The Orange County Register’s Art Marroquin has been a busy boy in Anaheim lately. This morning he covered two subjects near and dear to the hearts of Orange Juice readers. Today both the Convention Center bonds AND the Stadium lease made the paper, with an extra side dish of Chamber of Commerce hinkiness to make the meal interesting. I’ll cover the bonds story first, and I’ll get to the Stadium article a little later.
Marroquin’s piece on the bonds is pretty good, although I can’t comment extensively on it because we have a settlement offer on the table. (For those who have missed it, I, Orange Juice Blogger Cynthia Ward, am the same person as community activist and President of CATER, Cynthia Ward. Many hats, not enough waking hours.)
The Register article covers that, sharing:
“Under the settlement, the issue would be placed on the November ballot, and city officials would disclose how much Anaheim owes on outstanding bond payments and how the money was spent, and explain how the city will avoid defaulting on any bond payments.”
Now perhaps that seems like a silly thing to put into a settlement. Why would Anaheim citizens have to wait for a legal settlement to determine how much bond debt the city carries? Or how the payments play out in the future? Wouldn’t that already be public record?
Well … it should be. Indeed, when I put in a public records request for that information weeks ago, I honestly expected to be laughed at, and told that it was on the website and I should go pound sand. Instead the City Attorney’s office has put off my request TWICE. Apparently that information is NOT readily available.
It certainly isn’t part of any training that the Council receives when they take office. I guess I always naively assumed that someone would brief newly elected officials, and say: HERE is the financial condition of the city, and HERE is where we are headed when balloon payments come due, and HERE is how we plan to pay for it. This would be especially critical when new officials take office in late December/early January and are finishing out a budget approved by their predecessors the previous June.
Yet when I asked Councilwoman and Mayoral candidate Lucille Kring [artist’s depiction at right] during a meeting in West Anaheim last week, she had no clue. Indeed, she answered me in the snottiest of manners, responding that NO she didn’t know how much bond debt the City of Anaheim carries, despite having just approved $300M in additional debt, but (in the snarkiest of tones) she sure bets *I* do!
How dare I even ask, really!
I will comment on today’s Register article only to dispute the claim that Convention Center bonds are to be covered by a 2% bed tax from hoteliers. That statement is false. The bonds will be covered by the General Fund, with what the City hopes is money generated by the 2% bed tax, only AFTER that 2% is divided up into other allocations. The ATID was formed July 20. 2010, and has morphed over time. So, if you want to know: Of the 2% bed tax, 75% goes to marketing, and the other 25% covers transportation projects and capital projects. So only a fraction of 25% of 2% of the bed tax is supposed to cover the Convention Center expansion, AND transportation projects such as Anaheim’s portion of the $318,000,000 streetcar, AND the previous world’s-most-expensive-front-yard “Grand Plaza” space at the Convention Center.
NOW can you understand how CATER may have been concerned that the General Fund might be at risk, and be asked to cover the shortfall between their “anticipated revenues” and reality?
Should one question the City’s ability to anticipate their own bond payments, the transcript of the March 11 Council meeting shows how far off the numbers really are. During the March 11 Council meeting, Mayor Tom Tait asked Finance Director Debbie Moreno, about the cost of the bonds in repayment and annual obligation. Here is that exchange:
(Tait) Ms. Moreno, what is the total amount of the bond payments that will be paid on this?
03:47:34 (Moreno) For the Expansion and the… Parking Structure, it’s roughly $410 Million
03:47:43 (Tait) How much is it in annual payments, so if you have it like a mortgage payment, what would that be?
03:47:47 (Moreno) It averages roughly $13 Million over time, it’s a little bit less at the beginning, and then at the end, it’s… roughly $15 Million.
03:47:57 (Tait) Roughly $15 Million.
03:47:58 (Moreno) Correct.
03:47:59 (Tait) So it’s a $15 Million payment, every year…
Two things stand out about this exchange. The first is Moreno’s answer. $410 million to repay the Convention Center and the parking structure! Remember, that is just $180 million of the total $300M authorized to be floated. There is another $100 million in there for refinanced debt, administrative costs, and a $20 million slush fund — because borrowing with interest is a great way to beef up the General Fund and score some extra cops in an election year, right? Talk about “putting the light bill on the credit card!”
Well, the thing we have to understand is bonds don’t work like a mortgage in which one borrows $500,000 at 3% interest for 30 years and the monthly payment is $XX.xx. Bonds are sold in batches that are identified by a “CUSIP number” to identify the release. To understand the cost, you have to track each batch separately.
