New trend – California municipalities are “leasing” city streets to pay their pension deficit – a sneaky way to get a new tax past the voters

13 Sep

I was looking at Pension Tsunami

and found this recent article from Forbes about how a city can make an end run around the voters by using streets and roads as security for bonds. You have to read it to believe it.

“They’re using a bond-issuing mechanism called ‘lease revenue bonds.’ We’re all used to cities paying for public works, stadiums, and the like by issuing bonds which are paid off by a dedicated revenue source — sewer bills, hotel taxes, etc. But lease revenue bonds are different.”

According to Charles Schwab, “Instead of issuing long-term debt, like general obligation bonds do, to finance improvements on a public facility, the municipality may enter into an arrangement that uses lease revenue bonds. Often a trust, not the municipality, issues bonds and generates revenues to pay the bonds back by leasing the facility to the municipality. The municipality will generally appropriate money during each budget session to meet the lease payment.”

General obligation bonds require voter approval, but as staff described in their sales tax measure pitch earlier this year, there are ways to get bonds without voter approval. This is just one way.

Here’s how it’s a tax – once they make this deal, they can just “appropriate money” during each budget session to make whatever payments the lender demands.  “Appropriate” is a Legalese for TAKE. If you look at the agendas for city council meetings you see an appropriation at almost every meeting. A “lease revenue bond” is how they officially pass their pension deficit onto the taxpayers – they borrow money specifically to pay their pension deficit, using city infrastructure as collateral, and then it’s OUR debt, not theirs. 

This is what Chris Constantin and Mark Orme were intending to do with the money generated from the sales tax measure they tried to put on the November ballot. They were going to “secure” bonds, using the sales tax proceeds they told us would go toward fixing streets to make the payments. You can watch Orme’s presentation regarding the bond at the June 23 meeting and Constantin’s emotional plea for the tax measure at the July 7 meeting here:

Nobody brought that bond up during the council discussion. When members of the public raised the question Orme actually denied it – having made a presentation that is available on tape? They were trying to pull a fast one, and they knew it. Stone rejected the proposal, ending the conversation about a tax measure for now, but he never raised the issue of the bond. I would fully expect Chico City staff to try to pull out something like this in future, and we need to let council know it’s out of the question. 

If your district is up in this election, you need to grill your candidates about the pension liability and how it will be paid.  Let the candidates know you’ve done your research, ask pointed questions. Don’t let them fake their way through another election. 

2 Responses to “New trend – California municipalities are “leasing” city streets to pay their pension deficit – a sneaky way to get a new tax past the voters”

  1. Dave September 13, 2020 at 5:43 pm #

    If they get a sales tax increase they will definitely use that money to float a bond.

    As far as I know the subject was first mentioned in public at the April 16, 2019 council meeting by Constantin.

    Go here

    In the left hand pane scroll down to 3.4 and watch the presentations.

    At about the 2:41:25 mark Constantin talks about bonded debt and shows a Power Point slide. Amazingly none of the council members asked how much the bond would be and what the interests and fees would cost us. If you were going in debt up to your eyeballs wouldn’t you want to know what the total cost of the interest and fees would be?

    CARD was going to float a $36 million bond if they got their property tax and 2 of every 3 dollars from that new tax would have gone for interest and fees. My guess is the city would take on at least a quarter BILLION, and we would pay at least one of every two dollars from the sales tax increase amount that goes for the bond for interests and fees. But we don’t know because none of the idiots on the city council bothered to ask.

    And I guarantee you next time around they won’t ask. And they won’t tell us in the sales tax increase ballot measure that they plan to use the revenue from the sales tax increase to take on debt. (CARD didn’t tell the voters in their ballot measure, either.)

    So we won’t know how much debt we will be on the hook for or what it will costs us until the idiot voters approve the sales tax increase. And all in a futile attempt to save ridiculous and unsustainable pensions and other post employment benefits!


    • Juanita Sumner September 14, 2020 at 6:09 am #

      Thanks Dave. As I recall, Orme told us something like $9 million a year would go to the bond. Which at the time was exactly our UAL payment.

      After I made this post I remembered it was Carl Ory who confronted Orme and Constantin. We’d told Ory about the bond, he hadn’t got that part of the scheme. When he asked Orme about the bond at that last meeting (July 7?) Orme got really pissed off and denied his own presentation of the previous meeting. I have to hand it to Ory, he was hip to what Constantin and Orme were trying to do – remember, he also got super pissed at Constantin – called him a “rogue staffer” – for presenting a full cent tax measure after council had voted to go with a half cent measure.

      We were lucky that night – Ory and Stone wouldn’t play ball with anybody, so they couldn’t get the measure on the ballot. If we get a conservative majority on council, I believe they will put a full cent measure on the ballot, with a pension obligation bond attached to it. I don’t think the liberals are that concerned about the pension deficit – think back to 2012, how they all denied we even had a problem.

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