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Joyce Clark Unfiltered

For "the rest of the story"

words 6bargaining 3I want to commend attorneys for both Glendale and RSE. When I received the original June 26th draft of the Agreement consisting of 93 pages it took me quite a few hours to review it line by line. I ended with 18 pages of notes and they have been quite handy and well worth my time. I had quite a few issues with the original document. In reviewing the latest version dated June 28th I am quite pleased to see that many – not all – but many of my issues have been addressed. One that made me laugh out loud was the provision that Glendale would receive 100% of the Naming Rights for a future theater/stage space to be constructed within the bowl. Further along in the original document it specified that Glendale must pay for its construction or the Arena Manager would receive the proceeds of Naming Rights and apply them as reimbursement for construction costs. That provision, thankfully, has been changed and it is no longer Glendale’s responsibility to fund its construction but it still has the right to receive 100% of the Naming Rights. It appears that cooperation and communication by both sides has gone a long way to resolve many of the issues.

contractHowever, there remain several major, outstanding issues. One of those issues is that of the Noncompetition/Non-Relocation Agreement. The original June 26th agreement refers often and specifically to the dual concepts of non-competition and non-relocation although the document was never provided publicly. So there was no companion document to review. This, in conjunction with the absence of any exhibits accompanying the release of the original version, is troubling but that is for another time. In the new version of the agreement reference is now made solely to a Non-Relocation Agreement. The concept of non-competition has been removed in its entirety. Is this positive or negative? There is no way of knowing since there is nothing with which to compare the current Non-Relocation Agreement.

threaten 1Another major shift from previous deals is the concept of mediation vs. arbitration. In previous deals arbitration was the “Dispute Remedy.” In all versions of the RSE Agreement mediation is the dispute resolution mechanism. There is a difference between the two procedures. In mediation a neutral third party acts as a facilitator but is not a decision maker. Neither party is required to complete the process nor is it legally binding. The mediation resolution can be appealed through the legal system. In arbitration the neutral party acts as judge and jury. The decision is generally binding and cannot be appealed, except under very special circumstances. Mediation can be more expensive because it allows for legal appeal as opposed to arbitration which is legally binding. So the question becomes why RSE’s insistence on mediation for it seems to be upon their insistence and not that of the city.

enter 3We now know that RSE used a figure of 23 non-hockey events with attendance of 15,000 per event. Those numbers are a component of their calculations in determining the revenues from the parking surcharge and ticket/supplemental surcharges. It appears to be over inflated but it is their number, not mine, not the city’s. That goal should be acknowledged within the Agreement by incorporating accompanying performance penalties and incentives. If RSE meets less than its self-proclaimed goal of 23 non-hockey events there should be a monetary penalty. It is a concept only used in the Agreement in conjunction with hockey games. If less than 41 games are played in the arena, there is a $150,000 penalty per game paid to the city. However, if RSE overachieves or underachieves in booking non-hockey events, it should be rewarded/penalized for doing so but there is no mention of such a concept within the Agreement. Fairness dictates that non-performance be penalized and success rewarded.

man moneyAnother interesting concept within the Agreement is language that exempts the Arena Manager from governmentally imposed lease taxes on the property. If, for some reason, the Arena Manager does have to pay them, that amount will be deducted from the City’s total annual revenue to be received. Hmmmm. Should there be lease property taxes imposed that have to be paid the city is required to pay them.

It also appears that instead of allowing the city’s contribution to the Capital Improvement Fund to accumulate year over year, the Capital Improvement Fund is set to “0” every year and the funds within it revert to the Renewal and Replacement Fund that is spent solely at the Arena Manager’s discretion.

The last major change to the document is the city addition of its own opt-out provision. The city views this action as entirely appropriate. Their assumption may be based on the notion that the city has more “skin in the game” than does RSE. $15M for each of 5 years equals $75M. It has been widely reported that RSE’s equity (or “skin”) is $45M. The proposal is that after 5 years, each side should have the option of deciding whether to continue, especially if one side or the other has accumulated over $50M in debt. That option, if it remains in the Agreement, would signal that RSE’s “enhanced revenue streams” did not perform as advertised. The city’s financial shortfall in this deal is of its own making. The current council will either be comfortable in its assumption that it can weather the effects of the shortfall or it will not. Continued insistence by the city on this provision destroys RSE’s ability to secure loans because it nullifies the very element they MUST have, which is a guaranteed $15M from the city.

agenda 1In my notes I have probably identified another two dozen minor issues that require further negotiation. Listing all would turn this blog into a book. I will not inflict that agony on you. It appears that with some further negotiation and communication this Agreement could work but it does not resolve Glendale’s fundamental issue of covering a monetary shortfall of $3M annually.

Many have asked me to reveal my position on this issue. That I will not do. I have provided you with financial information on the “enhanced revenue streams” as well as information on Glendale’s precarious financial position and Agreement points that need further resolution. Many of you reading this blog have expertise in business budgets and corporate negotiating. My role is to offer municipal expertise and to provide context to balance that.  It is up to you to decide if this is a good deal for Glendale.  This is exactly polling 1what every current councilmember is wrestling with. As leaders of this city they have the prime responsibility of insuring the continued financial health of the city. My feeling is that some are now struggling with recent decisions and recent votes and beginning to realize the effects of those decisions.

confusion 3Will this Agreement help or hinder Glendale’s continued financial health? Of course there is the overwhelming element of politics. Some councilmembers’ positions will be taken as a result of ego; others simply wouldn’t say ‘yes’ even if God invited them into the Pearly Gates; still others have only a partial grasp of the entirety of the deal. But it is not my call. I am no longer a sitting councilmember. Whatever their collective decision I will accept it and abide by it, as everyone should reasonably do.

Fasten your seat belts — if past history is any indication we are in for a bumpy ride. I hope that I am wrong but there may very well be challenges to this Agreement.

