(Note: I was going to post a City Council meeting preview today, but after some thought figured it would be more appropriate to go with this article first. The Water Rate Hike controversy is back in a big way, something I believe will become evident to everyone in a few days.)
The problems of city government can be challenging. In the matter of that nearly 40% water rate hike the City of Sierra Madre claimed it needed in order to raise $8 million dollars ($18 million when combined with a still unidentified Federal grant) and meet expenses, there were those stubborn residents who felt they just weren't getting the information needed to make an informed decision. But those in charge apparently believed all this had to be done in a way that wouldn't spook the herd. So rather than level about the sheer size of the water bond debt incurred over the last 12 or so years, which was always a key driving force behind the need for this substantial rate increase, we were treated instead to a lighter fare of "water walks," "walk and talks," "lunch and learns," visits to the pumphouse and pictures of Bruce Inman's celebrated rusty pipe.
I don't know exactly who handles City Hall's public relations for them, but the first thing I learned about that profession is never talk down to people whose money you want. The success of the "water protest" being a good indication of just how people react to such treatment. No matter how you try and disguise it, most people can smell condescension a mile away.
Since these sorts of things are rarely forthcoming from our City Hall, we went to the California State Treasurer's Office in Sacramento to obtain the $6,750,000 Sierra Madre Financing Authority Water Revenue Parity Bonds, Series 2003 file. (AKA "Official Statement.") The particular office this came from was the California Debt and Investment Advisory Commission, or CDIAC for anyone who enjoys alphabet soup. I unfortunately cannot link you to this file, but I will e-mail it your way. Send a request care of email@example.com and I will happily forward. I won't even ask you to pay a fee or fill out a form.
Here is how this rather large document is described:
The Sierra Madre Financing Authority Water Revenue Parity Bonds Series 2003 (the "Bonds") are being issued by the Sierra Madre Financing Authority (the "Authority") to finance certain improvements (the "Project") to the water production, treatment and distribution system of the City (the "Water Enterprise"), to fund a reserve fund for the Bonds, and to pay costs of issuance of the Bonds.
Now improving the City's water system is a good thing, and no one should ever believe that money need not be spent for required maintenance. However, that is not the issue here. What does need to be asked is why these water bonds and resulting debt were not included in the water rate hike notification sent out by City Hall on May 17th, and as required under Proposition 218. Which is, in case you are unaware, a voter approved Amendment to the California State Constitution. Here the City discussed items such as the state of our waterpipes, reservoirs and the various sizes of water gauges attached to our homes, but made no mentions whatsoever regarding the costs incurred through the servicing of all that bond debt. Something that is a considerable factor in the overall monetary challenges we now face. Denying the rate payers that information was an unfortunate lapse.
Apparently there was also a similar Water Bond from 1998. The principal on that one is $5,650,000, with $2.6 million in interest payments.
I am no expert on things such as Water Bonds. It is not what I do. So I sought the help of people who work with these things in their professional lives. After reviewing the available material, including the City's out of compliance Prop 218 water rate increase noticing effort, these good folks returned the following series of remarks and questions to me. I've inserted some observations here and there, but what you will see is largely as I received it.
1) The total due for the 1998 Water Bonds is $5,650,000 principal and $2,656,652 interest. Total combined is $8,306,652. The total due for the 2003 Water Bonds is $6,750,000 principal and $8,175,486 interest. Total due for 2003 combined comes to $14,925,486.
2) Combined total for all Sierra Madre 1998 and 2003 Water Bonds is $23,232,138.
3) On the 2003 bonds the City is making 'interest only' payments until 2019. The principal is not being paid down. (My note: This is similar to the predicament people got themselves into during the subprime loan era. The interest rate on our 2003 bonds averages 5.5%, which at the time must have seemed like a swell deal. Rates are far lower now, however. And what will our payments be after 2019, with everything due in 2030? A ticking time bomb, that one. Additionally: the Mayor in 2003 was Bart Doyle, the Mayor Pro Tem Rob Stockley. Rob was in the banking business at the time and should have known better. Assuming, of course, he actually had that flexability and wasn't just doing what he was told. But given the "get rich quick" mentality back then, who knows?)
4) According to the Official Statement on pg. 9: $619,029.38 was deposited in the reserve account which is held by the trustee. Is that money still there?
5) $5,645,000 was for acquisition and construction. What are the detailed expenses and projects, and when? (My note: Pipes that are old in 2010 were also old in 2003. Why were no waterpipe infrastructure repairs scheduled with this money? Was this money frittered away on some DSP nonsense? Why the sudden panic over pipes now?)
6) According to the Official Statement the Sierra Madre Financing Authority issued Water Revenue Bonds on or about Sept 11, 2003 in the amount of $6,750,000. Thirty year amortization. The purpose of these bonds was to finance certain improvements to the water production treatment and distribution system of the City, to fund a reserve fund for the Bonds, and to pay costs of the issuance of the Bonds.
a) How was this money actually spent?
b) What happened to the money that was put into the trustee reserve account?
c) Did the City use the reserve account to make interest payments instead of making scheduled payments to cover interest payments? How much is in that account now? If less than the original amount, where did that money go?
7) Official Statement pg 11: "The Authority has covenanted in the Indenture that except for the Bonds, it will not incur any other indebtedness payable out of Revenues."
8) Official Statement pg 34. Why weren't the audits done and filings with the state made? (This is a reference to Sierra Madre's Standard & Poor's CRA's Bond Rating downgrade to "BBB," or "junk bonds" in 2006. Our CRA bond rating never again returned to the "AAA" status we had in 2003. This topic was covered by The Tattler on August 20. Links and more information can be found there.)
The only conclusion that I can come to here is all of this bond debt related information was deliberately kept out of the water rate increase notice sent to Sierra Madre's water rate payers on May 17 by the City. And as such the residents of Sierra Madre were not legally notified of an important - if not the most financially important - reason for the proposed nearly 40% water rate increase.
In other words, it might be said that we were being conned. And to get us to foot the bill for the serious fiscal mistakes made in 2003 without telling us. It was information that someone had to have decided we didn't need to know.
But now we do. And there is more.
11am update ...
I've received an e-mail from Don Watts, City Council member in Sierra Madre until recently. He has kindly given me permission to reprint his message here.
"I have been taken by surprise by this Bond issue, and I'm sure if you talk to Kurt, he would be as well. I could "feel" after Kurt and I were elected, something was not being talked about but I couldn't put my finger on it. This explains alot about the body language of Buchanan, Joffe, and some of the administrators. They deliberately withheld this from us. If I had been told about this, I guarantee you it would have been public a long time ago. I now feel convinced the city is in need of major house cleaning. Including the role the local papers have been complicit in. They have killed the public trust."
- Don Watts