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California debt now running closer to Italy and Portugal, new study finds

Vernon, California: More Public Employees Than Residents

Vernon, California is so famous for its history of corruption that it was the municipal star of season two of HBO’s “True Detective” series. Now the tiny L.A. County city can claim another achievement: Vernon is the only California city with more public employees than residents.

Vernon’s 210 residents are served by 271 city employees, according to data on the California state controller’s website.

No. 2 Irwindale is a distant second – though just a 30-minute drive (could be hours – depends on traffic in L.A.’s tortuous downtown) from Vernon. In that East Los Angeles County city, there’s one government employee for every one of Irwindale’s 1,415 residents. San Francisco is the only major city on the Top 10, with one government employee for every 22.7 residents.

Here’s the Top 10:

 

top10cities Most Public Employees

 

Public employees in Vernon earn an average of $107,848 (plus benefits of $37,571). That’s much higher than nearby hegemon, Los Angeles, where public employees average $83,356 (plus benefits of $12,620).

Several top Vernon officials earn salaries in excess of $300,000:
Mark Whitworth (City Administrator): $402,335
Daniel Calleros (Police Chief): $361,644
Michael Wilson (Fire Chief): $361,359
Carlos Fandino Jr. (Director of Gas and Electric): $324,354
Andrew Guth (Fire Battalion Chief): $304,243

While many of Vernon’s city employees continue earn six-figure salaries, the average city resident earns far less. Per capita income in 2010 was $19,973. Median household income in 2010 was $38,500 – down dramatically from 2000, when it was over $60,000. According to the 2010 U.S. Census, 5% of the population lived below the federal poverty line. In 2000, it was 0%.

How does the city fund that dramatic gap in income? By taxing utilities for industry in the city. But because Vernon’s utility rates are among the highest in California, many businesses are moving out. That’s going to put pressure on city officials to trim public services – or to capitulate to the logic of history and become part of a neighboring city. How about Bell?

Conor McGarry is a fall Journalism Fellow at California Policy Center. Andrew Heritage contributed data analysis. Source: California state Controller’s Office.

Survey Says! How One City Used a 'Poll' to Raise Taxes

On Halloween 2014, Stanton, California, city manager James Box wrote to the city’s residents. City officials were at the end of a year-long campaign to stampede residents toward acceptance of Measure GG, creating a one-cent city sales tax, the first of its kind in Orange County. They had warned residents that failure to approve the new tax would lead to something like the apocalypse.

Just days before the Nov. 4 election, Box spoke to them one last time.

“I’ve received a number of phone calls from Stanton residents about the city’s budget, employees, service challenges, and Measure GG which is on Stanton’s November 4, 2014 ballot,” he wrote.

In the face of obvious public concern, Box said, he was ready to meet residents immediately – or, rather, not immediately, but in three months, long after the election, in a public park clubhouse, on a Friday morning at 9 o’clock.

Box’s nonchalant response to the “number of phone calls” is evidence that the real purpose of the communication was what political consultants call “Get Out the Vote.” That Box invoked his determination to provide “helpful information on issues of interest and concern” and “accountability and transparency” reveal how upside-down City Hall had become: he used the language of open government to obscure his real interests and to shape public concern.

Look for a similar October surprise this year. Residents this year qualified a measure to repeal the 2014 sales tax, and that measure will appear on the city’s Nov. 8 ballot.

City officials paid Lew Edwards Group throughout the first campaign, and it’s likely they drafted the letter that came over Box’s signature. They’re still on contract with the city, running a campaign for which Stanton officials have now paid them well over $100,000.

Papers, please: Spanish-language version of Stanton survey.

Papers, please: Spanish-language version of Stanton survey featuring scary cop.

 

California law allows public officials to provide nonpartisan information to the public in the course of government business. In several high-profile cases, state courts have ruled that public education campaigns like Stanton’s must not be intended to influence the outcome of a political campaign.

The landmark 1976 case Stanson v. Mott established the standard: “A fundamental precept of this nation’s democratic electoral process is that the government may not ‘take sides’ in election contests or bestow an unfair advantage on one of several competing factions. A principal danger feared by our country’s founders lay in the possibility that the holders of governmental authority would use official power improperly to perpetuate themselves.”

Despite that and other court decisions, Stanton officials have run a three-year campaign to persuade its citizens to raise their own taxes – and keep them raised. They’ve paid for that campaign with the public’s money.

The 2014 campaign featured a number of official-looking letters as well as a push-poll in disguise as a community survey. Like Box’s Halloween letter, a push-poll pretends to be one thing while being another. It’s a method of communicating (or pushing) a political message under the guise of a scientific effort to collect public feedback.

The science behind surveys is complex. That’s why it’s fairly easy to determine that the city’s survey wasn’t a survey at all.

The Stanton “Community Feedback Survey,” released to CPC following a Public Records Act request, was mailed to voters in June 2014. It featured photos of children posing alongside firefighters and police. Inside the brochure, city officials warned residents that budget shortfalls would likely lead to cuts in budgets for police and firefighters.

