Rules change for public entities finance reports – how will unpaid Nature Center loan and pension liability affect Chico’s credit rating?

7 Jun

The Chico Creek Nature Center has still not made payments on the $180,000 (plus) loan they got from the city in 2009. They were forgiven the accumulated interest and penalties last year, but still would not pay the loan. When I sat in on the meetings for this item a year ago, I tried to ask questions about their books, trying to make a point that they weren’t running their lucrative daycare operation above boards, and Mayor Sorensen angrily told me, “that’s enough Juanita!” 

When I finally got ahold of their “finance report”, I found it to be some kind of high school style report – no actual figures! And, gee – they spend exactly what they take in, right down to the last zero, isn’t that convenient? But they just don’t seem to  take in enough to pay their bills. 

In this town? A daycare operation that’s not making enough money to pay it’s rent? In the private sector that would mean the end of business, but in the Chico public sector anything is possible. 

Now the center simply wants the loan forgiven, and for the city to fully fund their sketchy operation. 

This was up on Tuesday’s agenda, I couldn’t make the meeting, and now I find that item was just dropped from the agenda, no explanation. I sent a note to the city manglers and I’ll see if they reply.

In the meantime let me tell you what I suspect. Over the last three years the board membership of Chico Creek Nature Center has changed radically. Formerly run by John Merz, Dave Guzzetti and Susan Mason, the center has now been taken over by friends of Bob Linscheid, employees of Chico State and various “economic development” corps. Is that why Mark Sorensen and his minions on council are so ready to now forgive over $200,000 in loan, interest and penalties? A loan that has been hanging on the books like a big booger since July of 2009? 

Below is the excerpt from the Enterprise Record story of last week:

ER 5/31/15

The council will also be considering several options related to a loan to the Chico Creek Nature Center that is currently in default. Options include forgiving the loan with or without conditions, deferring the loan obligation until July 2016, or taking no action and proceeding with remedies in the loan agreement.

The nature center owes the city a principal balance of $181,026.95. In May 2014, the council amended the loan agreement to reset accumulated interest and penalties from July 2009 to April 2015 to zero, to adjust the interest rate from 1.8 percent to 3.42 percent annually from July 15, 2014 forward, and establish interest-only payments beginning with a payment due July 15, 2014.

However, the nature center did not agree with the terms and has not signed the agreement, which caused the loan to fall into default.

If the loan obligation is forgiven, the general fund would be required to reimburse one of the neighborhood parks funds for the current principal balance plus accumulated interest, at a cost of $205,539.71.

The staff report notes that based on the loan’s history and actions in recent years, nature center likely will never be able to repay the loan.

The nature center has requested the city either assume the loan, provide funding to the nature center for visitor services and subsidizing programs for local families, include the nature center in discussions on transient occupancy tax decisions, or become a significant funder of the center. An alternative is for the city to fund the Bidwell Park visitor information services and the center will then begin paying off the loan.

 

When I asked back in April I got this explanation  from Chris Constantin. The city has been bending over backwards for the CCNC board for over a year now. Something stinks.

 RE: CNCC loan activity

4/19/15
To: juanita sumner Cc: Mark Sorensen, Mark Orme, Frank Fields
 
Hello Juanita,

The City is undertaking a review of leases for city-owned facilities.  As you can imagine, there are quite a few with differing terms and conditions.  We will be looking to draft a comprehensive policy to guide decisions we make with City-owned property as well as leases.

As for the CCNC, the City Council in the lead up to the 2014-15 fiscal year, reset their loan to the original principal amount and changed the payment terms.

For the last several years, the CCNC would request a waiver for paying during the year, and the result would be the City would receive no payments and the loan would accumulate additional interest.  Obviously the CCNC could not pay the principal and interest of the original loan, so even if we reset the loan, there was not a guarantee that we wouldn’t be in the same situation.

To make it easier for the CCNC and to provide some payment to the City, with the change to reset the loan amount back to the original amount in 2014, the City requested an interest only amount to be paid quarterly to at least turn a non-performing loan into some revenue.  At the time of the discussion around this topic, a CCNC representative came to finance committee and the Council meetings and while there stated that the CCNC did not want to default on its obligations.

In 2014, the City Manager proposed writing off the loan completely given that this was funding that went into improving our building, but after the CCNC rep’s statements that the CCNC did not want to default on their obligations, the new option discussed above was approved.

While the CCNC did not disagree with the new option, the chose to not sign the agreement implementing the new option.  As a result, the old, original loan is still in effect.  As of today, they are in default of their original loan, and the City, as part of their lease review will deal with non-performing agreements such as this.  I’m hoping to have something out in May regarding the CCNC.

The real problem is that this unpaid loan looks very bad for Chico’s credit rating. Well, if this looks bad for Chico’s credit rating, what do they think that $94 million pension liability is doing to our credit rating? 

According to Pensions and Investments Marc Lieberman and Mark Lasee, “For many public sector retirement plan sponsors, the Governmental Accounting Standards Board’s new pension reporting rules couldn’t have come at a worse time. The changes, effective June 15 and encapsulated in GASB Statements 67 and 68, mandate that governmental balance sheets reflect unfunded pension liabilities. This has been met with grave concern by plan sponsors.”

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2 Responses to “Rules change for public entities finance reports – how will unpaid Nature Center loan and pension liability affect Chico’s credit rating?”

  1. Rose Kelley June 7, 2015 at 9:01 am #

    You may want to watch the city attorney’s announcement on the 6/2/15 closed session regarding the Nature Center and Mayor Sorenson’s announcement directly after the city attorney ends his report.

    • Juanita Sumner June 7, 2015 at 9:15 am #

      thanks Rose, I had missed that! I wish they had put more information in that title – just “closed session announcement”? Trying to follow this stuff is ONEROUS! The stuff I had to sit through to get to 6.2 only to find out it had been dumped, and it was right there under the 1’s the whole time. Oh jeez.

      anyway, they always try to talk fast when there’s trouble – city attorney consultant says “anticipated litigation” – we’ll have to stand by to see who is suing whom (?) To think I accused Sorensen of not being tough enough on the CCNC. We’ll have to see what pops up out of this.

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