The Political Game of Hiding the Long-Term Debt
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VOLUME 24 • NUMBER 5 June 2011 City Shocker Quentin Kopp The Political Game of Hiding the Long-Term Debt The Payroll Tax By George Wooding Perplex San Francisco’s cash-strapped politicians are relying heav- ily on an expensive form of debt called Certificates of — p. 3 Participation (COPs) to pay San Francisco’s bills, perhaps hoping they can continue hiding this practice from voters. he public doesn’t know what COPs are, which seems to suit City politicians just fine. San Francisco construc- Jonathan Farrell Ttion projects that are either unaffordable, unpopular, or need to keep a low profile can be funded by COPs —without Big Changes any public input or oversight whatsoever. Over a billion dollars Bring Big Concerns in long-term City debt and interest have been issued with just the approval of the City’s finance committee and our Board of – p. 3 Supervisors. Unlike issuing general obligation bonds or levying parcel taxes, COPs don’t need really concerns me is the fact public, two-thirds majority that we have over $100 million approval by voters mandated on our books where voters The Breach at Ocean Beach Anmarie Mobbutt by the 1979 passage of Propo- have rejected bond measures, By Steve Lawrence sition 13. They don’t even need but we go ahead and issue the “Gift” to Rec & Park public involvement. debt anyway, or fund routine cean Beach is one of San Francisco’s gems in May Be Trojan Horse? COPs were specifically maintenance operations. It’s the rough. What’s up out there on the Western —p. 4 developed in San Francisco costing us millions [of dollars] Ofront? in the early 1980’s as a hybrid a year in interest payments. We All is not quiet. The beach is in retreat. In the past decade funding scheme by a local law need to have a clear, transparent the boundary between ocean and beach moved east – quite firm to provide a loophole dialogue with the public about a lot. While not noticeable to the casual beach walker, south to Proposition 13 borrowing what we are doing.” requirements. The lack of Supervisor Farrell isn’t Will Durst public transparency and ease kidding. His is a long-overdue of approval proved to be voice of rationality on a Board Newt! irresistible to San Francisco’s of Supervisors who have lead — p. 4 local politicians. COPs are now us into a financial mess over the the City’s primary vehicle for past decade, including current non-voter-approved debt. and past supervisors and the Someone stole Mom’s credit card: approval of our last two Mayors, According to the May 18th Willie Brown and Gavin Business Corner Legislative Analyst report, San Newsom, who all avoided like Francisco has the highest COP the plague having this difficult Hearing Challenges debt per capita, $735 per person, conversation and dialog with of 15 California jurisdictions voters Get Friendly Ear surveyed. By comparison, Until 2000, San Francisco of Sloat Blvd the beach is inland on the order of 235 feet of —p. 5 the City of Los Angeles had COPs were used responsibly. where it was in 2000. That’s a lot of change. the second highest per capita This changed when U.S. District Beach erosion happens suddenly. While the sea rises California COP debt at $393 per Judge William Orrick ruled slowly, suddenly the right, or wrong, conditions combine, person. that conditions at the San and then the ocean can claim chunks in short order. In no Due to arcane accounting Francisco-owned San Bruno time a roadway is vulnerable, as Great Highway became last West of Twin Peaks rules, the money borrowed by jail were unhealthy and that a year; within hours, expensive sewage infrastructure, built to Central Council COPs is not considered to be new jail needed to be built. City last a hundred years, is in danger of being undermined and “long-term debt.” Instead, this voters twice rejected General destroyed. —p. 7 borrowed money is lumped Obligation Bond measures to It’s a truism to say that Nature is dynamic, but in the case into “long-term rental/lease” fund the project and the City of the ocean versus Ocean Beach and its cliffs, it does take on payments. Thus, the City can was forced in 2001 to use COP poignant meaning. borrow hundreds of millions of funding instead. What to do, other than watch Nature’s awesome power? dollars by issuing blank-check The construction costs of That is the question SPUR is addressing. (SPUR is San Fran- COPs, and not have this money the San Bruno jail were $137.2 cisco Planning and Urban Research Association, a non- Ethel Rohan shown as debt on a balance million. The actual cost to City profit.) SPUR is preparing a “master plan” for the 3.5 mile West Portal Writer’ s statement, or on the City’s taxpayers, including