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Last Chance To Oppose Higher Water Rates

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Ventura Water aims to increase water rates unless citizens protest.

Act Now To Prevent Higher Water Rates!

Monday June 8th is your last day to act if you want to oppose an increase in water rates.  Your protest must be filed with the City Clerk before 6 PM.

On this Monday,  Ventura City Council will decide on whether to adopt the Ventura Water report , written by the Ventura Water General Manger, Shana Epstein.  Click the Report Button to read the full report.

Water Rate Incease Report from Ventura Water

Click on the Report button to access the Water Rates Increase Report

She proposes to raise your water rates. If you use more that 6 HCF in any billing period you will pay more.  If you use over 21 HCF, which is the average residential use in Ventura then will pay a lot more.  This new rate is intended to coerce compliance.

Today we have enough water to meet the needs of our community. Nobody questions the need for all citizens to make an effort to conserve now against potential future water shortages but most however question the need for our City to adopt coercive and punitive measures.

This community will come together to meet this challenge, but never under the lash of government.  If you wish to protest click on the protest icon.

Water Rate Increase Protest Form

Click on the Protest Button to access the Water Rates Increase Form.

Editors:

R. Alviani,     K. Corse,    T. Cook
J. Tingstrom, R. McCord, S. Doll

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Pension Liabilities Threaten Ventura's Financial Health

Pension Liabilities Threaten Ventura’s Financial Health

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John F. Kennedy on Fiscal Responsibility

“When written in Chinese, the word ‘crisis’ is composed of two characters. One represents danger, the other represents opportunity.” —John F. Kennedy

VENTURA’S FINANCES – HEALTHY, OR NOT ?

At the Ventura City Council meeting on February 23, 2015, our Mayor will discuss The State of the City.  It is to be expected that she will praise the accomplishments of the City, such as creation of a Water Commission to address water shortage issues and the City efforts to improve roads and basic infrastructure.  The condition of City finances will also be a major subject, building on the Ventura County Star article, published on President’s Day, with the headline “City’s Financial Outlook Healthy”.

A candid discussion of the condition of City finances is to be welcomed, but it is not the rosy picture portrayed in the Star article. The Economic reality of the current  public pension liabilities of the City of Ventura unfortunately is not receiving the attention it demands when determining our financial outlook, nor is the impact of escalating payments to CALPERS and the drain it will have on the General Fund and City services in the next 5 years getting noticed.

A.  VENTURA UNFUNDED PENSION OBLIGATIONS TRIPLE

In the fall of each year CALPERS provides financial and actuarial reports for the SAFETY PLAN OF THE CITY OF SAN BUENAVENTURA (police and fire) and MISCELLANEOUS PLAN (all other employees).  The latest report, dated October, 2014, provides a valuation of assets and liability as of June 30, 2014.

The combined City pension assets have a present value of $191,329,875. and we owe $353,756,578.  There is no money to pay the $157,993, 381 shortfall. The official calculations are based upon an assumption, projected over the actuarial life of the union participants, that CALPERS, as our pension fund administrator, will achieve an investment return of 7.5%.

What this report does not discuss in direct terms is the 50% loss our City incurred during the 2008 depression, together with the other 1600 local government agencies funds that they manage.  That money has not been replaced.  What CALPERS wants to emphasize in their report is the 18% (not net of costs) return that they received ending June 30, 2013. This is a short term gain only.

For the investment forecast CALPERS uses a rate of 7.5%. However, when CALPERS illustrates their Hypothetical Termination Liability calculations on page 28 of the report, it uses a far different and lower discount/investment rate of 3.72% instead of the 7.5% rate of return. In that event we owe $488,961,724.

In reality, in early in 2014, CALPERS admitted that it is still underfunded by 50%.  They report earnings of 18.5% last year, but a study has reported their actual earned average of 3.41% for five years, 5.36% for ten years, 6.97% for 15 years, and 8.38% for 20 years.

B.  HISTORICAL PERSPECTIVE

In August 2008, the editors of this newsletter published an analysis of the unfunded pension obligations of Ventura titled IN THE SHADOW OF VALLEJO.  We warned against the increase of the firefighters’ pension benefits by 33% (from 2% at age 55 to 3% at age  and urged the Council not to make the increase, and to require all other employees to contribute at least 5% to 10% toward their pensions.

We provided extracts from a CALPERS report of the time.

 

Funded Status–June 30, 2008 Police/Fire Misc. Plan
Present value of projected benefits $270,877,057 205,128,033
Entry Age Normal Accrued Liability $233,938,241 $167,837,616
Actuarial Value of Assets $177,314,177 $157,529,148
Unfunded Liability $46,624,064 $10,308,468

“I do not know where we are going to get the money.”

The vote was 4 to 3 in favor. Voting against the increase were then Mayor Weir and Councilmen Andrews and Morehouse.  Councilman Morehouse’s comments at the time were prophetic.  “I do not know where we are going to get the money”.

In January 2011, VREG newsletter again visited the pension issues because the City Council was considering the renewal of the labor contracts with the employees in the City.  The proposal was to require the employees to contribute 4.5% of the CALPERS pension costs. This VREG urged the Council to require greater contributions from the employees.  The article was titled HMS TITANIC  [Moving Deck Chairs to Avoid a Disaster].

The City Council vote was 5-2 in favor of the agreements (which included a requirement that employees contribute 4.5%). Councilman Andrews and Councilwoman Weir voted against approval. The decision of the other five—Brennan, Fulton, Monahan, Morehouse and Tracy—was in favor.

Councilwoman Christy Weir rejected the proposal and stating “Fiscally, the city needs more than this right now.”   Council Member Neil Andrews concurred stating, “The agreements simply don’t go far enough.”

“The agreements simply don’t go far enough.”

C. AN ESCALATING  PAYROLL CONTRIBUTION RATE THREATENS FINANCIAL HEALTH

Today the City of Ventura owes in excess of $157,993,381.  It will only increase and the drain on the General Fund will likewise increase because the required employer contribution rate for police and fire for example must be paid yearly in addition to their pay and medical costs. Here are the mandated and projected rates from CALPERS.

FISCAL YEAR           EMPLOYER CONTRIBUTION RATE (Police & Fire only)
2011/2012                   35.190%                      2012/2013                   36.4%
2013/2014                   40.6%                          2014/2015                   44.225%
2015/2016                   45.598%                      2016-2017                   50.6%
2018-2019                   52.5%                          2019/2020                   54.5%
2020/2021                   54.6%

BANKRUPTCY DEVELOPMENTS

Pension Liabiliteis Lead To Insolvency

Ventura’s Financial Health Threatened By Pension Liabiliteis

The cities of Stockton and Vallejo were forced to file chapter 9 bankruptcy proceedings.  The cities asked their creditors to take haircuts, but not CALPERS. The cities insisted that the public employee unions were exempt and entitled by law to100% on the dollar. The Federal Bankruptcy Court ruled otherwise in January, 2015.

CALPERS argued that the California Constitution guaranteed the union contracts and thereby pension benefits from cuts and/or that they enjoyed sovereign immunity and police powers as an arm of the state and/or that they have a lien on municipal assets.  In January 2015, the Federal Bankruptcy Court effectively threw them out of court saying: It is doubtful that CALPERS even has standing.   He writes “It does not bear financial risk from reductions by the City in its funding payments because state law requires CALPERS to pass along the reductions to pensioners in the form of reduced pensions”.

Judge Klein further stated:  “CALPERS has bullied its way about in this case with an iron fist” and “that their arguments are constitutionally infirm in the face of the exclusive power of Congress to enact uniform laws on the subject of bankruptcy…”.

The impact of this decision is that CALPERS cannot stop cities from modifying pensions.

EDITORS COMMENT:

The direction that Ventura is heading is insolvency and the idea that employee pensions are guaranteed and protected is wrong. Unless the City Council take steps to force public employees to pay a greater portion of their retirement and stop increasing the annual percentage of the general budget toward retirement and benefits, Ventura will collapse.

