Hello City Council:

      I see from the staff report that the cost estimate for the repaving of the Corp Yard has been reduced and Measure B funds no longer proposed to be used for the project.  Paving of the Corp Yard is now proposed to be funded totally by Measure F.  As the ballot statement for that measure indicates, this funding is really intended for transportation projects, not the repaving of municipal facilities.

Will Math Changes Reduce Student Options?

As many PCA readers know, the Piedmont Unified School District is developing its responses to California’s new “Common Core” standards for math.  These standards are intended to make math more “rigorous” and “real world” — which will require significant changes within individual courses, and may lead to restructuring of the overall K-12 progression of math classes.  After several listening sessions, the District staff recently shared its first partial draft of proposed changes.  Unfortunately, these could leave many students worse off than under existing sequences.

How Does Piedmont Math Work Now?

Students stay together for math in grades K through 5.  Individual teachers offer varying degrees of in-class “differentiation” to recognize different readiness and abilities, and there are some pull-outs for either enrichment or extra support.  Although the District has moved to increase uniformity, students’ experiences still vary depending on their teachers.

During grades 6-12, the approach changes, to create different multi-year “pathways:”

• Students who’ve done particularly well so far, and do well on a special test right after 5th grade start an “accelerated pathway,” taking 7th grade pre-algebra in 6th grade, with the option of staying on that pathway through  Calculus BC in 12th.  This year 36 6th graders (out of roughly 200) started this pathway.

• Other students take 6th and 7th grade math together.  Most take Algebra 1 in 8th grade and continue through Calculus AB.  Those who need more time and support can decelerate by taking Introduction to Algebra in 8th, Algebra 1 in 9th grade, and then can progress as far as Math Analysis.  This year’s 8th graders are split 85 in Algebra 1 and 75 in Intro.

Numbers vary year to year, but the percentages are roughly 35:45:20.  Students can move up to a faster pathway by taking summer school (or doubling up Geometry with Algebra 1 or 2), or down by delaying a course.

How Does Common Core Change Math Courses?

Common Core’s designers intend that no student should skip any course, since they’ve designed each course to have less review material and more new material than some of the present courses.  Instead, they suggest that students’ progress can be adjusted by “compressing” or “expanding” courses to vary the pace of instruction: compressing to provide 3 years’ worth of information in 2 years, or even 2 in 1; or expanding to stretch 1 year into 2, or 2 years into 3.  The designers leave states and schools to decide when and if to create these pace-based pathways.

What’s Being Proposed for Piedmont?

Piedmont staff have issued their first draft of a proposal to phase in changes to Piedmont’s math offerings, beginning with 6th grade changes during next school year (2014-15).  In this draft:

• 6th grade – all students would stay together (no acceleration/compression), with additional effort to offer in-class differentiation, enrichment and support

• 7th grade – higher-readiness students might start a compressed track (e.g., 7th, 8th, and Algebra 1 in 2 years), or compression might be delayed until high school while all students stay together

• 8th grade – higher-readiness students might or might not be on a compressed track; presently there’s no proposal to replace Intro to Algebra for students who need more time and support, so all students may stay together

• High School – generalized commitment for faster track to reach Calculus BC, and to develop appropriate pathway for slower track.  No firm proposal, but latest example compresses 2:1 in 11th grade (Algebra 2 and Math Analysis) and/or in 12th grade (compress Calculus AB and BC into one year)

What’s Risky About This Proposal?

Although there’s no way to be certain how a new program will work until it’s implemented, the draft proposal has several risky features:

• None of us have found any national, statewide, or Piedmont data supporting the suggestion that deferring “pathways” helps math outcomes.  In contrast, we know that Piedmont’s accelerated pathway students have achieved very high results every year (grades, test scores, and some reporting by graduates about their college experiences), middle pathway students have done well, and students on the slower pathway have struggled to meet statewide standards.

• Every year without pathways is another year when students at all readiness levels share the same classroom – so teachers must not only revamp their courses to meet Common Core standards, but would have to differentiate their intsruction to meet the widest possible range of math readiness and learning styles.  And students would have to accommodate classmates with readiness levels very different from their own.  This isn’t impossible, but math differentiation in Piedmont’s existing courses is still problematic after years of efforts, and it’s likely to be harder rather than easier next year.

