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Joyce Clark Unfiltered

For "the rest of the story"

I have written about the proposed Tohono O’odham (TO) casino and its impact on Glendale too many times to count. The other day a thought occurred to me. We all know that Glendale is in a financial mess. Its debt burden has prevented the construction of so many much needed facilities such as a western branch library and has caused the cuts in service to residents’ quality of life.

We often hear Councilmember Alvarez complain about service cuts and the on-going lessening of basic infrastructure maintenance. Yet she is all too willing to support the construction of the proposed casino in the name of jobs. Realistically the job numbers touted by the TO are highly inflated and everyone seems to ignore the stipulation that 25% of them must go to Native Americans.

Has anyone considered the financial impacts to a city already struggling financially? I think not.

Several years ago senior Glendale staff presented a cursory assessment of the financial effects of the casino. It was made clear that a new water treatment facility would be required to service the intense demand for water that would be created by the casino and its ancillary uses.  The construction of such a water facility is upwards of $70 million. Who would pay for it? Certainly not the Tohono O’odham. The persons paying the construction bill would be water ratepayers through an increase in water rates.

Then there is the issue of public safety. While a TO reservation would have its own tribal police to handle issues within the reservation it would be Glendale’s police and fire that would respond outside the reservation boundaries. At the very least, Glendale taxpayers would have to bear the costs of an increase in personnel and could experience delayed response times.

Lastly there are transportation costs. Streets adjacent to the reservation may need improvement to handle the increased traffic that will occur 24/7. There may be a need for upgraded traffic signals, signage and upgrades to the city’s Intelligent Traffic System.

For all of those who support the coming of the TO casino, do you still want the casino if it means that you have to pay more for your water provided by the city?  For all of those who support the coming of the TO casino, do you still want the casino if it means that public safety response times get longer as Glendale’s public safety personnel deal with a major traffic accident on adjacent streets or respond to a heart attack victim on the reservation? For all of those who support the coming of the TO casino, do you still want the casino if it means that instead of resurfacing or improving your street the money is used to improve or maintain streets to accommodate the increased traffic adjacent to the reservation?

You know, of course, that because of reservation status, the TO pay no taxes of any kind – no federal taxes, no state taxes, no county taxes and no Glendale taxes. If you were counting on increased sales tax revenue from the casino to offset these new financial burdens to the city’s General Fund, you can forget it. It’s not going to happen.

There are those like Councilmember Sherwood that believe Glendale can negotiate reimbursement for its added financial burden to support the casino from the TO. Do you really think the TO will shell out $70 million for a new water treatment facility or pay the ongoing costs of an increase in public safety personnel or pay millions for new or upgraded street improvements?

Even if a deal is struck, how can you trust people who violated agreements and the trust of their sister Tribes or kept secret its purchase of land for 7 years? If they renege on any kind of agreement with Glendale how will those who have complained about the costs of law suits feel about yet another law suit to get the TO to honor an agreement with Glendale?  

Please don’t regurgitate that the TO are required to give a small portion (8%) of their revenue to non-profits throughout the state. That presupposes that the TO will give their entire portion to non-profits in Glendale and ignore those in the Tucson area (site of their real reservation). Not going to happen. None of that money can go to Glendale’s General Fund to offset the new financial demands created by the proposed casino.

For every action there is an equal reaction. It’s the age old law of unintended consequences. While you may support the proposed casino because it will “create jobs,” are you willing to place further financial burdens on a city already under financial stress? Are you willing “to put your money where your mouth is” and to pay more for your water, deal with longer public safety response times and watch your streets deteriorate even further? I’m not.

© Joyce Clark, 2014

FAIR USE NOTICE

This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.

It appears that Glendale cannot catch a break financially. Camelback Ranch opened in 2009 as the new Spring Training home of the Dodgers and White Sox at a cost to Glendale of $158 million: The ballpark cost $121 million, plus $37 million for off-site infrastructure. Glendale knew that reimbursement from the Arizona Sports and Tourism Authority (AZSTA) would be a long time in coming but at least it knew that in the future it would be partially reimbursed for its investment (if I remember correctly, it was 70% of the cost) .

AZSTA utilized a 2000 voter approved tax on car and hotel rentals to pay for the construction of the University of Phoenix Stadium and various Spring Training facilities in addition to reserving a portion for youth sports. It issued bonds for stadium construction that are paid from the rental taxes.

On Tuesday, June 17, 2014 Maricopa County Superior Court Judge Dean Fink ruled that the car rental tax was unconstitutional because the tax was being used for what he determined were impermissible uses. Here is the link:  http://www.azcentral.com/story/money/business/consumer/call-12-for-action/2014/06/18/judge-strikes-rental-car-tax-stadiums/10723905/ .

There is a hotel industry suit waiting in the wings claiming that it’s tax is also unconstitutional. No doubt there will be an appeal of all rulings related to this issue so it may be at least a year or more until there is final resolution.

If the car rental industry and the hotel industry finally prevail Arizona will be forced to rebate all of the tax it collected to those industries. It will be an amount way, way north of $150 million. This action raises a host of questions. Will AZSTA come up with another taxing mechanism to replace the unconstitutional one? Will it take it to the voters for approval? Will it renege on its obligations? Will cities with new, spring training facilities be able to sue AZSTA for breach of contract if it fails to reimburse them? The implications of such a ruling, should it be upheld, are breath taking.

