Orme and Constantin propose to use the sales tax proceeds to incur bonded debt for capital – what does that mean?

16 Jun

Bob reminds me that city staffers Mark Orme and Chris Constantin have made it pretty clear they want to use the proceeds from the sales tax measure to secure a bond (bonds?). But it never really comes into the conversation.

In his report at the June 9 meeting, Item 5.2, proposal for a tax measure, Orme explained the “sensitivity range” for the tax – meaning, what they expect to get from the tax, from worst case scenario ($12 million annually) to the best ($21 million).

Using an average estimate of $18 million, Orme begins a sales pitch for a bond. “In Exhibit 3, the City would receive approximately $18 million on average. The exhibit highlights both the worst and best scenario for revenue with the worst case being the amount which could be safely relied upon for ongoing expenditures. As such, the City may incur bonded debt for capital or hire staff and not have a high risk or need to default or layoff should the economy shift.”

He talks at first about hiring more staff but here he tells us he wants $9 million for debt service on the bonds while only $3.8 million for hiring staffers. “As debt for capital represents the largest ongoing commitment, the exhibit shows the amount available for debt service should the City Council determine to allocate 50-80% of the worst case revenue amount for capital. The remaining revenue would be available for other ongoing uses, and what is left in each year may be used for onetime type of expenditures. For example, if the City allocates no more than 70% for capital, the City may safely use almost $9 million for capital debt and $3.8 million of staffing and related expenditures annually.”

Debt for capital” means either a loan or a bond. Investopedia explain this as it relates to private business, but it’s the same for public agencies.

https://www.investopedia.com/ask/answers/032515/what-are-different-ways-corporations-can-raise-capital.asp

“Debt capital is also referred to as debt financing. Funding by means of debt capital happens when a company borrows money and agrees to pay it back to the lender at a later date. The most common types of debt capital companies use are loans and bonds— “

As you know, a business goes under when it makes bad decisions and can’t pay it’s debts, but when a public agency makes bad decisions, the taxpayers get stuck with the debt service. Orme wants 50 – 80% of this sales tax for servicing the bond, but like Bob pointed out, nobody on council raised a single question when he flew through this report.

And here’s the whammy – they can do this without the consent of the voters. It will not be mentioned in the text of the measure. Council and staff will make those arrangements behind closed doors. One option they will probably discuss is a Pension Obligation Bond.

According to Howard Jarvis Taxpayers Association President Jon Coupal, “POBs are bonds issued to fund, in whole or in part, the unfunded portion of public pension liabilities by the creation of new debt. It is like paying your Visa bill with your Mastercard.”

And, I believe it’s a tax passed without the voters’ consent. Coupal reminds us, “A policy reflected in the California Constitution since the 1800s is that government debt should be approved by the voters.  The reason for this is simple — today’s politicians should not be allowed to burden tomorrow’s taxpayers without the consent of those financially obligated for the repayment. Back in 2003, the Howard Jarvis Taxpayers Association sued the state of California for its attempt to issue a statewide POB without voter approval. HJTA prevailed and the POB bond proposal was invalidated.

But Coupal reports that cities in California are still procuring POB’s without voter approval. Even after their victory against the state in 2003, HJTA joined the Ventura County Taxpayers Association to force the town of Simi Valley to rescind an illegal POB by demanding it be put before the voters.

Furthermore, “Other cities are considering or have actually pursued POBs without voter approval, including Riverside and Montebello.”

The Government Finance Officers Association warns that “the invested POB proceeds might fail to earn more than the interest rate owed over the term of the bonds, leading to increased overall liabilities for the government…

This is exactly what has happened to CalPERS – poor investment returns led to increased overall liabilities for the government, and you know, that means the taxpayers.

They will bring this all back to the table at another closed meeting on June 23. Between now and then we need to let our city council members know we know what’s going on and we’re not going to go for it.

5 Responses to “Orme and Constantin propose to use the sales tax proceeds to incur bonded debt for capital – what does that mean?”

  1. Scott Rushing June 16, 2020 at 3:49 pm #

    Orme strongpoint is his ability to throw the bull. He is clever. At the expense of the taxpayer Juanita.

    On Tue, Jun 16, 2020 at 2:57 PM Chico Taxpayers Association wrote:

    > Juanita Sumner posted: ” Bob reminds me that city staffers Mark Orme and > Chris Constantin have made it pretty clear they want to use the proceeds > from the sales tax measure to secure a bond (bonds?). But it never really > comes into the conversation. In his report at the June ” >

    • Juanita Sumner June 17, 2020 at 5:06 am #

      Well, maybe he hasn’t heard – my step-daddy was one of the greatest bullshitters that ever lived. Whenever us kids would try to tell him a fat one, he’d say, “Girls, don’t ever try to bullshit a bullshitter…”

      I’m not a bullshitter, but I was brought up by the best (Thank You Daddy!). I can smell it for a mile, and Orme stinks to high Heaven.

      Thanks Scott, you a good daddy too!

    • bob June 17, 2020 at 12:49 pm #

      Orme strongpoint is his ability to throw the bull.

      Same with Lando. My understanding is he got the city to tie automatic increases in compensation to revenue increases without adjustments when revenues go down which is one of the reasons the city has had financial problems.

      He’s been “retired” with a six figure pension for a long time but he continues to be employed by various government entities through “consulting.” And he just had a big contract renewed with the city of Oroville. His work there is what their current staff should be doing. As one of their city council members put it:

      She argued that Lando’s duties and responsibilities already fall under the job descriptions of the city’s current staff, many of whom “taxpayers pay very handsomely.”

      Remember, Lando pushed hard to get Measure A passed and even kicked in 6K of his own money along with 50K from SEIU (the public employee union).

      You can bet Lando will push hard to get the sales tax increase passed. After all, he’s got one of those unsustainable pensions.

  2. Dave June 16, 2020 at 4:03 pm #

    There’s always the danger they will get significantly less in sales tax revenue than what they project to determine how much debt to take on. Currently, this city can’t afford its pensions and other post-employment benefits. If those anticipated sales tax revenues don’t materialize this city also won’t be able to afford to service the new debt.

    Also, my understanding is that 40% to 50% of money for bonded debt goes for interest and fees to Wall Street. So for the portion of the sales tax money they are using for debt, 40% to 50% won’t be able to go for the roads, cops or even the crazy pensions and OPEB. How does that benefit the people of Chico?

    What Orme is proposing is completely irresponsible, not to mention unfair to the taxpayers. And if you watched the last to city council meetings you saw not one city council member ask Orme about the debt he wants to force on us. Instead, they went out of their way to praise Orme.

    Our city council is completely disgusting. Orme has got to go, but with the clowns on the council that’s not going to happen.

    • Juanita Sumner June 17, 2020 at 5:12 am #

      He flies this crap right by people because he uses thick language – if only these people would speak plain English. I had to read his comments over again and then I had to google stuff. Yes, he’s talking about using 50 – 80% of the proceeds of this tax to secure a bond.

      Morgan and Reynolds are the worst, they are supposed to be fiscal conservatives – what a joke on us!

      Hey, the best way to get rid of Orme and Constantin is beat the crap out of this measure.

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