Oct 25 2020

OPINION: Reasons to Vote NO on UU Pool Bonds: City Debts, Pension Liabilities, Fire and Police Needs

The City Council Is Not Being Open And Transparent About Measure UU. If They Were, Residents Would Have Received This Measure UU Letter.

Dear Piedmonters,

Before you vote on Measure UU, we thought there were a few things we needed to tell you. We did tell you that the City has no outstanding General Obligation Bonds, but we didn’t mention that we have LOTS of debts – $7 million in sewer loans, $13 million in Post Employment Benefits Payable, and $26 million in Pension Benefits Payable.

Oh, and if our pension portfolio returns only 6.15% instead of the estimated 7.15% (you can get 7.15% on your investments in today’s crazy market with bonds yielding close to zero, can’t you?), our Pension Benefit Liability alone increases to over $43 million.

Speaking of deficits, did we mention that our General Fund – that is, unrestricted money that the City can spend on anything – has a deficit of about $9 million?

We also glossed over the fact that the ordinance we passed estimates that the total cost of the “improvements” is $23 million, but that it allows us to issue $19.5 million in bonds. Guess who is paying for the difference?

We also haven’t mentioned it, but by reading the City Council minutes for the last six months, you can see that we know about the major deficiencies in our ability to deliver essential public services – the Police Chief, Fire Chief, and City Administrator are all on the record as saying that we do not comply with the Essential Services Act, that the fire station may sustain major damage in an earthquake, and that it may cost up to $51 million to fix these problems. That’s why we are looking at creating a Community Facilities District (aka Mello-Roos) to make it easier to issue bonds backed by another special tax on Piedmont homeowners in the near future. And because we generally ask for the maximum amount, it will probably be for the full $51 million.

Finally, we haven’t mentioned that 100% of Piedmont citizens rely on our Police and Fire Departments, while an estimated 25% of citizens use the pool.

So, if we had placed two bond measures on the November ballot – $50 million for Police and Fire, and $20 million for a new pool, we knew what would happen. Citizens would vote to maintain essential services, but they would turn down the pool.

After spending $56 million in 2006 and another $66 million in 2016 on School District Bonds (all that money is gone, and they still haven’t finished their projects), $10 million per year on Measure G, $2.6 million per year on Measure H, and $2.4 million per year on Measure T, citizens are getting a little tax weary. After all, aren’t our property tax rates some of the highest in California?

So, think carefully before you vote on measure UU. We’ll see you soon with our new $51 million bond request. You will HAVE to vote yes to maintain city services, but you can vote NO on Measure UU.

Andy Wasserman, Piedmont Resident

Editors Note: Opinions expressed are those of the author.

13 Responses to “OPINION: Reasons to Vote NO on UU Pool Bonds: City Debts, Pension Liabilities, Fire and Police Needs”

  1. Most small California cities like Piedmont do not operate their own employee retirement systems. They join Calpers, the largest pension system in the country. Yes, future pension obligations are expensive, but as long as they are accounted for and receive future funding in an actuarially competent manner, such future expenses are normally not considered to be existing debt. Put more simply, this writer has confused a statewide general issue with a specific Piedmont issue. All but a handful of the largest cities in California with their own retirement systems have the future employee pension problem that Piedmont has. Some of the larger systems have higher levels of unfunded employee pension liability than Calpers members.

    Further confusion results from mixing the need for a pool with the aging fire and police stations. These issues are separate but will have to be faced. But doing so in the future is within the capabilities of Piedmont. I don’t want to sound too snarky, but contrary to the writer’s opinion, Piedmont is not an impoverished city.

  2. I thank Michael Henn for pointing out that I am confused, and for trying not to sound too snarky (his words). I am VERY confused by his assertion that I said or implied that Piedmont was an impoverished city. Rereading my letter, I find no statement whatsoever to that effect.

    I do, however, find many numbers directly taken from the city’s most recent audited financial statements, none of which have been questioned. We do owe a lot of money.

    I am also confused by the statement that Pension Liabilities, whether for programs run by the city or by CalPers, are not debt. This is simply playing with semantics. WE ARE RESPONSIBLE FOR PAYING THESE AMOUNTS! Whether you want to call it debt, liability, or anything else, WE ARE RESPONSIBLE. PERIOD. And if investment returns do not meet the hoped for levels (again, READ THE AUDITED FINANCIALS), we will be on the hook for tens of millions of dollars more.

    I am also confused by the argument that, just because the pool and the Essential Services upgrades are separate issues, we should not mix them. The proper way to manage an entity’s finances – whether that entity is a city, a corporation, or a family, is to look at the ENTIRE picture and make intelligent decisions based on priorities, rather than simply assuming that the entity can afford everything. That is certainly the way my family works, and that is the way I made financial decisions for the many successful companies I managed in the past.

