Monday, January 25, 2021

Community Voices: City Budget Planning Documents Ignore Massive Off-Balance-Sheet Debt

I was very pleased to read that Councilman Richard Bailey entered into our eCoronado community discussion on Coronado finances over the weekend.

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By way of background, our FY 2013-2014 city budget narrowly passed with a Council vote of 3-2. Mr. Bailey voted for the budget and I voted against it. It’s logical to assume that we don’t feel the same way about Coronado city finances. That doesn’t diminish the collegiality I feel toward Richard as a Council colleague.

Here are some highlights from Councilman Bailey’s post with my responses:

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“Over the next twelve months Coronado is projecting General Fund revenues of $42 million and expenditures of about $41 million . . .”

It’s common knowledge that expenditures are around $57 million — not $41 million — according to the budget fiscal impact information in the 18 June 2013 staff report for agenda item # 11E on page 141 and following. Expected revenues of $42 million minus $57 million of expenses equals $15 million of red ink before the gap is filled. That’s a big red flag for our city finances. The city manager said at council meetings that the Golf, Wastewater, and Stormwater Enterprise Zones are three of the “dark spots” in our budget because the plan is for them to spend more tax dollars than they’ll receive in tax revenues this year. For practical reasons, Coronado taxpayers have no real guarantee that General Fund tax dollars won’t be spent by those Enterprise Zones in the coming year.

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“. . . leading to a surplus of nearly $1 million.”

The “surplus” is an accounting trick that the city uses every year to hide the truth. The truth is that Coronado taxpayers are responsible for massive off-balance-sheet debts that the city accumulated on their behalf in the areas of Redevelopment Debt and Employee Pension Debt. Since they are off-balance-sheet debts, you never see them in the budget planning documents. Coronado’s off-balance-sheet debts are around 300 times the size of the fake “$1 million surplus.”

“. . . $40 million in reserves. . .”

The reserves are another familiar piece of the city’s information campaign. Yet this $40 million that appears on the budget planning documents is also a minuscule amount compared to Coronado’s massive off-balance-sheet debts that the city hides from you.

“. . . council took a proactive step and made a $5 million dollar payment to CalPERS (California Public Employee Retirement System) towards a portion of the city’s unfunded pension liability.”

Indeed I’m pleased that the motion I made, which was seconded, received the unanimous support of Council to pay a tiny portion of our off-balance-sheet Pension Debt. It’s a step in the right direction and it’s what we had available at the time. But as I explained on the record during our Council discussion about my motion, this amount isn’t nearly enough because our total Pension Debt is massive. And Coronado taxpayers will get a big shock when our city finally tells them what they owe. Sticking up for city employees and for taxpayers, I stated that it’s unfair to them that our city hasn’t paid the Pension Debt and has kept it hidden.

“. . . no portion of the City’s General Fund was pledged as security for the bonds issued by the Community Development Agency.”

That’s because Coronado taxpayers’ future property taxes were pledged.

Coronado Redevelopment was publicly funded through tax increment financing, or TIF. In order to finance the Redevelopment of our city, we accumulated a massive amount of Redevelopment Debt by borrowing against the annual incremental increases in property tax revenue our city was going to receive in the future. Our debt instruments are called Redevelopment Bonds or Tax Allocation Bonds or TABs. This means that incremental increases in property tax revenue aren’t available every year to pay the required expenses to run our city because this revenue has already been spent on Redevelopment. And remember as with all public financing through bond debt, we waste a significant amount of taxpayer dollars on the high cost of Redevelopment Bond interest which doesn’t help run our city or add value to our city one bit.

” . . . the City of Coronado and the CDA are two separate legal entities . . .”

This is the old “separate legal entity” fiction. The most important thing to remember is: It doesn’t matter how many legal fictions were created for our now defunct Redevelopment CDA because there is only ONE group of people who are responsible for paying off this debt — Coronado taxpayers. The shell game of “separate legal entities” is an attempted distraction from the massive burden of Redevelopment Debt for which Coronado taxpayers are responsible.

