Anaheim
Mayor Tom Tait has refused to sign a rebuttal to an Orange County grand jury
report critical of a scheme the city used to set up a funding stream for a
$180-million convention center expansion.
The report,
issued in June, takes aim at a joint powers authority (JPA) the city set up for
the convention center expansion that is now $1.2 billion in debt. Specifically,
the grand jurors were critical of the JPA's structure, which they said is
similar to the JPA used by the infamous city of Bell officials to pay
themselves exorbitant salaries and benefits.
JPAs like
Anaheim’s “have the potential to use this organizational structure as a shell
company to avoid other legal constraints on the controlling entity and to
obfuscate taxpayer responsibility,” the grand jury found.
Earlier this
month, the city crafted a strong response to the grand jury's findings, saying,
among other things, that the $1.2 billion in debt isn’t excessive because the
grand jury failed to account for annual revenue that will be available to pay
down the debt over the long run, essentially making the debt “revenue/expense
neutral.”
It went on
to say that dissolving the JPA, which the grand jury recommends, would be
“impractical, uneconomic, and, given the long-term nature of the financed
assets, unfair to the city’s current residents, businesses and taxpayers.”
Tait,
however, didn’t find the city’s arguments convincing. So he refused to sign the
city’s response, which was approved in a 3-2 council vote, with Tait and
Councilman James Vanderbilt dissenting. Council members Kris Murray, Lucille
Kring and Jordan Brandman voted for it.
Grand jury
responses from city councils in Anaheim and elsewhere are typically signed by
the mayor. However, in this case, the signature block was reserved for the city
manager and will likely be signed by the finance director, Tait said.
At the heart
of the dispute is the way in which JPA's are formed. Essentially, two or more
governing agencies can partner to create a JPA, which exists, at least in legal
terms, as a completely separate and independent public agency.
One example
of a JPA is the Orange County Fire Authority. The regional firefighting agency
exists because of a partnership between the county and 23 cities, providing
fire and paramedic services within the jurisdictions of its member agencies.
The grand jury
had no qualms with these kinds of JPAs, which it labeled “horizontal.” They
provide “real service” to the community and are accountable to their member
agencies, according to the grand jury.
But the
grand jury had a different take on what it called “vertical” JPAs. In theory,
they’re comprised of two or more different public agencies. But in reality, a
vertical JPA’s member agencies are controlled by a single governing body.
According to
the grand jury, the city of Bell padded the salaries of city council and
administrators by issuing debt through a vertical JPA. This allowed them to
circumvent state requirements that the issuance of long-term debt has to go
before voters.
In Anaheim’s
case, the city circumvented a city charter requirement when it wanted to spend
$180 million to expand its convention center by using a JPA called the Anaheim
Public Financing Authority. The JPA is comprised of the city and the “successor
agency” to its redevelopment agency.
The grand
jury found that vertical JPAs are essentially shell companies with “the
potential to cloak funds and accountability of those funds.” Also, the “opaque,
layered structure” of vertical JPAs makes them difficult to hold accountable.
A group of
Anaheim activists -- called the Coalition of Anaheim Taxpayers for Economic
Responsibility (CATER) – alleged much of what the grand jury found in a lawsuit
filed in 2014.
However, a
superior court judge threw out the suit, ruling that city attorneys were
correct in finding that state law allowed for creation of a new public agency
(JPA) independent of legal restrictions governing its member agencies. A CATER
appeal was also denied.
Tait has
nonetheless continued to speak out against the financing plans. At this month's
meeting he pointed out that the city essentially partnered with itself when it
issued $200 million in new debt to pay for the convention center.
“So you have
five people here forming a partnership I guess with the five people here to
form an entity to then borrow the money, a complete end around the intent I
believe of our charter and state law,” Tait said. “The grand jury says we
shouldn’t do it. And I believe we shouldn’t do it.”
Murray pointed
out that the Financing Authority also issued debt to pay for basic city
infrastructure, including water, electric and sewer utilities. To “accelerate
payments” to pay down the debts faster might result in higher interest rates
than if the city had to wait for an election to issue debt, according to
Finance Director Debbie Moreno in response to Murray’s questions.
Kring said
following the grand jury’s response might impose “stumbling blocks” by making
it more difficult to issue debt. She pointed out that the grand jury’s report
was just advice and nothing more.
“The grand jury did not say that we couldn’t, they just said that we
shouldn’t,” Kring said, and then quoted former Councilwoman Gail Eastman.
“'If everything went to the vote of the people, why would we be here?'”
September 29, 2015
Voice
of OC
By
Adam Elmahrek
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