R. Alviani          K. Corse       T. Cook    B. Berry
J. Tingstrom     R. McCord   S. Doll

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Ventura's water shortage

Ventura’s Water Crisis Is A Study In Procrastination

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Water, water, everywhere

“Water, water, everywhere, Nor any drop to drink.” —Samuel Taylor Coleridge                       The Rime of the Ancient Mariner

THE CHICKENS MAY HAVE COME HOME TO ROOST OVER WATER ISSUES
 [A STUDY IN PROCRASTINATION]

We’re in the worst drought in 100 years. The State of California, the City of Ventura and everyone else is concerned about water.  Lake Cachuma is almost dry, Santa Barbara decides to finance and build a desalinization plant and Montecito is in such bad shape it asks Ventura to build a pipeline through our City to wheel water from sources to the South.

Alarms were sounded.  Nobody thought about water until it was almost gone.  The question on everyone’s mind was how the 93,568 citizens in Ventura were going to obtain their drinking water.  The City Council held meetings and asked for citizens to reduce water use.

Ventura's drinking water

Venturans are concerned over where their drinking water will come from.

On the supply side the Council looks for new sources of water: importing water by tanker, hauling an iceberg off the coast to use melt water, building a pipeline to import the 10,000 acre feet of State water or building a desalinization plant to convert sea water to potable uses.

It was 1992. It was not raining and the community was divided.

The Association for Water Quality Alternatives (AQWA) formed and urged the Council to make a decision – build a reverse osmosis plant to remove dissolved solids and treat brackish water from the Mound ground water basin in the eastern part of the City, or import the 10,000 acre feet of State water by piping it from Lake Pyramid into Lake Piru then to Ventura by pipe line.  This group urged state water because the community had, since 1973, invested millions of dollars for the right to import the water, and would continue to pay $1.5 M per year until 2035. Spending $25 M to build a pipeline was the least costly option.

The City Council would not decide. Instead they voted to put a measure on the ballot asking the citizenry to vote on whether we should build a reverse osmosis plant.  The vote was 52% in favor of a desalinization (membrane filtration/reverse osmosis) plant and 48% to build the pipeline.

Once the election was over everything stopped. No effort was or has been made to develop, finance AND build an alternative water resource. The Water Department has spent millions since 2008  “studying” and they are “still studying” the options.

Ventura’s Water Crisis Is Nothing New.

Notwithstanding the malaise of local government Mother Nature took control.  Between 1992 and 2011 it rained prodigiously. The Ventura County hydrology data for the Casitas dam gauge reflects an average rainfall of 24.10 inches per year in that period.  In 1998 it rained 49.68 inches and Casitas dam overflowed. 2005 was another banner year with 42.86 inches followed by 2011 with 30.83 inches. In 2012 rainfall started moving downward – went to 12.01 inches, then 10.72 inches in 2013 and in 2014 it dropped to 8.02 inches.

EDITORS’ COMMENTS:

History has an  uncanny way of repeating itself.  After 20 plus years of great rainfall could we expect 3 to 5 years of low rainfall in Ventura?  The answer is unequivocally yes!  This pattern has occurred consistently since we began tracking rainfall in 1880.  Human nature is equally predictable – when it is raining why develop and build alternative water resources?

[A WATER EXPERT’S VIEW]

Ventura's drinking water sources

Sources of Ventura’s drinking water

On July 21, 2014, the Ventura City Council appointed a 13 member “Water Supply Strategy Task Force” to hold public meetings and develop a strategy to address potential water shortages in the City of Ventura. This was in response to Governor Brown’s proclamation declaring a statewide water emergency.  There have been three meetings, the most recent on September 9, 2014. This public meeting was well attended, and many members of our community spoke, but one in particular deserves mention.  With his permission we have printed his letter:

“I bring these comments to the board in an effort to make their job easier. Decisions this group has undertaken to make are decisions that were ALREADY made by the public and city government of the City of Ventura back in November of 1992.

I speak to you based on having been the Production Supervisor of the City of Ventura water dept from 1985 till 1992.  Further as the plant operator of the Brackish Water Reclamation Demonstration facility of the Bureau of Reclamation in the City of Port Hueneme from 1997 till 2002.  And lastly as the State licenses Water Treatment and Water Distribution instructor for Water Science Dept at Ventura Community College from 1989 til 2013, training and preparing individuals to acquire their State of California licenses to legally work in the water/wastewater industry.

 In 1992 the city of Ventura was recovering from a major drought.  Part of the dialog going on was that the City should avail itself of State imported water by constructing a pipeline from Ventura to Castaic.

This would have provided the City access to water it would need but as history has shown was and is NOT available.  The State imported water system has historically NOT been able to provide the water contracted for, as the system was never finished and is not capable of meeting those contract levels EVEN when water is available and when in a drought that water is NOT available.  Further, connection to that water supply would take ANY control of amounts or costs AWAY from local control, i.e. Sacramento declaring water emergencies and applying mandatory cutbacks.

That commitment is what this body should be working to see HAVE HAPPEN.  It makes no sense to discuss or study the local water situation thinking or including State mandates when the State plays no part in the City of Ventura’s water supply situation.

It also makes no sense to request the public of this city to further reduce their water usage as the historical records indicate that our citizens have already reduced their consumption of water per capita by more than 50% since the 90’s.  Requesting our citizens to further reduce their water use so that water will be available for the ADDITIONAL population that is being allowed with continued grown is NOT a productive avenue.

The productive avenue and manner to address the current water shortage in our City is to build the treatment facilities that were recognized would be REQUIRED nearly two decades ago.

The City owns and has available water sources already in existence that are NOT being used as the water quality did not meet (drinking water) standards WITHOUT treatment.  But those existing facilities (expensive ones we already own like Victoria Well 1or any of a least three other wells the city owns but is not using ) can and should be utilized as the raw water source to a membrane treatment plant that could provide better quality water that we are getting now from surface water and at a price significantly cheaper than what State imported water is costing our neighboring cities.  Those cost benefits were documented and fully recognized at the Demonstration facility a decade ago.

Membrane treated water from a plant utilizing ground water TOTALLY under the control of the CITY of Ventura makes significantly more sense than asking our citizens to lower the value of their property, accept reductions in use that are set by the state, (which has NOTHING to do with our water supply), is capable of providing HIGHER quality water than we have now, at CHEAPER prices than what our neighbors are paying the state, and follows the directives and sensible decisions made by our citizens and political bodies more than 22 years ago”

—JOSEPH RICHARDSON
Ventura, California

EDITORS’ COMMENTS

 Municipal government has declined to make any decision to develop an alternative water supply for the City of Ventura in the last 23 years.  Waiting another 20 plus years would be an absurdity.  Our current Council can, and must, make a decision. In the words of baseball great Yogi Berra, “When you come to a fork in the road take it.” 

Post Script

VREG is closely watching the Water Supply Task Force Committee’s work on how “our” water conservation program will be designed, monitored and implemented in our community. It was not lost on the VREG committee that shortly after the first of a 3-year rate increase in water rates went into effect in July 2014, additional administrative personnel was hired.

 

Update on County Pension Reform

After months of signature gathering to qualify as a ballot initiative for the County of Ventura, a Ventura County Superior court judge decided that this initiative was not a valid because the County of Ventura cannot elect to withdraw from a system that it first elected to join. That ruling stated that any needed reform for the Ventura County pension plan must come from the state level.  It does not seem to be the political will of the State Assembly or State Senate to tackle this ongoing problem.

Future VREG topic- Ventura City Budget

The June 2014 annual General Budget is in and is being reviewed.

Editors:

R. Alviani               K. Corse             T. Cook
J. Tingstrom         R. McCord          S. Doll

For more information like this, subscribe to our newsletter, Res Publica. Click here to enter your name and email address.

Ventura needs a Water Commission to oversee the water and wastewater processing.

Now Is The Time To Appoint A Water Commission

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WATER – A PEARL OF GREAT PRICE
[The Right to Protest and Need for a Water Commission]

On March 12th the need for Ventura to create a Water Commission became clear. Ventura City Water/Wastewater Department mailed a notice to property owners advising that effective July 1, 2014, the rates that Venturans will pay for water and wastewater treatment will increase unless a formal written protest (vote) is received by the City Clerk by May 5, 2014.  This is the second increase in two years to be followed by increases in 2015, 2016 and 2017.