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prop 202A number of people have asked me (as a former councilmember) to weigh in, pro or con, regarding the Renaissance Sports and Entertainment bid. It may very well become a moot issue if RSE rejects the city’s latest proposal to have the same 5 year opt-out clause as RSE enjoys. Until now I have instead spent all of my time since the original bid was made public reviewing and analyzing it. Note that a revised version has since been made public. In the newest public version changes that had been discussed at the city council workshop of June 28, 2013 are incorporated. There is now a joint defense clause, removal of all “novation” provisions and the city receives all insurance proceeds in the Casualty and Condemnation provisions. These changes and others make it a better deal for the city. Council gave direction to continue negotiations up until the eleventh hour (Tuesday, July 2nd council meeting at 7 pm). We can hope that RSE and the city will continue in the spirit of cooperation.

numbers 2As for the deal itself let me share my analysis. Let’s look at the numbers. The first premise is that RSE MUST have $15M a year guaranteed by the city. Why? An assumption, that has never been refuted, is that RSE needs $15M a year guaranteed by the city to satisfy the lender’s (Fortress Investment) requirements. The city has an approved budget that allocates $6M a year thereby creating a $9M a year shortfall for the city. RSE has proposed to sweeten the pot and supplant that $9M a year by creating “enhanced revenue streams.” Some are revenue streams whose numbers can be accepted with some sense of surety. The hockey ticket surcharge is based on 41 games with an average attendance of 12, 630. Those are reasonable numbers based on past performance. You may think the average attendance figure is low but it is RSE’s number and to be applauded because of their conservative approach. The “enhanced revenue” produced from this calculation is $1,553,490. It is a number we can accept as valid.

The next number is the team rental of $500,000 a year. That is, of course, a reliable number. One obvious question is why does this number not increase over time? In previous deals the team rental charge escalated over time. Another fairly reliable number is the sales tax generated at hockey games. RSE pegs it at a little over $600,000 a year; the city uses a little over $400,000 a year. I am inclined to accept the RSE number for the sake of argument.

So far, so good. We know the city can rely on these “enhanced revenue streams” of Hockey ticket surcharge, team rental payment and sales taxes generated from hockey games. Those items total $2,690,420 and we can be confident in realizing that revenue.

numbers 1But a look at the rest of the estimated revenue numbers show they appear to be overinflated. Let’s take the easiest one first, Naming Rights for which the city will receive 20%. Typically this fee is paid in installments. For argument’s sake let’s peg the Naming Rights fee at $10M. Generally, this would be paid over a period of years and often it is a 10 year period. That payment would be approximately $1M a year and the city’s portion would be $200,000 a year for 10 years. So instead of the RSE Naming Rights figure of $671,600 a year, a more conservative and reasonable number is $200,000 a year. As a point of comparison, this is similar to the Naming Rights deal at Chase Field and it receives a payment of $1.1M a year.

The parking revenue figure is highly inflated. The presumption is that all 5,500 parking spaces will generate $10.00 a space at every hockey game. Did you know that there are an additional 9,500 parking spaces at Westgate not subject to this surcharge? Hockey fans can park at Tanger, behind the AMC Theater, etc. and it is a short walk to the arena. Sooner or later, the owners of these businesses will become very unhappy to see hockey fans occupying their customer parking and will begin to charge…$5 a car which will be reimbursed to their patrons. I have also been informed that should there be a new parking fee imposed by the city and the team the Cardinals will charge $5 a car for their 6,000 spaces on Maryland Avenue, across the street from Jobing.com arena. There is also a secondary, but an equally important issue, the number of hockey fans parking in the Desert Mirage neighborhood across the street from Jobing.com arena will most surely increase. It is a neighborhood of over 1,200 homes and some hockey fans (although a minimal number) already park in their neighborhood on hockey game days. The RSE number also includes parking for non-hockey events with 23 events a year and 15,000 attending each of those 23 events. In my estimation it is unrealistic. More about that when we review the $5 per ticket surcharge for non-hockey events. RSE, and the city accepts, a figure of over $2M for parking revenues. This is way too optimistic and a more conservative and realistic figure is half that, or about $1M for parking revenues.

The last number RSE offered was revenue generated per year of $1,725,000 for a non-hockey ticket surcharge of $5.00 per ticket for 23 events a year and attendance of 15,000 at each event. I dug out old material I had related to arena event and attendance figures and I also reached out to people knowledgeable in the concert venue business. From 2003 (the year the arena opened) until today the maximum number of events ever held at the arena in one year that generated an attendance of 15,000 or more has been 15 events. Did you know that throughout the entire Phoenix Metro area there are typically 25 major concerts (what is called in the business, Type “A,” such as a Justin Bieber) a year? 4 of them were held in Jobing.com Arena this year. RSE’s estimate of 23 such concerts drawing 15,000 or better is wishful thinking. A more realistic revenue number for the non-hockey ticket surcharge would be under $1M a year. For the sake of argument, we will use $1M a year. How do these numbers add up? $200,000 a year for Naming Rights; $1M a year for Parking Revenue; and $1M a year for the ticket surcharge for non-hockey events totaling $2,200,000.

question 3Let’s add our reliable, take-it-to-the bank number of $2,690,420 and our far more conservative number of $2,200,000. The total is $4,890,420 and the magic number in “enhanced revenue streams” that must be achieved to make the city whole is $9M. Oh wait, there’s still the Supplemental Ticket surcharge of $1.50 on every ticket. RSE’s number is $1,294,245. It is an overestimate because it is based on that same pesky non-hockey event estimate of 23 events with 15,000 or greater attendees. A more realistic estimate would be no more than $1M a year. So add another million dollars to our $4,890,420 and our final total of “enhanced revenue streams” is $5,890,420 – not the $6.7M used by the city or the $7.3 used by RSE.  Yet we need $9M a year. We are short $3,109,580. How can that shortage of a little over $3M a year be covered by the city? Where will the money come from? In my next blog we’ll look at the city’s budget and its overall financial health.

