Bankrupting the city isn’t a bug, it’s a feature!
I hadn’t heard about this until I just saw Fullerton City Council Candidate Jan Flory’s post on Facebook, so I’m going to quote it in full before getting to my somewhat thunderstruck analysis. (No, I did not know that it was coming until just now when I read the story; I’ve had to undo posting of another story because of it.)
[Disclosure: I am a candidate for the 29th State Senate district, which includes Fullerton, and an opponent of this lame-brained move. Readers may be excused for concluding that I won’t feel entirely satisfied until Tony Bushala puts up a Bob Huff poster on his front lawn so that I can take a picture of it and taunt him over the next few decades. OK, here’s what Jan Flory had to say:]
DRIP, DRIP, DRIP
At 12:15 a.m. last night, the City Council took up the question of how to refund $7.3 million to people who overpaid their water bills in our city over the past 3 years. Mayor Sharon Quirk moved to continue the matter to the next city council meeting because of the late hour. Doug Chaffee concurred. Bruce Whitaker, Travis Kiger and Greg Sebourn voted to go forward no matter how late or how tired the council members. It also might have had something to do with the fact that the audience had dwindled to a handful by that time. So much for transparency and accountability.
A little history first: To begin with, the water fee was never an “illegal water tax”. The water tax was first adopted in 1968 at 2% of the water bill. The purpose of the tax was to pass through to the ratepayers (you and me) the city’s cost of getting water to your tap. Fair enough. The tax increased to 10% in 1970. We had aging reservoirs, pumps and water lines that needed replacement and ongoing maintenance. The water fee was a way to do that. In 1996, the California voters passed Proposition 218 which required there be a connection between a fee charged and the services rendered. In other words, you couldn’t just pull a number (like 10%) out of the air.
Proposition 218 was tested and upheld by the courts beginning in 2002. The Water Rate Study Committee was authorized by the OLD council long before the Recall to address concerns about the 10% charge to the Water Fund. Ultimately, the study committee determined this summer that the city should have been charging in the neighborhood of 7% rather than 10% in order to comply with 218. The committee relied on the work of an independent financial consultant, Municipal Financial Services Group (MFSG), to determine the City’s cost in providing water to its customers, and outside legal counsel (Best, Best & Krieger) to make sure that the outcome comported with Proposition 218. The results were even submitted to the Howard Jarvis Taxpayers Association that concurred with the methodology used in the study.
The NEW council majority threw all that out the window, disregarded the recommendations of the Water Rate Study Committee, and completely eliminated the “in lieu” fee. That will have the effect of reducing city revenues annually by $1.7 million which could have properly been charged by the city to bring water to our homes.
Because the city had charged its water customers 10% (rather than 7%), the Water Rate Study Committee found that the city had overcharged the rate payers the sum of $7.3 million over the last 3 years. It recommended that the overpayment of the water fee be accomplished by an incremental transfer from the General Fund to the Water Fund to be used for infrastructure repairs,–something that desperately needs addressing. This would also avoid the City’s incurring debt to pay the debt.
What did the new Libertarian majority do? It voted to rebate the entire $7.3 million back to the rate payers. It is estimated that this will be a onetime payment of $100 to $400 per household depending on how much water was used during the 3 years. It’s an accounting nightmare for several reasons. The overpayment has to be calculated for each household in the city. Some residents have moved or died; thus, creating the dilemma of finding out where to send the money. Finally, the question of where the money is to come from must be determined. We don’t have enough in the General Fund to pay the lump sum. Staff suggested that a debt issuance might be necessary, with an estimated yearly debt service of $500,000. So now we not only have a decrease of $1.7 million in revenue, but we need to add $500,000 for debt service. This totals $2.2 million if you’re counting.
Last night, the council majority (Whitaker, Kiger and Sebourn) directed staff to find “creative ways” to pay off the debt such as selling off surplus properties. In other words, asking city staff to remove the rope the council majority had put around its own neck.
Change on the Council cannot come quickly enough. Drip, drip, drip.
Hope that you haven’t turned in your ballots yet, people of Fullerton, because this right here is your issue. Do you want a solvent city that can address the collective needs of its residents, or do you want to try to convince a Bankruptcy Judge to let Fullerton bust its unions, slash its services, and renege on its pensions? (This won’t work, by the way, because the city’s population is pretty wealthy compared to other cities and the BK Judge will look at things exactly like this to see whether the City has committed self-inflicted wounds to make it look like it’s in worse shape than it is. And thanks to this, the answer is that much more likely to be “yes.”)