The notice details what the new rates will be, and in bold type on page 1 announces that a PUBLIC HEARING will be held on May 5, 2014.  Specifically it states that “The Ventura City Council welcomes your input during a public hearing to consider the proposed rate increases…”

This notice, in much smaller print, says that “if you wish to protest the proposed charges… you must do so in writing prior to the close of the hearing” on May 5th; and,  if not filed in the City Clerk’s office by the date of the hearing on May 5th it will not be considered.

No ballot or rate protest form is provided with the notice.  If a property owner wants to protest the increase they have to go to the City web site to download the form, or get the form from the City Clerk.  They then must fill out the form and return it to the City.  If you don’t have a computer, or are unable to travel to the Clerk’s office, you are out of luck.  If you don’t fill out the form correctly you are again out of luck; it will be rejected and considered a “Yes” vote.

In addition to the failure to provide a convenient means to protest, the notice on its face is deceptive. You are advised that that the Council will have a hearing “to consider the proposed rate increase“.  Wrong!  The council is not going to consider anything about increasing the rates because they have already done that.  The only thing they will consider on May 5th is the status of the vote.  If the Clerk reports that 51% of the “eligible voters” protested then it fails.  If 51% do not protest the increased rates go into effect.

Water Rate Increase Protest Form

Click on the Protest Button to access the Water Rate Increase Form.

The City Water Department could have easily included the one page RATE PROTEST FORM in the mailer for the convenience of the citizens. They didn’t and the omission speaks loudly.

If you fail to vote “no” by written protest your silence is considered a “yes” vote and acceptance of the increases. This is a rare instance in the California Elections process where doing nothing means yes.  If you do not own property then you have no right to vote even though you will be impacted, because such costs will be passed through as price or rent increases.

It is not the purpose of this letter to advocate for or against the water and wastewater rate increases.  That is your decision.  It is our purpose however to explain the proposition 218 processes and provide a convenient way for you to exercise your right to vote.  You will find a copy of the RATE PROTEST FORM here.

BE AWARE OF YOUR RIGHTS

Most people are not even aware of their right to vote.  A few are very aware and have gone to the Internet to urge Venturans’ to file a protest vote.  One such person had this to say:

“Attached is the form to protest the proposed water rate increases for Jul 1, 2014, July, 1, 2015, Jul 1, 2016 and July 1, 2017. In my opinion every resident getting their water from the Ventura Water Company should be filling out this form and sending it in. A quick review of these proposed rates indicates that they raise my water bill 40% from 2014 through 2017… This time I am protesting these new proposed rates. (Fool me once shame on you, fool me twice shame on me.)

         Plus I really don’t think we as subscribers should be saddled with the City’s and the Water Department’s missteps…i.e., the $55 million for the Heal the Bay lawsuit settlement related to the treated water they dump into the Santa Clara estuary, the $630,000 fine for the Water Department not meeting the required ammonia level restrictions for the water they dump into the Santa Clara estuary, the $300,000 they spent pumping water from the estuary into the ocean to lower the estuary water level to alleviate the flooding of McGrath State Park. (Note that as soon as they stopped pumping McGrath flooded once again. Sounds like a plot from a Three Stooges movie)”

Editors’ Comments

We, in our society, are not accustomed to elections being conducted in this fashion.  The normal election process is made easy for us. We receive a voter pamphlet that describes the new law, arguments in favor of the law and those against.  We then receive our written absentee ballot, or go to a polling place where we are handed a ballot and we cast our vote.  This one is different and is not made easy by a City government, which constantly asks for our trust and confidence then goes stupid and does everything to earn our distrust by sending out a notice that is not calculated to fairly and effectively enable the citizenry to vote.

HOW TO OBTAIN NEARLY HALF A BILLION DOLLARS WITHOUT AN AFFIRMATIVE VOTE

A Water Commission Helps Ventura Comply with Prop 218

A Water Commission prevents Ventura’s City Council from playing fast and loose with Prop 218.

Proposition 218, contained in California Constitution, Article XIII D, section 6, was enacted by the voters in 1996. It says that a City cannot charge a fee for a public utility that exceeds the amount necessary to provide the service – called “the cost of service”. The costs of those services are not considered a tax, but instead it is considered an expense of providing the service.

Tax increases require a 2/3-voter approval. Proposition 218 is different. The City Council must first approve the new rate in a formal hearing and then they “must notify all property owners before imposing the property-related fee”. Not less than 45 days after this notice is mailed, a hearing is to be conducted.  If written protests against the new fee are presented by a majority of owners, the fee cannot be charged.

In 2012 and again in 2014 the City Council appointed a Citizens Advisory Committee to totally immerse themselves into the cost of delivering of water and treatment of wastewater throughout Ventura.  The Committee was charged with determining the need for increased rates to meet operational costs; water capital improvement projects of $210 million and $231 million for Waste Water capital projects through 2025.

These were formal hearings conducted at the water department offices but were not televised or recorded.

This was a formidable task.  Water and Wastewater personnel sought rate increases to build financial reserves so that they could then finance and build projects. The total amount sought for Water and Wastewater capital improvement projects was $441 million.

In the end, the Committee recommended rate increases to the City Council to raise 50% of the cost so that the City of Ventura would be in a strong position to finance the balance of the cost projects over a longer period of time.

Cost to the ratepayers was of real concern. At the same time this Committee was unanimous that we, as a community, had deferred maintenance for far too long. If our community did not address aging water infrastructure, replacement water wells, pumping facilities and water/sewer lines now, the costs of financing such items would be far too great in the future.

MANAGING THE COST OF WATER—TIME TO APPOINT A WATER COMMISSION

Of major concern to this committee was the amount of money that Water and Wastewater was seeking.

$441 million is a lot of money that needed to be managed.  Programs were not yet planned. How to manage treated waste water had not been developed. The Committee was confronted with the most difficult task of making informed and reasoned decisions to determine how much money we needed. However it does not end there.

For all of the above discussed reasons, the creation of a Water Commission to monitor Ventura’s water and wastewater is fundamental to the committee recommendation. Unanswered questions and ongoing decisions are still needed in managing this $441 million commitment.

EDITORS’ COMMENTS

The City Council has many constraints on their time and numerous issues that they confront weekly.  They do not have the time to effectively monitor and mange a complex public utility involving millions of dollars annually.  A permanent CITIZENS WATER COMMISSION is a clear solution.

Such a Commission, in addition to assisting the City Council in meeting their obligations as elected officials, will bring oversight on behalf of rate payers.  Appointing former water district managers, engineers, geologists and other professional disciplines, who have the education, experience and knowledge, will serve everyone’s interests.

Editors:

R. Alviani      K. Corse      T. Cook
J. Tingstrom  R. McCord   S. Doll

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Busting Ventura’s Budget Myths And Fantasies

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Winston Churchill

THE TRUTH IS IN- CONTROVERTIBLE, MALICE MAY ATTACK IT, IGNORANCE MAY DERIDE IT, BUT IN THE END THERE IT IS
—Winston Churchill

PENSIONS BUST BUDGETS
[Grappling with Money and Economic Reality]

The City Council race concluded with the reelection of Councilmen Andrews, Monahan and Tracy plus a new councilman, Eric Nasarenko.  Our new Councilman was elected as Deputy Mayor at the last Council meeting and will serve in that capacity next year.  We congratulate each member of the Council.

During the election campaign these candidates asked to be elected so that they could help to bring about changes in City policies to:

  • improve the development of business
  • create and maintain parks
  • seek to improve streets
  • finance libraries
  • find ways to provide housing for lower income citizens
  • improve the gateways to Ventura on the North and South of Highway 101
  • create a more favorable regulatory structure to encourage development of housing
  • improve services to our citizens.

One thing that stood out for all four of these Councilmen was their plea that if the voters returned them to office and elected Mr. Nasarenko then a newly constituted Council could and would be more cohesive, and bring about the promised changes.

Their promise of change is laudable, but nothing can or will be accomplished without the money and revenue to realize those changes. That objective requires sound financial planning—an accurate and realistic budget with realistic income and expense projections.

From Where Will The Money Come In This Year’s Budget?