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hidden agendaThis week, June 24-28, 2013 there are 3 city council meetings scheduled. First up is a Special workshop meeting at 1:30 PM today. It consists of Executive session (Esession) items only, meaning a secret session. We all know the topic of discussion is the Renaissance Sports and Entertainment (RSE) bid for arena management. It has been reported that the details of the bid may be released on Wednesday, June 25th. The only reason for this meeting is because RSE and the city (COG) are still negotiating the terms of the deal. There would only be two outcomes: 1. the council has accepted the terms and is comfortable with them or 2. the council still has issues with the final terms. Either way, this council has signaled that it is ready to put this issue to bed and vote on it on July 2nd. Keep in mind that just because the RSE bid has finally made it to a voting meeting does not insure a positive outcome. What it does signal is that the council is ready to vote, up or down, RSE’s bid and be done with the issue.

gambling 2The evening meeting (voting meeting) of July 25, 2013 has 3 financial items of interest. The first, Item #8 is prepayment of $5.6M of General Obligation bonds (usually paid for from the city’s secondary property tax collection) by the Water and Sewer Enterprise Fund. This is an interesting strategy and may free up General Obligation bond capacity for future bonding…on what? We can only wait and see.

man moneyThe second item, Item #26 is Authorization for Lease Financing of the City Hall Complex. In 2010, the city had to pay the NHL $25M to run the arena. This $25M has been paid to the NHL. Here’s where the money came from:

  • $21M loan from the city’s Landfill Fund
  • $4M loan from the city’s Sanitation Fund

In 2011, with the Coyotes ownership issue still not resolved, the city agreed to pay the NHL a second $25 to operate the arena. This $25M is still being held in a city escrow account. Here’s where that money came from:

  • $15M loan from the city’s Water and Sewer Fund
  • $2M from the city’s Technology Replacement Fund
  • $3M from the city’s Vehicle Replacement Fund
  • $5M to be paid with an unidentified source to NHL

This lease-back deal will replace:

  • $15M loan to the City’s Water and Sewer Fund
  • $4M to the city’s Sanitation Fund
  • $2M to the city’s Technology Replacement Fund
  • $3M to the city’s Vehicle Replacement Fund
  • $5M whose source had been unidentified and unfunded to pay the last of the NHL’s second $25M
  • $1M as a new project to upgrade the city’s Human Resources software

As you can see, that leaves 1 loan payment outstanding and that is the $21M loan from the city’s Landfill fund. That $21M is part of a reserve account to cover landfill closure. Since the landfill is not anticipated to close for 30 years, the city can afford to repay this reserve account over the next 30 years. Is this a good strategy? Yes, it is. It replenishes those Funds so that they can once again operate effectively and gives the city some breathing room to pay back those costs associated with the NHL’s operation of the arena for 2 years. It is a strategy that hopefully this council will approve.

The last item, Item #27 is an increase in rates, primarily to commercial customers for roll-off bins and disposal rates. The rental cost of a roll-off bin increases from $160 to $175 and the disposal fee per ton increases from $18 to $20. These are fees that have not been adjusted in quite some time. As usual, when there are rate increases, it becomes a double-edged sword. As the rates go up, the number of customers may decrease dependent on market competition by private sanitation companies. Nevertheless it is an increase long overdue.

budget 3The third and Special Meeting is scheduled for June 28, 2013. Do not look for a vote on the Coyotes unless this meeting agenda is changed and posted by 5 PM on Wednesday, June 26th. . The city, by law, must have its tax increasefinal adoption of Fiscal Year 2012-13 Budget Amendments and the Fiscal Year 2013-14 Property Tax Levy before July 1, 2013. These items satisfy that legal prescription and will be largely unnoticed by Glendale residents due to its final adoption on a Friday morning at 9 AM. The other two items, fire-related for strength training and medical transport, were added simply because they could be at this meeting.

There you have it. Three meetings scheduled. Only one of which is the Coyotes ownership issue and we are not privy to its goings on. The other two meetings deal with financial issues created by or related to arena management.

deadline 1The finale of the Coyotes ownership RSE bid is still scheduled for July 2, 2013. Are there 4 affirmative votes? Only the councilmembers know or think they know. If RSE still wants $15M a year as the management fee and cannot or will not guarantee a minimum of $9M in “enhanced revenue streams” to the city this council may find it a difficult deal to swallow. Are we about to experience deju vu? The very mechanics of the deal could cause the Goldwater Institute to reappear. I suspect they are watching very, very closely. Then there is Ken Jones and his ilk who absolutely hate anything Coyote related. Could they mount another referendum drive? Yes, they could and would just to stall the deal. After all, how long will Fortress Investment Group leave an open-ended loan available to RSE?

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agenda 1June 11, 2013 will be a regular Glendale City Council meeting. The agenda, however, is anything but regular. There are four items of special note. All but one item is under Consent Resolutions. Consent Resolutions means that unless an item is pulled by a councilmember for further discussion that item will be passed or rejected along with the 13 other consent resolutions and there will be no discussion – nary a peep out of anyone. The usual disclaimer prior to introduction of the consent resolutions is to say, “They are of a routine nature or have been previously discussed by council in a workshop session.”  Let me assure you two of the consent resolutions are not of a routine nature and have never been discussed publicly by this council. They are consent resolutions #13 and #14. Here is the link to council’s meeting agenda of June 11, 2013:  http://www.glendaleaz.com/Clerk/agendasandminutes/Meetings/Agendas/061113.pdf .

Both of these consent resolutions require doing business with the Tohono O’odham Nation. Item 13 is a grant request from the TO on behalf of the Aguila Youth Leadership Institute (http://www.aguilayouth.org/) in the amount of $112,100. The second item, item 14 is another grant request from the TO on behalf of Heart for the City in the amount of $100,000.