For Glendale it is not catastrophic in the short term because it knew AZSTA’s reimbursement was some time off. But, if AZSTA does not fulfill its obligation to reimburse Glendale and it is solely responsible for paying off the construction debt of approximately $17 million a year, it becomes another financial obligation that bond rating agencies will take into consideration when rating Glendale’s ability to pay its massive debt. This result, if not reversed on appeal, provides no light at the end of Glendale’s long and dark financial tunnel.

 © Joyce Clark, 2014

FAIR USE NOTICE

This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.

This is always a difficult subject because of all of the facts and figures that are presented. The numbers can be confusing to those readers who have not followed my other blogs on the monthly reports. Here is a link to the report:http://www.glendaleaz.com/finance/documents/FY14MonthlyArenaReport-20140430.pdf . Here is the report itself:

April 2014 MonthlyArenaReport 

This monthly report publicly released by Glendale will reflect the last of the hockey games for this season but does not capture the supplemental ticket surcharge which is due and payable 60 days after each fiscal year. The new fiscal year begins July 1, 2014 so this line item would not be paid to the city or reflected in this report until September 1, 2014.

The Interest Income-Escrow Account still sits at $4,620 and has not been updated since the first monthly report.

The agreement revenues to the city to date total $4,686,412 and reflect a prorated 11 month fiscal year begun on August 5, 2013. The total city expenditures to date are $10,252,055. In this first year all figures are prorated. The total management fee the city will pay is $13,750,000 and total capital improvement expenditures are $450,685.   The report reflects a loss to the city, to date, of $5,565,643.

For purposes of discussion let’s include as revenue the supplemental ticket surcharge. It comes in at $774,452. Let’s add that amount to the total qualified ticket revenue received by the city; and new ticket revenue figure is $2,323,357. The total management fee of $13,750,000 and capital expenditure requirement of $450,685 paid by the city this fiscal year is a total of $14,200,685. Subtract revenues received from fees paid and the loss to the City of Glendale in this fiscal year is the grand total of $11,877,328.

Consider this. Next fiscal year even if all 17,700 tickets per hockey game were qualified tickets the maximum amount the city would receive is $2,537,000 in qualified ticket revenue. For this exercise, let’s add to that figure another $1,268,500 in supplemental ticket surcharge. Add an additional million dollars more in parking revenues to the nearly $1 million generated this year and the maximum revenue 42/43 hockey games per season can generate is approximately $6 million.  

Global Spectrum and IceArizona would have to have approximately 100 revenue generating non-hockey events in order to earn an additional $9 million annually to be paid to the city to offset the $15,000,000 the city must pay as an annual management fee to IceArizona. They will be fortunate to host 25 non-hockey revenue generating events next year.

Some folks dismiss the $6 million portion of the annual management fee because it was already budgeted. It’s not to be dismissed because it’s in the budget. The money still comes from General Fund sales tax revenue. It still counts. It is still money the city has to receive from sales tax revenue to pay all required arena expenditures. 

I added the Supplemental Ticket surcharge to the total revenues to be received by the city. Even with that “enhanced revenue,” the fact remains that this year the city’s loss is $11.8 million dollars. There is no more money forthcoming to the city from any magical or secret source.

For purposes of this exercise, here is how this year and the next 4 fiscal years worth of loss to the city may very well pencil out. For this exercise I reduce the annual loss by an estimated $2 million a year by increasing revenue to the city by an equal amount annually:

  • This year, FY 13-14           loss of $11.8 million
  • Next year, FY 14-15          loss of $  9.8 million
  • Year 3, FY 15-16               loss of $  7.8 million
  • Year 4, FY 16-17               loss of $  5.8 million
  • Year 5, FY 17-18               loss of $  3.8 million
  • 5 Fiscal Years                   Total loss of $39 million

Add to the $39 million deficit in earned revenues approximately $12 million a year in construction bond debt for a total of $60 million. In five years I estimate the city will pay $99 million dollars between paying annual construction debt and covering annual revenue losses generated by the management fee.

My disclaimer is that these estimates are my best, educated guess based upon the numbers that are publicly available. The actual loss number for five years could be higher or lower than estimated.

What is ironic about this IceArizona contract is that the “enhanced revenues” (with the exception of naming rights and the supplemental ticket surcharge) are not really new revenue. Before IceArizona and the NHL’s two years of management, the city paid no annual management fee…none…nada. Yet it collected the very same revenues — a ticket surcharge and a parking surcharge. They were included in the price of every ticket. Those revenues: sales tax earned inside the arena and the ticket/parking surcharges were used to pay down the construction bond debt because the city didn’t have to also pay a management fee.

With this new deal the management fee consumes all of ticket/parking surcharge revenues (in addition to the other revenues like naming rights) the city was already getting and leaves the city struggling to cover some portion of the $15 million deficit every year. Oh, and don’t forget, IceArizona takes $20,000 off the top of parking fees for every game. That comes to $860,000 this year.

Another irony is that when IceArizona took over, it didn’t subtract the existent ticket and parking surcharges that were historically already included in the price of the ticket. Those charges were absorbed and became part of the base price of the new IceArizona tickets to which they added the new, qualified ticket surcharge. In essence, every fan’s ticket now includes the old ticket and parking surcharges within the base price and the new IceArizona ticket surcharge is then added.

The management agreement was and is good for IceArizona but it’s not so good for Glendale. Earned revenues once applied to the construction bond debt are now used to cover the $15 million annual management fee. Those earned revenues simply are not adequate to cover the management fee.