On June 17, 2013 the old City Council was presented with a Proposed Budget for 2013-2014. They were shown a power point presentation, explained by our City Treasurer, which was based upon a printed 569 page budget book submitted by our City Manager, Mark D. Watkins, on April 23, 2013. This budget was approved on a vote of 6 to 1 after a 30 minute hearing.  Nobody from the public appeared to comment.

It’s hard to overcome a $1.6 million deficit, if this year’s budget has no new revenue items.

Council members asked few questions, but did make statements “for the benefit of the television public” concerning their views on this budget.  Nobody asked any questions about the projected income, or questioned the expenses in this complex document other than Councilman Andrews.  He voted “no” on the motion to approve a budget projecting a deficit of $1.6 million in our next fiscal year (July 1, 2013-June 30, 2014).  He explained his no vote – “We have cut too far and we need to look at public safety costs (police and fire pension benefits)”, meaning that the Council needed to look at ways to address the enormous pension costs before considering anything else such as new taxes.

Two Council members made statements that the general fund be unburdened by shifting some costs from the general fund to special tax assessment districts — taxes on real property.  Councilman Morehouse wants to shift a $500,000 public lighting cost to property owners, although conceded, when asked by Mayor Tracy, that this might also be funded by increasing sales taxes.  Councilwoman Weir commented at length about the special assessment costs imposed by other cities, such as Camarillo and Oxnard, for street repair, landscape maintenance, parks, public safety and libraries.  It was clear from these comments that their solution for our City deficit is to tax our way out of it.

Where’s The Transparency In The Budget?

This published budget is long, complex and difficult to read.  It consists of real number-clots, number slabs by department and sub-department(s) with pages of swimming line items in minute detail. It is difficult to read, interpret or understand as a financial planning document.   For example, members of VREG tried to determine how the projected income was calculated, and what the public pension costs (the largest item in the entire budget) would be for the next fiscal year.  The income information could not be found.  The pension data was sprinkled throughout all 589 pages and explained by esoteric line items and number for every department. The City Treasurer was asked about the complexity of this document.  He conceded that this was the equivalent of a “data dump”. A good management tool for a City Council it is not.

Focusing first on the income side.  The City Treasurer at the June hearing projected income of $86.7 million. This is $4.3 million more than was collected in 2012-13, an increase of 5.2%, twice the estimated U.S. Gross Domestic product estimate of 2.5%.

No explanation has been given on where this new source of revenue will come from.  That question was put to one candidate during a candidate forum in October.  A citizen asked, “What plan does the city have to grow their revenue by that amount of money?”

The answer was revealing (click on the quote to see video of his answer):

Ventura City Budget

There is a $1.6 million deficit in this year’s budget. As a higher percentage of Ventura’s General Fund is spent on police and fire pensions, less revenue is available for other services.

 

The projected deficit of $1.6 million and sagging income expectations are bad  The annual cost of  salaries and benefits  for public safety — police and fire —  is bad, and will grow to fifty-two (52%) of the total general budget  in the next fiscal year

Unfunded Pension Liability Is Staggering

Then there is the matter of how much will have to be paid to CALPERS to pay the unfunded pension obligations of City employees, police and fire personnel in addition to the annual operational costs.  In 2008 those unfunded obligations totaled $48 million.

In October, 2013, CALPERS reported that the market cost of those unfunded liabilities have increased by 360%, and  as of June 30, 2012, totaled $173,412,464.  CALPERS also added a note in that report that if the City wanted to terminate our contract with CALPERS it would cost us $600,421,434.

This is only going to get worse because CALPERS has announced it will consider adjusting (lowering) its expected rate of return in 2015 by 1/4%, and that the actuarial life of public safety personnel is not shorter than the average person, as previously assumed, but is the same.  That means these pensioners, starting at age 55, will get paid benefits over a longer period of time.

Cities nationwide are grappling with the growing retiree-benefit pension costs which are eating up more of city general funds.  That leaves less money to spend on parks, libraries, maintenance of trees and parkways, street lights and an asundry of public service projects.  Ventura is not alone. As a higher percentage of a City’s general fund is spent on police and fire pensions, less revenue is available for other services and projects.  Detroit, Stockton and San Bernardino are models of cities that refused to accept economic reality.

If the total unfunded obligation cost does not get the attention of our new City Council, then perhaps the most recent CALPERS Actuarial Valuations predicting our annual payment obligation will get their attention.  In 2013-14 the required annual contribution total will be $8,530,730.  In 2014-15 the required payment will increase to $9,489,593.  That is more than $1 million more to be paid out of the General Fund

  Editors’ Comments

Why there are no protests by the citizens of Ventura for changing the pension plan of public safety personnel?  What will it take to get Venturans excited and concerned about this problem?

When the question of pension reform was presented to our City Council members in the past the traditional answer was that this problem could only be addressed on a statewide level; Ventura will not be the “lead dog” and venture out into this new territory; and, as unfounded as it may be, that Ventura would no longer be competitive in hiring the best employees.

This unfunded obligation to public safety personnel is a budget buster.  Nobody wants to make a decision.  In the meantime, Ventura will reduce services, charge more fees (or taxes) from its citizens and ignore the obvious “train wreck” that is ahead because it either lacks the leadership or vision to act responsibly for the future of this City

All the campaign promises in the world are worthless unless and until this new Council establishes a realistic budget, and finds real solutions to our public pension obligations.  Trying to tax ourselves out of debt is not a solution. Requiring greater employee contributions to their own retirement (8 – 10%), and creating a defined contribution plan for new hires will solve the problem in time.

That is why you were elected!

Editors:

R. Alviani      K. Corse      T. Cook

J. Tingstrom  R. McCord   S. Doll

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Ventura's bad economic policy

Economic Illiteracy, Indifference And Denial Plague Ventura Finances

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IF SOMETHING CANNOT GO ON FOREVER IT WILL STOP
—Herb Stein, Economics Professor

DETROIT – A HAUNTING SPECTRE

[The Consequences of Ignoring Economic Reality]

Most people are now well aware of the economic news. The City of Detroit filed bankruptcy under a cloud of $18 billion in debt. Crippling problems with corruption, unfunded benefits and pension liabilities, nepotism, and cozy political relationships between public unions and elected officials served to bring about their demise.

Detroit's bad economic policy

Detroit’s bad economic policy led to bankruptcy

These problems were enormous, but it was allowed to happen because of an attitude of denial.  Elected officials and citizens continued year after year to look the other way despite mounting evidence that their City was rushing towards bankruptcy – the debt continued to mount and the income continued to dwindle.    The official cause of death – no money.

How would you feel if you learned that someone you know was spending more than he was earning and having to dip into savings to keep going?  You might think at first blush that it’s because of the Great Recession.  But, what if you then learned that in the 4 years since the Great Recession the same person had not changed his spending habits as well as not earning enough income to support their profligate spending?  To explain this as being due to anything other than bad judgment, or reckless fiscal mismanagement, is to engage in the same type of denial that led the citizens of Detroit into bankruptcy.

California Cities In Bankruptcy. Will Ventura Follow?

San Bernardino went bankrupt because of bad economic practices

This news follows the similar fate of cities closer to home like Stockton, Vallejo and San Bernardino.  The City Council in San Bernardino decided to file a Chapter 9 municipal bankruptcy.  That city was running a $5 million deficit on a $130 million budget and did not have enough cash to pay its vendors, workers and retirees.  In the last 4 years the tide has gone out and were are now finding out who was swimming naked.

So, good reader you ask – “What do the financial problems in Detroit or these other California Cities have to do with Ventura?”  The answer lies in the fact that over the last 4 years City Government has used “budget gimmickry” to make it appear as if the City Council had balanced our budget each year.  Solvency was the stuff of fiction for our then City Manager, Rick Cole and Mayor Bill Fulton.  They are gone and we are left with economic reality – not enough money to pay our obligations, an economy that is not recovering and unfunded public pension obligations that have doubled.