Also, the Coronado CDA was terminated by the state legislature in February 2012. It’s no longer a viable agency. It’s common knowledge that the city of Coronado is the Successor Agency to the Coronado CDA.

“. . . the city is not liable for one penny of redevelopment debt.”

That’s because Coronado taxpayers are responsible for every penny of Redevelopment Debt.

“Coronado is the envy of many cities within our region. . .”

Our city’s information campaign tells you what you want to hear. You’re supposed to live in a state of blissful apathy simply because Coronado proclaimed itself “the envy” of our region. I’m proud of Coronado for many reasons. But the fact is that no other city envies our massive Redevelopment Debt and massive Employee Pension Debt. The truth is that cities in our region — and cities all around our state — routinely point to Coronado as the perfect example of Redevelopment Abuse because we went overboard with Redevelopment Debt. About two weeks ago in my post on eCoronado here, I explained that at $13,261.93 per person Coronado has the highest per capita Redevelopment Debt in our entire county. Also our per capita Redevelopment Debt is higher than that of Los Angeles and San Jose.

“. . . because of our strong financial position.”

This is more of what you want to hear in order to prevent you from thinking about the reality of our financial situation. The truth is that people outside Coronado don’t think we’re in such a “strong position.” In June 2011 Fitch Ratings downgraded $133.4 million of our Redevelopment Bonds. Then in 2012 Fitch put on rating watch negative $219.1 million of our Redevelopment Bonds. Unfortunately the bond rating downgrade remains intact today. Fortunately the negative watch was removed eventually. As well, Coronado is famous throughout California for having one of the 18 Redevelopment Agencies (RDAs) that were hand-picked for a Special Audit by the State Controller’s Office (SCO) in 2011. The SCO’s Special Audit report publicly disclosed Coronado’s weaknesses in several areas available for you to read in the full SCO Special Audit report. It’s interesting to note that all of this important financial news from Fitch and the State Controllers Office didn’t receive attention from the press in Coronado. This helped our city keep Coronado taxpayers in the dark.

In their report release, the SCO wrote: None of the 18 reviewed agencies met all of their filing requirements . . . The report also found that independent audits often failed to identify major audit violations and did not include all required information . . . The lack of accountability and transparency is a breeding ground for waste, abuse, and impropriety. So the city information campaign tries to lull you into the false belief that we are in “a strong financial position,” but the SCO auditors concluded that Coronado is a “breeding ground for waste, abuse and impropriety” of taxpayer dollars.

Conclusion. Our city’s Excessive Debt is the reason why I initiated this public discussion of our city finances on eCoronado and elsewhere a few weeks ago. I’m very concerned because we are burdening current and future generations of Coronado taxpayers with Excessive Debt instead of living within our means. Excessive Debt damages our financial stability.

Coronado is blessed with the best beaches, climate, residents, businesses and many other gifts. Given our strong tax base, it should be easy for Coronado to act in a manner consistent with the highest standards of a well-run city. A well-run city avoids Excessive Debt. As long as I’m on Council, I’ll continue to make sure that we reduce our city’s Excessive Debt by paying it, instead of burdening Coronado taxpayers more than they are already burdened with Excessive Public Debt and Taxes.

There is a great need for financial reform in order to protect Coronado’s financial stability. Some reform is already under way. In February 2012 the state legislature ended Redevelopment. This stopped our ability to accumulate even more than the already excessive Redevelopment Debt for which Coronado taxpayers are responsible. Also the Government Accounting Standards Board’s June 2012 mandate, known as GASB 68, requires that we publicly disclose our Employee Pension Debt. This mandate will encourage our city to pay our Pension Debt to our city employees, after our city finally discloses it.

In the end, we need more financial reform. Based on my experience as a Councilwoman, Coronado still has a long way to go before we fulfill the letter of our legal duty of financial transparency to Coronado taxpayers. As the only Non-Partisan member of our City Council, it’s my opinion that genuine financial transparency is necessary for all Coronado taxpayers to be able to properly oversee our city government and to protect our tax dollars from being squandered by the whims of political cronyism.

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