In the Staff Report, staff’s apparent rationale for doing business with the Tohono O’odham is that we have submitted for the same type of grants from the Gila River Indian Community.  So, if we could take grant money from the Gila River Indian Community then by golly, we should be able to take grant money from the Tohono O’odham. Between August, 2010 and June, 2011 the city received grants totaling $290,188 from the Gila River Indian Community. The funds were used by From the Heart, Boys & Girls Clubs of Metropolitan Phoenix and the Glendale Parks, Recreation and Library Department. The Gila River Indian Community have been one of our staunchest allies in the legal warfare with the Tohono O’odham since the issue of a casino IN Glendale (not near Glendale –darn it – but IN it) arose.

Is something missing? Have all legal issues between the City of Glendale and the Tohono O’odham been resolved? Are we suddenly buddies? Receiving grant money from a legal ally is far different than receiving grant money, no matter how well intentioned, from your legal enemy. It is the height of hypocrisy on Glendale’s part. I am ashamed that staff has brought these items forward. If I were on council and could take action at the meeting I would pull both items off of the Consent Resolution Agenda and speak directly to them and vote a resounding “no” on both – no matter how well intentioned they are. If council approves these two consent resolutions, where are this council’s principles?

Glendale City Council

Glendale City Council

Another Consent Resolution is more amusing in context. Item 8 calls for adoption of council’s Key Priorities for Fiscal Year 2013-2014. This one is a hoot! Council’s very first priority is, “Transparency internally and externally to assure the community that the decisions made for the well-being of Glendale are discussed openly with input invited.” Followed by their second priority, “Arena management, debt service, hockey agreement and enhanced revenues will play a large role in policy formation and financial strategy. The above noted transparency will be vital to gaining community support for decisions necessary to optimize the arena value to the Glendale community” (Italics mine). It appears that we all have missed something in council’s translation of transparency.  It looks like council’s definition of transparency is not what the general public assumes it to be. We certainly haven’t seen much transparency when it comes to the Beacon RFP process or Renaissance Sports and Entertainment Group’s discussions with city personnel or council.

greed 1Which brings up our last target of incredulity, Item 21, Fiscal Year Budget Amendments, as an Ordinance to be adopted. I love numbers. While most people won’t go to the numbers pages and really read them. I always do with gusto because they are so revealing. These amendments are transfers from one hand in the budget into a different hand in the budget. The transfer is from Contingency (you know, the “rainy day” account the city is trying to rebuild) to the City Manager’s Office.  In this case, did you know that this council is paying $500,000 for the Council Special Audit? Can you imagine it? Half a million dollars on a special audit – an audit whose primary purpose is to fix blame on somebody. Let’s hope they find a half million dollars worth of blame because they certainly are not going to find a half million dollar pot of gold at City Hall.

The council is also spending another $100,000 on the Arena RFP Process run by their hired consultant, Beacon Sports.  We all thought Councilmember Alvarez wanted to “get rid” of all the consultants? Not so. They must be OK if they are consultants that serve her purposes. Remember, this RFP process is the same one that NHL Commissioner Gary Bettman characterized as “silly.” All of this comes from a council which, when 4 of them were running for office, ran around wringing their hands, complaining about the previous council’s fiscal irresponsibility and vowing it would never occur again because their mission was to be fiscally accountable and transparent about it all. Looks like the joke is on you, Glendale voters.

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convention 2On Friday, April 26, 2013 the Glendale City Council had another special budget workshop. This time their agenda was to revisit the issues of police and fire requests for additional personnel and healthcare premium increases for employees and retirees.

Ms. Sherry Schurhammer once again presented the proposed budget and the cuts recommended for 2015 and 2018. Staff’s recommendation was to deny the police and fire requests for additional personnel and to accept the increased healthcare premiums. Her major take-away is that the city has a structural deficit and acceptance of this budget as proposed was the first step toward eliminating it.

Fire Chief Burdick came back with a revised request for an additional 8 positions and two  fire truck leases. Police Chief Black upped the police ante to 31 positions plus 6 non-sworn positions. Together these two departments requested a new ongoing expense for the General Fund of $5.5 million and a new one time expense of $1.2 million for the General Fund.

For most of the session there was a united front of 4 councilmembers willing to grant the police and fire departments their requests. They were Councilmembers Alvarez, Chavira, Sherwood and Vice Mayor Knaack. Later one of them will break from this pack and change the council consensus and direction to staff-but that’s for later in this blog. Let’s begin with the four’s reasoning for granting the police and fire wish list.

Norma Alvarez

Norma Alvarez

At least Councilmember Alvarez is consistent. She began with remarks like, “a business should be paying for their own” and “ they’ve (businesses) taken a lot.” Make no mistake. She was alluding to the city owned arena. She also suggested that we “forget festivals” and pointed out that Glendale Glitters will cost the city $759,000 to produce this coming year. She even suggested that the funding for Public Safety be taken out of the Enterprise Funds (water, sewer and sanitation). She made sure that everyone knew that “the past is what brought us here” and she’s “not gonna forget the past.” She became confused when talking about crime being up in Glendale. It depends on what kind of crime. Glendale’s overall crime rate is down but certain categories such as theft have gone up.  Apparently the bottom line was that she had received a complaint from a citizen (certainly not vast hoards of people) that a “suspicious activity” call was not answered for an hour. Obviously calls are prioritized. If there is imminent danger to life or a crime is in progress it receives the highest priority, a Number 1 and is answered within 4 or 5 minutes. A call such as she described would receive a priority of 3 or 4 and would be answered eventually when an officer was available. Apparently that is not good enough for her.  It was vintage Alvarez. She blamed others, protected her agenda in the guise of protecting the taxpayer and exhibited her usual amount of confusion.