CANARY IN THE COAL MINE

[Bad Economic Policy In Practice]

On June 17, 2013, our new City Manager presented a Budget for 2013-14 to the City Council for approval.    The budget is not balanced.  In the last 4 years revenue decreased from $94.1 million to $82.4.  The Council was presented with the following historical and projected income and expense comparisons (numbers in millions of dollars):

Fiscal Year Income

(millions)

 Expenses

(millions)

 Shortfall/Gap

(millions)
2008-09 $94.1 $94.1 0
2009-10 $85.1  $96.5 $11.4
2010-11 $88.1 $80.4 $7.7
2011-12 $ 81.0 $81.5 $0.5
2012-13 $82.4 $84.4 $2.0
2013-14 $86.7

(est.)

 $88.3

(est.)

 $1.6 

(est.)

 

Our new City Manager outlined, in a kindly manner, the efforts that had been made in the past to try to “balance the budget”, which had not been successful:

“In the past 5 years the City of Ventura has experience a decrease in general fund revenues of $16 million dollars.  During the same period, budget and service cutbacks have eliminated more than 100 positions, increased employee contributions of both medical costs and retirement costs, reduced landscape  maintenance and park service levels, reduced street repairs and resurfacing, discontinued the Crime Prevention Program, and reduced the Police Department Gang Unit, eliminated the Neighborhood Traffic Calming Program, temporarily closed Fire Station 4,  reduced sidewalk repair program, reduced hours at the Senior Centers…just to name a few.  While these efforts were extensive, they simply have not been enough to balance our budget.  This is evidenced by the continuing decline of our fund balances, which have been decreased by approximately $10 million dollars over the past 5 years.

“Utilizing fund balances, or living off your savings accounts, is not an uncommon practice for municipalities during times of economic challenge but it is only a short term solution that is undertaken with the optimistic view that economic conditions will soon change for the better.”
—Mark D. Watkins, new City Manager

Too Much Data, Not Enough Information Muddles Economic Policy

This 569 page budget provides detailed expenses of $89.5 million dollars, but it totally lacks any information on how this year’s revenue of $82.4 million dollars can be increased to meet our projected expenses of 88.3 million dollars in 2013-14.  Where will that additional $7,100,000 be generated?   If true we are asked to accept that our City will increase our income by 8.6% next year, more than twice the U.S. Gross Domestic Product of 2.5%.  What makes our City officials believe our rate of growth will be more than twice the national average?

On the liability side the facts frightfully demonstrate that we are on a financial cliff.  Not only are we facing a deficit of at least $1.6 million or more in our General Fund Budget, there are the off the books debts.  First, there is the matter of the unfunded pension obligations to City employees, policemen and firemen.  In 2008 those obligations totaled $48 million.  In our August, 2008, edition we argued that the Council should take steps to change the pension structure because those benefits were not sustainable.  Today those obligations total a minimum of $96 million upward of $350 million, depending on the assumed rate of investment from CALPERS.

“If we do not find a way to restore these funds in the next 5 years we will have serious financial difficulty.”

In spite of these looming long term commitments and with an urging that the City Council not increase the Firefighters pension entitlements to 3% at age 55, the Council did it anyway.  Nobody on the City council could identity where the funds would come from to pay for this increase.

Second, there is the $12 million in reserve that we have had since 1992.  Not only was the income from this reserve used by the City Council as a source of income for the General Budget over the last 20 years, but we learned in March, 2013, from our interim City Manager, Johnny Johnson that $7.5 million dollars in the Public Liability Fund, Workers’ Compensation Fund and Information Technology Fund had been moved to other areas in the budget to make it appear as if our budget was balanced.  In his words, “if we do not find a way to restore these funds in the next 5 years we will have serious financial difficulty.”

POST SCRIPT
INCLUSIONARY HOUSING ORDINANCE

Inclusionary housing bad economic practice

Inclusionary housing continues Ventura’s bad economic practices

In our last issue we reported that the City Council, on July 15, 2013, would consider a request from the Community Development Director to cancel the Ventura ordinance requiring builders and developers to donate a percentage of their development to low income people. His reasons were clear, there is no housing being built in the City of Ventura.  His view was shared by the State Department of Housing and Community Development, which had concluded that such ordinances “are a constraint to the development of housing”.

The Council room was flooded with the homeless, low income folks and their children, all prepared to tell their story and urge denial of the request to cancel the ordinance.  This was orchestrated by CAUSE. Their organizers were in the hallway handing out bottles of water and signs that read ‘HOMES FOR EVERYONE”.  A group organizer actively moved in an out of the group with clip board in hand.

Councilman Andrews quickly presented a motion to defer a decision on the measure and for the appointment of a Blue Ribbon Committee to study the matter further.  Councilman Brennan, joined by Councilman Morehouse, pointed out that when they came up with this idea for this ordinance in 2006 “we knew we were going to have to massage it because we did not know where it was going.  We expected we would have to come back and look at alternatives”.   The three of them voted to table the matter and appoint a special committee of “experts” to make recommendations.

“This 2006 ordinance was a half baked idea”

Councilwoman Weir painted a more candid view of this ordinance.  In her words “this 2006 ordinance was a half baked idea”, and that “it was no surprise to anyone it is not working”.  She also observed that a lot of those people in the audience who spoke against cancellation were homeless and would never qualify under the program anyway.  Ms. Weir favored an “in-lieu” fee to help the homeless transition.  Mayor Tracy and Councilman Monahan joined her in urging an “in-lieu” fee.  They voted against the motion by Councilman Andrews to postpone and appoint a committee.

Deputy Mayor Heitmann provided the decisive vote to table and appoint a Blue Ribbon Committee.  She seemed somewhat confused by the discussion, did not profess to have any knowledge on the subject thus voted to table the matter because there were “a lot of unanswered questions”.  A perplexing comment given that the Council and been provided with a lengthy and detailed report from the Director of Community Development explaining why this ordinance had failed.

Nobody knows who will be on the Blue Ribbon Committee.

Editors’ Comments

Economic illiteracy is not recommended as a qualification for the Ventura City Council. We urge you to choose your Council Members wisely come next November.

Editors:

R. Alviani      K. Corse      T. Cook
J. Tingstrom  R. McCord   S. Doll

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Eliminate Inclusionary Housing Oridnance

The Inclusionary Housing Mirage

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Winston Churchill

Some People regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk. Not enough people see it as a healthy horse, pulling a sturdy wagon. —Winston Churchill

ELIMINATION OF THE INCLUSIONARY HOUSING ORDINANCE

[A PRO-GROWTH PROPOSAL ]

The Ventura City Council, at their meeting on Monday, July 15, 2013, will consider the recommendation of our new City Manager, Mark D. Watkins and Community Development Director, Jeffrey Lambert, “to eliminate (cancel) both the Citywide and Downtown Inclusionary Housing Ordinances (IHP)”.

 This ordinance was adopted in August, 2006. The author was Councilman Brian Brennan. The idea was that there are people in the City who “need housing”, and cannot afford to buy or rent housing unless they received financial assistance. So, on a vote of 5 to 2 it was decided that if a person or company wanted to build 15 or more residential units “for sale” or “for rent” then that developer, at their expense, was required to donate a percentage of the living units to low income people. The units had to of the same quality and disbursed throughout the project.

“The adoption of an inclusionary housing requirement in conjunction with the Housing Approval Program, will provide a mechanism for all residential development containing 15 or more units to provide ‘their fair share’ of affordable housing…” Resolution No. 2006-058         

Now, 7 years later, it is clear that the concept is not working. The “developers” have not stepped forward, they have declined to invest and build the projects in the City and new construction has stalled. Our new City Manager and the Community Development Director are recommending that this ordinance be cancelled. The full report can be read on line as agenda item 14 for the Council meeting of June 17, 2013.

“It is staff’s recommendation… based on the State Department of Housing and Community Developments conclusions that IHPs are a constraint to the development of housing. In addition, staff believes imposing this obligation to provide affordable housing units on market rate developments places an undue burden on these developments and increases the cost of market rate units…”

—Administrative Report, May 29, 2013

THE SOCIAL EQUITY ARGUMENT

 [EVERYONE IS ENTITLED TO AFFORDABLE HOUSING]

Protesting Inclusionary Housing Ordinance

Some will protest eliminating the Inclusionary Housing Ordinance.