• Delayed compression means that less-ready students would not receive “expanded” courses until spending more years trying to keep up, and accelerated students would be taking 2-for-1 math in 11th grade, which is already the toughest year for most Piedmont students

Parents are working with the District and each other to reduce these risks by continuing to improve the staff proposal.  To learn more, you can visit the District’s Common Core webpage at http://www.piedmont.k12.ca.us/curriculum/common-core, or the latest version of a presentation used in public meetings, atwww.piedmont.k12.ca.us/communications/common-core-math-implementation-faq.    In addition, the Piedmont Advanced Learners Program Support group has also accumulated information, and is distributing on online petition (which attracted 130 e-signatures in its first 3 days) asking the District to reconsider its options – athttp://piedmontalps.org/math-petition.

Please take the time to learn more, offer your views through the online petition, or write the School Board or Assistant Superintendent Randy Booker.  As of this writing the Board has provided no guidance on this important issue, so your views can help the process.

Jon Elliott, Piedmont Resident

Editor’s Note:  The opinions expressed are those of the author and not necessarily those of the Piedmont Civic Association.

City Council Report March 2014

by Ann Chandler, Piedmont League of Women Voters Council Observer

As we greet a new City Administrator, a new mayor, and a new Council in March 2014, we should take a moment to look back at two years of important work by the previous City Council. In November 2011, Council member John Chiang created a matrix of suggestions made by the City Council Audit Subcommittee (which had looked at the utilities undergrounding project that had gone $2 million over budget), The League of Women Voters Task Force on Governance (originally formed following the same utilities undergrounding fiasco), and the Municipal Tax Review Committee (which had concluded that the municipal services parcel tax was important but that there were many policy improvements the Council should make before asking voters to renew the parcel tax). Altogether, there were over 30 suggestions in these 3 reports, many of them overlapping.

In February 2012, John Chiang was elected mayor and the next month the City Council appointed a Budget Advisory and Financial Planning Committee (5 residents) to look at the city’s annual budget, its 5-year projections, and its funding for long-term capital projects, equipment replacement, and facilities maintenance/replacement. The committee also reviews any new commitments in excess of $250,000 in one fiscal year, comments on the Finance Director’s Mid-Year report to the Council in January, and meets again April through June each year as the budget is being finalized for the fiscal year starting in July. As approved, the committee will end on June 30, 2015 unless extended.

In April 2012, the Council rescinded its 2011 approval of the Blair Park project, which ended the suit against the City brought by Friends of Moraga Canyon. (The litigation which the City brought against two engineering companies involved in the Piedmont Hills Utilities Undergrounding is still pending.)

One of the strongest themes in the Municipal Tax Review Committee’s suggestions, taken up by the Budget Advisory and Financial Planning Committee, was a need to gain control over personnel costs, particularly the cost of fringe benefits. The first step in that direction occurred in June 2012 when the Council approved a new “Tier 2” of miscellaneous employees hired after August 3, 2012. We now have 3 Tiers of miscellaneous employees, and 3 Tiers of safety employees, meaning 6 different retirement and benefit packages. Control of personnel costs is still a large issue.

In July 2012, an Athletics Facilities Preservation Fund was established. It charges sports clubs (but not school teams) for use of city and school sports facilities. The income from this fund alone is not enough to maintain or replace athletic facilities, but creation of the fund was one step toward addressing the subject of athletic facilities preservation.

In December 2012, the City contracted with Janae Novotny, a lawyer specializing in public employee negotiations, to represent the city in all labor negotiations beginning in January, 2013. A year later the city completed four-year contracts with all bargaining groups. There were raises for the first time in four years, but also increased deductions for benefits.

In January 2013, the city started development of a long-term Facilities Maintenance Program identifying needs, cost estimates, and potential funding sources. In June the document received final approval.

It is a 5-year plan looking at what needs to be done in fiscal years 2013-2017 to sewers, sidewalks, streets, buildings, parks, fields, etc. Although flexible, the plan gives a priority to each project within each facility, and a suggested time table. The exception to this is the Aquatics Facility. Although there is a list of things that need to be done, there are no cost estimates, no potential funding sources, and no timetable, leaving one to wonder what is next for the pool.

It was also in January 2013 that the first draft of a Risk Management Policy for Major Capital Projects came before the Council. The League of Women Voters Task Force on Governance was one of the groups that had recommended this, and the Task Force and League board members made comments and written suggestions on several drafts of this policy during 2013. In January 2014, Piedmont adopted a Risk Management Policy for Major Capital Projects.

One of the suggestions of the Budget Advisory and Financial Planning Committee was that the city refinance the PERS Side Fund at a lower interest rate. Piedmont’s charter requires a vote of the people to do that. In the February 4, 2014 municipal election, the electorate gave the City Council overwhelming approval (82.6%) to refinance the Side Fund. Final discretion as to whether and when to do such a refinancing rests with the newly elected City Council.

