Taxpayers just paid $22,000 for the debt today on the “Taj-Ma-City-Hall,” which happens every day until 2040.
Just imagine if the previous City Council had to ask voters’ permission to borrow $128 million.
Do you think taxpayers would have given the go-ahead to increase the new City Hall’s budget from $40 million to $143 million, and that it was OK to borrow $128 million?
The previous council most certainly would have been rebuffed by taxpayers, and the council would have gone back to the drawing board for a more modest City Hall and worked out a way of building it with either no loan or a much smaller loan.
The previous council was partially led into this financing by the so-called brilliant finance abilities of Councilman Keith Curry. Curry made millions of dollars for his former employer, PFM, selling these types of loans to cities.
What is this type of financing? Certificates of Participation, or COPs. Whether or not cities can afford them, the loan broker gets paid his millions.
In 2010, when the council borrowed $128 million for the $143 million City Hall it financed the debt using Certificates of Participation. It is a convoluted method where a finance corporation is set up to borrow the money based on the anticipated cash flow of rent income from the city.
In this case, the city built City Hall, gave it to the finance corporation and then the finance corporation leased it back to the city for about $10 million a year for 30 years. Then the finance corporation sells bonds (borrows money) at the going rate based on the city’s payments (but not the “full faith and credit” of the city). A legal way to borrow huge amounts of money without voter approval.
I am proposing a charter amendment to require voter approval for major loans, regardless as to whether the state requires it, and what kind of loans you can do.
First, the state (Proposition 13 and its follow up propositions) requires a vote of the people when a new bond is floated. But only if it goes against the “full faith and credit” of the city.
If taxpayers are going to be on the hook for the bond repayment, they need a two-thirds approval of the voters, regardless as to whether taxes need to be raised to pay off the bond.
My proposal would require a majority vote of the taxpayers for borrowing with COPs or similar borrowing schemes that exceed 25% of the city’s annual budget or exceed total debt of 50%.
It would also eliminate the option that locks in future city councils, meaning they are not allowed to pay off debt early or even to refinance if rates allow.
We cannot refinance our current debt. In fact, if we could have refinanced our debt last summer, we could have saved the taxpayers approximately $40 million, according to the city’s financial advisor. But the Curry council locked us in, and we cannot refinance without paying $40 million extra. That is an $80 million swing.
Home mortgages used to have a prepayment penalty. If you had to sell or refinance your home, you had to pay a penalty to pay off your loan early.
The Curry council, in an effort to save a half a point of interest and betting taxpayer dollars that interest rates wouldn’t drop any further, bet wrong and has cost the taxpayers $40 million so far.
Taxpayers are paying the cost of Curry’s brilliance to the tune of $460 for every man, woman and child in the city. Some politicians are more expensive than others.
SCOTT PEOTTER is a Newport Beach city councilman.