Opponents to the proposal to eliminate this ordinance will be very visible and vocal in their opposition at this City Council meeting. They will demand that the council reject the staff recommendation, because everyone is entitled to affordable housing, and that housing “for sale” or “for rent” can be provided to those in need without spending public money. Their logic is that tax payers will not have to pay anything because the developer will have to pay. Alternatively, they ask that if this is not acceptable then the developer should pay an “in lieu of fee” of $200,000 or more.

This argument will find a sympathetic ear in Councilman Brennan. No surprises. He authored the original concept, proselytizes “social equity”, and is strident in this view that affordable housing for all (free or pay what you can afford) is an unassailable truth – if you cannot afford housing then is somebody else will have to pay.

A READER’S VIEW

[THE BURDEN WILL FALL ON PROPERTY OWNERS]

A reader and property owner, who expressed a desire for anonymity, stridently supports the efforts of the City Council to abolish or severely restrict the current inclusionary housing program. In our view “we can think of no other program which so seriously restricts private developer efforts to build housing in Ventura as well as seriously impacting our revenue base of property tax”.

Affordable housing mandates have had an unintended consequence: they have discouraged home building, and the diminished supply of housing has driven prices up.

The opponents of the change ignore the fact that almost 40% of Ventura’s housing stock is already dedicated to some form of subsidy for affordable housing, leaving 60% to pay the bills of the City. Advocates of affordable housing seem to have no concept of economics, and feel that someone else should pay for their housing costs.

In 2008 the Independent Institute published an article on the subject http://www.independent.org/newsroom/article.asp?id=2225 which is instructive. Extracts from that article are quoted below.

“We recently analyzed how inclusionary zoning laws, requiring builders to set aside a given percentage of new construction for low- to moderate-income individuals, have affected both new home prices and the quantity of new homes over time.

We compared the changes in housing prices and supply in these cities to those without a similar ordinance. The cities that adopted inclusionary zoning laws saw a 20 percent jump in housing prices and a 10 percent decrease in the number of new units built. This is the basic law of supply and demand at work. Affordable housing mandates have had an unintended consequence: they have discouraged homebuilding, and the diminished supply of housing has driven prices up.

Despite the nice-sounding name, inclusionary zoning is still a price control that leads to a decrease in the amount of housing. Economic theory and evidence demonstrate that imposing price controls and taxes on housing is one of the worst ways of encouraging the production of housing.

The real problems causing the affordability crisis are regulations that prevent increases in the supply of homes. Eliminating restrictive zoning regulations will give consumers more choice and make housing more affordable. For those who truly care about making housing more affordable, price controls are not the answer.”

ANOTHER PERSPECTIVE – THE ARCHITECT/PLANNER[1]

Architect against Inclusionary Housing

One architect expresses concerns over the Inclusionary Housing Ordinance

The real challenges I encounter regarding inclusionary housing ordinances are around the issue of for-sale homes and financing. For the developer, inclusionary housing requires them to write down or subsidize the cost of the affordable units. The ordinance assumes that the project has enough profit margin to allow this to happen, but as demonstrated in the last several years, there is no guarantee that this will be the case.

From the low income buyer qualifying for a the low income housing is problematical. The IHP assumes that the low income home buyer can qualify for the loan, of even a subsidized amount. That is an enormous hurdle, but even if they can qualify such projects will have association fees of hundreds dollars per month. These costs cannot be written down as they must be paid by every member-owner of the association.

The intent of the IHP is positive – trying to keep new development from overwhelming existing smaller scale neighborhoods. But the matter of affordability works in direct opposition to this intent. The City has recently been trying to meet these challenges and has been moving to adjust interpretations to make the situation more workable. Not everyone knows or appreciates that effort.

Problems notwithstanding finding ways to provide affordable housing in the Downtown area, for both rental and purchase housing,  is a laudable goal. To provide smaller more affordable market-rate dwellings, such as studio and loft-type apartments, ranging from 400 sq.ft. to 600 sq. ft. will meet a real need. These can be very nicely done and are popular dwelling-types for our younger Venturans, who are drawn to the downtown as a place of social and cultural interest. Many are employees of the variety of businesses – restaurants, retail shops, professional and service businesses.

Editors’ Comments

The State of California Department of Housing and Community Development, our City Manager and Community Development Director advise that this ordinance should be cancelled because it is not working. We should listen. This ordinance has not only failed in its stated objective, but has in effect stalled housing growth.

Your letters and comments on this issue are extremely important. Send emails to Ventura Mayor, Mike Tracy mike.tracy@cityofventura.net

Editors:

B. Alviani             K. Corse          T. Cook

J. Tingstrom       R. McCord       S. Doll

[1] Opinion provided by a longtime Ventura architect.

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Pension Redux

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“Stupidity is also a gift of God but one mustn’t misuse it.”
—Pope John Paul II

PENSION OBLIGATIONS REVISITED

On March 11th the City Council was informed that the $12 million reserve that we have had since 1992 isn’t available as we had been led to believe. Although the General Fund has about $28 million, including this $12 million dollar reserve, by the end of the 2012-13 fiscal year had been “committed” or “promised” to someone or something. This includes such things as a $5.4 million dollar loan to the Ventura Redevelopment Agency or the $2.4 million set aside for the Jobs Investment Fund.

These promises are in fact liabilities, money we that we owe. If all of the promises are fulfilled and the RDA successor agency is unable to pay back their loan, the General Fund would only have $4.3 million. Not discussed or mentioned at this Council meeting were the other debts and liabilities, in particular the unfunded public pension debts. Those obligations have increased 97.4%. since our report to you 4 years ago.

The Comprehensive Annual Financial Report (CAFR) is an annual financial report detailing the financial condition of our City.

We start with the Comprehensive Annual Financial Report (CAFR). This is an annual financial report detailing the financial condition of our City. These numbers are accurate, but bear in mind that by the time we see the reports the data is 18 months after the fact. Further, you have to look in the footnotes to discover those debts which are “off the books” like the City pension program, which is administered by CALPERS.

What follows is an extract from the 2008 CAFR, as it related to the status of the City pension plan then. The third column reflected how much we owed to employees and retired employees as of the date of the report. The category of “safety” covers police and fire pensions and all other employees are carried in the “Miscellaneous Employees group”. Our unfunded liability totaled $48,673,594.

In the same year the revenue collected by the general fund totaled $88.7 million, of which $47.1 million (53.1%) was spent exclusively on police and fire departments. The percentage of our general budget paid to police and fire has increased dramatically whereas other employee costs have remained relatively stable. In 2009 59.9% of our total budget was allocated to public safety, 57.7% in 2010 and 53% in 2011. That did not include the “unfunded pension obligations”.

CalPERS increases unfunded pension liability costs to Ventura

In 4 years UNFUNDED PENSION OBLIGATIONS INCREASED 97.4% and now total $96,099,169.00.

These unfunded obligations accrued interest year after year, at the rate of 7.75%. CALPERS did not recover the substantial losses (reported by some news sources as 50% )as a result of the 2008 recession. They also did not earn the 7.75% annual projected investment returns until just recently. On the Legislative side efforts at the State and local level to move from a defined benefit plan to a 401(k) plan for new hires failed. Our City did try to address the problem by requiring current employees to contribute 4% of their compensation toward their own retirement plan, but it was piteously short. In 4 years UNFUNDED OBLIGATIONS INCREASED 97.4% and now total $96,099,169.00.

CALPERS is quick to point out that over a 20 year period the” return for each fiscal year ranged from -24% to +21.7%., and if we let them continue to manage our pension plan they “assume” we will get a return of 7.50%. But, if we want out and want to run our own program they use a 4.82% rate of return. We really owe $350,848,292. (See attached Hypothetical Termination liability for each plan).

 

PUBLIC PENSIONS OR BOND HOLDERS – AT RISK

[WHAT IS GOOD FOR THE GOOSE IS GOOD FOR THE GANDER]

Last year the Governor’s office and legislature announced that they had achieved “pension reform”. The reality is that they did not change any of the current pension benefits. They did this mainly for political reasons, but also because it is widely assumed that employees in the public pension system are protected by the constitutional ban on “impairing the obligations of contracts”.