In many ways it seems that an effort has been made to get Piedmont’s fiscal and legal house in order before proceeding with any large, creative new projects. This work has been started but not completed.

Controlling personnel costs is a long-range project, very much influenced by trends in the rest of the Bay Area and the state. But over the past two years, Mayor Chiang and City Administrator Geof Grote, both of whom left their positions in February, took these important steps to put Piedmont on the right path.

Reprinted from the Piedmont League of Women Voters bulletin,“The Voter”, with permission

Editors’ Note:  The opinions expressed are those of the author and not necessarily those of the Piedmont Civic Association.

February 6, 2014

Mr. Gary Wolff, Executive Director

Alameda County

Waste Management Authority

1537 Webster Street

Oakland, CA 94612-3355

       Re: Proposed Household Hazardous Waste Collection and      Disposal Fee

Dear Mr. Wolff:

       As you will recall I spoke to you recently by phone  concerning the above captioned matter. Firstly, there are a couple of housekeeping issues. (1.) I never received a so-called ballot regarding the proposed fee and as reported by several other people. And despite my request, I have not been provided one.  (2.) The phone number listed in the material (1-877-786-7927) continually rings “busy”. It clearly does no good to list an “information” number and never pick it up – a complaint expressed by several other people. (3.) The two different dates, February 26, 2014 and March 26, 2014, is confusing – again, a common complaint by several others.

       The Proposed Fee:  As you will recall, during our conversation I took the position that the Alameda County Waste Management Authority (ACWMA) lacked the required legal authority to either ballot for (conduct an election) or impose any such fee. Your position was and I presume still is, to the contrary. During our conversation you were insistent that the matter and the particular issues were thoroughly reviewed and approved by legal counsel. You also insisted that the proposal is by the authority and under the provisions of particular California State Statutes and applicable laws.

     However, when I asked that you provide copies of the material and documents supporting your position, you blatantly refused. Further, neither the enabling Ordinance, No. 2014, nor the Resolution # WMA 2013-06 (and as amended by Resolution #WMA 2014-02) cite any such legal authority, state statutes, laws, or codes.

     The only codes cited in the material are Government Code, section 6254, dealing with “public records”,  section 6066, concerning “notice publication”, and CEQA Regulations, section 15378(b)(4), and 15308, “project exemption”.

     We therefore take the position that the ACWMA lacks any and all legal authority to either, ballot the Alameda County electorate, residents, citizens, taxpayers, property owners, or otherwise, in order to impose a tax, fee, assessment, charge, or otherwise, or to “impose” (regardless of the outcome of a vote or an election) a fee, tax, assessment, charge, or other remuneration under the guise of a “Household Hazardous Waste Collection and Disposal Fee.”

     Please take notice that this correspondence is a formal complaint and notification that we seek immediate termination of the ACWMA proposal and of our intent to take whatever action deemed necessary in order to adequately protect our interest.

     Your immediate attention to this matter is greatly appreciated.

               David E. Mix

– Late night ad for loading up on debt – 

I just listened to the portion (from hour 2 to 2:30) of the Piedmont Unified School District January 22, 2014 Board meeting recording where Mr. Gautam Wadhwani, Financial Officer for the Piedmont Arts Center and a Finance professional, gives advice to the Board about which bond option to select for financing the Alan Harvey Theater (AHT) renovation.

The speech reminded me of 2007 late night TV advertisements encouraging homeowners to load up on debt and take second mortgages or interest-only first mortgages with balloon payments.

“I will encourage you to borrow as much as you can in a low interest environment.”
“We should not worry about debt being a bad thing.”
“Educated voters are a minority of the populace.”
“If you agree that we are in a low interest environment, you want to borrow for as long as you can.”
“It is always better to defer taxes.”
“Every dollar that I save in not paying taxes, I can use … to make my wife happy.”
“You want to borrow interest only.”
“It is good economics and good finance for everybody.”

During the Board meeting, Hari Titan made an appeal to modify the text of the June ballot measure to exclude the use of creative financing instruments. I do not know if the Board adopted his suggestions, but I strongly urge it to do so if there is still time. Please join me in doing so.

Am I alone in suspecting that the whole AHT project has been approached upside down? “What is the maximum amount of money the District can borrow? Get that money from the voters. Design a project that spends the money.”  We all know that every education dollar counts! Think what one million three hundred thousand dollars (the additional amount saved downsizing from a $14 to $13 million project – slide 9 KNN Consultants December 11, 2013 Presentation) would do to improve education in Piedmont classrooms?

