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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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Failed Investment, Failed Policies Make Ventura Like Greece

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“Rebellion to tyrants is obedience to God”
—Motto on THOMAS JEFFERSON’S seal.

CALIFORNIA: AMERICAN GREECE

Tim Cavanaugh of an on-line news company called REASON has written a good analysis of the dilemma facing California. He writes:

“What do Europe’s most bankrupt state and America’s most bankrupt united state have in common, aside from being bankrupt?

In what is undoubtedly a coincidence , noticed only by free-market fundamentalists, it turns out that Greece, that sun-drenched paradise on the Aegean, and California, that sun-warmed El Dorado on the Pacific, are the worst places to do business in their respective economic zones.”

VENTURA’S VISIONARY?

[Investment In People Too High]

The city Manager recently announced that we are in a “war for jobs”.   He is right, but know this. We will be competing with every city in the nation for those same jobs.  The winner will be the public entity that realizes that the jobs we lost in the 2008 depression are not coming back. We have to create new opportunity and new jobs.

The city needs private enterprise now more than ever, so please City Council when a new project developer or businessman comes through the door give him a hug, and not a bill for all of the costs and fees that you have piled onto such projects.  A happy face and lower fees, as an incentive to come to Ventura, will work wonders.

The Ventura City Council says they are going to “Live Within Our Means” and stay within their budget, but they wince when it comes to the thought of layoffs. The closing of a fire station proposed by the City Manager, as expected, has heightened the emotions of several adjacent neighborhoods and the Fire Department folk.  These citizens and the firemen need to wake up and realize that this is not about saving a fire station, but the financial well being of the entire City.  We must keep in mind that  City government has been entrusted to provide  “basic governmental services” to its citizens within its means, but does not have an obligation to keeping individuals employed so that they can retire with life with lavish pensions and benefits.

Any business owner knows that to reduce services diminishes their value. They also know that the single highest AND controllable expense is labor. Maybe the theme of “Living Within Our Means” needs to be better defined. Reducing services and programs should only come after a reduction of staff levels reached the bear minimum.

Five years ago, the claim was “we have cut expenses to the bone and there is no where else to cut.” Today, the City has reduced the workforce by 16% AFTER they made that claim. Sounds like the story of the “boy who cried wolf”. Enough on the budget for now. All we know is the reduction of services has long been a ploy to get the citizens to sympathize with public employees.

WAS IT $10,000,000 or $20,000,000 LOST?

[Monetary Investment Too Risky]

In March and April 2009, VREG discussed the loss of $10,000,000 in Washington Mutual and Lehman Bros. investments.

The City  father’s took refuge [seemed proud?] that they only lost $10 million in investments in 2008, they defend their loss by comparing the loss to the average citizen’s 401K losses.   Hardly a realistic comparison given that the investment policy for a municipality is and should be much be more conservative and restrictive.  Some at the City make it sound as if it is heresy to suggest that they should not have lost anything.

The City Attorney on the other hand is crying “fraud” on the part of Lehman Brother and WaMu — a distraction at best.  The decision to invest in these financial institutions was made by a committee of four. None of the four members of the Investment Committee has investment licenses, nor the experience and qualifications to oversee a $200 million portfolio in this current financial market. Months before the Lehman and WaMu debacle, the City had a prior warning of problems due to a potential $10 million loss they had invested with Bear Stearns.  It turned out that the Bear Sterns was acquired by JP Morgan and thus avoided bankruptcy, however at this writing we do not know how much JP Morgan is willing to pay the City of Ventura on that investment.

How is the recovery of the loss of $20,000,000 by the City of Ventura with their investment in Bear Stearns, Washington Mutual and Lehman Brothers going? We do not know. Was anyone fired for losing $20 million?  Nope. And we predict no one will not be fired.  What the Council should do is appoint people who are qualified AND do not have a potential conflict of interest in making investment decisions to insure that income from the investments will be available to feed the general budget.