Chavira photo

Sammy Chavira

We finally saw the true Councilmember Chavira as he stood in support of Alvarez’ desire for more police and fire personnel. He worried about “call degradation.” Bet he couldn’t define it for you. He literally blessed fire and police personnel. Solicitudes were oozing from every pore. He was clearly upset that the police department had asked for more personnel and funding than had the fire department.  Then he spoke the magic word, “parity.” Just to remind you, he is a Phoenix firefighter and is going to push his brother Glendale firefighters’ agenda. He and his brother firefighters positively bristled at the mere possibility that police could end up with “more” than they would. So he suggested that the police personnel request be reduced to 20 personnel thereby reducing the ongoing request to $4 million. Make no mistake. His agenda is to further the desires of the Glendale Fire Department. They own him. Not just because he’s a brother firefighter but because the fire union poured upwards of $50,000 into his campaign. That’s a lot of chump change that Sammy will be paying back for a very long time. What Chavira did was not helpful. He widened minor disagreements between fire and police into the size of the Grand Canyon. It has now surfaced like an unwanted boil on your backside.

Martinez photo

Manny Martinez

Councilmember Sherwood offered some well thought out questions and clearly supported the police and fire requests. He, at the end of the session, still felt that if the city paid less back on a loan it has with the Enterprise Funds, the city could pay the additional costs of these requests. Councilmember Martinez stuck to his guns and simply made the point that it was not appropriate to grant these requests and that they “were not in a popularity contest.” He also said it was not productive to continually go back to the past and to point fingers. Councilmember Hugh was silent until the end of the session.

Knaack

Yvonne Knaack

Vice Mayor Knaack made it clear she was in public safety’s corner when she said the defeat of Proposition 457 (would have allowed the removal of sales tax increase) was due to Public Safety’s efforts.  She said that voters defeated it because public’s perception was that its defeat would preserve Public Safety. I know that is the message that police and fire were using in their campaign to defeat Prop 457. All that I can say is that at the very least, Councilmember Martinez and I made it very clear, often and quite publicly, that its defeat would prevent the city from making draconian cuts to this year’s budget and buy the city time to make more temperate cuts over the next five years. We both repeatedly referred to the city’s structural deficit. We did not say it would save fire and police jobs. We said it would save the city from having to make major personnel cuts to any department but that cuts would still be needed.

The issue of the proportionality of public safety sales tax was initiated by Vice Mayor Knaack. The voter approved tax calls for proportionally 1/3 to fire and 2/3 to police.  This will surface again but I think council will find that changing the proportionality of the tax is far more complicated than they know. She also publicly acknowledged that the arena management fee could very well be higher than the $6M in this budget.

Perhaps the surprise of the session was comments made by the Fire Chief. He said $1.2M to $1.3M was needed to insure “constant staffing” within the department. One would think that would be his first priority within his department budget. He also indicated that he would have “no problem shutting down a truck” to cover his department’s overtime. He virtually threatened council with his observation that they will have to make policy decisions regarding fire next year. He followed that by saying he would close a fire station if fire was not adequately funded. The nut is the definition of “adequately.”

Weiers

Jerry Weiers

Mayor Weiers also offered some rather interesting remarks. He noted “the angst between the fire and police departments.” He also said that the previous council should have stayed with the 1.2% sales tax increase across the board rather than the 7/10s in place now.  He then called for council to express their final positions so that consensus could be achieved and direction given to staff. It broke Alvarez-Chavira-Sherwood-Knaack in favor of increased revenues to police and fire. Weiers-Hugh-Martinez were opposed and wanted to accept the staff recommendation. It appeared that fire and police had won the day but wait…

Bowers

Dick Bowers

Interim City Manager Dick Bowers responded with “there is no money to find” and the proposed budget as presented is a “sound and reasonable approach.” He indicated that if council gave direction to accede to police and fire requests, cuts to all other departments would be “surgical.” It was then requested that council identify which departments they would like to see eliminated to meet the police and fire financial requests. Council then spent 5 or 10 minutes reading the material related to departments other than fire, police or enterprise departments. It was embarrassing painful to watch but  reality set in when they realized how much would have to be cut. Vice Mayor Knaack finally broke and changed her direction in support of the staff recommendation. Chavira made one stab to try to get her back into the fold and she responded with, “I have the right to change my mind.” It was a tough decision to make but she did the right thing.

Two important lessons surfaced from this workshop. A majority of this council has not accepted that there is a structural budget deficit and expenses are outstripping revenues; and fire has bared its teeth with dire promises to delivery service if their demands are not met in the next year’s budget. Mayor Weiers, Councilmembers Martinez and Hugh are to be commended for holding the line and accepting that budgetary expenses must be pared and pared now.

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cit mtg 2Congratulations are in order to city staff. At the City Council workshop of April 16, 2013 working in an atmosphere where the current city council is loathe to make any budget cuts that are associated with layoffs and in fact wants to add additional police and fire positions is difficult, to say the very least. The cuts that this council will not accept remain necessary even as they collectively stick their heads in the sand.

Staff, knowing that cuts to the budget will not be accepted, took the obverse approach and has offered this council revenue enhancement. It seems that raising property taxes and collecting additional revenue from the Enterprise Funds for services provided by the General Fund may be the answer. This is not the final solution, however. As Ms. Schurhammer stated today, budget cuts, albeit more modest ones, are still needed and the sooner the better. As she and the rest of staff have said repeatedly the city’s budget has a structural deficit. In other words, more is spent than is taken in.

Knaack

Yvonne Knaack

It was noted that Vice Mayor Knaack, a member in good standing for many years, of the “gang of four” (voting bloc of the former mayor), now repudiates the former mayor’s imperative to keep the city’s property tax rate low. She actually had the temerity to say that she never supported the former mayor’s desire to keep property taxes artificially low. Too bad she never spoke out publicly or demonstrated her beliefs in a vote.

Chavira photo

Sam Chavira

Councilmember Chavira once again, embarrassingly and obviously, carried fire’s water bucket in an attempt to get this council to support granting the 15 fire fighter positions (at a cost of $1.5M every year) coveted by the fire department. If one didn’t know his agenda all one had to do was watch his performance in feeding positive questions to the Fire Chief to immediately figure it out. Every once in a while he would throw the police department a bone by including them in the discussion but his sole objective was to advance the cause of his brother firefighters. Mr. Bowers, Interim City Manager, made it very clear that the staff recommendation is to deny any supplemental requests this year including those of fire and police. His reasoning was straight forward and quite clear, “The city simply does not have the money.” This time, at least for now, council listened and it appears that these supplementals will not be granted. This council is not quite done with this subject. I suspect they will look for other means to grant, at the very least, fire’s supplemental.