The argument for keeping the Coyotes as an anchor tenant was to benefit all of the surrounding businesses in Westgate. With the totality of Glendale’s excessive debt burden the question must be, is it worth it to keep the team and struggle to pay the annual management fee? Or is Glendale better off going back to accepting one of the Beacon bids solicited last year? You decide.

© Joyce Clark,

2014 FAIR USE NOTICE

This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.

This is the last blog in a six part series about Glendale’s debt. In previous blogs we explored the different kinds of debt, how those debts are paid and the purposes for which each debt was created. Some debt such as Enterprise Fund debt, Highway User Revenue Fund (HURF) debt, Transportation debt and a portion of the General Obligation (G.O.) debt are reasonable debt. A portion of the G.O debt could be characterized as imprudent and unnecessary debt. The Municipal Property Corporation debt, in hindsight, is unnecessary debt created to fulfill the commonly held vision of former Mayor Scruggs and former City Manager Beasley.  

The purpose of this exercise is to manage Glendale’s debt by paying it down or eliminating portions of it. Very simply the city’s expenses are greater than its revenues. The result has been to strip the city bare and reduce services to its residents (such as reduced library days and hours) because the debt is absorbing revenues that could be used for other purposes. When a mistake is made it is better to accept accountability, rectify it and move on. A city is required to do the same.  

A simple example might be that you decide you want a new car. You don’t need a new car. The old one is fine but you have decided you must have a new car. You buy a Tesla (extravagantly expensive) just because you want it. However, to make the payments you cut back on food, utility expenses and other necessities. You end up eating beans and rice every day, live without air conditioning and stop using doctors but, by God, you have the car of your dreams. You may be comfortable with your decision but the rest of your family may not be so happy especially if they are not allowed to weigh in on its purchase. One day your child is ill and the family learns that you stopped making medical insurance payments. If it is a decision that affects only you, fine, but it’s not right to obfuscate when that decision affects others without their buy-in. In Glendale’s case it is the residents of the city many of whom are not fine with past decisions that incurred tremendous debt and have resulted in a diminishment of their services.  

Before I go too much further I wanted to share a newspaper clipping that I received. A scant 11 years ago this is what the Arizona Republic reported about Glendale’s finances:  Gl finances 3

By September of 2003, former City Manager Dr. Martin Vanacour had resigned (that’s a whole ‘nuther story) and Ed Beasley had been appointed by City Council. Make no mistake, Fiscal Year 2003 was Vanacour’s budget and Beasley never attributed its success to Dr. Vanacour’s management.

I hope Dr. Vanacour will not take offense if I refer to him as Marty. I respected and admired Marty a great deal. He was and still is, highly respected by his peers. Marty was an excellent city manager and was also fiscally conservative. I genuinely liked Marty. He was approachable and respected confidences. Sometimes he reminded me of a Buddha or sphinx as he would sit stoically, listening to my latest series of questions, comments or rants. 

There were a few, alas an important few, who wanted new management. They wanted someone who would lead Glendale into becoming the “new” Glendale acknowledged by all as THE Sports and Entertainment city. That someone chosen to be the new City Manager was Ed Beasley. Between 2003 and 2009, on former Mayor Scruggs’ and former City Manager Beasley’s watch all of the current MPC debt was incurred.  

The MPC debt is killing Glendale financially. This debt is paid out of Glendale’s General Fund because MPC debt is paid from sales taxes. Sales tax monies are received and accounted for within the General Fund. It should be the prime imperative for the city council to reduce or remove MPC debt by any means possible as quickly as possible. The elimination of MPC debt frees up General Fund money for other purposes such as restoration of library hours or other basic services Glendale provides to its residents.  

What does Glendale do now? It must use a combination of strategies that will bring Glendale’s expenses in line with its revenues eliminating the need to extend the temporary sales tax increase beyond its 2017 sunset date.  

STRATEGY #1: Implementation of the sale of Glendale’s assets. I am pleased to see that Glendale staff has finally drawn up such a list and presented it to council at the workshop on May 20, 2014. Staff acknowledged that they omitted the two city owned golf courses: Desert Mirage and Glen Lakes and that they belong on the list. Here is a link to Glendale’s current assets: http://www.glendaleaz.com/Clerk/agendasandminutes/Workshops/Agendas/052014-W02.pdf.

Executive Director of Finance, Tom Duensing, said recently, “Selling city property is just ‘one-time money’.” I beg to differ. Not in all cases. If a city facility’s O&M is being subsidized by General Fund revenues or if it still has construction debt then the city gains in two ways. It brings in much needed one-time cash that can be used to pay down or off the construction debt but it also eliminates an on-going General Fund expense.

A case in point is the Civic Center.   The Civic Center was built as Pay-As-You-Go with cash from the General Fund. It has no construction debt. Did you know that since it opened the city has subsidized its operation and maintenance in some form or fashion? There was even aCivic Center period of years when all city departments were required to hold all of their events at the Civic Center. It was a way to subsidize the Civic Center without being readily transparent since department event expenses are a line item in a department’s budget and there is no explanation regarding those payments.  

No matter what is suggested as an asset to be sold someone’s ox will be gored. There are so many stakeholders each supports a different city asset. It will be a painful experience for everyone. However, there’s either a will to finally fix this problem or not.  

What should be sold? My list will be different from yours. I welcome all comments to this blog that argue for or against the sale of a particular asset. My list would include, but not be limited Jobingto, in the downtown area, the Civic Center, the downtown parking garage, the Bank of America building, the Sine building, the Thunderbird Lounge property, the Civic Center Annex, the St. Vincent De Paul property and the city court property. In north Glendale, I would sell the Foothills Recreation & Aquatic Center. In west Glendale the city should sell Jobing.com Arena, the Media Center and Parking garage, and the Convention Center. If a legal way can be found to sell Camelback Ranch, that would be on the list as well.  