City officials sent a more disturbing version of the push-poll to their Spanish-language residents. That official-looking document features a severe-looking clip-art policeman at the top, and a request for compliance in responding to the survey.

The one-sided push-poll is designed not to solicit meaningful feedback, but rather to lead citizens to answers that support the council’s conclusion: the proposed sales tax is essential to maintaining public-safety. By limiting responses to nine pre-packaged “priorities,” five of which were public-safety related, unsuspecting respondents would easily come to the conclusion that public-safety spending is important and balancing the city budget (which is a constitutional requirement) is good. If framing the response they sought was not enough, Stanton went a step further by selectively placing those photos of children playing around police and firefighters — hardly appropriate for a mere a purely informational campaign.

Despite that framing, some respondents thought outside the box. Nearly one in five told the city other issues were important to them. These respondents were not primarily concerned about public safety spending, but about attracting business, homelessness, code enforcement of noise complaints, and graffiti removal. One respondent suggested encouraging marijuana clinics to relocate to the city; another said, “I wish I were a genius with ideas that could help. Maybe a lot of prayer.”

The result of the survey was not a meaningful assessment of resident’s priorities – not a dispassionate interest in public sentiment – but rather a pseudo-scientific “study” that local politicians then held up as a justification for more public spending along with tax increases.

A month after the June mailer, the city council placed Measure GG, a 1-percent sales tax, on the ballot claiming it would raise $3 million annually to avoid public-safety cuts. As part of its contract with the city, the consultant actually helped draft the measure’s ballot description. Two months after that, in September, city officials mailed residents again – this time to tell them the survey results had been tabulated and showed that huge majorities of residents agreed that public-safety spending critical and so was balancing the city budget.

The city has responded to this coming November’s repeal measure on the ballot with neighborhood meetings called “Talks with the Block” to attack the repeal effort. Once again, the 2014 feedback survey has played a prominent role in that campaign, with city officials insisting that residents asked and voted for the controversial sales tax. And once again, the Lew Edwards Group’s contract with the city ends just days before the election.

Andrew Heritage is a California Policy Center Journalism Fellow. He is a doctoral student in political science at the Claremont Graduate University.

Red Flags: New Study Offers Grim Warning for California Pension Funds

For Immediate Release
July 12, 2016
California Policy Center
Contact: Will Swaim
Will@CalPolicyCenter.org
(714) 573-2231

Stock market overvaluation will lead to ‘major correction,’ trigger benefits cuts and tax hikes

SACRAMENTO, Calif. – There are more red flags for public-sector pension funds that rely on stock investments for most of their income, a new California Policy Center study finds.

Read the entire study here.

“Three key market indicators show that publicly traded U.S. stocks are overvalued by about 50 percent, suggesting that pension funds are headed for a tough correction,” says CPC President Ed Ring, author of “How a Major Market Correction Will Affect Pension Systems, and How to Cope.”

Ring says the likely downturn will have grave implications for all Californians – not just those who depend upon the pension funds for retirement income. Lower returns on their investments will force pension funds to cut payments to government retirees or require California governments to act dramatically to cover the revenue shortfall.

Using a long-range cash flow model that simulates pension fund performance, Ring calculated the impact on California’s state and local government employee pension funds based on a market slide of 50% in 2017, followed by annual returns of 5% per year. In this case, with no changes to retirement benefits, the required annual contribution from governments would rise to 80% of payroll, costing an additional $50 billion per year. In another case, with post-crash returns projected at only 4% per year, the model estimated annual payments to rise to a staggering 113% of payroll, costing an additional $86 billion per year. Currently, California’s pension funds collect from state and local agencies an amount equivalent to about 33% of their payroll.

The study also provides several specific estimates of how much pension benefits would have to be cut (retirement age, annual multiplier, and COLA) after a severe market correction in order to keep the annual contributions from state and local agencies level at 33% of payroll.

The CPC study includes a link to download Ring’s spreadsheet so that anyone can test a variety of pension-fund assumptions.

You can download the spreadsheet here.

Ring’s prediction of an impending correction cites three key stock market ratios:

  • Price/earnings, now at one of the market’s historic highs
  • Price/sales, now at a 50-year high
  • Stocks/GDP, now near its 60-year high

Ring predicts he’ll have many critics.

“It is easy enough to step back and claim that the rules have changed, that these unusually high stock-market multiples can be sustained for additional decades, and that productivity improvements will enable the U.S. economy to support both massive debt and an aging population,” Ring writes. “Those who argue this position are betting that the U.S. economy will remain a stable refuge for wealth fleeing far more tumultuous economies elsewhere in the world. Staking the future of pension fund systems on this argument is a dangerous gamble.”

Ring’s study appears even as officials at California Public Employees Retirement System, the nation’s largest retirement system, prepare Californians for a poor earnings report next week.