    Finally, let’s look at three numbers that the City Council has neglected to mention: $29.6 million, $77.4 million, and $107 million. Paying back $19.5 million in pool bonds over thirty years at 3% interest costs $29.6 million. Paying back the $51 million in Essential Services bonds that the Council will be asking for will cost $77.4 million. And the total of the two is $107 million. Piedmont may not be an “impoverished” city, but do you want the City Council to stick you with a debt of $107 million? I don’t.

    And finally, I am confused why the proponents of Measure UU completely ignore financial realities and base their arguments on emotions and scare tactics (“If we don’t pass this measure, the pool is on track to be closed permanently.”). Do they think that citizens have unlimited bank accounts and will keep writing blank checks forever? It certainly looks that way.

    Look at the big picture. Don’t be taken in by arguments that are pure emotion. Vote NO on Measure UU.

  3. Mike Henn has it right. Without getting into all the numbers, the City is in fairly good shape right now with all major funds at healthy levels. So much so that raising the transfer tax with measure TT is unnecessary. Specific to the comments about the Sewer Fund, that fund is healthy. Debts are because of several mainline rehabilitation phases being paid off at low rates through State financing. The State loans have been under 2% for years and Piedmont, required by the EPA to finish the entire system by 2035, is now about 8 years ahead and over 80% completed.

    There has been no meaningful discussion for the pool site other than a new pool. While I think the current plan overly large and lacking GHG mitigation, on balance I think it best to pass UU now.

    Like Mr. Wasserman I oppose the creation of Mello-Roos Districts and that is a strong reason why I support UU. UU is a general obligation bond based on ad valorem value meaning it has a somewhat progressive cost to residents. And if UU fails the City will likely create a Mello-Roos District and lump other large capital improvements in with another run at financing the new pool.

    Let’s keep the pool separate and vote yes now.

  4. I believe Mr. Wasserman has exaggerated the relative significance of the future Calpers expenditures. All local governments have actual debt as well as future inescapable obligations. Where it becomes significant is when the debt level and other obligations become well beyond the norm and exceed the jurisdiction’s ability to pay. Vallejo, San Bernardino and Stockton had to declare bankruptcy because of their massive levels of debt. Thankfully, Piedmont is at the opposite end of the municipal debt spectrum. We have no general obligation bond indebtedness.

    There are over 400 cities who are part of Calpers public employees retirement system. Yes, public employees retirement benefits are very expensive, and now generally exceed the norm in the private sector. Something probably should be done about that, but a solution to that problem is at the state level, not local.

    Throwing in the cost of redoing the police and fire station as if their costs are a known commodity is inappropriate. Alternatives range from minimal seismic retrofits to total teardowns and rebuilding at a grander scale. Saying that you know what the Council will be asking for when the future makeup of the Council isn’t even known until the election is a dubious speculation, at best. Piedmont can afford a swimming pool.

  5. People ignore the state of our Essential Service requirements. Remember: The Police Chief, Fire Chief, and City Administrator are all on the record as saying that we do not comply with the Essential Services Act, and that the fire station may sustain major damage in an earthquake.

    The City has a written proposal to build a combined Essential Services facility, with an upper limit of $51 million. This is part of City Council minutes.

    Why do I use the upper range in my arguments? Because that’s what the City ALWAYS ends up doing. There are proposals to fix the pool ranging from $1.5 to $3 million, but the City Council has decided that the most expensive alternative is the way to go. That is the Piedmont Way of doing things.

    Finally, there has been NO mention by the proponents of UU that it might be a good idea to look at ALL the things we need to spend money on in Piedmont and to actually prioritize them – a novel idea. Make a prioritized spending plan. Look at everything and then decide what’s the most important, rather than throw money at the first thing that comes along and hope you can afford the necessities in the future. Finance 101.

    Until we take a broad look at all the projects we know about – and there are many, many more than have been mentioned – and come up with a long term financial plan, we will continue to operate on a wing and a prayer. This is not intelligent or effective governance.

  6. I don’t want to sound cynical about public safety standards and building codes, but I know from 41 years in local governments that virtually every code inevitably gets made stricter over time. In only the newest cities do the majority of the existing structures meet the current Building, Fire and Life Safety codes, plus ADA and energy. Piedmont has one of oldest building inventories in the State. Regardless of what solutions are ultimately arrived at re police and fire stations, Piedmont needs a new pool, and because of its very low actual debt level, it can afford a new pool. The real problem is getting 2/3rds of the voters to agree.