STRATEGY #2:  No employee raises until the General Fund has enough of a surplus to accommodate it. The current City Manager Brenda Fischer has complained that there is a 17% turnover rate of employees in Glendale but she never compared that figure to other Valley cities. In this economy people are thankful to have a job and we should know what vacancies currently exist, how many people apply and how long does it take to fill a vacancy? In other words, more information than the public has received to date. In police and fire there are always tons of people who apply.  

STRATEGY #3: While we are on the subject of vacancies, it should be standard practice to eliminate all unfilled vacancies each budget cycle. This is an accounting trick that has been used for years. It has always been a fist-fight to get staff to remove unfilled vacancies once and for all.  

STRATEGY #4:  All departments would be required to live within their annual budget appropriation, with no exceptions. No more fire department requests for additional money to cover overtime. Council should require (not request yet another study that goes nowhere) the fire department to move immediately to implement 3 man staffing on trucks and to implement the use of small, 2 man vehicles to answer medical calls.  

STRATEGY #5:   No carry-over requests from year to year with one exception. A project currently under construction but not completed within the year should be allowed carry-over to complete the project. If it is a project not yet begun it should have to compete for the appropriation the next fiscal year.  

STRATEGY #6:  Each department’s “Professional & Contractual Expense” must only be used for specific essential expenses. Only a specialty’s required licensing and organization membership should be permitted. The city’s payment for publications should be eliminated. The city’s policy on car allowances and cell phone use should be reviewed and the usage monitored carefully monthly.  

STRATEGY #7:  Council’s will to live within its means must be implemented as well. A majority of council possesses the prevalent attitude that it can approve new expenses and somehow the staff will find a way to cover them.

This is a time in Glendale’s history that calls for austerity. Austerity begins with the policy makers. If they cannot demonstrate their willingness to practice what they preach it sends the wrong signal to the entire organization. Signals emanate from Glendale regularly and are usually just as clearly understood as the white smoke that signals the choosing of a new Roman Catholic Pope. One clear signal that we all have seen is that Glendale will not stop spending. It makes one think of the people who declares bankruptcy but not before maxing out every credit card they possess. They “get their stuff” and use it before the court steps in to stop them. Sadly the creditors end up getting mere pennies on the dollar when that inevitable day comes careening down the tracks. I hear warning sirens in the distance…  

© Joyce Clark,

2014  

FAIR USE NOTICE  

This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.  

 

Pocket #4 contains Municipal Property Corporation (MPC) Bond debt of $29,496,137. It totals 33% of Glendale’s debt for this year.  According to bdu-4-pocket-khaki-tan-jacket-100-ripstop-cotton[1]the latest Glendale Comprehensive Annual Financial Report (CAFR) of 2013, the overall total of MPC debt is $1,020,889,000.

So far we’ve examined the contents of three pockets: Pocket #1, Enterprise Fund debt; Pocket #2, HURF and Transportation Bond debt; and Pocket #3, G.O. Bond debt.  These revenues come from specific sources; either customer utility bills, or State Shared revenue, or a dedicated transportation sales tax or secondary property tax.

The uses of monies from Pockets #1 and #2 are regulated and can only be used for utilities, or streets or transportation projects. Pocket #3 is regulated as to the amount of money it may acquire but the stipulations for revenue use are very broad and leave room for council decisions that can be political.

As was identified in the last blog, the state had, by statute, limited the amount of G.O. Bond debt any city could issue. Two categories of G.O. bond debt were created, restricting the amount of bond issuance to two categories: one of 6% of assessed secondary property value and another of 20% of assessed secondary property value.

The Municipal Property Corporation, however, was born as a means by which any city can circumvent the state imposed G.O. debt restrictions and allow the issuance of more municipal debt. Cities throughout the state have created MPCs…from Sierra Vista to Surprise. The earliest reference I could find to Glendale’s MPC is December of 1985.

There is no comprehensive definition in Arizona’s Revised Statutes for an MPC. Generally all are 501(C) (3) s, commonly known as non-profits. The bonds they issue are repaid by a city’s General Fund’s excise (sales tax) revenue. Technically, the bonds issued by a municipal corporation are not considered debts of the city, according to the state revenue department. They are not constrained by the same revenue and expenditure limits as that of G.O. bonds by which cities must abide.

Bonds issued by an MPC are not a debt owed by a city. If they default, a city is not legally bound to pay them with its general tax revenues. But realistically a city does have to make sure the debt is repaid. A city could not allow its MPC’s bonds to default, especially if MPC debt created assets like a water system or an airport. Although it’s not the debt of a city and is a debt of the MPC, any city would be obligated to pay it.

Since there are no restrictions on the amount of MPC debt a city may issue, it’s an area that can quickly lead to financial trouble as it has in Glendale’s case. Glendale’s long held, council adopted policy on excise (sales tax) funded debtstates that debt service will not exceed 10% of the 5-year average of the General Fund Groups’ ongoing revenue.Glendale is not in compliance with its own 10% policy and hasn’t been for several years. The money that goes into this pocket is not enough to cover what has to be paid out of this pocket. There isn’t a pocket large enough to hold what Glendale needs to pay out of it.