There was apparently a problem with a portion of the water tax, although apparently not a particularly sinister or unusual one. A portion of it was going to general city expenses rather than to the delivery of water service — or, at least, if it was all legitimately going to water services then it was insufficiently well-documented. So there was a question of what to do with the excess money that had been collected.
One way to look at this is: “how does the city’s government best serve its people?” The responsible thing to do would have been to move money from the General Fund to made significantly needed repairs to Fullerton’s water provision infrastructure. Everyone thus benefits from the expense.
If, however, your plan is to try to bankrupt the city, you may prefer a different path: require the city to pay the money back even to those who didn’t use it. Furthermore, you should try to do it in the most expensive way you can, requiring your staff to make individual assessments of how much each taxpayer should get. You may also want to make it unfair — and thus subject to court challenge — because a large amount of those taxes would have been passed on by landlords to renters as part of their rent, and those renters for the most part are unlikely to be found. So that means that landlords not only got to have the taxes repaid by renters, but they also get that same amount of taxes repaid by the city! Sweet deal, huh? You’d almost think that these three guys were being financed by a big landlord!
(People at FFFF, when I’ve raised this point, simply deny that landlords in effect pass on the cost of water to their renters. All I have to say is: ask an economist about that. They pass on property taxes to renters, too, to the extent that the market will bear it.)
The most revealing this about this is where it says that Fullerton may have to, unnecessarily, take on extra debt payments to cover the cost of these refunds — and then they say that staff should look into selling of city assets instead! That’s what conservatives often do — remember Schwarzenegger with the OC Fairgrounds? — and often it’s because people with money — remember Dave Ellis with the OC Fairgrounds? — want to be able to buy it for a song!
GEE — DOES ANYONE AROUND HERE HAVE THE MONEY TO BUY PROPERTY THAT THE CITY OF FULLERTON HAS TO SELL OFF AT “FIRE SALE PRICES”?
A special note to Doug Chaffee: if they do something like this again, after midnight and after the unsuspecting citizenry has gone home, you should VOTE ALONG WITH THEM so that you can bring up a motion to reconsider at the next meeting. I don’t know the City’s rules on this, but I hope that you can agendize an item for the next meeting for reconsidering this item anyway. The next scheduled meeting is not for three weeks, which is Election Day, Nov. 6, but I think that your colleague Mr. Kiger can tell you how to call for a special meeting on, say, Oct. 30, over doing those infrastructure repairs. When it comes to paying for it, I’m sure that you can think of a recently approved expenditure to reverse.
I hope that the Council will meet on the 30th, because I’m sure that plenty of people who didn’t stay up until midnight would LOVE to weigh in on why the Council apparently wants to push the city into bankruptcy any way it can. That’s something worth talking about before the election, isn’t it?
Yet more proof the FFFF majority has no concern whatsoever for the people of Fullerton. First, Flory made an excellent analysis of the so-called “water tax. Second, if these three-who ran on “power to the people” platform–were really interested in the good of the community as a whole, they would have directed staff to put that money back into the water system. Assuming you can even find all of the customers, what long-term good, as individuals, will most of them receive from $100 or even $400? On the other hand, how much more good could be done with the aggregate $7 million? At the last Council meeting, they received an overview of the staggering costs of all the deferred repairs to the city’s infrastructure–in the hundred of millions, including the water system. So, rather than do the morally, ethically, and financially right thing and put that money back in the system, they decide to pay it back in the worst possible way that will benefit the people of the city in the least. This is effective government?!?
If its supposed to be symbolic (e.g. the city took your money and we’re giving it back), thein its an awfully expensive and foolish symbol. But I think there’s a more sinister plot afoot. If you read Kiger’s and Whitaker’s campaign statements, they blame the city’s woes, including the infrastructure deficit, on employees’ pay and benefits. What better way to keep the fires burning that by driving the city even deeper into debt, thereby giving them more cause to justify their attempt to decimate the city’s government? Any reasonable person knows all cities are suffering from infrastructure problems, and the causes have nothing to do with employees. The long-term strangulation of funding caused by Prop 13, a bad economy for the past five years, and decreases in state and federal funds for capital projects are the primary causes.