THIS FROM A READER OF THE LAST EDITION

[CalPERS Investment Underperforming]

It is interesting that when I attended the PERS conference in Los Angeles at the Convention Center in February, the strongest criticism of PERS [CALPERS] came from the representative of the Governor’s office, who had been a former member of the CalPERS Board. His critique was focused on two  things:

  1. That PERS consistently and incorrectly utilized a projected return of investment (7.75%) that was grossly overly optimistic of their likely actual long-term results
  2. That PERS was virtually impenetrable and as dark as a lead lined coffin when someone attempted to secure information from it.

I reported this critique to both the Compensation Task Force and to Council Members…I have also reported repeatedly on the losses that PERS has incurred in their investment portfolio, that they are the subject of criminal investigations over potential fraud and kick-backs form their relationships with placement agents (former Board members using their old connections to get rich), and that at least several current Board members have incurred serious fines because of their consistent failure to report publicly on their investment holdings and sources of income as required by law… Needless to say, our union representatives constantly run with the official PERS line that PERS is sound and in good health.”

—Neal Andrew

EDITORS’ COMMENT: 

We have previously reported on the failed investment policies of PERS.  This organization invests our pension dollars using failed economic models and fallacious investment return calculations. It is easier said than done, but the sooner we can distance our City from this organization the sooner we can be on the path to economic recovery.

Editors:

B. Alviani           S. Doll                 J. Tingstrom

K. Corse              B. McCord         T. Cook

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Government tax burden

No New Tax Will Make Up for Lost Investments and Bad Management

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“A government big enough to give you everything you want, is big enough to take away everything you have.”   —Thomas Jefferson

THE VENTURA BUDGET CRUNCH

[SEND IN THE CLOWNS]

“Clowns to the Left of me, Jokers to the Right, here I am, stuck in the middle with you.”—Stealer’s Wheel (Joe Egan & Gerry Rafferty)

On January 24, 2009, at 8am the City of Ventura held a special meeting at the Police/ Fire Department community room with the full City Council to discuss the city budget.  This  “public hearing” was on a Saturday and was not televised. The usual coterie was present.  The other half of the room was occupied by City personnel.

Once the current budget figures were shared with the audience, reflecting a lower projected income  of $83 million. City Manager, Rick Cole stated, “if we must, we can run this government on $83 million.”.  The projected  deficit was $12,000,000.

THE GOVERNMENT THREE STEP

[Tea Party anyone?]

First, steps forth our fine State legislature, which seeks more tax money from the citizens, with a quadruple  whammy:

  1. Raising the Sales Tax by 1%
  2. Doubling DMV registration
  3. Reducing the dependent tax credits
  4. Increasing personal state income tax by  .125%.

If you want to follow the bouncing tax ball visit the calculator on The Sacramento Bee web site to see how much more you will have to pay, if all of the proposed tax increases pass.  Fill in a few figures and voila – your new tax burden.

Here is our projection of the impact on the citizens of Ventura.   Assume 70,000 Ventura Households, an average annual income of $75,000 and that our city projects tax revenue of $7,000,000 of every increase of ½% in tax.

Cost to Ventura Citizens

State Sales Tax Increase (1%) $14,000,000
DMV 50% increase ($160 average x 2.5 cars per household x 70,000) $28,000,000
Additional Income tax ($140 per 70,000 households) $9,800,000
Loss in dependent tax credits (2 children per household) $29,400,000
Total $81,200,000
Cost per Ventura household (Total divided by 70,000 households) $1,160

Second, steps forth the City of Ventura with the local version of the sales tax.  A proposal to add ½% to raise our local rate to 7.75% from 7.25%. (Don’t’ forget the State has already added 1%, so it will be a  9.75% sales tax, if Ventura voters approve the local measure)

Ventura’s 1/2 percent sales tax $7,000,000

Now steps forth the Ventura Unified School, which is considering a real property Parcel Tax on City of Ventura residences and real property to cover their budget deficit.