So when the 2014 Convention Center expansion bonds were released for a sort of pre-sale reserve, we were able to track them on the EMMA website, which serves bond buyers. (Unfortunately, the link is now gone since Citigroup dropped the issue.) The City had pre-released the following:
- CUSIP 03255LEY1 Maturity Date 05/01/2015 2% interest Principal Amount at Issuance $5,880,000
- CUSIP 03255LEZ8 Maturity Date 05/01/2016 3% interest Principal Amount at Issuance $6,7500,000
- CUSIP 03255LFA2 Maturity Date 05/01/2017 3% interest Principal Amount at Issuance $5,959,000
…and so on, for year after year.
The payments would have ranged from a low of $1,405,000 at 4% interest due in 2018 to 21,925,000 at 4.125% interest maturing in 2034, and that does indeed match Ms. Moreno’s estimation of roughly $15 million per year. But … but …
… but then there is the year 2046 when the payment was scheduled to expand to $92,345,000 in Principal at Issuance, funded at 5% interest, due 05/01/2046!! CUSIP 03255LFR5…
And this sort of thing happens with the City’s bonds over and over again! (Readers outside of Anaheim may want to check out their own cities’s records to see if anything similarly fishy is going on.) The EMMA website shows the bonds already owed thanks to decades of the City Council acting ever-so-quietly as the Anaheim Public Financing Authority. Clearly one must edit out the school bonds, but each of the lines that appears on that linked page relates to yet another bond series, each with its own debt, and many with escalating payments that have yet to come to maturity.
One of my favorites is a Lease Revenue bond for Public Improvements, dated February 1997, for the Resort expansion that provided Convention Center improvements, street improvements and the Mickey and Friends parking structure.
We have discussed that debt here at Orange Juice Blog before: our half-a-billion price tag will set Anaheim back ONE AND A HALF BILLION DOLLARS to repay, and is paid by diverting 100% of all taxes, property tax, sales tax, and TOT, from Disney’s Grand Cal Resort, Downtown Disney, and California Adventure, into the bond payments.
That means that taxpayers lost every gain we were entitled to in Disney’s expanded empire, while Disney pockets every nickel generated by those expansions. (Oh, and Disney pockets $16 per car for the Mickey and Friends parking structure … while paying Anaheim only $825,000 per year to lease it. Who negotiated for the City in this deal — Goofy?)
Of the multiple bond series that had been released to fund that project, the February 1997 bonds don’t begin payments until 2024.09/01/2024 CUSIP 03255LAA7 will pay out $37,465,000 at 6% interest. A few years later, CUSIP 03255LAB5 will cost us $32,900,000 repaid at 5% interest. After a 10 year break, CUSIP 03255LAC3 matures on 03/01/2037 with a whopping invoice presented to the taxpayers of Anaheim, for $168,850,000 paid back with 5% interest to the investors! (TAX-FREE income, of course!)
At least that series appears to be paying out simple interest. Another set of bonds from February 1997 bought more “public improvements” using now infamous Capital Appreciation Bonds. They accrue COMPOUND INTEREST over their life, to be paid out at maturity with the principal.
This set of “CAB”s do not begin paying out until maturity dates of 2017, spanning across annual paydays for some very happy investors until the final maturity of CUSIP 03255LBX6 on 03/01/2037 which ends with a whimper, at only $1,552,768. With the exception of that final year, none of the intervening maturities will pay out at amounts ranging from $4 million to $6 million.
Remember, Compound Interest is added to those numbers — interest that has been stacking on top of itself since 1997. The biggest obligations are still AHEAD OF US — and nobody at City Hall seems to want to talk about it!
So when City Council members, enabled by staff, claim that because we can afford our payments TODAY we must surely be capable of making our payments tomorrow, they show a clear lack of understanding for how these bonds are structured. Worse, we see no attempt from our City Staff to correct or educate the very leaders tasked with making these decisions on our behalf. NOW, perhaps, readers may finally understand why CATER felt we had no choice but to challenge the City of Anaheim, and demand that the citizens be included in these decisions. One look around the city tells us that our General Fund is failing to meet basic service levels. And, between the dual obligations of covering bonds that may or may not have escrow accounts covering them (because those have not been disclosed to the public any more than the fund balances have been shared) and the rising pension obligations of our workforce, which relies on us keeping the promise that makes the difference in whether our retired librarians live in senior communities or refrigerator boxes, a sober analysis suggests that our General Fund is going to be hammered in the future.
And the failure of the majority of the City Council even to understand what is going on — and, in Lucille Kring’s case, the failure even to want to understand — is quickly making matters even worse!
It is ALL on the line right now. One look at the bonds already threatening to crush us and it is clear something needs to change. We have no time left to wait. And so that is why we sued: partly to stop the illegal issuance of these bonds without voter approval — and partly to ensure establishment of the record necessary for voters to make an informed choice!