Analyst Ed Ring is available for media interviews. Direct press inquiries to:

Ed Ring
President, California Policy Center
Ed@CalPolicyCenter.org
(916) 524-7534

Or

Will Swaim
Vice President, California Policy Center
Will@CalPolicyCenter.org
(714) 573-2231

ABOUT THE AUTHOR
Ed Ring is president of the California Policy Center. He directs the organization’s research projects and is also the editor of the email newsletters Prosperity Digest and UnionWatch Digest. His work has been cited in the Los Angeles Times, Sacramento Bee, Wall Street Journal, Forbes, and other national and regional publications.

ABOUT THE CALIFORNIA POLICY CENTER
The California Policy Center is a non-partisan public policy think tank providing information that elevates the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at CaliforniaPolicyCenter.org.

 

"Other" in California Prevailing Wage Creeps Higher

The California Department of Industrial Relations does not determine state prevailing wage rates for construction trades by surveying contractors or workers or by using statistics gathered by the California Economic Development Department. By law, the state uses union agreements to set prevailing wages. Thus, the prevailing wage is always the “union wage.” And the geographical region of a prevailing wage is based on the jurisdictional boundaries of the relevant union.

Calculating a prevailing wage starts when a union official provides the Department of Industrial Relations with its master labor agreement negotiated with representatives of contractors signatory to the union. State personnel then review the union agreement and identify all of the payments an employer is required to make per hour worked by an employee represented by the union. Those payments are assigned to categories identified in state law and added up to determine the prevailing wage.

For example, the state calculates the prevailing wage for a inside wireman electrician working in Sacramento County by identifying and adding up all the payments made by a National Electrical Contractors Association (NECA) contractor per hour worked by an inside wireman represented by the International Brotherhood of Electrical Workers (IBEW) Local No. 340.

A prevailing wage determination includes a “Basic Hourly Rate” paid directly to the employee (from which union initiation fees and dues are deducted). Fringe benefits are categorized as “Health and Welfare,” “Pension,” “Apprenticeship and Other Training,” and “Vacation/Holiday.” There is also a Travel/Subsistence amount for workers who travel a certain distance from a certain location, as indicated in the master labor agreement.

Sacramento County Inside Wireman Prevailing Wage

Then there is the mysterious “Other,” comprised of payments to “worker protection and assistance programs or committees,” “industry advancement and collective bargaining agreements administrative fees,” and “other purposes” similar to those listed above. Basically, employer payments in master labor agreements that don’t fit in one of the direct employee fringe benefit categories get classified as “Other.”

“Other” was added to prevailing wage determinations on January 1, 2004 after the soon-to-be-recalled Governor Gray Davis signed the union-backed Senate Bill 868 in 2003. Union lobbyists and lawyers are very protective of this new category incorporated in prevailing wage rates and fought an effort in 2006 to impose regulations on it.

Federal and state law do not establish any specific regulations or reporting requirements for the trust funds that receive payments indicated in “Other.” Most of them file an annual Form 990 with the Internal Revenue Service, and they will file a Fair Political Practices Commission (FPPC) form when making a campaign contribution to a ballot measure. But union members are not informed about how these trust funds spend money, and these trust funds don’t need to file any reports with the federal Office of Labor-Management Standards (OLMS) or Federal Mediation and Conciliation Service (FMCS).

Sacramento County Inside Wireman Prevailing Wage - OtherDuring the past 16½ years, a little bit of taxpayer money has been diverted to these union-affiliated “Other” trust funds as workers represented by unions built government facilities and private developments with government funding. But now that “little bit” is becoming “quite a bit” in some cases.

On June 1, 2014, the master labor agreement for inside wiremen electricians in Sacramento County (and surrounding counties in the IBEW Local No. 340) increased Other from 47 cents to $3.47. On June 1, 2015, Other increased to $5.47. On June 1, 2016, Other increased to $7.47. The union informed the California Department of Industrial Relations that the money was going to “LMCT,” meaning a Labor-Management Cooperation Committee.

Sacramento County Inside Wireman Prevailing Wage LMCT Increase 2014IBEW Local 340 Wages as of June 1 2015Provisions in the IBEW Local No. 340 master labor agreement suggest this LMCC is the Sacramento Electrical Construction Industry Labor-Management Cooperation Committee. Gross receipts for this trust fund from June 1, 2014 to May 31, 2015 totaled $2,420,684. It gave a “distress grant” of $107,946 to the Shasta Butte Electrical Workers Training Fund. (94-2584061). It was also somehow “providing wage supplementation” to union employers to compete against non-union employers, perhaps through a program sometimes referred to as “job targeting.” No other specific expenditures are known.

Obviously “Other” is becoming a taxpayer-funded bonanza of millions of dollars to union-affiliated non-profit organizations that provide little information to union members, government, or the public. Consider the number of trades and the number of unions representing these trades in California. How much is being collected for “Other?” How is it being spent? Shouldn’t union members know where that money goes?

More relevant for the general public is knowing how much of that money goes to lobbying and campaigning. The California Department of Industrial Relations is supposed to exclude employer payments for political purposes from prevailing wage determinations. Perhaps the state needs to begin scrutinizing the expenditures of “Other” trust funds receiving $7.47 per hour on behalf of each worker.

