Sunday, June 29, 2014

Burying Money in the Medians

Costa Mesa’s recently adopted budget includes $444,000 to redo the medians on Mesa Verde Drive.  Yes, these medians, the ones redone so recently many of the trees are still staked.  

Does this really need to be replaced?
Note stakes on small trees in both pics.
The money to do this and still have a balanced budget, at least on paper, was taken from funds set aside for future use for a new library.  Other unfunded needs include repairs to the fifty-year-old Royal Palm Fire Station and generators for the Police Department.  City Manager Tom Hatch stated that the City needed to start setting aside money for such major expenditures as replacement of the fire station and building a new library (video at about 3:01:50).  Council Member Mensinger, who urged that the City spend money on the medians, suggested the City fund major improvements using mechanism similar to what was done for the police station (video at about 3:03:40).

What he didn’t mention is exactly what that meant.  Did the City get a grant?  Did we use narcotics forfeiture funds?  How was the police station expansion and rehab financed?  Debt

When did Costa Mesa voters approve the debt financing?  

We didn’t.  

Article 16 of the California State Constitution, prohibits cities from incurring any debt without two thirds approval of the voters, but the City used a mechanism called Certificates of Participation, or COPS.  The bond buyer, oops, the COPs buyer “participates” in revenue generated by the activity funded by the borrowed money.

If you’re wondering what revenue stream is allocated to pay the debt,  it’s the lease payment for use of the police station.  And who, you may ask,  is leasing the police station?  We are.  The City is essentially leasing the police station to itself, then using the lease payments to pay off the bond. 

The bonds for the police station were not issued by the City but by the Costa Mesa Public Financing Authority.  The Financing Authority is a joint powers authority made up of the City of Costa Mesa and, er, well just the City of Costa Mesa acting jointly with itself.  The board of the CMPFA consists of the Costa Mesa City Council.

In December 2006 the Costa Mesa City Council, acting as CMPFA , voted to borrow up to $30 million to be paid back through the revenue stream received from leasing the police station to the City of Costa Mesa .  By putting on another hat, the city acquired nearly $30 million in debt which it will repay by leasing the police station to itself.  At the end of the lease period, the City will once again own the police station free and clear.  In the unlikely event of default, the holders of the COPs can take title to the police station.

And it’s all legal!  Lots of cities do it.  Both Santa Ana and Newport Beach financed city hall improvements with COPs.  Stockton did it for all sorts of things. 

But somehow, frittering money on “improving” recently improved medians that already look pretty good while in nearly the same breath suggesting we go into debt for necessities just doesn’t sit well with me.  Sort of like taking the family on a Caribbean cruise while getting a second mortgage to pay for replacing your leaky roof.

It’s especially troubling when the debt is incurred using an end run around the voters of the City of Costa Mesa.