Public employee unions have stridently asserted that they are different and thus bullet proof. This attitude was displayed clearly when the City of Stockton filed bankruptcy. That City told their bond holders and/or their insurers to take less, but refused to reduce the $29 million it pays each year to CALPERS for the employee benefits.

Assured Guaranty Ltd, which insured the Stockton bonds, stood to lose $100 million. They filed a complaint in the bankruptcy court claiming that Stockton had targeted the bondholders to take a loss, but continued to pay CALPERS without any reduction or did not seek any benefit reductions from the public labor unions.

Another insurer, National Public Finance, added their voice to the controversy, supported the Assured Guaranty position, but also alleged that the City of Stockton “rather than face the hard realities imposed by its unbearable liability to CALPERS (decided) to take a pass” – in short, that it was easier to sacrifice the bond holders than face the political wrath of the public employees or CALPERS.

So, the bond insurers asked the bankruptcy judge, Christopher Klein, to declare the City’s bankruptcy plan as inadequate because it ignores the pension debt, and they seek to compel the City to reduce its pension payments. The CALPERS reaction was to argue to Judge Klein that the pension payments have a higher priority over bonds. CALPERS lost.

In December, 2012, Judge Klein rejected the CALPERS constitutional inviolability of contract argument and ruled:

“While a state cannot make a law impairing the obligations of contract, Congress can…the goal of the bankruptcy code is adjusting the debtor-creditor relationship. Every discharge impairs contracts”.

So, what will happen to the benefits of the public pension contracts or the bond holders? CALPERS, those in the Stockton pension plan and the bond holders may both lose. This chapter is soon to be written.

EDITORS’ COMMENTS:

A 97.4% increase in unfunded liabilities over a 4 year period is setting Ventura up for failure. Most citizens don’t realize that Ventura will pay $13.3 million to CALPERS for 2012-2013. This is over and above salaries and other benefits. As more employees choose to retire early (50-60 years of age) this only gets worse.

Call it what you will, but the City Council thus far has adopted a profligate fiscal plan of doing nothing to pay this unfunded obligation. Hoping that the economy will rev up, that inflation will chip away at the obligation, or that somehow our pension assets will produce magnificent returns is foolish.

When the Council considers its new budget in June we urge them to set aside a percentage of our annual revenue to add to our reserve and/or apply to the unfunded pension obligations, and to release some of the commitments it has made to the General fund cash balance.

 

Editors:

B. Alviani         K. Corse             T. Cook

J. Tingstrom    R. McCord        S. Doll

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Budget Manipulation Using Fiscal Sleight Of Hand

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Fair is foul, and foul is fair: Hover through the fog and filthy air”
—Shakespeare, Macbeth

STATE OF THE CITY TREASURY

[TRANSPARENCY THROUGH FOUL AND FILTHY AIR]

History continues to remind us that to get to the root of any act of wrongdoing, malfeasance or wrongdoing, you need only follow the money to find the culprit(s). Eventually the truth and they are revealed. That again proved true at the City Council meeting on March 11, 2013.

Shell game balanced budget

Balancing the budget through financial sleight of hand

Our acting City Manager, Johnnie Johnson, in collaboration with the Chief Financial Officer, informed the City Council that those in charge of the budget in our City had adjusted [manipulated?] the GENERAL BUDGET to make it appear that we had achieved a balanced budget. In fact just the opposite was true.

The previous City Manager, Rick Cole together with Mayor Bill Fulton continuously publicized the fact that “we were living within our means”, that “we had balanced our budget” and that our “financial affairs were transparent”. On this Monday night the Council learned otherwise.

What the Council learned is that the $12,000,000 in financial reserves, created in 1992, and still in existence as of 2007, was now in fact only worth $4,300,000. The explanation provided is that Internal Service Funds (noted below), which contained money budgeted and set aside to meet real and specific future costs and potential liabilities, had been reduced so as to make it appear as if the budget had been balanced:

  • ($2m) Unassigned.
  • ($2m) Unfunded Workers Compensation liability
  • ($3m) Potential liability claims reserve Information
  • ($700,000) Technology

The explanation offered is that this was a way to make it appear as if our budget was balanced. As stated by Mr. Johnson, “we have not borrowed it from strangers, but we did borrow it from ourselves… (and) if we do not fund this within five years we will be broke”.

Mayor Tracy, at the conclusion of the presentation stated:

“Based on the way I look on the information we received here tonight we have probably been deceiving ourselves and therefore the general public. There is nothing illegal done here, we did not participate in any conspiracy, but I don’t think it (this) was clear to us”.

—Mike Tracy, Mayor and Retired Chief of Police

He then added that that the Council needed to put more oversight controls in place to prevent this from happening in the future. A new budget will be presented to the Council on May 1, 2013.

Editors Comments

Mayor Tracy and Councilman Heitmann were not on the City Council when these budget “adjustments” were made. For those council members and supporters of the former City Manager, this should be a lesson that the public was deceived and there was not total transparency during Mr. Cole’s administration. To have an interim City Manager, in 6 months time, bring to light that the $12.0M reserve was really $4.3M shows how gullible our leadership has been.

THE NEW CITY MANAGER BUSTS THE BUDGET

Mark Watkins’ higher salary and benefits strain Ventrua’s budget

On March 4, 20013, the City Council met to consider the employment contract for the new City Manager, Mark Watkins. On a vote of 4 to 3 the Council approved the employment contract. He will receive the following salary and benefits plus 6 weeks paid leave:

Base Salary $222,000.00
Annual Cost of Living Increases (1/2% of annual CPI)
Annual Performance Bonuses (3%-7%) $15,540.00
Auto Allowance $6,000.00
City Contribution to 401(K) $12,000.00
Employer Pension Pickup (2.5%) $5,500.00
Total Before Benefits $261,090.00

When invitations for applicants were first published the City Council set the salary rate range of $160,000 to $214,000. The previous City Manager received a salary of $174,000.

The Ventura County Taxpayers Association spoke against approval of the contract because the starting salary was simply too high for an entry level Manager, that the salary should be started lower and then increased to provide performance incentives and the contract provided automatic annual Cost of Living Adjustments (COLA) during the 3 year term of the contract. They also warned against the COLA adjustment because of the precedent it would set when other public union contracts came up for renewal.

Mayor Tracy, Councilman Monahan, Councilwomen Weir and Heitmann approved the contract. They stated that Mr. Watkins was a long time resident of Ventura, that he had worked in the City during his career, that he was an Assistant City Manager in Thousand Oaks and that this was what needed to be paid to attract a qualified City Manager who would focus on the basics of operations of city government. Councilwoman Weir commented that any increase in the salary level could also be justified because “that we have already found savings in the City Manager’s budget to make up the difference”.

Our present acting City Manager commented that Mr. Watkins was a good choice, that this pay increase really only involved “pennies” in the total scheme of things, and that if he did not work out he could just be terminated and given a severance package.

Councilmen Andrews voted against the contract. Councilmen Brennan and Morehouse, after extolling the virtues and accomplishments of the former City Manager, Rick Cole, also voted no.

Editors Comments

Mr. Watkins will cost us an additional 26,102,700 pennies per year. He will earn all of that in dealing with our budgetary issues. We hope that the majority of the Council is right in saying that the additional expense can be justified by the savings that this new Manager will bring to our City.

In the meantime we must be diligent and continue to remind our elected representatives that if they we do not watch how they spend our pennies “we” will have no dollars left.

Editors:


R. Alviani K. Corse T. Cook J. Tingstrom R. McCord S. Doll

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WAV Condos in Ventura

A WAV Of Financial Trouble Traps Ventura

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“When everybody owns something, nobody owns it, and nobody has a direct interest in maintaining or improving its condition. That is why buildings in the Soviet Union — like public housing in the United States — look decrepit within a year or two of their construction…”
—Milton Friedman, Nobel Peace Prize economist

 

THE WAV CONDOS – A FAILED PIPE DREAM

[The Proof is in the Pudding]

Our former City Manager, Rick Cole and former Mayor, Bill Fulton, sought to implement their visions for Ventura. They have moved on but they left the citizens of Ventura with financial problems.

