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Joyce Clark Unfiltered

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The major categories of debt that Glendale carries have been identified in the bdu-4-pocket-khaki-tan-jacket-100-ripstop-cotton[1]previous 4 blogs. How the revenues are spent has also been explored.  The next question is…was the issuance of all Glendale debt prudent and necessary?

The issuance of Enterprise Fund debt, Highway User Revenue Fund (HURF) debt and Transportation debt has historically been reasonable and prudent. The debt associated with these three funds are for the “bricks and mortar” of the city. They fund projects for the construction of new infrastructure as Glendale grew and for the repair and maintenance of all city infrastructures. They were used on projects as diverse as new water treatment facilities to new traffic lights to Northern Parkway.

There is one form of debt that I have not covered previously and that is the Interfund Loan debt. The General Fund borrowed from the Water/Sewer, Landfill, Sanitation, Technology Replacement and Vehicle Replacement Funds to cover two annual $25 million management fee payments to the National Hockey League (NHL) for Jobing.com Arena during Fiscal Years 2011 and 2012. The first $25 million annual fee payment in 2011 came from the General Fund’s Contingency Fund and no Enterprise Funds were used.

The second $25 million annual fee payment in 2012 came from loans from the above mentioned funds with the lion’s share of $20 million borrowed from the Water/Sewer Enterprise Fund. We know from Ordinance 1451 that, “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 Enterprise Fund Ordinances carry the same caveat.

There are some who have heart burn over the concept of the city having borrowed money from these funds. What they fail to recognize is that over many years, General Fund dollars were used to support these funds by carrying some of the Enterprise Fund employees or by not receiving full compensation for the support functions performed by General Fund employees. Historically, over the years, the Enterprise Funds have been supported financially in some form or fashion by the General Fund. Under those circumstances borrowing from the Enterprise Funds is not as egregious as some think it to be. Here is just one example of the financial interrelationship between the General Fund and the Enterprise Funds occurring on January 8, 2013, This is a request for City Council to waive reading beyond the title and adopt an ordinance approving an operating cash transfer from the General Fund (GF) to the Water/Sewer Enterprise Fund; and the transfer of 3.5 Full Time Employees (FTEs), and the associated appropriation authority, from the Water/Sewer Enterprise Fund to the GF, both of which are within the Financial Services Department.”

The debt issuance decisions associated with the General Obligation (G.O.) bonds and the Municipal Property Corporation (MPC) bonds have not always been prudent or even necessary. As has been stated previously some of the council decisions were political. In the G.O. bond category just two examples are: the accelerated advancement of the Foothills Recreation & Aquatic Center which was politically motivated; as was the Capital Improvement Program (CIP) number 1 placement of the Public Safety & Training Facility (PSTF). The PSTF was funded with a combination of G.O. debt and MPC debt.

Was the need for either of these facilities critical? No. Those that get everything in north Glendale wanted more and in this case it was their own recreation and aquatic center so that they wouldn’t have to travel down “there.” The number of resident-owned swimming pools in north Glendale and especially the Cholla district is astronomical compared to any other region of Glendale. It’s ironic that this facility has become regional serving the interests of Peoria and Phoenix residents. Councilmember Martinez would be quick to point out that the facility earned revenues that just about cover the annual O&M facility costs but those revenues do not cover the debt issued to pay for its construction. That’s being paid off by every property owner in Glendale with their secondary property tax.

Was the need for a Public Safety Training Facility (PSTF) critical? Again, the answer is No. To this day new police recruits go to a regional police academy such as the Arizona Law Enforcement Training Academy (ALETA) for initial training. The PSTF is used by Glendale police for advanced training only, another function whose needs can be met elsewhere. The Glendale fire department just had to have this facility even though they have always been able to obtain training slots for new recruits at the regional facilities in Phoenix and Mesa. Training slots had never been an issue. Suddenly the dearth of slots became the rationale for Glendale’s very own training facility.

Lastly we arrive at the MPC Bond debt. Were the projects funded by MPC debt critical and necessary? The answer is No.  Decisions regarding MPC expenditures were often political. Former Mayor Scruggs always went ballistic when she heard references to Glendale as the town of “hicks and sticks, plows and cows.” She and former City Manager Ed Beasley shared a vision. Their vision was that Glendale would become an equal of the well known Valley cities who had developed a niche and a city brand for themselves. Tempe is known as a college town. Scottsdale has always been the “west’s most western town.” Chandler and Gilbert were becoming the technology towns. Glendale wanted to be the sports town.

The former mayor often had majority council support from Councilmembers Eggleston, Martinez, Frate and Goulet. All wanted Glendale to be a member of the “big boys’ club” that included cities like Phoenix, Scottsdale and Tempe. All had cache and Glendale had none. The road to acceptance meant Glendale’s branding as a sports and entertainment mecca and accepting the cost associated with making that a reality. As major developments appeared and wanted costly incentives to locate in and around the Westgate area, more and more MPC debt was issued.

Glendale has issued more MPC debt than it can sustain for such projects as Jobing.com Arena, Camelback Ranch, the Regional Public Safety Training Facility, Zanjero infrastructure and the Westgate parking garage, media center & convention center. All…very “big ticket” projects. These projects are the albatrosses hanging from Glendale’s neck.

The final blog in this series will explore any possible solutions to paying down or eliminating the MPC debt. Can it be done? Yes but it requires the will to do so.

© Joyce Clark, 2014

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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.

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