Sources

International Brotherhood of Electrical Workers Local 340 Master Labor Agreement 2014-2017

International Brotherhood of Electrical Workers Local 340 Wage Rates as of June 1, 2015

California Prevailing Wage for Inside Wiremen Electricians in Sacramento County as of February 22, 2016 (before $2.00 increase June 1, 2016 for Other)

Sacramento Electrical Construction Industry LMCC Trust – IRS Form 990 – 2015

Sacramento Electrical Construction Industry LMCC Trust – IRS Form 990 – 2014

Sacramento Electrical Construction Industry LMCC Trust – IRS Form 990 – 2013

Sacramento Electrical Construction Industry LMCC Trust – IRS Form 990 – 2012

Sacramento Electrical Construction Industry LMCC Trust – IRS Form 990 – 2011

Sacramento Electrical Construction Industry LMCC Trust – IRS Form 990 – 2010

International Brotherhood of Electrical Workers (IBEW) Local 340 USDOL LM-2 2015

International Brotherhood of Electrical Workers (IBEW) Local 340 USDOL LM-2 2014

International Brotherhood of Electrical Workers (IBEW) Local 340 USDOL LM-2 2013

International Brotherhood of Electrical Workers (IBEW) Local 340 USDOL LM-2 2012

International Brotherhood of Electrical Workers (IBEW) Local 340 USDOL LM-2 2011

International Brotherhood of Electrical Workers (IBEW) Local 340 USDOL LM-2 2010

 


Kevin Dayton is the President & CEO of Labor Issues Solutions, LLC, and is the author of frequent postings about generally unreported California state and local policy issues at www.laborissuessolutions.com. Follow him on Twitter at @DaytonPubPolicy.

Government Created Energy Blackouts Coming to a City Near You

Most countries around the world think that it’s a good thing to have cheap energy. But in California, we have plenty of cheap energy available, just not the political will to access it.

California depends on natural gas-driven turbines and hydroelectric generators to provide just 38 percent of its oil needs. The state imports 12 percent of its oil from Alaska, and another 50 percent from foreign nations, relying heavily on Canada.

So why are California’s utilities warning of potential rolling blackouts again?

It’s political. And it’s corrupt.

Highest Electricity Rates = Less Power in CA

California’s natural gas shale formation is one of the largest in the world. And, California has been a pioneer in renewable energy, albeit still unreliable and unproven. Yet warnings are already coming that Californians may have rolling blackouts this summer. While California sits on one of the largest known deposits of recoverable oil and gas, production is falling steadily, as the state ignores its vast onshore and offshore deposits, which are fully accessible through conventional and hydraulic fracturing technologies.

This is one reason California electricity costs more than twice the national median –  thanks to a government-created shortage.

Another reason is that the California Public Utilities Commission, the state’s energy “regulator,” has an historic dubious relationship with Wall Street, making promises to keep the profits higher of the state’s publicly held utilities, than utility profits elsewhere. Those profits come out of ratepayers’ pockets. “You’re ego is writing checks you’re body can’t cash,” the famous quote from the movie Top Gun says.

$5 Billion Cover-Up at San Onofre

Another of the problem areas is the California Public Utilities Commission $5 billion cover up and scandal over the 2012 closure of the San Onofre Nuclear Generating Station, due to the failure of the steam generators. San Diego attorneys Mike Aguirre and Mia Severson exposed the attempt to make the public pay big for utility and regulatory executives’ mistakes at the failed San Onofre nuclear power plant.

20160613-CPC-GrimesSan Onofre could have operated for additional decades
if it weren’t for corruption and mismanagement.

Southern California Edison executives purchased new steam generators from Mitsubishi, but were warned that they were bigger and run hotter, and could fail. SCE executives purchased and installed the generators anyway, knowing of a flaw in the generator design, according to records. Built to last 40 years, the generators at San Onofre failed after 2 years. And, the generators’ cost had not yet been included in rates. So SCE was faced with broken generators they could not charge ratepayers for.

then-PUC President Michael Peevey, and executives of Southern California Edison colluded in secret to saddle ratepayers with $3.3 billion of the $5 billion shutdown cost. The $5 billion recovery settlement was negotiated in secret in Poland, away from prying eyes and open records laws in California.

Blackouts coming…

The state is awash in ultra cheap natural gas, yet in California, our corrupt government finds a way to create an energy shortage, and charge rate payers the highest rates in the country.

“State officials warn that Southern California could face as many as 14 days of scheduled blackouts this summer because of depleted reserves of natural gas caused by the massive leak in Aliso Canyon,” the Los Angeles Times warned in April. The LA Times neglected to mention that California ratepayers do have options, but its politicians have no will. The state sits on one of the largest known deposits of recoverable oil and gas — the Monterey Shale, a 1,700 square mile oil-bearing shale formation primarily in the San Joaquin Valley, which contains an estimated 15 billion barrels of oil. The Times article quoted Bill Powers, of Powers Engineering in San Diego, who said the utility’s pipeline system has not exceeded its capacity of 3.8 billion cubic feet per day during summer in the last 10 years, thus the concern of blackouts is without merit. “It is crying wolf for state agencies to be implying blackouts from a lack of gas, especially from a lack of gas in the summer time,” Powers said.