These bogs were offered to provide a better understanding of Glendale’s debt structure — where the money comes from and how it is used. In the next two blogs we’ll explore the “why” of some debt that was issued and lastly, are there solutions to Glendale’s debt. The answers may not be pretty.

© Joyce Clark, 2014

FAIR USE NOTICE

This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.

So far we’ve examined the contents of two pockets: Pocket #1, Enterprise Fund debt and Pocket #2, HURF and Transportation Bond debt. Their bdu-4-pocket-khaki-tan-jacket-100-ripstop-cotton[1]revenues come from specific sources; customer utility bills, State Shared revenue and a dedicated transportation sales tax. The uses of these monies are regulated and can only be used for utilities, streets and transportation projects.

Pocket #3 is different. The source of money that goes into this pocket is identified but the restrictions for the use of the money are petty general. In Pocket #3 is Glendale’s General Obligation (G.O.) Bond debt for this Fiscal Year of $22,729,785. This bond debt is 26% of this year’s total debt. The total overall G.O. Bond debt is $163,310,000.

G.O. bonds are direct and general obligations of the city. Glendale uses G.O. bonds to fund many large-scale projects in its Capital Improvement Program. It does NOT use G.O. bonds to pay for water, sewer, sanitation, landfill, many transportation related projects and professional sports-related facilities such as Jobing.com Arena and Camelback Ranch.

Capital Improvement projects are the infrastructure that all cities must have to provide essential, quality of life services to current and future residents, businesses and visitors. They also prevent the deterioration of the city’s existing infrastructure, and respond to anticipated future growth of the city. Capital Improvement projects can be almost anything as the list below demonstrates and this list is by no means complete:

  • fire and police stations
  • libraries, court facilities and office buildings
  • parks, trails, open space, pools, recreation centers and other related facilities
  • landscape beautification projects
  • computer software and hardware systems other than personal computers and printers
  • flood control drainage channels, storm drains and retention basins

Where does the money come from to pay G.O. bond debt? G.O. bonds are backed by “the full faith and credit” of the city. State statutes heavily regulate this form of municipal debt and require that secondary property tax revenue is restricted solely to paying General Obligation (G.O.) debt. G.O. bond issuance must be in compliance with the Arizona Constitutional debt limitation for G.O. bonded indebtedness to 6% or 20% of a city’s total secondary assessed valuation.  G.O. projects in the 20% category are:

  • Water, sewer, storm sewers (flood control facilities) and artificial light when controlled by the municipality
  • Open space preserves, parks, playgrounds and recreational facilities
  • Public safety, law enforcement, fire and emergency services facilities
  • Streets and transportation facilities

G.O. projects in the 6% category are:

    • Economic development
    • Historic preservation and cultural facilities
    • General government facilities
    • Libraries

The list is endless in terms of city infrastructure paid for by G.O. bonds. Here are just a few:

  • Bethany Home Outfall Channel
  • Foothills Library
  • Relocation of Fire Station 151
  • Foothills Recreation & Aquatic Center
  • Field Operations Complex
  • Adult Center Facility

A Capital Improvement project must fit into either the 6% or 20% category. Note that these categories are very broad. Typically city staff will offer city council a list of CIP projects that they deem necessary. It is at this point that the process can, and often does become, subjective and political. City councils can move a lower priority project to the top of the CIP list and bump others down — often resulting in oblivion and extinction for the bumped project.

An illustrative case in point: In 2004 a majority of city council (Mayor Scruggs, Councilmembers Eggleston, Frate and Goulette) approved immediate construction funding for the Foothills Recreation & Aquatic Center. Suddenly it became #1 on the CIP project list that year. As a result the facility became fully funded for construction and opened in 2006.

Another example was that in 2006 the same majority of council stripped the CIP Western Branch Library project of $6 million dollars and diverted those funds to pay a portion of the construction funding for the Regional Public Safety & Training Facility. They made the training facility a priority that year and by removing designated funding for the west library relegated it to oblivion. To this day the library has never been built. These are examples of purely politically driven decisions.

We know where the money comes from for G.O. bond debt. It comes from secondary property tax. The only restriction on issuing G.O. bond debt for CIP projects is that they must fit into either the 6% category or the 20% category. But those categories are merely descriptive. What should be of concern is that CIP project movement up or down on the list by city council is often highly subjective and politically motivated.

At least there is a restriction on the amount of debt that can be issued for G.O. bonds as it is dependent on a specific formula of 6% or 20% of a city’s assessed secondary property valuation. The uses of G.O. bond revenue and the debt it creates has proven to be murky because council makes the final, and often political, decision as to what is funded.

The next blog will tackle Pocket #4. If you consider the use of G.O. bond revenue to be confusing and cloudy, just wait until the discussion of Municipal Property Corporation (MPC) debt.

© Joyce Clark,

2014 FAIR USE NOTICE

This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.

Suppose you had a coat with many pockets…many, many pockets. You are allowed to put certain dollars into each pocket and you may spend, with bdu-4-pocket-khaki-tan-jacket-100-ripstop-cotton[1]restrictions, for only one specific thing from any one pocket. It would be complicated and problematical, eh? Well, the coat is Glendale’s budget and each pocket has a specific purpose and restrictions. Why bother to learn about Glendale’s debt? There is no doubt that Glendale’s debt burden is at the root of its financial mess.

We’re going to look at the pockets that handle debt…all kinds of debt; Enterprise Fund debt, Highway User Revenue Fund (HURF) debt, Transportation Debt, General Obligation (G.O.) debt and Municipal Property Corporation (MPC) debt. All of the facts, figures and information came from public sources such as Glendale’s Budget Book for 2014 and other public, official Glendale documents.