loan costs stretch of Ocean Beach. Perhaps the toughest question is how Comprehensive Annual Financial and interest, is $10 million to to deal with erosion and the advancing ocean. Protect the First Novel Report (CAFR) summarizing $13 million annually, for the road and sewer infrastructure, or abandon to Nature? the City’s detailed financial next 33 years (until 2033.). So far we have protected human “improvements.” But we —p. 9 condition, a document which The City is hoping to hold the do so mostly when danger approaches. Once danger passes, has become the nationwide final cost to approximately long-term protection measures bog down in controversy. paradigm for local government $350 million. This will mean The next crisis arrives, and then we react. Having a thought- accounting practices. that only thirty-nine cents of through plan would be better. INSIDE San Francisco COPs are every dollar will have gone to Numerous agencies are involved at Ocean Beach. Among Letters to the Editor . 4 always reported as leases or actual construction costs, and them, the Army Corps of Engineers, which maintains the Business Corner . 5 long-term obligations. These the balance will go to interest Golden Gate’s shipping channel, dumps sand in an attempt to replenish, or build up, the eroding beach. Department of Sunshine & Whistleblowers. 6 long-term obligations usually payments and fees. A voter- consist of large upfront fees and approved general obligation Public Works has dumped rock, creating what is called a rock Money Matters. 6 two payments a year, a variable bond would have probably cost revetment, during winters of emergency. It expects to install Clipper Card Deadline . 7 interest payment, and a semi- at least a $50 million less. a wall of piles in an attempt to save the bluffs. Other agencies Robberies Up. 9 annual debt-service payment. COP funding costs San protect endangered birds, the coast, and mediate between dog owners and others. Everything done and to be done at Calendar . 10 Lease payments can be scheduled Francisco more to use than voter- for as long as 12 to 33 years. approved general obligation Ocean Beach must be done with sensitivity, and usually is Sharon the Health. 11 The City also needs to pledge bond funding. According to preceded by outreach and process, which is time-consuming. Jack Kaye . 12 an existing City-owned asset as Nadia Sesay, Director of Public In stormy weather the Great Highway has become lesser. Kocivar on Education. 12 collateral worth at least as much Finance, COPs usually cost 45- For a time a portion of southbound lanes was closed. Now a section is one lane instead of two, and that lane has been At the Movies. 13 as the money borrowed. If San 65 base rating points more than Francisco subsequently defaults general obligation bonds. For pushed eastward. On Stage/Theater . 13 on its rent payments, the City example, if a general obligation Your water rates have doubled over the past five years, Remember When . 14 may loose its pledged collateral. bond interest rate was 4.0, the and are set to increase another 13% July 1. Sewer rates are Phyllis’ Findings . 14 Confused, or outraged, yet? corresponding COP interest higher still. The major work to update the sewer system Open Late . 14 District 2 Supervisor, Mark rate would be approximately remains ahead. Planned work does not include relocating Farrell, a financial expert, stated 4.55. This interest difference infrastructure at Ocean Beach. Suduku/Brain Füd. 14 in a February 11 Examiner represents a huge amount of Ocean Beach is where the city meets the wild. Surfers, From the Border . 15 article, “Masking the true cost money. bikers, fishermen, strollers, joggers, hang gliders, bird watch- Real Travel. 15 of our City government is General obligation bonds ers...all find their way to this place to have fun and renew the horrible financial planning. We are a better financing tool than spirit. The majesty and power of the great ocean lays, usu- WWW.WESTSIDEOBSERVER.COM have over $1.3 billion in non- COPs because they create a ally quietly, sometimes not, at the edge of our continent. That MEMBER OF THE SAN FRANCISCO NEIGHBORHOOD NEWSPAPER ASSOCIATION voter approved debt (COPs) new, voter-approved source of power is rising, relentlessly rising. on our books right now. What Cont. p. 8 Feedback: [email protected] PreSidenT rolling STone nobel Prize Winner & lauren navarro, ForMer vice PreSidenT barack obaMa: Magazine: environMenTal al gore: deFenSe Fund: “Smart meters will allow Smart meters you to actually monitor are a “sure The Smart Grid will “A properly designed how much energy your “empower consumers smart grid will help bet” to cool the to take charge of their family is using by the households and businesses planet.