Bernard Pech, Piedmont Resident

Editors’ Note:  The opinions expressed are those of the author and not necessarily those of the Piedmont Civic Association.  

The following two letters from Tom Clark and Bruce Joffe were sent to PCA. On February 4, Piedmont voters overwhelmingly approved Measure A, the restructuring of Piedmont’s CalPERS side fund pension obligation. See previously published letters on the PCA Opinion page.

 Mr. Mix, very well done!

I commend your standing firm in your reply to the response by Piedmont Council member Wieler.

As a member of the public you deserve respect when you speak to important public issues such as the Piedmont pension bond measure, particularly when, as here, you obviously have sought out the relevant facts, focused on the issues and made your public comments with all the intentions of a good, conscientious citizen.  This is all true notwithstanding that  I don’t agree with all of your comments and that yesterday I voted Yes on the Piedmont bond measure.

Your comments on important matters of public interest in Piedmont are, and always will be, greatly appreciated by me and many other Piedmont residents.  We don’t have to agree with you to show you decency and respect for your efforts. The only way our democratic system works is for individuals, like you, to remain forever vigilant to uncover the truth behind the conduct and representations of public officials. Many public officials want only to hear and read praise, and talk (in the words of George Orwell) in a manner “designed to make lies sound truthful . . . and to give an appearance of solidity to pure wind”.  With the best of our wonderful democratic heritage in mind, I want to express my respect for those like you who are not afraid to stand up to the powers that be and comment publicly, in good faith and directly on point, eye-to-eye on public issues to public decision makers.  Moreover, I appreciate your gift of an outline to which Piedmont residents can refer when the pension refinancing appears on the Piedmont Council agenda.

For all that you have done, you should not to be scolded.  You should be applauded.

And let’s take just a brief look at the record of the Piedmont Council of experts touted by Council member Wieler.

This is the Council of experts that wasted over $2 million in badly planned and poorly executed electric line undergrounding projects, including being forced by court order to pay with taxpayer funds the legal costs by objectors to one project because of the City’s legal defense.  This is the Council of experts that rushed through approval of an out-of-scale city sports complex (Blair Park) that Council members and City staff promised would cost taxpayers nothing, but when the badly planned project crashed and burned it left Piedmont taxpayers holding a bag with hundreds of thousand dollars of losses.  This is the Council of experts that tried to scare the community into voting for an unnecessary tax increase for the sewer fund, a fund from which the Council transfers large amounts for unsubstantiated  overhead to the general fund and uses the money to cover such things as the Blair Park sports complex losses and the electric undergrounding losses.  We proved with the City’s own public records that City officials violated the Brown Act and used public funds to promote the sewer tax ballot measure. We proved that failure of the tax would not, contrary to these expert officials’ false claims, make the city a sewer outlaw before EPA and leave our gutters running brown.  Our grass roots disclosures and opposition killed the tax and proved that Piedmont’s sewer system was fully in compliance with all relevant laws and EPA mandates. Our sewer system have worked fine and our gutters have remained clean without the new sewer tax.

Thank you very much for your time and effort in speaking out to our local government and voters.  Your future involvement on public issues in Piedmont and elsewhere is most welcome.

