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HomeMy WebLinkAboutMeeting Handouts r: ' 1~~~ d' P7/~" ~ ~`--~-G`!~-'~-~.._.f ~ ( i ~l.f 1.,: •'l.y j ! Issue: Should the SCORE owner cities revise the existing Interlocal Agreement and create a new "Host Jurisdiction" category, and remove the City of Des Moines from the capital obligation? Background: The SCORE cities (Auburn, Burien, Des Moines, Federal Way, Renton, SeaTac and Tukwila) signed an Interlocal Agreement in January that established the structure of SCORE and allocated the debt service to each of the owner cities. Part of the process of issuing the bonds includes each of the cities having presentations with the rating agencies. Following the presentations, the rating agencies announce rating scores for each city that will in turn create a composite rating score for SCORE. The final rating will determine the interest rate at which SCORE will be able to borrow money. The City of Des Moines has traditionally used Moody's for their credit rating. Moody's recently downgraded Des Moines' bond rating which gives the other SCORE agencies grounds for concern. Des Moines recently had a rating presentation with Standard and Poor's (S & P). Standard and Poor's will not indicate the actual rating prior to review, however based upon the recent downgrade from Moody's, it is unlikely that it will be favorable. As a multi-jurisdictional agency, SCORE's overall credit rating will be derived from the ratings of its owner agencies. Moody's has indicated that they will use a blended rate, reviewing the credit of all of the owner agencies. However, S& P has indicated that they will base SCORE's rating upon the weakest credit amongst all of the owner agencies, which we now believe will be Des Moines. Early indications are that the negative rating from S& P will add between 75 and 125 basis points to the interest rate for SCORE. An increase in this range would add between $500,000 and $850,000 annually to the debt service obligation. The SCORE Administrative Board, Finance Directors, and SCORE's financial advisors and underwriters have met to review potential options. The available options include and the benefits of each are listed below: Option 1- Request a rating from Fitch's rating company., As this option was explored further, it was learned that they use the same rating methods as S& P and the rating from the lowest agency would be applied to SCORE. ~ . Option 2 was reviewed at length. SCORE's financial advisor believes that creating a bond reserve fund would help lessen the negative impact of a single owner cities' rating. However, creating the bond reserve fund would require the cities to either issue additional bonds to finance the reserve (approximately $6 million) or the cities would have to allocate a portion of their existing reserves to the bond fund. Issuing additional bonds will increase the annual debt service by approximately $400,000 for the additional $6 million in bonds issued. The annual increase in debt service would amount to a$12 million increase over the life of the bonds. Option 3, implementing a"step-up" provision would require re-writing the ILA and would mean that each of the cities would be obligating themselves to paying 100% of the debt service should other cities default. The total bond amount exceeds the available bond capacity for many of the cities. The cities that could assume that full liability felt uncomfortable being responsible for the entire amount. Additionally, there was mixed information about whether a step-up provision would provide enough benefit to offset the risks or negative credit rating of one of the agencies. Option 4 would be to take no action. This would mean that the existing ILA would stand which would result in significant increase in costs as identified above. Option 5 requires the redrafting of the ILA and the creation of a new member category known as "Host Jurisdiction." The Host Jurisdiction would be Des Moines. They would be entitled to the same rights as the original owner agencies; however they would be removed from the debt obligation that they have now. The cities of Auburn, Federal Way and Renton would each increase their share of the debt burden by two, one, and two percent respectfully. There would be a separate agreement under which Des Moines would be tied to the cities of Auburn, Federal Way and Renton for their obligation of the debt service. Amending the existing ILA is not something that is considered lightly. However, it is the option that provides the most certainty for the credit ratings and it doesn't require the cities incurring additional debt to create a reserve. Amendment of the ILA is the preferred option by the SCORE Administrative