Sherwood

Gary Sherwood

Councilmember Sherwood once again raised the question as to whether a figure of $6M was adequate for the arena costs. He became a little confused in attempting to get the figure of annual revenue the arena generated (not all of Westgate…and the western world…thank you) out. Well, we, dear readers, already know what that figure is from a previous blog where I conveyed the average numbers reported by the NHL as the manager of the arena. Ta Da! That revenue figure averages $6 to $7 million annually. No one else on council seemed interested in a workshop on arena costs and revenues so it died as a future topic.

musicCouncilmember Alvarez appears to have only two songs in her repertoire. One is the siren song to support the Tohono O’odham in its quest to plant a casino in Glendale less than a quarter mile away from Westgate. Again she called for a public forum (read free favorable publicity for the Tohono O’odham) before council. Again, she was rejected by a majority of the council. Does she not understand that the city is a party to state and Tribal interest litigation against the casino?

Norma Alvarez

Norma Alvarez

Her other one-note song is blaming others for her belief in the city’s continual waste of money. Please note it is a waste of money to her if it is not being spent to increase the salaries of its low wage employees. Her public definition of low wage employees is anyone making under $130,000. My goodness…reminds me of Obama’s definition of the rich ($250K annually, for tax purposes)!  Today’s rant on city waste was twofold: the absolute waste of the city’s involvement in Camelback Ranch and the car dealership coming finally to Bell Road with the city’s incentive to forgive a portion of sales tax for a specified amount of time. She refuses to understand that the dollar a year rental of Camelback Ranch for the teams is in exchange for their picking up the tab for operating and maintaining the facility year round (saving the city a cost of easily a million dollars a year). Instead of taking the time to truly understand the issue we hear her accusations of the city being too busy thinking of the glory of sports and not realizing that sports bring the city nothing. What she fails to realize that as part of this new council she bears the same baggage as the rest of them. On her watch the dealership will come in. Therefore on her watch the dealership will receive the sales tax incentive.

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cit mtg 2On the evening of April 1, 2013, the City made a public presentation of the state of its budget to the public. If you include myself and the councilmember representing our area there were a total of 5 people in attendance. That’s right. Three citizens and us. How embarrassing for the councilmember. Oh, but that’s OK. His only constituency these days is the fire fighters union.

staff multiplied jpgIn terms of city staff, it would be safe to say the citizens were outnumbered at least 3 to 1. There was at least 20-25 staff in attendance. Every director of every department was on hand to answer the flood of citizen questions (not), in addition to 2 of Glendale’s cable channel 11 TV crew filming the non-event. It almost begs the question as to why doesn’t the city ask the general public to RSVP? If a minimum number of citizens respond, the meeting is held. If only 2 or 3 respond, the meeting could be cancelled. After all if the public meeting had been cancelled, it would have only required calls to 3 people.

These staff members are salaried and not paid time and a half for extra duties such as attending this meeting.  These salaried personnel, if they so choose, can compensate themselves for the time by coming in to work a little later or taking a longer lunch break. It is an option available to them should they choose to use it. Many of them do not and put in more than a standard 40 hour work week.

Ms. Schurhammer, Executive Director of Finances, made a 15 minute presentation on the city’s budget. She concentrated on the city’s total Operating Budget by Fund and Department and the General Fund Budget by Department.  She pointed out that 34% of the city’s entire budget and 63% of the city’s General Fund budget goes to Public Safety. There was virtually a silent scream from all non-public safety staff asking how much more does Public Safety need? We’ll get to that in a minute.

Back in December, 2012, both the Fire and Police departments had their respective budgets balanced and were prepared for a vote of approval from the sitting council at that meeting. However, Vice Mayor Frate made a motion shark 2that their budgets be tabled and brought up again when a permanent City Manager was hired. The vote was 6-1 with me being the lone, dissenting vote. That action left their budget departments” doors open just a crack. Now, sensing an opportunity, they are smashing open those doors with a fire truck and tactical vehicle. They sense blood in the water and this new council (led on this issue by Councilmember Chavira, a Phoenix firefighter) is willing to give them everything and anything they want. Chavira will take care of his brothers in Glendale and we can only guess that Phoenix Councilmember Danny Valenzuela (a Glendale firefighter) will take care of his brothers in Phoenix.  Sweet, isn’t it? It has a nice, quid pro quo ring to it, doesn’t it? Note that the city does not have a permanent City Manager. Yet he will have to deal with the largesse that this council dispenses.

cit mtg 1After Ms. Schurhammer’s presentation, Ms. Julie Watters of the city’s Media and Communications Department, led the meeting by asking if there were any public comments. Mind you, a citizen could not ASK a direct question, only comment. If anyone had a question, they were directed to talk to that specific department director after the meeting. This is a tried and true practice that Glendale has practiced for years and which I have hated for just as long. For you see, if the question is a difficult or uncomfortable one, the answer is made only to the citizen seeking the answer after the meeting. After all, the city wouldn’t want all those citizens hearing that awkward answer to that difficult question. Would it? It’s a divide and conquer strategy that I believe is unfair to the citizens of our community.

cooler 3What were the water cooler musings? Several sources echoed one another. Much of it, dear reader, is old news for I have blogged about it previously. Nevertheless, here goes:

  • The Coyotes will be sold this month by the NHL.
  • The idea of 4 separate arena management contracts (you remember…hockey, entertainment, education and cleaning) still has legs and is not dead.
  • The general consensus is the Coyotes will be leaving Glendale as the city and the new team owner will not be able to come to mutually satisfactory terms on the arena lease management contract.
  • Or the other theory is that the team will stay in Glendale briefly (2-5 years) and then relocate.
  • This new council has no will to make the necessary and needed cuts over the next 4 years and likely will not sunset the temporary sales tax increase in 2017.

super bowlAll departments will struggle to come up with adequate funding to support the hosting of the 2015 Super Bowl in Glendale. Further diminishment of citizen services may be the only way to fund the costs.