The Monterey Shale formation is estimated to be several times bigger than the Bakken Shale formation, currently delivering a record economic boom to North Dakota. But even as the fourth-largest oil producing state in the country, oil and gas production has been steadily declining here. Instead, California lawmakers turned their attention to wind and solar, and other types of alternative energy. The state has been only focused on implementing the Renewable Portfolio Standard, passed in 2011, which requires the state to be using 33 percent renewable energy by 2020.

A University of Southern California study, “Powering California: The Monterey Shale & California’s Economic Future,” looked at the development of the vast energy resource beneath the San Joaquin Valley known as the Monterey Shale. It found that hydraulic fracturing could create 512,000 to 2.8 million new jobs, personal income growth of $40.6 billion to $222.3 billion, additional local and state government revenues from $4.5 billion to $24.6 billion, and an increase in state GDP by 2.6 percent to 14.3 percent on a per-person basis.

It’s Not Easy Being Green

California politicians have gloated over being the first state to enact such aggressive green energy and greenhouse gas busting policy, but have yet to produce any proof that these oppressive and business-killing laws have had any “green” results.

All while they ignore that natural gas is clean, less expensive to extract, natural and abundant. It wasn’t that long ago that natural gas used to be the left’s preferred alternative to all other “dirty fuels.” But as the oil and gas industry found better, more affordable ways to access natural gas, it fell out of favor with emotional, whimsical environmentalists.

The last California Governor blamed for rolling energy blackouts was recalled by voters… hold that thought.

Katy Grimes is senior correspondent for The Flash Report, and a contributor to the Canada Free Press and Legal Insurrection. She is a senior media fellow with the Energy & Environmental Legal Institute, and she serves as president of the Sacramento Taxpayers Association.

Hoping to avoid citywide vote, Stanton officials quietly issued high-interest bonds

Taxpayers in Stanton, a quiet suburb of Orange County with only 38,000 residents, will pay millions for a pricey bond deal approved in an obscure vote of a little-known city agency five years ago.

Rather than risk voter rejection over the deal, Stanton city council members David Shawver, Alexander Ethans and Brian Donohue – acting in their capacity as board members of the city’s redevelopment authority – voted in favor of the 2011 bond issue.

The decision to borrow at high rates – some exceeding 9 percent – was likely driven by activity in Sacramento. In the state capitol, the Brown Administration had proposed to shut down local redevelopment agencies across the state. The end of redevelopment would ultimately kill the Stanton Redevelopment Agency’s ability to issue bonds without voter approval.

On March 1, 2011, the Stanton Redevelopment Agency hastily issued $27.81 million of bonds. Interest rates on the bonds ranged from 4.85 percent to 9 percent. The lower rates applied to relatively small portions of the bond issue maturing in the first seven years. Over $17 million of the bonds, maturing in 2030 or later, paid the maximum 9 percent rate, while another $5 million maturing between 2019 and 2025, carried rates of 7 percent or higher.

At the time, 30-year U.S. Treasury bonds, generally considered the safest bonds, yielded around 2 percent. Stanton’s longer-term bonds carried a premium 7 percent above that risk-free rate. In 2011, S&P rated the Stanton Redevelopment Agency A-, several notches below AAA, but still well within the investment-grade range.

But the deal was worse for Stanton taxpayers than even the high coupon rates suggest.

NOT SUCH A DEAL FOR STANTON

First, as an incentive to buyers, Stanton’s RDA sold the bonds at a steep discount. Investors paid less than 100 cents per dollar of face value. For example, $8.05 million of Series A bonds maturing on December 1, 2040, were sold to investors for 95 cents on the dollar. So, although these bonds carry 9 percent interest, their yield is actually an even higher 9.5 percent.

The fact that this arrangement was good for bond investors and not so good for Stanton taxpayers is illustrated by trading in the Stanton RDA bonds. Recently, the 2040 bond originally priced at around 95 was trading in excess of 126. An investor who purchased $10,000 (face value) of the bonds in 2011 for $9,500 could now sell them for $12,600 – netting a tidy profit of $3100 in addition to the $900 in annual interest payments he received.

Overall, discounts on the 2011 bonds totaled $921,749. So instead of bringing in the face value of $27,810,000, the RDA received only $26,888,250 from investors.

But the RDA actually received even less than that: it also had to pay so-called issuance costs. These costs are fees – points on a mortgage and other closing costs in a home sale – that a municipal bond issuer pays third-parties involved in the deal. Information in the bond’s Official Statement and the State Treasurer’s new DebtWatch web site shows Stanton taxpayers paid nearly $400,000 to third parties:

 

SERVICE COMPANY COST
Underwriter De La Rosa & Company $ 192,108
Financial Advisor Harrell & Company Advisors, LLC 67,000
Bond Counsel Jones Hall 67,500
Disclosure Counsel Quint & Thimmig LLP 25,000
Rating Agency Standard & Poor’s 14,000
Trustee Bank of New York Mellon Trust Company 5,000
Other 28,500
Total Issuance Costs   $399,108

 

Those costs of issuance further reduced to $26,489,142 the cash available to the Stanton RDA.