Board. The attached ILA is titled "Amendment and Restatement" of the SCORE ILA. The purpose of the restatement is to prevent the cities from having to recreate SCORE or the SCORE Public Development Authority (PDA). The deadline to complete the amendment is very soon. In order to meet the rating schedule, the cities must approve the ILA amendment by September 14th. The bonds are currently scheduled to be sold on October 14th and any revisions must be in effect . ,N' , • by that date. Three of the cities, Renton, Federal Way and Des Moines, also have a referendum and initiative process which requires a 30-day window before any ordinance would be effective. Recommendation: The Mayor and City Clerk are authorized to sign the revised ILA for SCORE and the ILA among the cities of Renton, Federal Way, Auburn and Des Moines and SCORE. . ~ The City of Auburn determined that a consolidated correctional facility would provide improved facilities at a lower total cost than currently available alternatives or than the city could individually provide. As a result, the City of Auburn entered into an interlocal agreement, along with six (6) other cities, to finance the acquisition, construction, and equipping the South Correctional Entity ("SCORE'~ facility. Typically when a city issues debt, a thorough review of a city's financial condition is completed by bond rating agencies. Based on their findings, the bonds are given a rating. A city's bond rating is a reflection of its creditworthiness and affects the cost to the city of issuing debt. A major benefit of a rating is wider access to capital. The ratings affect the interest rates of the bonds. Rating agencies use different methodologies for rating composite bond issues, such as the proposed financing for the SCORE facility. For instance, some rating agencies use the "weakest link" methodology, assigning the composite bond issue the rating of the lowest-rated municipality, while some use a blended rating. As part of the SCORE financing, the two leading credit agencies, Moody's and Standard and Poor's, reviewed the financial condition of each participating city. Moody's down graded Des Moines' Limited Tax General Obligation rating to Baa1. While this rating is investment grade, it is lower than any of the other cities participating in SCORE.. Federal Way received a credit rating of Aa3, which is two rating categories above a Baa 1. A triple B rated bond will surely see higher borrowing costs in the form of both interest rates and underwriting costs (harder to sell) and bond insurance cost if it is available. Consequently, to avoid higher financing costs, after reviewing available options, it has been recommended that the SCORE formation documents be amended to remove Des Moines as an obligor on the bonds. Under proposed plan, the City of Des Moines will not be a regular member to SCORE and will not be directly obligated to SCORE debt. The Cities of Auburn, FW, and Renton will increase their obligation by 2%, 1% and 2%, respectively, to account for the 5% of bond financing that Des Moines had previously agreed to. The majority of changes to the original SCORE interlocal agreement relate to pulling out the obligation of Des Moines to pay a capital contribution. To accomplish this a few new definitions were created, including "Host Ciry" (which is Des Moines), and "Owner Cities" (Renton, Auburn, Federal Way, Tukwila, Burien, and SeaTac), and together they are "Member Cities." Des Moines will have all of the same rights and obligations as it currently has (including paying costs of maintenance and operation of the SCORE faciliry based on its use) with the exception of its obligation to pay debt service on bonds. In consideration for Auburn, Federal Way and Renton to increase their capital contributions by 2%, 1% and 2%, respectively, these three cities will enter into an agreement with Des Moines and SCORE pursuant to which Des Moines will pay a"Host City Fee" for the availability of the jail. The Host City Fee is equal to 5% of the principal and interest due on bonds, and is payab►e to SCORE at the same time that other capital contributions are due from Owner Cities under the SCORE Interlocal Agreement. The obligation of Auburn, Renton, and Federal Way under the SCORE Interlocal Agreement is not contingent on Des Moines making its payments under this separate document. If Des Moines fails to pay the Host City Fee, it will forfeit all rights to property held by SCORE or any equity in the SCORE Facility. In summary the revised term requires: 1. The city of Des Moines's contribution/payment to SCORE shall be calculated on the same basis as regular member cities. 2. The city of Des Moines may be required to make additional capital or M&O contributions on the same basis of regular members. 