  7. Mr. Henn, we obviously disagree.

    Could you please explain your reluctance to prioritize projects and come up with a spending plan? I’m sure we agree that Piedmont has finite resources, so I truly don’t understand why you don’t think it’s important to define priorities.

    If you DO think we should prioritize capital projects and still insist that we pass UU, you are putting the pool ahead of Essential Services. Don’t you think that we should have waited to see how much the Essential Services expenditures would cost before committing $30 million (principal plus interest) to pool bonds?

  8. Andy is correct – City Council was presented with cost estimates of about $50M to just rehab the public safety building. The consultant walked through the buildings and provided preliminary estimates. New buildings would be considerably more and Piedmont traditionally builds new rather than rehab. Whatever option Council chooses, Piedmont will become the highest taxed city in Northern California and possibly the state. Honestly, it’s a little cynical to say Piedmont can afford a new pool when the burden for paying for it will be born by recent and new residents.

    That is why it is important to consider options for the pool. The proposed design maxes out the site and the bonds needed to build it. That design and cost really should be considered in the context of the debt the city will need to take on to fix the other buildings. Not to mention the GHG emissions.

  9. I believe the pool bond repayment costs are expected to be about $270 per year for the average value home. Granted for some that’s a lot of money. But for perspective, consider that back in pre-covid times, and back when the SF Giants were good. To take a family of 4 to a Giants game, with hotdogs and parking, it would cost that much for the cheap seats. And they sold out every game! I’d venture to say that the majority of the cities in California manage to afford a community swimming pool. And Piedmont is not among the poorer cities, and it has one of the lowest existing bond indebtedness levels. I just hope that all this misguided negativity hasn’t caused Measure UU to fail to get the required 2/3rds vote. Personally I haven’t used the pool since my kids were little, and I may never use the new one, but a community pool is a civic amenity, like parks and schools that a city needs.

  10. UU assesses 2.6 cents on $100 of assessed property value. The average home value in Piedmont is $1M which comes to $270/year or $8100 over 30 years. That average is highly skewed by the many Piedmont homes below that value, mine included. Since 2010, the average sales price has been above $2M and the current annual average is $2.5M. That assessment is $675 a year of $20,000 over 30 years so recent and new residents pay a much higher assessment than their neighbors. UU should be based on a parcel tax – that would be a more equitable way for our community to build a pool.

  11. The San Jose Mercury News has come out with a well-written opinion against Measure UU, as follows:

    Piedmont residents tax themselves to ensure that they have the best schools and premier city government. The average homeowner pays $4,400 in extra taxes for schools and another $635 for city services.

    But those taxes also drive up the cost of housing in the exclusive city surrounded by Oakland and further ensure that those with average means will not be able to crack the city’s residential market.

    Voters in Tuesday’s election will face two tax hikes. Measure TT, which we have previously recommended voters reject, would increase the city’s tax on property sales to state record-high levels. Now we look at Measure UU, a $19.5 million bond proposal to pay for replacing three old community pools with two new ones. Voters should reject that, too.

    Based on the city estimates provided to voters, Measure UU would add an average $263 annually to the tax bill for a home assessed at the city average of slightly over $1 million.

    It a bit of a tricky calculation for voters because city officials in the ballot wording obfuscated the projected average tax rate as 2.6 cents per $100 of assessed value rather than an easier-to-understand $26 per $100,000.

    It turns out that the city overstated that rate, especially for the latter part of the 30-year tax. The firmer number is that city taxpayers would collectively pay about $1.3 million annually to retire the bonds needed to finance the construction.

    To put that number in perspective, the city spends more than that – nearly $1.7 million to be precise – just to cover the interest payments on public employee pension debt. Put another way, most of the pool bond payments could be covered by Measure TT, which is expected to add about $948,462 annually to the city’s transfer tax revenues.

    Individually and collectively, the two measures raise a question of, how much is too much? Rather than throwing multiple tax measures at voters, city leaders need to prioritize and look for savings elsewhere.

  12. Garrett, I would also agree to support the pool if there was a parcel tax. If UU fails to get 2/3rds vote, maybe a parcel tax could be considered. And every now and then the State, or EBRPD provides an unexpected grant to local government. But with the Covid induced state budget crisis, such grants are probably a long way off.

  13. Well said Mike. There’s no reason why my children who move back to Piedmont to raise their kids should pay a third less than my next door neighbor. I know some long-term fixed income residents for whom a parcel tax would be difficult. Maybe there’s a better formula whereby anyone who takes out a membership is assessed at least at that year’s average sales price (currently $2.5M) or above whereas non members are assessed ad valorem. That way long-term residents who don’t use the pool would not be burdened by another parcel tax. Not a perfect solution but more equitable than the current UU assessment.

Leave a Comment