Glendale’s total debt for Fiscal Year 2014 is $89,228,314 out of the total of all revenues received from all sources of $576,000,000. Roughly 15% of all revenue received by Glendale goes to pay off debt. 15% is way too high. It should be under 10%. These five categories constitute the major sources of Glendale’s debt burden:

  • Enterprise Fund debt is $24,975,437……….28%
  • MPC debt is $29,496,137………………………….33%
  • G.O. Bond debt is $22,729,785………………..26%
  • Transportation Debt is $7,331,080…………..  8%
  • HURF debt is $4,695,875…………………………   6%

Let’s take the easier debt pockets first and get them out of the way.

In Pocket #1 is Enterprise Fund Debt of $24,975,43728% of Glendale’s total debt. Water & Sewer Bonds are 27% of the city’s total debt and Landfill debt is another 1%.Enterprise Funds are water, sewer, sanitation and landfill. The Enterprise Funds were established by ordinance in 1986. Here is a portion of the text from the Sanitation Ordinance 1451:The purpose of the sanitation fund is to accumulate all revenues and earnings received for sanitation services, to accumulate all interest earnings thereon, pay all administrative, operational and maintenance expenses, direct or indirect, of same, and accumulate contingency funds as an operational fund reserve to the sanitation fund. The sanitation fund shall be a separate and protected fund, to be used for no other purpose than expenses associated with sanitation services.” The other funds reflect the same language in their enabling ordinances. Note that these funds are protected and not to be used for anything else.

Enterprise Funds are accounted for in a manner similar to a private business. Enterprise funds are intended to be self-sufficient with all costs supported primarily by user fees. They are stand alone funds. Their revenue does not go into the city’s General Fund. What Glendale residents pay each month for city utility bills goes into these Enterprise Funds. When debt (in the form of bonds) are issued it is for infrastructure projects such as the new 91st Avenue Regional Wastewater Treatment Plant, the Cholla Water Treatment Plant, the replacement and repair of water lines throughout the city and treatment plant upgrades to meet new federal regulations. Landfill bonds will be used to close the south portion of the city landfill and to open up the north portion.

This debt is issued based on revenues received from customers for service. In an emergency the city could use secondary property tax revenue but by habit and practice, it has never done so. We know where the money comes from for this pocket and when we take it out we know the narrow, restricted uses for this money.

The next blog will look at Pocket #2, HURF and Transportation Bond debt. It’s an easy one as well. Understanding a city’s debt burden is as dry as dust but in order to arrive at solutions for dealing with Glendale’s debt, it needs to be understood. Once we get a handle on it, let’s see if there are any solutions to bring it under control.

If Enterprise Fund debt is still unclear to you or you have a question related to it, please offer your question as a comment at the end of this blog. I will do my best to answer it. That way everyone will be able to see the question and answer.

© Joyce Clark, 2014

FAIR USE NOTICE

This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.

The Glendale City Council Workshop of May 6, 2014 had 4 items: the 2035 General Plan Update; the West Phoenix/Central Glendale Light Rail Update; discussion of adding electronic voting to council meetings; and the ever present FY14-15 budget follow up.

The 2035 General Plan Update discussion was led by Jon Froke, Glendale’s Executive Director of Planning, joined by Celeste Werner and Rick Rust, VPs of the Matrix Group. The Matrix Group is the consultant hired by the city to conduct the 2035 General Plan Update at an unbudgeted cost of $110,000 to be paid over two years: $31,000+ the first year; and $78,000+ the second year (FY2014-2015). Here is the link to their presentation: http://www.glendaleaz.com/Clerk/agendasandminutes/documents/01A-Glendale2035GeneralPlanUpdatePowerPoint.pdf .

The city has put up a website for the General Plan Update at www.glendale2035.com. It’s in its infancy right now and there isn’t much to see when you visit the site. At some point there will also be Facebook and Twitter links. Perhaps the greatest take away from the presentation was the continual emphasis upon the Citizen Steering Committee’s role in the process which is advisory only. It was made clear that the final approval rests with council before it goes to the voters in a General Election on November 8, 2016.

As citizens what can you do? Get involved…learn as much as you can…voice your opinion, your vision for Glendale’s future… and concerns, if you have any. There is a natural tension between property owners of vacant land and citizens and their neighborhoods. Make no mistake. Property owners will work hard to maximize the designated zoning for their vacant property because when it is sold a more intense zoning designation means more money for them. Sometimes what they may want will be in direct conflict with what is compatible with your neighborhood. Be vigilant. Check what’s vacant around you and then find out what kind of zoning designation may be placed on that land. Make sure it works to the betterment of your neighborhood. As an example, a property owner may want a multi family (apartment) zoning designation. Your neighborhood might be made up of large or medium sized lot homes. Apartment zoning on vacant land adjacent to your neighborhood will inevitably create future problems and could lower your property value.

Next up was the West Phoenix/Central Glendale Light Rail Update. Cathy Colbath, Glendale’s Interim Executive Director of Transportation Services, introduced Stephen Banta and Benjamin Limmer of Valley Metro. Both men made an excellent presentation. Here is the link: http://www.glendaleaz.com/Clerk/agendasandminutes/documents/02B-LightRailUpdate-PPT.pdf .

Funding for mass transit will be generally along the lines of: 50% from the federal government; a large percentage from voter approved Proposition 400 administered by Valley Metro; an undetermined percentage by the cities in which the mass transit is sited.