3. The city of Des Moines agrees to make all payments when assessed and due. 4. SCORE will account for and hold separately all Host City Fee payments received from Des Moines, which will then be credited directly to Auburn, Federal Way and Renton's amounts owed under the SCORE Formation Interlocal Agreement. 5. Should the Ciry of Des Moines fulfill their obligation of all contributions and assessments when due, the city should receive proportional equity upon SCORE dissolution calculated on the same basis and manner as regular members. HOST CITY AGREEMENT THIS HOST CITY AGREEMENT ("Host City Agreement") among the Cities of Renton, Federal Way, Auburn, and Des Moines, Washington, all of which are municipal corporations under the laws and statutes of the State of Washington, and the South Correctional Entity, a governmental administrative agency formed pursuant to RCW 39.34.030(3) ("SCORE," and together with Renton, Federal Way, Auburn and Des Moines, the "Parties"), is entered into this , 2009: RECITALS: WHEREAS, chapter 39.34 RCW, the Interlocal Cooperation Act, authorizes municipalities in Washington to enter into agreements for the joint undertaking of certain projects as provided therein; and WHEREAS, the Cities of Auburn, Renton, Federal Way, Des Moines, Burien, SeaTac and Tukwila, Washington (the "Member Cities") entered into a SCORE Interlocal Agreement, dated February 25, 2009 (the "Original Interlocal Agreement"), to form a governmental administrative agency pursuant to RCW 39.34.030(3) known as the South Correctional Entity ("SCORE") to establish and maintain a consolidated correctional facility to be located in the City of Des Moines (the "SCORE Facility") to serve the Member Cities and federal and state agencies and other local governments that may contract with SCORE in the future to provide correctional services essential to the preservation of the public health, safety and welfare; and WHEREAS, the Member Cities have determined that the SCORE Facility will provide improved correctional facilities within the boundaries of the consolidated service areas at a lower total cost to the participating Member Cities than currently available alternatives or than the participating Member Cities could individually provide; and WHEREAS, financing for the acquisition, construction, equipping, and improvement of the SCORE Facility will be provided by bonds issued by the South Correctional Entity Facility Public Development Authority (the "Authority"), a public development authority chartered by Renton pursuant to RCW 3521.730 through 35.21.755; and WHEREAS, under the Original Interlocal Agreement, bonds issued by the Authority are secured by the full faith and credit of each Member City in the percentages set forth therein; and WHEREAS, the Member Cities now desire to amend the Original Interlocal Agreement pursuant to the terms of an Amended and Restated SCORE Interlocal Agreement (the "SCORE Formation Interlocal Agreement") to reallocate the proportion of debt service on bonds issued by the Authority among Auburn, Renton, Federal Way, Burien, SeaTac, and Tukwila (the "Owner Cities") and to designate Des Moines as the host city; and WHEREAS, as the host city, Des Moines will have all of the same powers and privileges under the SCORE Formation Interlocal Agreement as the other Member Cities, including voting authority and obligations with respect to paying costs of maintenance and operation of the SCORE Facility, but is not obligated to make capital contributions toward the payment of debt service on bonds issued by the Authority; and WHEREAS, the SCORE Formation Interlocal Agreement requires Des Moines to enter into a written agreement with SCORE and the Owner Cities, as necessary, pursuant to which Des Moines will pay a host city fee for the availability of the SCORE Facility; and WHEREAS, the purpose of this agreement is to set forth the host city fee to be paid by Des Moines and provisions related thereto; NOW THEREFORE, it is hereby agreed and covenanted among the undersigned as follows: Section 1. Definitions. Capitalized terms used in this Host City Agreement shall have the following meanings. Capitalized terms used in this Host City Agreement not otherwise defined herein shall have the meanings given such terms in the SCORE Formation Interlocal Agreement. "Administrative Board" means the governing board of SCORE created pursuant to the SCORE Formation Interlocal Agreement. "Authority" means the South Correctional Entity Facility Public Development Authority chartered by the City of Renton, Washington. "Bonds" mean, collectively, bonds, notes or other evidences of borrowing issued by the