Tom Clark, Piedmont Resident

~~~~~~~~~~~~~~~~~

Hi Tom,

It’s too bad we didn’t have this conversation a few weeks before the election.  I read Mayor Chang’s reply on Piedmontcivic.org and voted Yes because it looks like we’d be paying lower interest, and that our city council is not stepping into the CAB trap.  This is complicated stuff for folks who don’t regularly travel along bond-financing highways, and we have to trust our city council members to do the deep studying and find the best approach for Piedmont citizens.

Unfortunately, the mistakes outlined by Tom Clark have eroded confidence that our city council has the knowledge and capability to make the right decision.  Well, looking forward, a sage once observed that “Good judgement comes from experience, but experience comes from bad judgement.”  Let’s hope our city council has learned from past experiences.

Bruce Joffe, Piedmont Resident

Editors’ Note:  The opinions expressed are those of the authors and not necessarily those of the Piedmont Civic Association.

Councilman Wieler:

It is unfortunate that you took umbrage to my remarks but surely you recognize that my comments are merely an observation and reflective of how the City (City Council and staff) conducted its pension bond election. A critique, if you will – you are a public agency after all and clearly not immune from  public criticism, regardless where it comes from.

For clarification, my interest is purely academic. As I said previously, I don’t have a dog in this fight and the outcome of the election is of no consequence to me personally. My interest is in the structure and application of public entities’ pension bonds, judicial validation, elections and voting, etc., and not the City of Piedmont per se.

With that said, please allow me to respond to your February 4th e-mail, while limiting my comments to the relevant and pertinent issues you raise, and in the order you present them.

1.)  A majority vote. This issue was previously and thoroughly addressed. Although the City’s Charter (Section 4.14) speaks to a majority vote it also expressly provides that the proposition must be in full compliance with the State Constitution and other State laws. Article XVI, Section 18, providing the 2/3 vote requirement goes back to the birth of California in 1850 as noted in my January 21st letter. Added to this, Constitutional provisions “trump” City Charters. Also, you note that – “The two thirds requirement generally apply to taxes.” Simply not true!  The Constitutional language itself and the abundance of published cases clearly attest to what the 2/3 vote is applicable to.

Lawfully, since a 2/3 vote is Constitutionally required, and the Constitution trumps the Charter,  a “majority” vote is of no consequence or effect. Your contention that the proposition could then be judicially validated has no basis in law. In this instance (by law) a majority vote provides no authority whatsoever. Regarding judicial validation, the Charter is controlling, it clearly restricts the procedure to voter approval: “No bonded indebtedness…may be created unless authorized … by the electors…”.  While the Charter requires voter approval, the Constitution stipulates the 2/3 percentage governing that approval, as provided by the Charter, (“…unless in full compliance with the provisions of the State Constitution…”).

As was originally reported by your BAFP Committee on May 29th last year, the Charter does not allow for judicial validation of any type – The Charter clearly requires voter approval and by law voter approval is definitively a 2/3’s vote. There simply is no approval if less that 2/3 is acquired. It is exceedingly simple – the Charter vote requirement precludes judicial validation. The City clearly may not go to court seeking judicial validation while the City Charter stipulates that bonded indebtedness may only be authorized by an approval of the electorate, and clearly, that approval must be an affirmative  2/3’s .

2.)  The City Charter. As you point out, it is on the WEB and Yes! I have read it. The other sections you note are fairly standard provisions found is most City Charters. Section 2.11, part five empowers the City to not be dependent on State Statutes, in this instance, Government Code Section 53570 et seq.

3.)  Cal PERS. The Unfunded liability of any pension system is ever changing. It is merely a rough calculation of what it will take in the future to satisfy the retirement payments of future retirees. By its very nature it is merely an educated guess (an actuarial assessment). The recent Cal Highway Patrol “miss-calculation” is a prime example where predictions can easily go awry.

The new accounting standards have very little to do with this issue. When Piedmont’s “side funds” were established the fund amounts were established and predicated on particular criteria and factors at that time. You are correct in that a specific dollar amount was established along with an amortization schedule. (See original agreement). And, at the end of the amortization period it (the original amount) will be fully paid – funded by 90%. The difficulty is that, very seldom does the calculation (actuarially established amount) established back in (2004 ???) equal the amounts needed for the same 90% funding in 2021 and 2024 representing the ends of the amortization periods.

The “moving target” occurs during  the 20 year (they are all different) amortization period. While fluctuations occur during that period they are not reflected in the annual payments – in essence they are all saved up to the end where adjustments (major) are then made. Using the home mortgage example, it would resemble a situation where various expenses occur during the amortization period, insurance, home repairs, association fees, property taxes, etc. but all expenses are shoved to the end for payment.