Take aways were, in terms of cost per mile: light rail, as most expensive, at $60 to $90 million per mile; a modern streetcar system at $40-$60 million a mile; and bus rapid transit at between $2 to $20 million a mile.

Valley Metro is still in the initial planning stages identifying which of the 3 modes of service would work the best and identifying a corridor extension from 19th Avenue and Bethany Home Road, Phoenix into Glendale. The study area is from Northern Avenue to Camelback Road, including the use of Grand Avenue. Based upon their findings Valley Metro has excluded Northern Avenue, Bethany Home Road and Grand Avenue. It appears the final corridor will be either the Glendale Avenue or Camelback Road. Mass transit is becoming more and more of a necessity in the Valley as resources shrink and the costs of purchasing fuel continue to rise. Did you know that for every billion dollars invested in mass transit in the valley there was a return of $7 billion in economic development along the light rail lines?

Valley Metro will host a public meeting and present their latest information on the study and will offer the public a chance to comment and ask questions. The meeting will be on Thursday, May 22, 2014 from 6 PM to 8 PM at Glendale City Hall, Council Chambers. It’s worth it to attend and to share your opinion on what kind and where mass transit should be sited in Glendale.

Economic redevelopment is critical along all of Glendale Avenue. Redevelopment of Glendale Avenue has been planned to death for at least 20 years with no discernible results to date. I was on the Miracle Mile Committee years ago as a private citizen and was a councilmember when the latest plan, Centerline, was approved. I can’t even remember all of the iterations of planned redevelopment that occurred in between those two efforts. Glendale Avenue is our namesake street. All of it, from 43rd Avenue on the east to Sarival Road on the west, deserves special recognition in terms of development and redevelopment planning. Centerline, the current name for Glendale Avenue redevelopment, only targets 43rd Avenue to 67th Avenue. If I may be so bold as to suggest, a broader, long term vision is required for all of Glendale Avenue and perhaps it should be considered as a whole but in phases. Phase I could be the current 43rd to 67th Avenues. Phase II could be 67th to 105th Avenue (location of our airport and public safety training facility). Phase III could be 105th Avenue to Sarival Road. We should cherish this entire corridor and plan for its future now.

Most of council was receptive to the Glendale Avenue corridor with the exception of Vice Mayor Knaack. Her reservations are understandable. After all she owns property at 55th and Glendale Avenues. However, she is being short-sighted. She is thinking in terms of short-lived financial pain, in the form of relocation or construction, creating financial hardships for business owners such as herself. The long-term gain of finally securing a tool for the economic development /redevelopment of Glendale Avenue between 43rd and 67th Avenues is too important to Glendale’s future viability.

The third agenda item just boggles the mind. Vice Mayor Knaack, under Council Items of Special Interest, brought up the subject of electronic voting at council meetings. Someone on staff may have slipped her the suggestion. Chuck Murphy, Glendale’s Executive Director of Technology & Innovation, and Diana Bundschuh, Deputy Chief Information Technology Officer introduced Chris Voorhees and Thao Hill of Granicus, Inc. Granicus is the provider of the current system used at council meetings.

Two questions should have decided the fate of this idea in short order. Is it critical to the current operation of council meetings and what does it cost? Now, I’m a technology nerd. I love new technology but in the light of Glendale’s current financial crisis electronic voting is not a necessity…now, at this very moment. Yes, it’s sexy and new. Yes, some other cities already have the technology but we can do without it for now. It is not critical to the process of council meetings. What about the cost? Well, Glendale can have the new, sexy technology for a mere upfront cost of $23,000 and an annual cost of approximately $18,000. And that doesn’t include the cost of replacing hardware such as tablets on a periodic basis – perhaps every 3 to 4 years. Hardware is expensive and is used by all personnel including council. Of course this is all unbudgeted. Of course Glendale has no money for a Cadillac right now.

It didn’t faze a majority of council for one single minute. It didn’t bother Councilmembers Knaack, Martinez, Sherwood and Chavira who constituted a majority giving direction to move forward with the new system. Mayor Weiers was decidedly uncomfortable and observed that the cost equates to one position within the city. What was the point of Councilmembers Martinez and Knaack urging all councilmembers to give back a portion of their council budgets if they are all too willing to be imprudent about Glendale’s unbudgeted expenditures such as this one. It’s ridiculous. If they cannot control their spending on relatively small items, God help us on the really, really big ones.

The last agenda item was Fiscal Year 14-15 Budget Follow-Up Items presented by Tom Duensing, Glendale’s Executive Director of Financial Services. By the way, I keep waiting for City Manager Fischer to live up to her pledge to get rid of all of these Executive Director titles…still hasn’t happened…wonder if it ever will? Here is the link: http://www.glendaleaz.com/Clerk/agendasandminutes/documents/04-POWERPOINT-FiscalYear2014-15Follow-UpItems.pdf .

Following Glendale’s budget this year is like trying to find your way through the smoke and mirrors.  It’s the same pot of money no matter what new names are used. Now we have General Fund Sub-Funds, a Permanent Fund and an Internal Service Fund. Go figure. When you watch senior management discuss the budget this year you end up feeling confused,  down right befuddled and just as if you had been sold a bottle of snake oil.

The take aways are that your Primary Property Tax Rate will increase by 2%, the Temporary Sales Tax increase will become permanent and there’s a new strategy called Alternative Service Delivery. The least offensive of the two increases is the increase in the primary property tax rate. Glendale’s portion of your property tax bill is relatively small. Hence the increase in real dollar terms is also proportionately small.