Authority to provide interim and permanent financing for the SCORE Facility and thereafter, to finance or refinance equipment, completion, expansion and other capital improvements essential to maintain the SCORE Facility's functionality. "Capital Contribution" shall have the meaning set forth in the SCORE Formation Interlocal Agreement. "Costs of Maintenance and Operation" means all reasonable expenses incurred by SCORE in causing the SCORE Facility to be operated and maintained in good repair, working order and condition, and all costs of administering SCORE. "Designated Representative" means the Mayor or the City Manager, as selected by each Member City, or his or her designee. "Host City Agreement" means this Host City Agreement among the Cities of Renton, Federal Way, Auburn, and Des Moines, Washington, and SCORE, as amended from time to time. "Host City Fee" means the fee to be paid by Des Moines as set forth in Section 2 of this Host City Agreement. 2 P \20358_DG\20358_OKU 08/17/09 "Member Cities" mean the Owner Cities and Des Moines. "Owner Cities" mean the Cities of Auburn, Federal Way, Renton, Tukwila, Burien and SeaTac, Washington. "SCORE" means the governmental administrative agency established pursuant to RCW 39.34.030(3) by the Member Cities. "SCORE Facility" means the consolidated correctional facility acquired, constructed, improved, equipped, maintained and operated by SCORE. "SCORE Farmation Interlocal Agreement" means the Amended and Restated SCORE Interlocal Agreement among the Member Cities, as may be further amended from time to time "Subscribing Agencies" mean the federal and state agencies, municipal corporations, and other local governments, other than the Member Cities, that contract with SCORE for correctional services at the SCORE Facility pursuant to the terms of the SCORE Formation Interlocal Agreement. Section 2. Host City Fee. A Host City Fee shall be paid by Des Moines for the availability of the SCORE Facility under the terms of this Host City Agreement and the SCORE Formation Interlocal Agreement. The Host City Fee shall be an amount equal to 5% of the principal of and interest due on Bonds issued by the Authority. In consideration of the payment of the Host City Fee, Des Moines shall not be obligated to make a Capital Contribution under Section 15(d)(1) of the SCORE Formation Interlocal Agreement. Payment of the Host City Fee as provided herein shall be in addition to and not in lieu of the obligation of Des Moines to pay its allocable portion of Costs of Maintenance and Operation of the SCORE Facility as provided in Section 15(d)(2) of the SCORE Formation Interlocal Agreement. Section 3. Method and Timin o~yments; Accounting and Allocation of Revenue. (a) Method of Payments. SCORE shall bill Des Moines its Host City Fee on a semiannual basis, or more frequently as determined by the Administrative Board. Payments shall be made by Des Moines in immediately available fiinds on the date when due. (b) Timing of Payments. Host City Fee payments shall be made by Des Moines to SCORE no later than the date which the Owner Cities are obligated to make Capital Contributions to pay debt service on Bonds issued by the Authority, as further provided in financial policies approved by the Administrative Board. (c) Accounting. SCORE shall account for and hold separately any payments received from Des Moines under this Host City Agreement from other amounts received by SCORE under the SCORE Formation Interlocal Agreement. Renton, Auburn, and Federal Way shall each have a 2/5, 2/5, and 115 interest, respectively, in any payments received by SCORE under the terms of this Host City Agreement, and such payments shall be credited against amounts owed by Renton, Auburn and Federal Way under the SCORE Formation Interlocal Agreement. 3 P \20358_DG\20358_OKU 08/17/09 Notwithstanding the foregoing, nothing in this Host City Agreement shall relieve Renton, Auburn or Federal Way from paying its Capital Contribution at the times and in the amounts required by Section 15(d)(1) of the SCORE Formation Interlocal Agreement. Section 4. Nature of the Obli ation. The obligation of Des Moines to pay the Host City Fee in the amounts, at the times and in the manner described herein shall be absolute and unconditional, and shall not be subject to diminution by setoff, counterclaim, abatement or otherwise. Des Moines hereby agrees to pay the Host City Fee at the times and in the amounts required hereunder regardless of whether the SCORE Facility is operating at any particular time. The obligation of Des Moines to pay the Host City Fee shall be an irrevocable full faith and credit obligation of Des Moines, payable from property taxes levied within the constitutional and