 

 

 

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Who will be the gorilla?

Posted by Joyce Clark on April 1, 2013
Posted in City of GlendaleGlendale finances  | Tagged With: , , , | 1 Comment

budget 3The Glendale City Council typically meets in workshop session every two weeks on a Tuesday afternoon at 1:30PM. It is also televised on Glendale’s Channel 11, which only works if you have Cox cable service and live in Glendale. It is also available online at www.glendaleaz.com.

coins 1This is the busiest time of year for any city council as it decides where to allocate resources (revenues) for the coming year. Money in local government is power and each department fights to retain or grow its part of the pie(chart). It will be interesting to see who the gorillas are this year.

What can we expect this Tuesday? Several important items are up for discussion, some of which will be discussed inman money open session and some of which will be discussed in the non-public, executive session. First up in the open session will be the periodic legislative update. There should be discussion (I would hope) on the state’s attempt to take away cities’ construction sales tax. This issue is huge and if the state prevails, look for every city (including Glendale) to try to find ways to mitigate this loss which could be substantial.

firefighterNext up will be Council Items of Special Interest on the Police and Fire budgets. Making it to a workshopPoliceman agenda is interesting in and of itself. Last week Councilmember Chavira called for such a discussion and his suggestion met with deafening silence by the rest of Council. Yet here we are, a week later, and it has made its way to a workshop. Even more curious, at the previous council’s January 8, 2013 meeting, it was scheduled to vote approval to take actions to balance both department budgets. Instead a motion was made and approved by a majority of council (I was not one) to place all actions on hold until the appointment of a permanent city manager. There is no permanent city manager…yet…but like an unruly stepchild, the issue is before the new council. Hmmmm…

Then there are the six items listed on the council’s executive session agenda. Three of them are hot topics. One is consultation with the newly hired external auditor with a price tag of $200,000; another is that council is to give the contractCity Manager and City Attorney direction regarding arena management (don’t forget Beacon Sports’ fee of $100,000) and the Coyotes; and the last of the trio is to resolve the compensation package for the former City Attorney and I assume, the Acting City Attorney as well. The first two items deal with contracts and the third with personnel. All, unfortunately, are legitimate topics of private discussion.

It would be extraordinary if council resolved the Coyotes issue in Esession but, the NHL will first sell the team to whomever and then the council will decide if the Coyotes stay or go when it makes its decision about the arena management contract. Don’t expect any news on the Coyotes issue from Glendale today or anytime in the very near future.

On Monday, April 1, the city will host its first of two community meetings on the city budget. I plan to go and learn the “media line” that will be used to sell it to the community this year.

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man moneyThere were several take-aways from the March 27, 2013 Glendale City Council budget workshop. Perhaps the most important was the Executive Director of Finance, Ms. Sherry Schurhammer’s quote of the day, “we have an ongoing operational deficit.” I’m not sure what about that statement some councilmembers refuse to understand. It’s really quite simple. The city spends more money than it takes in.  It’s almost as if members of this council expect manna from heaven or a sugar daddy to appear as a means of solving the city’s financial problems. Let’s hope this council grows a backbone and accepts that cost of service cuts are needed. The latest proposal from staff shows major cuts of $8M not now but in Fiscal Year 2014-15 and another round of cuts in Fiscal Year 2016-17. Quite clearly putting off the necessary cuts merely compounds the deficit and makes the future cuts to citizen services and quality of life more drastic and more painful.

Coyotes logoAnother interesting take away is the fact that staff is using $6M as a placeholder for an arena lease management fee. At least there was acknowledgement that this figure is merely a place holder. The final fee could be higher, lower or stay the same.  Or is that a place holder for the Phoenix Monarch Group, the good friends of Councilmembers Alvarez and Chavira? There remains a residual “blame the Coyotes” mentality. The first slide up presented by staff showed the city with a $3.4M deficit if it had had to pay the $17M arena lease management fee this year. I think that deficit blame deserves to be placed elsewhere. How about the $2.5M to repay the Water & Sewer Funds, and also used to make the Risk Management Fund and the Workman’s Compensation Fund whole? Or how about the $2.2M of newly created expenses: a $200K audit, a $100K Beacon contract, $1.2M additional to the Fire Department; an additional $370K in legal fees, an additional $370K in water costs in the Parks & Recreation Department or the unknown amount in salary and benefits for the newly hired Interim City Manager? These big ticket items come to nearly $5M in new costs that were unbudgeted when the current budget was approved and they will have to be absorbed this year.

hidden agendaAnother take away is there is certainly no doubt about at least one councilmember’s agenda. CM Chavira is “carrying the water for Public Safety.” It was obvious that his friends from inside those departments, especially Fire (don’t forget he’s a Phoenix firefighter), had prepared a series of questions for him to ask.  He read them quite nicely. Later when he was asked if he had more questions and apparently had used all of his prepared questions, he seemed to be at a loss for words. Chances are they will have prepared a new set of questions for him to read at the April 2, 2013 council workshop on Public Safety.

PolicemanWhile Interim Police Chief Black answered his questions directly and provided a realistic assessment based upon the city’s current fiscal condition, we didn’t see the same level of cooperation from Fire Chief Burdick. There definitely is a further agenda occurring on the Fire side. We heard the first salvo today when the Chief said calls for service had grown. Well, Glendale’s population has not grown per Mr. Craig Johnson, Director of Water Services, when he said new water hookups are flat. Those people leaving Glendale are replaced by others moving in but not in large enough numbers to create an explosion of growth in Glendale. The city is already planning for the fact that as Glendale’s population remains static, it will lose some of its state shared revenue to other, growing NW and W Valley cities.