Further, it is erroneously anticipated that the side fund (in years 2021 and 2024) whether paid in advance now or with a completed amortization schedule will be completely adequate to meet all future liabilities without any additional payments from the City. First of all this ignores the fact  that the side fund’s goal is only for 90% and not full funding.

These plans (with side funds) are exactly like the regular Cal PERS pension accounts except these plans are being required to catch up (true-up) their accounts to a more sustainable 90% of full funding. Additionally, everyone pays the 7.5% on what is calculated to be the un-funded liability, not just the “Fund Pools”. But at the same time each plan member’s UAAL annual payment is calculated in consideration of the plan earning that same artificial 7.5% thereby holding down the annual payment amounts. In other words, if a more realistic earnings percentage were used by Cal PERS the employer payments would be considerably more. This is not a mystery – those figures are readily available from Cal PERS.

4.)  I never suggested that Piedmont was speculating on interest rates or engaging in arbitrage. It appears you misunderstood my comments regarding the inherent dangers of engaging in pension bond financing and the slippery slope most encounter.

5.)  Bond Counsel.  There is nothing libelous nor scurrilous about calling it for what it is. Advisors are clearly in it for the fees (and very healthy fees indeed). And of course some have given bad advice. Regarding proof or evidence, I would suggest taking a very close look at the cities now in bankruptcy and those on the verge.

I have no doubt that the measure passed and probably well over the 2/3’s.  However, some of these issues may arise during the Council’s approval of the bond issues and they deserve your attention and understanding.   As a neighbor – the best of luck.

David E. Mix

– The following letter written by Councilmember Jeff Wieler is addressed to David Mix and was sent to PCA on February 4, 2014. – This is a response to an opinion letter by David Mix published February 3, 2014 on this site.

Dear David,

I have been the unwilling recipient of your emails, and will try and explain your many misconceptions as simply as possible, to give you a chance at understanding the facts.

Majority requirement:  If measure A passes with 51% of the vote but less than 67%, Piedmont can request judicial approval to issue bonds. If it passes the 67% threshold, that is sufficient for us to proceed.  Note: the two thirds requirements generally applies to taxes.

Before you start making claims about another city, it might be prudent to read the city’s Charter.  If you like to do this, you can easily do so by going to the city website. Section 2.11, part five says the City Council is empowered to borrow money if they pass an ordinance to do so.

Then you need to go on and read Section 4.14, which says that bonds are limited to 20% of the assessed valuation of the city, and issuing debt requires a majority vote.  Clearly we’re not talking about borrowing in excess of 20% of Piedmont’s property valuation.

You are in error about the side fund. CalPERS will issue a (final) payoff amount upon request.   I have no idea why you think the amount is a moving target.  That is something that is true about the overall CalPERS  pension funds, however the new accounting standards going into effect soon, will require disclosure of the unfunded liability.  The truth of the matter is that the side fund is actually quite similar to a simple home mortgage. And there are no “Neighborhood Association’s fees” associated with the pension side fund.  Your facts simply are not correct, and although in some respects applicable to the overall CalPERS pensions accounts, they are not valid in the case of the side fund.

You can rest assured that we’re not doing what Oakland did — we’re not speculating on the future of interest rates, nor are we borrowing at low muni rates in an attempt to profit through arbitrage.  Piedmont has a long history of pay-as-you-go financing.

Finally, you are correct we rely heavily on bond counsel and the City Attorney.  Yes, our legal advisers do work for the city, and have the professional and fiduciary responsibility to advise us properly.  Your implication that they would give us bad advice because they had an “undeniable vested interest” is highly inappropriate. By your logic, the 20 plus other cities who have refinanced their side funds must also have had incompetent or venial city attorneys and financial advisers.

I suggest you focus your attention on your own city of Oakland, instead of trying to interfere with a historically well-run city.  I would also like to know whether you have any professional qualifications to opine on the legal and financial issues involved. Based on your comments, I can only assume that you are speaking from a position of ignorance.  I will note that Piedmont’s City Council contains one lawyer and four finance professionals.  I think we know what we’re doing, can you say the same?

Jeff Wieler
Member Piedmont City Council

Editors’ Note:  The opinions expressed are those of the author and not necessarily those of the Piedmont Civic Association.  The Association does not support or oppose ballot measures. 

Mayor Chiang:

     What first caught my attention was the “majority” voter requirement reported in the Montclairon. As it turns out, you and the City Council had full knowledge of the 2/3’s requirement back in June of last year, by Finance director, Erick Cheung’s Council Agenda Report (June 17, 2013) where you and the Council were clearly advised that the measure would require a 2/3’s voter approval.  Why the ballot language indicating otherwise and that only a majority vote would be required remains quizzical.