statutory authority provided without a vote of the electors of Des Moines on all of the taxable property within Des Moines and other sources of revenues available therefor. Des Moines hereby agrees to set aside and include in its calculation of outstanding nonvoted general obligation indebtedness an amount equal to the principal amount of the Host City Fee so long as Bonds remain outstanding for the duration of this Host City Agreement. Des Moines may prepay the Host City Fee in the same manner permitted to Owner Cities under the terms of the SCORE Formation Interlocal Agreement. Any such prepayment shall be allocated among Renton, Auburn, and Federal Way as provided in Section 3(c) hereof. Seetion 5. Term of Host City Agreement• Termination. (a) The term of this Host City Agreement shall commence on the effective date of this Host City Agreement and, unless otherwise terminated or amended as set forth herein, shall automatically terminate ilpon the earlier of (i) expiration or termination of the SCORE Formation Interlocal Agreement, or (b) the date when Bonds issued by theAuthority are no longer outstanding. (b) Any Party to this Host City Agreement may withdraw its membership and terminate its participation in this Host City Agreement by providing written notice to the other Parties hereto. Notwithstanding the foregoing, Des Moines may not withdraw its membership and terminate its participation in this Host City Agreement for so long as Bonds issued by the Authority are outstanding unless the other Parties hereto have consented in writing to such withdrawal and termination. (c) Real and personal property acquired during the life of the SCORE Formation Interlocal Agreement shall be held in the name of SCORE and shall be disposed of as provided in Section 4 thereo£ In consideration of the payments made by Des Moines as provided in Section 2 of this Host City Agreement, Renton, Auburn, and Federal Way each hereby agree to allocate 2%, 2%, and 1%, respectively, of the total equity in real and personal property held by SCORE and financed with proceeds of the Bonds to Des Moines upon termination of this Host City Agreement. (d) Upon the occurrence of a default by Des Moines in its obligations hereunder, the other Parties hereto may proceed to protect and enforce their right in equity or at law, either in 4 P \20358_DG\20358_OKU 08/17/09 mandamus or for the specific performance of any covenant or agreement contained herein, or for the enforcement of any other appropriate legal or equitable remedy, as such Parties may deem most effectual to protect and enforce any of its rights or interests hereunder. ~ Notwithstanding anything to the contrary in this Host City Agreement, in the event that Des Moines fails to budget for or pay the Host City Fee when due, the remaining Parties hereto may immediately declare this Host City Agreement to be terminated, and may withdraw SCORE's correctional services from _Des Moines, or alternatively, enter into a Subscribing Agency agreement with Des Moines under terms and conditions as the remaining Member Cities ~ deem appropriate Lir<>vided,1amticvet ticit:t1e~t the terniinsatig~t1 or withdsawal of'services l.'t°orii I)es N1olnes s1aa11 i•elic,ve the obligatioii of fks Joine4 ~o .aN. tl~~ ~losi City F'ce. Upon such event, Des Moines will have forfeited its right to receive an allocation of the equity in real and personal property held by SCORE and financed with proceeds of the Bonds as provided in Section 6(c) of this Host City Agreement, and Renton, Auburn and Federal Way shall be entitled to their respective full allocation of equity as provided in Section 4 of the SCORE Formation Interlocal Agreement. Section 7. Miscellaneous. (a) Governing Law; Venue. This Host City Agreement is governed by and shall be construed in accordance with the laws of the State of Washington and shall be liberally construed so as to carry out the purposes hereo£ Except as otherwise required by applicable law, any action under this Host City Agreement shall be brought in the Superior Court of tlie State of Washington in and for King County. To the extent permitted by applicable law, each of the parties waives any right to have a jury participate in resolving any dispute, whether sounding in contract, tort, or otherwise between the parties arising out of, connected with, related to, or incidental to the relationship between any of them in connection with this Host City Agreement ar the transactions contemplated hereby. Instead, any such dispute resolved in court will be resolved in a bench trial without a jury. (U) ,.`!t3 <c ~.:~€.t1,4 tft ia., 1'c s"i C~el.si11lt lia-Jha.', E 3i i.E a.. pri?" l ei{D~j': o.f. ( i~l .~i~ 1cC i?>,~ ?1E `c~zi~i ~131' 11.s.t'~~ ilc'E'~`tt~ ~~1~?