Each arrived from the LA area with populist visions, advocating for a community with less cars, more public transportation, more public housing all driven by the concepts outlined by the New Urban Congress. Their visions were embraced by a vocal minority – the art community, architects and low income housing advocates and special interest builders and planners that could live off the Redevelopment Agency dole. Their visions were a financial disaster. Mr. Cole’s contract was not renewed. Mr. Fulton packed his suit case and moved to Washington. Most citizens “waved” goodbye. A few are still awaiting Mr. Fulton’s new book on how the New Urban experiment worked in the City of Ventura, particularly the 69 residents of this subsidized housing units in this project that has cost taxpayers $985,072 per living unit.

The WAV Condos. Ventura’s attempt to build an “arts” city.

In January 2012, we treated one aspect of this project – the 13 market rate condominiums and 6,100 sq.ft. of commercial space along Ventura Avenue at the corner of Thompson Boulevard. The sale of these units and the lease of the commercial spaces were supposed to provide a source for repayment of construction loans to CHASE and the City of Ventura.

Chase holds the note on Ventura’s WAV Condos. The city stands to lose $2.5 million if the WAV condos do not sell by 2016

To make the market rate condos and commercial space development work, the City loaned $2,000,000 to the developer ($2.5 million now due with interest), and subordinated that loan to a first trust deed in favor of CHASE in the sum of $4,000,000.  Those loans were scheduled to be paid on the sale of the 13 condos, or by March 1, 2012. They did not sell and the commercial space did not lease. Facing foreclosure, and loss of our money, the City entered into a contract with CHASE to extend the due date to December 1, 2016.

This was not the result the City planned when this project was started. The City selected a person named Chris Velasco to “develop” the project, using our taxpayer dollars of course. Mr. Velasco signed the contracts, operating as a Minnesota non-profit company called PLACE. He gushed about the project. Here is one example:

“WAV’s market rate condominiums (priced from $625,000 to $875,000) are now for sale…WAV’s forward thinking configuration comes with an up market price tag. The average price per square foot for condominiums in the same zip code is $274; WAV’s pricing is $368 per square foot; however, buyers will be living green and helping underwrite WAV’s community. Besides the artists, and the public who flock to Ventura’s Art Walks and galleries, it includes those at 15 section 8 apartments”

So how reliable was the original plan? Not, by all accounts. The realtor involved with trying to sell the WAV units and lease the space recently shared his thoughts with us:

“These condos could only be sold for cash, or with a portfolio lender, due to Fannie Mae guidelines restricting the lending side. Its what I was up against for the three years. I had the listing together but was faced with the fact that the City refused to recognize that the condos were priced almost 1/3 higher than the market would bear. They would not entertain lowering them to market value.

“The condos were never worth $850K, at the most somewhere in the mid-$600s But even then the economy was turning down with buyers running for the hills. Add to THAT the fact they let my listing run out because I didn’t sell any. They said they wanted to take ‘another direction’.

“Now, perhaps they’re worth $479 tops – but you can’t use a traditional bank. Portfolio lender rates are usually at least 2 points higher, but a cash is the only way. Once one sale exists, there is a comp. Until then, its a big guessing game…”

            —Jerry Breiner, Realtor

 

Editors Comment:

Dump the WAV Condos as fast as possible.

Our City stands to lose $2.5 million if the WAV condos do not sell by 2016. It is likely they will not sell. An objective person cannot avoid the obvious problem in marketing these condos — bad views (freeway), bad location, no parking, low income neighbors and bad design. Our goal should now be to sell them for what we can to avoid a potential total loss through the foreclosure process. In other words, forget the cheese and just get out of the trap.

 

BANKRUPTCY LOOMS FOR CITIES

[The Good, The Bad and The Ugly]

The election is over but the business prospects for California cities remains dismal. Moody’s, a business rating service has placed the debt of 30 California cities, under review for downgrade. With the rating downgrade each of these cities will have great difficulty in raising money to operate essential government functions by borrowing municipal bonds.

THE BAD

On the list for downgrade are Oakland, Fresno, Sacramento, Azusa, Berkeley, Colma, Danville, Downey, Fresno, Glendale, Huntington Beach, Inglewood, Long Beach, Los Gatos, Martinez ,Monterey, Oakland, Oceanside, Palmdale, Petaluma, Rancho Mirage, Redondo Beach, Sacramento, San Leandro, Santa Ana, Santa Barbara, Santa Clara, Santa Maria, Santa Monica, Santa Rosa, Sunnyvale, Torrance and Woodland.

The rating examinations will potentially affect $14.3 billion in lease-backed and general obligation debt on the books of these cities. Why? Because these cities did not address their internal cost structures, did not reduce personnel costs in the face of looming debt and used accounting gimmicks in the hopes that the economy would change. It has not changed. Add their unfunded pension and debt obligations to their itemized costs and they are in trouble.

THE UGLY

The cities of Vallejo, Stockton, San Bernardino and Mammoth Lakes filed for bankruptcy. Their revenues from real property taxes and sales taxes dropped precipitously while fixed costs, such as public safety pensions remained high.   Public safety personnel refused to modify their benefits to help with the budget issues of their city. The fight between public safety unions, who refuse to modify their pension contracts, and the bond holders who loaned the cities money, looms large.

THE GOOD

 At the beginning of the recession the City of Ventura lost $5 million when Washington Mutual (WAMU) collapsed and $5 million when Lehman tanked. Tax revenues plummeted from $100 million to $82 million currently (estimated).   The City has tried to adjust for this 18% revenue reduction but the unfunded pension benefits for police and fire departments increased from $43,496,873 in 2008 to $68,385,380 in 2011. That is an increase of 57% for public safety. Add to that the $21,327,225 in unfunded benefits for all other City employees and we owe $89,712,605.

The positive news is that in the last four years is that the City has recovered $1.5 million of the WAMU investment. The City Council has also been trying hard to adjust their expenses and live within their means. Standard and Poor provided our City with a rating of AA.

One of the key individuals in achieving the S&P rating and urging fiscal restraint is our Chief Financial Officer, Jay Panzica. He has been instrumental in guiding the City through this difficult economic period. He was the driving force behind the Budgeting for Outcomes.

Chief Financial Officer, Jay Panzica, wasinstrumental in guiding the Ventura through this difficult economic period.

Mr. Panzica was also instrumental in setting the stage to help refinance the bonds owed for past water and waste water building projects. The first step was to seek an increase of water rates. This step, reviewed by a citizens committee in the fall of 2011, resulted in increased rates for all water users. The counsel prudently adopted those rates, on the recommendation of the citizens committee, thus setting the stage for a major refinance effort in 2012. Increased rate (revenue) by users provides the security for payment of the bond premiums in the future.

To take advantage of today’s lower interest rates, to refinance existing debt for Water and Wastewater projects and to obtain new money for new projects he asked our interim City Manager, Johnny Johnston, to seek approval from the City Council authorizing the issuance of $52 million in Water Revenue Bonds and $23 million in taxable Series A and tax-exempt Series B Waste Water bonds.

On October 8, 2012, the Council approved the request to:

  1. Refinance the existing water bonds ($27,410,000 issued in 2004)) and issue new bonds for additional $25,000,000 for future projects.
  2. Refinance the existing waste water bonds ($25,075,000 issued in 2004) for $23,000,000.

The bonds sold. As a result of a substantially reduced interest rate our City will save $1.8 million on the old water bonds and $2.3 million on the waste water bonds that we otherwise would have had to pay under the terms of the 2004 bond issue. A savings of $4.1 million plus financing costs, and another $25 million in new money for future water improvements is a very positive step forward.

Editors’ Comments:

Good is a relative concept. Creating a basis from which we can build infrastructure and thus create a solid foundation for future economic growth is the right course for government.

“If you put the Federal government in charge of the Sahara Desert in 5 years there’d be a shortage of Sand”

As for government trying to engage in business and compete with private enterprise the words of Milton Friedman says it all “If you put the Federal government in charge of the Sahara Desert in 5 years there’d be a shortage of Sand”

 

Editors:

B. Alviani           K. Corse             T. Cook

J. Tingstrom      R. Mccord         S. Doll

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