Between now and 2040, the Successor Agency will have to pay back the amount borrowed (including discount and issuance costs) – plus interest amounting to $41,835,775.

When you take out a new mortgage, the originator shows you the Annual Percentage Rate (APR) on the money you are borrowing. This rate reflects both interest and fees. In some cases, the State Treasurer’s web site provides the municipal bond equivalent to APR in the All-In Total Interest Cost, or the All-in TIC.

The Treasurer does not have the figure for Stanton, but we were able to calculate it. The 2011 Stanton bonds have an All-In TIC of 9.25 percent.

In a discussion with the city’s financial advisor, we learned that the bond financing was so costly because interest on the bonds is taxable. While most municipal bonds are exempt from federal income taxes, the Stanton RDA bonds could not qualify for the tax exemption because the planned use of proceeds did not meet IRS qualifications. (Interest on the bonds, however, is exempt from state taxes).

BUT WAIT! THERE’S MORE!

But the deal for Stanton taxpayers and residents has been even worse than these numbers indicate. As a protection for investors, the RDA was required to keep over 10 percent of the remaining proceeds — $2,823,292 – in a reserve account. Money in the reserve account must be kept in safe, liquid, low-yield investments and are thus not available for community investment.

The remaining proceeds were placed in two funds that could be invested. $13,054,810 was deposited in a Housing Fund which was “expected to be used by the Agency for the acquisition of up to 29 of remaining 41 housing units in the Tina/Pacific neighborhood, and associated relocation costs, for replacement with up to 161 new replacement affordable housing units.”

Another $10,611,039 was deposited in a Redevelopment Fund, which the agency could use to finance “park rehabilitation or expansion, and the Agency’s business assistance program.” The bond documents also state: “However, the proceeds may be used for other purposes allowed under Redevelopment Law, including making payments to the State under SERAF [the Supplemental Educational Revenue Augmentation Fund which allows sharing with school districts] or similar legislation or funding additional costs of the Agency’s Low and Moderate Income Housing Fund programs, including funding any difference between the amount available for and the amount required for the Tina/Pacific neighborhood project described above.”

While this language allows a lot of discretion, the primary purpose of the bonds was to redevelop the area between Tina Way and Pacific Avenue in the Northeast area of the city. As this July 2015 Google Street View image shows, not much progress has been made.

 

Lots of Space

Lots of Space

 

The neighborhood appears little changed since the Orange County Register reported in February 2012 that the city’s housing authority was planning to push forward with redevelopment despite the state’s decision to terminate redevelopment agencies.

According to the City’s financial advisor, the Successor Agency to the Stanton RDA has been unable to spend the bond proceeds because of state restrictions. These restrictions were recently relaxed with the enactment of SB 107 which will allow the agency to spend the proceeds in the housing fund. It remains to be seen when, or even whether, this parcel can be redeveloped with the remaining funds — or whether the city will have to look for new money to continue this project.

Marc Joffe is the President of the Center for Municipal Finance and a California Policy Center policy analyst. Marc’s research has been published by the California State Treasurer’s Office, the Mercatus Center and the Haas Institute for a Fair and Inclusive Society at UC Berkeley among others. Previously, Marc was a Senior Director at Moody’s Analytics. He earned an MBA from New York University and an MPA from San Francisco State University.

Citing CPC study, new Assembly bill seeks to stop runaway school bond debt

For Immediate Release
March 24, 2016
California Policy Center
Contact: Will Swaim
Will@CalPolicyCenter.org
(949) 274-1911

SACRAMENTO — A California Assemblyman hopes to stop school officials before they recklessly spend again.

AB 2116 author Rep. James Gallagher (R-Sacramento Valley) says his bill would limit the ability of school districts to take on debt through new bonds – even authorizing county auditors to stop spending if bond “funds are not being spent appropriately.”

“Borrowing for school construction has exploded in the last decade,” Gallagher said.“As borrowing hits record highs, it is more important than ever that school construction bond funds be fiscally sound, and their financing mechanisms transparent.

“AB 2116 ensures that future school construction bonds are subject to stricter scrutiny and transparency.”

Gallagher said his Assembly bill is built on research and recommendations in a July 2015 California Policy Center study.

“For the Kids: California voters must become wary of borrowing billions from wealthy investors for educational construction,” by CPC researcher Kevin Dayton, tracked passage over 14 years of more than 900 California school bonds worth $146.1 billion.

In addition to waste and abuse in the management of those school bonds, Dayton found another problem: the surge in school bond debt has produced a massive wealth shift upward – from taxpayers of relatively modest means to “wealthy investors who buy state and local government bonds as a relatively safe investment that generates tax-exempt income through interest payments.”

Gallagher’s bill would implement three of the California Policy Center’s recommendations – requiring independent audits of a bond’s drain on local tax revenue; establishing annual reviews of bond issuing and repayment; and empowering auditors to halt spending that is inconsistent with the bond’s purpose.