~7~~l e r,~=~'btz~cl€ i31-I1(31ie - - i~~~~~ s~I ~~I~;tI i~l~l~ CO4r e ~ ls, c~~llc~,lis,TS €~1 '.s1E 3,a a!"S dt e~ [kn~~eI ti3i~, llt~sC ~ 31s _ ~ . - - - - i?S` t1"le :.DI"1~~orteaetlTell1 (0~ i?~"i iC:e 01 Oa,lI,:i'a.CEiTe>i; 00, s .~raW <?0h~,, pG,ik t011Ui7IIed E.? 111_::st ii" vc, 13I: I?on_ { F s '.i 3r il,'.5l1€bC3 °'Fe.- dlE i i ai ElI. PMLI 6".2 ;IA. E A.S oE `?LIC.,II _ ` _ _ _.o_ . ~ t1110~~]ICVS .l.3..; _-ihM e~N,£.IL:,1.>C.s s~F >iii 5}~~`~.aY. _(CJ_______ __Notices. Except as otherwise provided herein, all notices, consents or other communications required hereunder shall be made via electronic means or in writing and, if in writing, shall be sufficiently given if addressed and mailed by first-class, certified or registered mail, postage prepaid and return receipt requested, as follows: 5 P\20358_DG\20358_OKU 08/17/09 To Renton: City of Renton Attention: Finance and Information Services Department Administrator 1055 South Grady Way Renton, Washington 98057 Phone: (425) 430-6858 email: iwang@rentonwa.gov To Auburn: City of Auburn Attention: Finance Director 25 West Main St. Auburn, Washington 98001 Phone: (253) 931-3000 To Federal Way: Federal Way Attention: City Manager 33325 81" Avenue South Federal Way, Washington 98063 Phone: (253) 835-7000 ~ To Des Moines: Des Moines I Attention. 11 M< i'Wo 21630 llt" Avenue South ~ Des Moines, Washington 98198 Phone: (206) 878-4595 ~ I~~~a:~i~~~'~~^~3~~;~°,'.~~~Tfi?~~i}~~;~=s~..~~ To SCORE: South Correctional Entity Attention: Facility Director 1055 South Grady Way Renton, Washington 98057 Phone: (425) 430-7565 6 P:\20358_DG\20358_OKU 08117/09 Any Party hereto may, by notice given as required herein, designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent. Notices shall be deemed served upon deposit of such notices in the United States mail in the manner provided above. ( (eci) Binding Effect. This Host City Agreement shall inure to the benefit of and shall be binding upon the Parties hereto and their successars. This Host City Agreement may not be assigned. ~ (de) Severability. In the event any provision of this Host City Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. I (ei) Amendments. This Host City Agreement may not be effectively amended, changed, modified or altered, except by an instrument in writing duly executed by an authorized officer of each Party hereto and pursuant to an appropriate motion, resolution or ordinance of each Party hereto. ~(,ol) Waiver of Breach. No waiver of any breach of any covenant or agreement contained herein shall operate as a waiver of any subsequent breach of the same covenant or agreement or as a waiver of any breach of any other covenant or agreement, and in case of a breach by either party of any covenant, agreement or undertaking, the nondefaulting party may nevertheless accept from the other any payment or payments or performance hereunder without in any way waiving its right to exercise any of its rights and remedies provided for herein or otherwise with respect to any such default or defaults that were in existence at the time such payment or payments or performance were accepted by it. No Rights Created in Third Parties. The terms of this Host City Agreement are not intended to establish nor to create any rights in any persons or entities other than the Parties hereto and the respective successors and assigns of each. ~ ( ~h) Time of Essence. Time and all terms and conditions shall be of the essence of this Host City Agreement. ~ (J) Filing of Host City Agreement. Upon execution, this Host City Agreement shall be filed as required in RCW 39.34.040. ~ (E~j) Counterparts. This Host City Agreement may be executed simultaneously in several counterparts, each of which shall be an original and all of which shall constitute one and the same agreement. 7 P:\20358_DG\20358_OKU 08/17/09 IN WITNESS WHEREOF, Renton, Auburn, Federal Way, Des Moines and SCORE have caused this Host City Agreement to be executed in their respective names by their duly authorized officers, and have caused this Host City Agreement to be dated and effective as of the date set forth on the first page hereof. CITY OF RENTON, WASHINGTON CITY OF AUBURN, WASffiNGTON By: By: Denis Law, Mayor Pete Lewis, Mayor CITY OF FEDERAL WAY, CITY OF DES MOINES, WASHINGTON WASHINGTON By: By: Brian Wilson, City Manager Bob Sheckler, Mayor SOUTH CORRECTIONAL ENTITY By: Jack Dovey, Presiding Officer Mayor, City of Federal Way, Washington 8 P \20358_DG\20358_OKU 08/17/09 , ~ ~7 ~ ~ FZ FZ C7 J c Z ~ O - ~ U O O ~ N 01 co ~ CO (1) o N N m ~ N C W U pp 0 J ~ p ~ ~ C N m tn vI W O ~ 00 ~ K w W a O 0 U- w ~ N ~ O ~ Z O ` ~ W ~ U Y j~ w . 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