggest that the Town’s financial business was decided in an Executive Session or non-posted meeting, or terms may have been negotiated without the approval of the Town Council.  If so, somebody overstepped.  We remain dumbfounded that the Town negotiated $112m in debt without a single public meeting or mentioning any discussions on any agenda.

Those discussions and decisions are the purview of the Council, not Town Legal.   Mr. Hamil indicated the deal was negotiated with Town Legal, Mr. Paladini.  Mr. Hamil explained that bonds were negotiated by Council selection and are generally not put out to bid.  Of course, he said that; look at the self-disclosed conflict of interest statement above.  Messrs. Paladini’s and Hamil’s remarks are in the video below.

During the bond ordinance hearing, Mr. Hamil noted that Mr. Zach Sekas of Greenberg Traurig was Special Counsel.  “Special Counsel” is the bond attorney who advised the Town to repeal 401 and 402 during CIPCAC meetings.  We were curious how much that advice cost.  When we asked, we found out:

The Town has not (sic) documents responsive to your request regarding Greenberg Traurig, LLP contract(s) for service, including proposed fee schedules if any, professional service agreement(s), memorandum of understanding, letters of intent/engagement, or purchase orders between the Town of Payson and Greenberg Traurig, LLP for the period 01/01/2021 to date.  Additionally, I did confirm there were no invoice(s) for service(s) provided by Greenberg Traurig, LLP for the period 01/01/2021 to date.

Then Town Legal, Mr. Paladini, approved an ordinance/bond purchase agreement with no values listed in the attachments.  Mr. Paladini gave Stifel a blank check for fees and the Town Council with political cover to avoid the tough questions.

The fee schedule from the agreement of 2021, assuming a $70m placement, works as follows:

The values above are similar to those reflected in a CIPCAC meeting presentation.  But wait, there is more.  Unknown/Undisclosed costs:

During the August 21^st, 2024, CIPCAC meeting, the presentation reflected the anticipated additional costs:

The anticipated additional costs were $254,165.45 on a sixty million dollar/par issue.  How did the Town get to seventy million?  The “All-in True Interest Cost at sixty-nine million is 4.24%.”  If they knew that, what was the emergency of rising interest rates?

The total fees for the placement would have been $992,665.45 +/-. Mr. Paladini assured us there was no need to put that proposal out to bid, and it was “illegal” to do so.

The bond was never issued.  Are there costs? The rate sheet allows for charges in unusual circumstances.  We wonder if the Town will be presented with any charges.

There are many unresolved questions:

• How in the world can Town Legal approve an ordinance that has no actual cost shown?
• How can a Town Finance Manager with limited authority enter into an agreement valued at around $1,000,000.00?
• How were the decisions made on bond terms of length or amount?
• Will the Town be facing costs for the items listed above?
• Will the Town face a negotiated “fair amount” for “circumstances requiring a significantly higher degree of effort?”

We have no answers for any of that.  The Ombudsman Office is investigating a possible open meeting violation.  We will see what, if anything, comes from the investigation.

Mr. Paladini had no issues “misstating” the truth.  Likewise, Mr. Paladini had no issue circumventing a records request or failing to adhere to the law in that records request.  Mr. Paladini had no qualms about sending threatening letters to citizens about protected speech.  There were no misgivings about approving a lease for property the Town did not control.  Mr. Paladini has no reservations about using the emergency clause, ultimately drawing a suit from the Goldwater Institute.  We are uncertain if Pierce Coleman, as a firm, has concerns over those actions.  We hope that scruples and conscience are a core philosophy of the firm.

We hoped the new Payson Town Legal, Ms. Werther, would be a better fit.  Like Mr. Paladini, she is a partner at Pierce Coleman.  From our interactions, our hope for change is diminishing.  We are confident Ms. Werther has platitudes and excuses down pat.  We will detail those interactions soon.

For now, it appears the same old thinking will provide Payson with the same old results.

Letter of Engagement with Stifel

Fees from Letter of Engagement – Crane ESD Request for Proposals #C-005­1718

Records Request Response of Greenberg Traurig, LLP