Like their cohorts in Costa Mesa, these people will do whatever it takes to make their political dreams of a gutted city government come true. If the crummy economy won’t do it for them, they seem more than willing to create their own crisis to push the city over the fiscal cliff. Doing it in the dead of knowing they won’t be made to answer for it publically before the November election is just sleazy politics. Of course, that’s the FFFF stock-in-trade.
For centuries California has had a strange natural habit of buring itself and regrowing.
A recent excellent example is found here:
http://articles.latimes.com/2004/apr/30/local/me-cuyamaca30
The same thing may need to happen in Fullerton, much to the dismay of unions, political parties and citizens.
This same battle is being waged (and supported by some here) in other cities. Out with the old, in with the new………if it helps us.
Let this ride out. BK Fullerton. who loses? short term panic. mid term confusion. Long term stability. Some overly generous firefighter and police contracts get reset. The rank and file public employees remain at market rate.
LET THE FIRES BURN.
… or the courts don’t grant relief from the contracts because the insolvency of the city has been artificially constructed as an abuse of the relevant bankruptcy laws. Maybe instead the court appoints a receiver or something. In some ways, that would be funny: they’d be saying “yeah, we don’t trust this city council, so they lose their control.”
You’re awfully cavalier about taking away people’s pensions, for which they bargained and on which they depend. But: offer a deal where the wealthy, and not just the middle- and upper-middle-class get a haircut. Then see what happens.
Taking away peoples pensions is distasteful and wrong. but so is the manner in which they were granted.
I have long blamed the electorate for electing people, especially at the local level who were incapable of understanding, debating and negociating with labor.
the deck has been stacked against the representitives for years. And while we don’t have an “NCAA” to strip them (REPEAL) of these, we should have some measure of recourse. If this was college football, we’d be like Penn State, USC, Methodist and rightfully so. We got hosed, because the public employee unions took advantage of the government.
It was fair and legal, but it sucks. To argue that the situation is sustainable, is as crazy as those who want to abolish work rules for public workers.
The situation IS dire. It is the result of poor governence by decades of poor leaders. this is why so many are afraid of upcoming local elections.
Few if any voters realize that a vote for……Sharron Quirk Silva (example) means more debt for the state.
Someone needs to crawlout of the pocket of public unions and say that. Someone on the left.
Unfortunately the guy perfectly positioned to do that hasn’t: YOU.
Now theres a vote getter.
*Well, they didn’t ask us….but normally, you don’t pull a George Bush moment at the local level. That is sending back money to folks for overcharging their on-going account of anything. Normally, Utilities – Gas, Electric and Water follow this simple formula: When users have been over-charged over a long period of time, they are made whole by lowering the existing rates for a time specific. Two years, Three years and such until the water users have been paid back. This allows the Utility to keep the money, make money on the interest and is far more fiscally responsible. They many times put that cash into an Escrow Account for the specific purpose of paying off the exposed debt. Lowering the reserves by an immediate $7.3 million dollars could be harmful to the system….couldn’t it?
Fullerton’s delay in doing a full cost study represents a dereliction of duty on the part of the Council. The language in the Roseville case at the Court of Appeals in 2002 was clear and direct. It’s appalling that the 10% franchise fee was not addressed a decade ago.
Council members have ample resources outside of the opinions provided by the staff, and Fullerton Council members attended the League of Cities conferences where this topic was covered in depth at every conference. City attorneys and staff also participate in peer organizations where implementation of prop 218 was widely discussed in relation to an ongoing series of clear court decisions that all required that metered water fees be based on detailed, allocated cost recovery, not some arbitrary estimate that had been floating around for a long time.
As to the problems going forward, that’s a completely different issue, and one where the current decision of immediate refunds is only one of the many options that could have been considered in lieu of the city’s financial condition.
Any reasonable Council, with a clear grasp of its fiduciary responsibilities, would have taken a long balanced look at the source of funds, financing options, and the impact on everything from the city’s reserve, the city’s credit rating and the impact on borrowing costs, and the potential impact on budgets, particularly for public safety,
Fullerton didn’t fix the problems from a decade of failed leadership on complying with the law on water rates. They just made a hasty ill-considered decision that will haunt them for years in ways they haven’t even considered.