The bill will be heard April 6 at 1:30 pm in the Assembly Education Committee of the California State Capitol, Room 2116.

ABOUT ANALYST KEVIN DAYTON
Kevin Dayton is a policy analyst for the California Policy Center, a prolific writer, and the author of frequent postings about generally unreported California state and local policy issues on the California Policy Center’s Prosperity Forum and Union Watch, as well as on his own website www.LaborIssuesSolutions.com. His other policy reports include Legacy Issues: The Citizens for California High-Speed Rail Accountability 2014 Business Plan for the California High-Speed Passenger Train System and four editions of Are Charter Cities Taking Advantage of State-Mandated Construction Wage Rate (“Prevailing Wage”) Exemptions? — a publication that sparked high-profile policy debates in cities throughout California and in the state legislature. His 2003 journal article “Labor History in Public Schools: Unions Get ’Em While They’re Young,” endures as the leading critical analysis of that movement. Dayton is a 1992 graduate of Yale University. Follow him on Twitter at @DaytonPubPolicy.

ABOUT THE CALIFORNIA POLICY CENTER
The California Policy Center is a non-partisan public policy think tank providing information that elevates the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at CaliforniaPolicyCenter.org.

Union Watch Highlights

Illinois pension fight: In one corner, unions; in the other, business
By Brian Brueggemann, May 17, 2011, News-Democrat
The two sides in the debate over Illinois government pensions are taking the fight to the public. In one corner is a coalition of labor unions, which is running a public-relations campaign called “We Are One Illinois.” It features teachers, firefighters health-care workers and other public employees, asking that their pensions not be touched. In the other corner is the Commercial Club of Chicago, a business group that is running a campaign called “Illinois is Broke,” which features an empty-pocketed image of Abraham Lincoln and claims state government pensions are bankrupting the state.  (read article)

Union goes to court to halt layoffs by Costa Mesa, California
By Cindy Camarco, May 17, 2011, Orange County Register
The Costa Mesa Employees Association has filed a complaint with an Orange County Superior Court judge in an attempt to stop the possible layoffs of more than a hundred city employees, according to a statement released by the union Monday afternoon. The complaint asks for an immediate restraining order to stop the layoffs and long-term injunctive relief, association spokeswoman Jennifer Muir stated in the release. The association contends that the city’s action to lay off their employees and outsource their jobs is against state law and violates an agreement between the city and the employee association, according to the complaint. Costa Mesa Chief Executive Officer Tom Hatch was also named as a defendant in the complaint.  (read article)

Are Connecticut’s state employee unions as innocent as they claim?
By Chris Powell, May 14, 2011, Journal Inquirer
Fending off demands for concessions, Connecticut’s state employee unions note that they are not to blame for the recession that has laid the state and the country low. But the question of blame isn’t helpful amid the collapse of state government’s finances and the income of the taxpayers, on which those finances rest. Insofar as the recession is largely the product of mismanagement by a government elected by the people generally, everyone shares in the blame. And blame may belong with the unions more than with some others. If, as is increasingly acknowledged, the trends in government employee wages, benefits, and pensions have become “unsustainable,” who among the beneficiaries of those trends refused to go along because of their unsustainability? And didn’t those beneficiaries keep supporting the campaigns of the elected officials who were always giving the store away to win political support?  (read article)

If public pension checks bounce, blame union leaders and politicians, not taxpayers
By Frank Keegan, May 13, 2011, Watchdog.org
Politicians and public pension fund managers betting the stock market never will fall again also are presuming they can extort more money from taxpayers to guarantee pension checks don’t bounce. That may not be as sure a thing as they think it is. Check with Prichard, Ala. Prichard simply stopped writing pension checks almost two years ago, leaving retirees without promised income even as the town forces current employees and taxpayers to keep paying into the fund. Sure, Prichard is only a municipality, and states are states. But that might not make much difference when the money runs out. In fact, as sovereigns, states can pretty much pay — or not pay — whom they choose. None of the pension reforms states have proposed or passed will have any significant impact on the existing pension liability estimated at $700 billion to more than $3 trillion.   (read article)

Hey teachers unions – how about some pay cuts?
By Mark Landsbaum, May 13, 2011, Orange County Register
One of the less-than-endearing qualities of government school teachers is their unwillingness to sacrifice – even for each other. When they insist on higher taxes, it’s “for the children.” But how many of those dollars go into children’s pockets, anyway? And when they are faced with cuts in spending, they are virtually universal in insisting that there be job losses rather than pay cuts. The Sacramento Bee has editorialized on teachers unions suffering from larger class sizes, reduced art, drama and athletic offerings and shortened school years. And allegedly for more than 40,00 of their ranks being laid off over three years, with another 20,000 in the coming year – unless you increase your taxes and prevent it.  (read article)