Red Firetruck with Ladder ClipartSo where are the increased calls for fire/emergency service coming from? Have you heard of Automatic Aid? It’s a regional and cooperative program among most Valley Fire departments. If there is a call for fire service in Phoenix, Avondale, etc., and their nearest truck is busy on another call, the nearest adjoining city department will respond. I would certainly want to know the number of calls for fire service Glendale responds to outside the city versus the number of calls for service within the city. The increase in calls for fire service may well be attributable to population growth in cities surrounding Glendale.  If that is the case and the increase in calls is the result of an increased need to respond to Automatic Aid calls that is not a Glendale driven problem. We are not mandated to grow service or pay for it in Glendale to accommodate surrounding cities. While Automatic Aid is great in fostering regional cooperation in cases of extreme regional emergencies and for creating cost efficiencies in the use of specialized services such as water or mountain rescue, I am not convinced that it works in the best interest of a city with a stable population base whose resources are being used by surrounding cities with burgeoning populations.

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Saving grace

Posted by Joyce Clark on March 18, 2013
Posted in BlogsCity of GlendaleGlendale finances  | Tagged With: , , | 1 Comment

budget 3In a few weeks the Glendale City Council will begin a series of workshops to craft the Fiscal Year 2013-2014 budget. The temptation will be the unexpended $17M allocated for the Coyotes lease management agreement in the FY 2012-2013 budget and what to do with it. The temptation will be spend it now. I believe that is the worst move that this council could make.

On the March 19, 2013 City Council workshop one agenda item is The Fiscal Year 2012-2013 Financial Report Update and Fiscal Year 2013-2014 Revenue Projection.  The good news is that the temporary sales tax increase generated approximately $22M for Fiscal Year 2012-13. An insightful comment from the staff report states, “An analysis of spending habits in the community for these four months (Sept. to Dec. 2012) shows that the increase in the sales tax rate had no obvious impact on the spending pattern in the community.” All of those doomsday proclamations of “no one will shop in Glendale anymore” were flat out wrong. Shoppers, it seems, didn’t want to spend the extra money for gas to go further away or they simply did not want to leave their usual venues and venture outside their comfort zones.

Forget the Coyotes for a moment. The reason for the sales tax increase, ratified by the voters, remains the fact that the city spends more than it takes in. The Fiscal Year 2012-13 General Fund Budget is $155.3 million. Of that amount approximately $22 million (15%) comes from the increase in the sales tax rate that occurs each year over the next four years. What happens when the extra $22 million annual revenue from increased sales tax  is gone as it sunsets in 2017? That is the question.

There is a solution that began implementation in FY 2012-13 and that is a $5 million reduction in expendituresbudget cuts 1 each year from FY 2013 to FY 2017. If that course of action continues when the extra $22 million is gone in FY 2017 the city will not have to make any more draconian cuts. It will have a balanced budget whose expenditures are covered by existing revenues without having to dip into its contingency fund. The Glendale staff reports also states, ” Since the news sales tax rates are set to sunset in 2017, a long-term look at the city’s operational expenses must occur in order to plan for the eventual reduction of sales tax collections. The current financial position necessitates that the plan incorporate a phased approach and the FY 2013-14 budget will be a critical component of this plan.” In other words, get the job done and cut the city’s spending.

For the past six years during the worst of the recession, Glendale’s expenditures rose as its employee base grew and operating and maintenance costs also grew. Simply put, its expenditures have not met revenues. In the last two years, the city publicly acknowledged the problem and began laying off employees because quite simply, personnel costs represent about 70% of the General Funds’ expenses. That is the major expense and will require major cuts.

A city primarily produces one thing and one thing only – service to its residents. Yes, it produces one commodity as well, water, but that cost is borne by the people that use and pay for it. Service costs are built on two items: 1. buildings and equipment with their operating expenses and maintenance; and 2. employee wages and benefits. In the past several years, the former council purposefully began reducing personnel (wages and benefits) and  non-personnel expenses (operating and maintenance). The city has reached the point where non-personnel costs have been decimated and the only way to continue to cut them further is to reduce service areas or levels meaning that further personnel reductions will be necessary.

san_wrkr[1]Whether it is libraries, public safety or trash collection, they are all services offered to residents. The cost to provide services continues to outstrip the revenue the city takes in. The city must rein in the cost of services to have any hope of creating a balanced budget in FY 2017 when it loses the extra $22 million in annual revenue. The 2012 city council committed to the plan of cutting $5 million from the budget every year until 2017. To date the new council has been reluctant to follow through.

In an effort to avoid the pain of making another $5 million in cuts this coming fiscal year and each year for the next few years, this new council may consider the $17 million in this year’s budget as “found” money and spend every dime of it. Not a good idea. If they choose that course they are not solving the underlying problem of not enough revenue to cover costs. They are merely delaying the problem and compounding it. Saving the city’s money is not a foolhardy strategy but rather it is a grace to be nurtured and preserved.

savingsThe most prudent course of action is to place that $17 million in the city’s “rainy day” (unappropriated contingency) fund and to make the necessary $5 million in cuts this year. Increasing the city’s contingency fund is a signal that the bond market considers favorably and offers the city the opportunity to decrease interest rates even further on its current debt service load of $86 million (FY 2012-13). The debt service load is the annual amount paid in principle and interest on the city’s total debt.

Another reason to place the $17 million in contingency is that there may be another deal to keep the Coyotes in Glendale. Any deal will require a certain unknown amount as the annual lease manager fee. Having that money in reserve resolves the issue of where the fee is to come from.

A simplistic analogy is that you have a $1000 monthly mortgage payment but your income is only $900 a month. What do you do? I guess you could run up more debt on a credit card but that only delays and compounds your problem.  The best way to face the problem is to cut your monthly expenses.

Will this council do what you would do? Will it responsibility continue to cut its expenses over the next four years or will it spend “found” money now to avoid pain of making further, necessary cuts and delay the problem only to face a bigger problem in FY 2017?

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