     As I said previously, whether the City will actually save money remains to be seen. However, the measure’s language (“to do any and all things they [City Council] deem necessary”) is clearly an unrestricted Blank Check.  But, you say, there will be no future need for a subsequent bond offering. That is not accurate – considering the proposed bonds will Not completely satisfy the “side fund”, but only 90% and an additional actuarial adjustment will surely be encountered at the end of the terms (7 and 9 yrs), more than likely a great deal more money will be owed to satisfy the UAAL at that time.

    Contrary to the Ordinance, the side fund does not equal the unfunded liability of each plan.  It may have at the commencement of the risk pools but as time has passed it surely has grown out of balance where now more money is owed. Additionally, the unfunded liability is a moving target and continually moving forward with time. You equate it with a simple home mortgage but it is more akin to a mortgage with an unknown balloon payment at the end and with continuing and increasing neighborhood association fees forever after.

    The City’s pension liability will never go away – it continues with time.  Conceptually, money can be invested with enough anticipated earnings (PERS 7.5%) to satisfy all future liabilities. But, the past decade has clearly proven how unreliable that notion is. Further, PERS bench mark is only 90% of full funding, so you never catch up. Also, your proposed “lump sum” bond measure is based on outdated unrealistic fixed interest rates and questionable employer contribution growth rates.

    You are correct in that I am certainly aggravated with Oakland’s frivolous pension bond activities but unfortunately, despite your protestations, there are many parallels with Piedmont. Most noticeable is the lack of information and not being forthcoming with critical details – and as they say, the devil is in the details.

     Lastly, you rely heavily on bond counsel, the City attorney and brokers while ignoring the obvious – they all work for the City, well paid and with an undeniable vested interest.

David E. Mix

The following letter was provided to PCA on January 30:

John Tulloch
Piedmont City Clerk

Re: Piedmont Pension Bonds

Mr. Tulloch

As you may recall, I came by your office a week ago Friday and you kindly provided me copies of the above captioned February 4th Pension Bond Ballot Measure.  While I am not a resident of Piedmont I am nevertheless acutely interested in the matter. I am a native of Oakland and have watched Oakland’s Pension Bond debt on the now closed (pre-PERS) Police and Fire Retirement System (PFRS) grow to an unsustainable amount. All the while the present City PERS, Police and Fire and the Miscellaneous employees systems continue to grow by substantial amounts.

Oakland, along with its Bond Counsel, Orrick, Herrington and Sutcliffe LLP, brags that it pioneered the “pension bond” back in 1985. Unfortunately, the City’s Pension Bond debt is now close to one billion dollars (for PFRS alone) and having lost considerable amounts in investments.  An October 2010 City Auditor’s special report (Courtney Ruby, see City WEB site, cityauditor@oaklandnet.com) indicates, through its bond issues, the City lost, since 1998, approximately $250 million dollars.

While the City of Piedmont is considerably smaller its Bond Measure still represents millions of dollars in taxpayers money. A review of the Measure’s language and background material (the May 29, 2013 BAFP Committee Report) it is clear that sometime prior to 2003 the City Council over-extended the pension benefits to its employees, driving the cost sky high and beyond a sustainable amount. However, it is not my intent to criticize the Council for what it did back then but to raise questions and legal concerns regarding the present (Feb. 4th) Pension Bond Ballot Measure and the obvious need for full public disclosure.

1.)  The Measure indicates that by Section 4.14 of the City Charter that only a 50 % affirmative vote is required for passage.  Although the Charter language stipulates that the question submitted to the electors is to be in full compliance with the provisions of the State Constitution and other State laws, it appears to run afoul of the State Constitution and the debt limitations.  The 1879 Constitution (although dating back to 1850 – see People v. Johnson (1856) 6 Cal. 499; Nougues  v. Douglass (1857) 7 Cal. 65) Article XVI, Section 18, in pertinent part, prohibits cities (including charter cities) from entering into indebtedness that in any year exceeds the income and revenue provided for such year unless the city first obtains two-thirds (2/3) voter approval for the obligation. (See Garrett v. Swanton, 216 Cal. 220, at p. 226).There are three notable exceptions to this requirement: (1) The Offner- Dean exception; (2) The Special fund doctrine; and (3) the “obligations imposed by law” exception. Disregarding the non-applicable first two exceptions, the City, by its Ordinance No. 711 N.S., paragraph (e), is claiming the “obligation imposed by law” exception. However, recent appellate court cases have determined that the, “obligation imposed by law” exception is not applicable to Pension Bonds.  In State ex rel. Pension Obligation Bond Commission v. All Persons Interested (2007) 152 Cal. App. 4th 1386, the court held, the exception does not apply to the State’s obligation to fund PERS because the obligation is one the Legislature voluntary imposed upon itself.Please Note, the above case concerns  Constitutional Article XVI Section 1, rather than Section 18.  Where Section 1, deals with the State and Section 18 deals with Cities, Counties, School districts, etc., the language is practically identical. While Section 18 has not yet been the direct subject of a Pension Bond legal challenge the application is the same. Some attorneys have argued that the PERS “side fund” creates a difference in claiming that the side fund is an obligation imposed by law. Their reasoning is fatally flawed in that all PERS obligations are strictly voluntary, usually the result of bargaining unit negotiations or direct City Council legislative action. See County of Orange v. Association of Orange County Deputy Sheriff’s (2011) 192 Cal. App. 4th 21, and cases cited therein.