What should be of concern is making the temporary sales tax increase permanent and eliminating the sunset provision that was to occur in 2017. In an attempt to avoid painful cuts to the budget council took the easy way out. It’s a promise broken. Instead senior staff ratified by this council continues to overextend Glendale’s finances and to spend more than is in the budget.

Alternative Service Delivery is the new buzz word for privatization of services Glendale residents receive. The problem is, that while senior staff implements this strategy, no one and most certainly the public or even council for that matter, have been told exactly what they are doing. Then again, it’s another refusal on the part of senior staff to share information. If you were to ask any councilmember about Alternative Service Delivery they would parrot the explanation they heard at this workshop meeting. That is, positions when vacant are being evaluated. If you asked what specific evaluation criterion is used and what jobs have been privatized, they would not be able to answer. After this article, they probably will.

Tentative budget adoption is scheduled for the May 27, 2014 meeting of council with final budget adoption scheduled for June 10, 2014. At the June 24, 2014 council meeting the increased property tax rate and the permanent sales tax increase will be adopted.  Glendale’s voters got what they wanted…a tax and spend city council.

© Joyce Clark, 2014

FAIR USE NOTICE

This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.

The Glendale Monthly Arena Report for March, 2014 is now online at the city website. Here is the link: http://www.glendaleaz.com/finance/documents/FY14MonthlyArenaReport-20140331.pdf . It tracks similarly to the previous reports with qualified ticket sales (of 14,061) being up slightly. April’s report will have the figures from the last 5 games. That report, also, will look quite similar. Here is the March Report: Mo Arena Report Mar 2014

I have also prepared a Summary of the last 7 months’ worth of financial information. Here it is: Mo Arena Report Summary May 2014_Page_1Mo Arena Report Summary May 2014_Page_2Take aways from the Summary show that all “enhanced revenues”, and I included the Supplemental Qualified Ticket Surcharge of $1.50 per ticket, to date have totaled $3,641,547. The city’s expenditures to date total $6,502,055.

Note that some items are prorated. The Agreement start date was August 5, 2013. It is one month and 4 days shy of a full fiscal year. As a result, the Base Rent for the first year is not $500,000 but rather $326,712. The Safety & Security Fee is not $174,122 for the first year but rather $156.948. The big one is the Management Fee the city pays of $15 million a year. The first year it is $13,750,00.

The extreme right column labeled “FY Est.” is an educated guess, based upon 7 months of fiscal performance to date, of the final numbers for the Fiscal Year. I have relied upon publicly available figures. The Fiscal Year estimated revenues to the city are $5,523,000 and the expenditures are $14,200,68.

The city has $6 million budgeted leaving it with a deficit for the year of $8,677,685. Add to that figure an annual construction debt payment of about $12 million a year. This year’s loss on the arena will come in somewhere around the $20 million mark.

The city’s Contingency Fund sits at zero as it was used to pay a portion of the management fee. If there is an immediate crisis the city will have to reapportion some regular line item amount to cover it. I’m sorry but I don’t see how the new senior management has done any better at managing the city’s money than the old regime. No matter what, the current situation is…Unsustainable.

© Joyce Clark, 2014

FAIR USE NOTICE

This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.

Today I received via snail mail an 8 1/2” X 11” mailer from the Arizona Free Enterprise Organization. Below are pictures of the front and back sides of the mailer.

AZ Free Enterprise and Chavira Mar 21 2014 jpg_Page_1AZ Free Enterprise and Chavira Mar 21 2014 jpg_Page_2

Presumably it was mailed to all registered voters in the Yucca district of Glendale. That is the district Councilmember Chavira represents. It also is the district that is home to Jobing.com Arena and the proposed Tohono O’odham casino, two perpetually hot topics. They sent a similar mailing on Councilmember Sherwood of the Sahuaro district. While councilmembers Martinez and Knaack are retiring and will not run again, Sherwood is up for reelection in 2016. This is the majority coalition these days.

Although Chavira does not stand for reelection until 2016 it looks like he is going to have a tough time politically for the next two years. It couldn’t happen to a nicer fella. Let’s hope he’s a one term councilmember. Chavira voted in favor of the arena management deal that requires the city to pay $15 million dollars annually. He also supports raising Glendale’s property tax rate by 2% and removing the sunset provision that would have ended the temporary sales tax increase in 2017. His decisions demonstrate that he is comfortable with raising taxes or keeping them high to satisfy the monetary needs of Jobing.com Arena at taxpayer expense. All of this from a guy who ran a campaign with considerable financial support from the fire unions and Councilmember Alvarez. I bet she’s biting nails because she supported him. To date he has not supported her on any major issue she espouses. He ran promising fiscal responsibility. That promise didn’t last long.

I really didn’t know anything about the Arizona Free Enterprise Club (AFEC) until I googled them.  I did know that they had joined with Arizona Secretary of State Ken Bennett in a suit about campaign funding. It went all the way to the Supreme Court which ruled in AFEC’s favor. Here’s the link if you are interested: http://www.azfree.org/ . They describe themselves as, “The Arizona Free Enterprise Club was founded in 2005 as a free market, pro-growth advocacy group dedicated to Arizona issues and politics.  Our mission is to promote policies and candidates that encourage economic prosperity and limited government for all businesses and taxpayers.  The Club is a 501(C)(4) and is not affiliated with any other group or organization.”

Stay tuned. It looks like the next several years are going to be very interesting in Glendale politically.

© Joyce Clark, 2014

FAIR USE NOTICE

This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.