Parcel Tax ($200 per parcel times 32,000 parcels $6,400,000
Recap of TOTAL PROPOSED NEW HOUSEHOLD TAXES $94,600,000
Cost per year per Ventura household in new taxes (State, City, VUSD) $1,351

A NEW TAX — THE PATH OF LEAST RESISTANCE

[The City Council with rose colored glasses]

The Ventura Unified School District (VUSD) has worked out alternative budgets that will get them through this financial crisis. With careful management, over the next two years, The VUSD can adjust and reduce expenditures by $20,108,500, making the need for a new property (parcel) tax unnecessary. Some members of the School Districts Budget Advisory Committee are thinking that it is just  easier to just get more funds from the general public in the form of a new property tax.

The City of Ventura is pursuing its own path to financial Armageddon.  Facing a $12,000,000 deficit, because income will only be $84,000,000 against expenses of $96,000,000 (they project and hope), the City manger is realistically seeking and trying to operate within the existing revenues by reducing staff and expenses.  An effort to be applauded, given the specter of five years of depression.

On the other hand the City Council has other ideas — save this fireman’s benefit, this policeman’s job, the library, the arts, the homeless etc. — programs unrelated to essential governmental functions, which they lavishly funded, and pay scales they generously promised to pay between 2003 and 2007, when our elected officials knew we did not have the money for such increases. ( See 2003 Budget Report, Donna Landeros, City Manger, Economic Overview)

The temptation to resort to the citizens and seek new taxes seems to be the politicians path of least resistance at all levels of government.  Ventura is no different.  What if instead those programs were eliminated and pay and benefits were modified , so as to allow the government to operate within their existing  tax income?   While workers in the private sector are cutting expenses, laying staff off, not funding 401K matches and eliminating raises, the public sector seem to feel they are immune from economic realities and seek more money from YOU.

Editors’ comments:

What say you, citizens of Ventura? At what point does living within our means and going back to the basics really take affect? If this is the worst economic crisis since the “Great Depression” or “World War II”, at what point does government start reducing programs and staff to only provide the necessities that only city government  should provide? Or, that only state government should provide? As long as there are economic constituencies (public employees) within government who define their own job description, bargain and politicize through unions their own pay and benefits, the citizenry will always be in danger.

CONTINUED PROBLEMS ADD TO FINANCIAL DEFICIT

While the City seems proud that it only lost $10 million in investments in 2008, they defend their loss by comparing the loss to the average citizen’s 401K losses.   Hardly a realistic comparison given that the investment policy for a municipality is  and should be much be more conservative and  restrictive.  Some at the City makes it sound as if it is heresy to suggest that they should not have lost anything.

The City Attorney on the other hand  is crying “fraud” on the part of Lehman Brother and WaMu — a distraction away from the real issue. None of the four members of the Investment Committee have investment licenses,  nor the experience and qualifications to oversee a $200 million portfolio in this current financial market. Months before the Lehman and WaMu  debacle,  the City had a prior warning of problems due to  a potential  $10 million loss they had invested with Bear Stearns.  It turned out that the Bear Sterns was acquired by JP Morgan and thus avoided bankruptcy, however at this writing we do not know how much JP Morgan is willing to pay the City of Ventura on that investment.

It is easy to raise taxes and bury our heads in the sand. It is difficult to make the tough decisions that will avoid a future disaster but we have reached the point of critical mass. The City is under funded in its pension plan by over $60 million as of 2007, which is exacerbated by the 52% drop in value of  the pension fund investments by CalPERS, the pension investment manger for Ventura. Over $362 million (Page 70 of the Comprehensive Annual Financial Report, page 102 of the PDF) is owed in future pensions and this amount is growing each year.

EDITORS’ COMMENTS

If we can’t sit back, inject humor and laugh in these hard economic times it has  truly become a” foul wind.” Hope you enjoy the humor of this.

In this current economic crisis, we had to reduce our staff. We had no laternative. RANDY HAS TO GO !

Editors:

B. Alviani         S. Doll           J. Tingstrom

K. Corse           R. McCord    T. Cook

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