2.)  The Bond enacting  Ordinance, No. 711 N.S., at paragraph “e”, claims that the “Side Fund Obligation” are “debt obligations” of the city imposed by law.  It appears the City is incorrect in both instances. The Side Fund is neither a “debt obligation” nor is it “imposed by law”. The Side Fund is the “Unfunded Accrued Actuarial Liability” (UAAL) or simply the Unfunded Liability (UL). (See above, State ex rel. Pension Obligation Bonds Commission v. All Persons Interested, validation case and  County of Orange v. Association of Orange County Deputy Sheriff). Both cases clearly hold that the UL and or the UAAL are not, in the true sense of the term, a debt obligation nor an obligation imposed by law.

3.)  Also, the Ordinance,  at paragraph (f.) indicates that the City is authorized to issue “refunding bonds” or “incur indebtedness” for the purpose of refunding any evidence of indebtedness under Government Code, Section 53570 or its Charter, Section 4.14.  It does not appear that this section provides the necessary authority. Sections 53570-53572 deal with “revenue bonds” and the refunding of revenue bonds while the City’s proposal is to issue  “new”  general obligation bonds for the specific purpose of funding the PERS side fund (the pension funds’ unfunded liability [UL]). The “side funds” are not an existing debt under the law subject to refinancing – they are no more than regular contract obligations entered into voluntary by the parties.  Further,  the PERS laws  (Gov. Code, secs. 20840 et seq., risk pools) creating the side funds, does not create a financial obligation  “imposed by law”. It is simply an actuarial assumption determined by PERS in order to finance the parties agreed to employee pension benefits. Again, see cases cited above.

4.)  Section 4 of the Ordinance is  clearly a “Blank Check”.  “…to do any and all things that they deem necessary or advisable…” Should the people of Piedmont approve this Bond Measure they will completely loose whatever opportunity they may have had to oversee or approve any future Bond deals relating to the pensions.  It is an “unlimited” blank check – it couldn’t be any worse.

5.)  Also, the structure of the Measure and the enabling Ordinance beg a haunting question – should the voters approve the Measure does the voter approval then not authorize the City to collect a property tax to service the bond debt in excess of the limitations imposed by Proposition 13? (See Valentine v. City of Oakland (1983) 148 Cal. App. 3d 139; Bandt v. Board of Retirement, (2006) 136 Cal. App. 4th 140;  Carman v. Alvord, (1982) 31 Cal. 3d 318; and Howard Jarvis Taxpayers Association  v. County of Orange [City of Hunting Beach] (2003) 110 Cal. App. 4th 1375.

6.)  Additionally, as the Ordinance indicates, at paragraph “d”,  speaking to the Side Fund, and showing amounts of $2,311,901 and $5,532, 124) it notes:  “This amount changes from time to time based on actuarial determinations prepared by PERS.”  This of course begs another haunting question, considering “the amounts change from time to time”, and that the amounts (Side Fund, UAAL) are merely “projected” amounts depending on investment returns and numerous other factors (see Orange County Sheriffs) then exactly what amount does the City intend to bond. And, if the amount increases in the near future (which it usually does) will that not require the need to sell additional bonds. How can you sell bonds and expect to save money, to cover an amount that is ever changing?

7.)  The Council Agenda Report of October 7, 2013 features a comparative earnings and payment sheet on projected debt and bond payments, (BAFP Report). What the sheet does not show nor indicate is by far the most crucial to making a comparison – what kind of bonds and for what term. There are as many different bond issue out there as there are cars for sale on Broadway. There are the short term, 12 month, low interest bonds on one end of the scale and then the notorious Capital Appreciation Bonds (zero coupon)  (CAB) on the other end. CABs are no payments, (interest or principal) for as long as 40 years costing as much as 15 to 20 times the original amount.  A $2 million dollar bond can end up costing $40 million. The Report completely ignores any aspect of the crucial difference the term period makes – the interest rate is only part of the calculation. The  differences can be huge.Many of the Pension Bond deals to cover Side Funds are a mixture of different types and terms, including CABs. Most are quickly refinanced costing the tax payer yet more money. Or extended for longer periods in order to lower payments to free up the City’s General Fund for other uses, again costing more and more money.

8.)  The last issue. As was pointed out in the BAFP Committee Report of June 3 (p.19) and recently the subject of a letter to the Montclarion by Rick Schiller. The critical point, without a contract change of the employee payment “cap” the City’s scheme to bond the Side Fund will save the employees a substantial amount, but will actually cost the City more money.  Considering there is no incentive for the employees to change the cap (costing them more money), what sense does this whole proposal make?

David E. Mix