California prison union balks at staff searches
By Michael Montgomery, May 13, 2011, California Watch
Random staff searches that are part of an effort to curb the smuggling of cell phones into state prisons are drawing objections from the powerful union representing correctional officers. At issue is a two-year program – known as Operation Disconnect – that requires all adult prisons to conduct monthly searches of employees and others as they enter state facilities. Fewer than 500 cell phones have been confiscated under the program, though some lawmakers still suspect prison employees are the main suppliers of cell phones that are reaching inmates in ever-larger numbers.  (read article)

Boeing and the Union Berlin Wall
By Arthur B. Laffer and Stephen Moore, May 13, 2011, Wall Street Journal
The Obama administration’s National Labor Relations Board filed a complaint last month against Boeing to block production of the company’s 787 Dreamliner at a new assembly plant in South Carolina—a “right to-work” state with a law against compulsory union membership. If the NLRB has its way, Dreamliner assembly will return to Washington, a union-shop state, along with more than 1,000 jobs. The NLRB’s action, which Boeing will challenge at a hearing next month, is a big deal. It’s the first time a federal agency has intervened to tell an American company where it can and cannot operate a plant within the U.S. It lays the foundation of a regulatory wall with one express purpose: to prevent the direct competition of right-to-work states with union-shop states. Why, as South Carolina Gov. Nikki Haley recently asked on these pages, should Washington have any more right to these jobs than South Carolina?  (read article)

Behold! Your Public Sector Unions at Work, And How They Got Their Lavish Pensions
By Andrew Klavan, May 13, 2011, PensionTsunami.com
Everywhere you turn these days, your public sector unions are hard at work, protesting cutbacks to public sector unions. Andrew Klavan of City Journal exposes the charming charm of your unionized civil servants. (watch video)

Louisiana Bill Seeks to Shed Light on Collective Bargaining
By Kevin Mooney, May 11, 2011, Pelican Post
At a time when the power and influence of public employee unions have become part of an intense national debate, Rep. Tony Ligi (R-Metairie) is advancing a bill that calls for greater transparency in collective bargaining. While the legislation is sure to draw fire from organized labor, Ligi sees strong prospects for passage on the House side. Sen. Conrad Appel (R-Metairie) had already agreed to sponsor the legislation in the upper chamber, he said. The Public Employee Bargaining Transparency Act (HR 204) calls for collective bargaining sessions between a public employer and a labor union to fall under the Open Meetings Law. The bill also requires that any document created or presented during the sessions be made available to the public and that the details of collective bargaining agreements be posted on the Internet.  (read article)

San Jose Wrestles With Cost of 90% Pensions
By Alison Vekshin, May 10, 2011, Bloomberg
A 2007 arbitration ruling letting San Jose, California, firefighters retire as early as age 48 with 90 percent of their pay may result in the firing of 370 municipal workers as the 10th-largest U.S. city tries to close a budget deficit fueled by higher pension costs. Firefighters’ pensions were sweetened for the third time since 1996 after San Jose came under pressure from unions to keep up with what other municipalities were offering, according to Alex Gurza, the city’s chief negotiator.  (read article)

The California Teachers Association Is a Major Contributor to the Golden State’s Fiscal Woes
By Larry Sand, May 10, 2011, City Journal
California’s chronic fiscal crisis should prompt a substantive debate about the limits of government and the folly of an expansive welfare state. Instead, leaders of the 325,000-member California Teachers Association are using the struggle to close the Golden State’s $15.4 billion budget deficit as an opportunity for some political street theater. The powerful National Education Association state affiliate is spending this week highlighting California’s “state of emergency,” with large rallies planned in Sacramento and around the state Friday to agitate for billions of dollars in higher taxes.  (read article)

Tax the Rich, Say California’s Teachers, Who Are Rich Themselves
By Brian Joseph, May 10, 2011, Orange County Register
Taxing corporations and the rich has been a rallying cry at California Teachers Association’s protest at the Capitol this week. But it’s worth noting that the CTA, one of the most powerful special interest in Sacramento, is also among the wealthiest. Take lobbying expenses, for example. During the 2009-2010 special session, the teacher association spent $9,164,422.03 on lobbying, according to reports filed with the California Secretary of State. Compare that with Chevron, the largest company in California, which spent $3,807,145.73. The teachers outspent Chevron more than 2 to 1. Yet it’s the teachers who are complaining about the influence of the rich.  (read article)

John and Ken Returning to Fullerton to Protest Teachers’ Union Tax Hikes
Travis Kiger, May 10th, Friends of Fullerton’s Future
Political talk radio hosts John and Ken announced that they will be coming to Fullerton on Thursday to counter the demonstration for higher taxes put on by the Fullerton teachers’ unions. Apparently they were egged on by the receipt of a flyer listing five hundred and eighty five Fullerton teachers and administrators who make a lot of money. We have here a copy of that flyer. (watch video)

Jack Dean is editor of PensionTsunami.com, formed to monitor developments in all three pension spheres nationwide — public employees, corporations and social security. PensionTsunami, like UnionWatch, is a project of the California Public Policy Center. Dean is a former newspaper editor and a past executive director of the Reason Foundation. He has been active in politics for more than three decades and currently serves as president of the Fullerton Association of Concerned Taxpayers.