Piedmont’s City Hall will be closed on Presidents Day, Monday, February 17.  The City Council meeting will shift to Tuesday, February 18.

On Friday, April 13, 3012, Moraga Avenue was closed for a day and a half due to a landslide from 3 Maxwelton Road.  The slide not only closed the street, it also took out power to neighbors.

The City made several requests that the property owners and their insurance company pay the cleanup costs. When no payment was forthcoming by April 2013, the City filed suit against the property owners to recover the landslide cleanup costs. The settlement agreement announced Thursday, February 6 ends that suit.

The City spent approximately $57,000 in direct expenses and staff time to clear the roadway and manage the hillside stabilization and reconstruction. The City Council decided that it was more prudent to settle the case now and recover $45,000 ($40,000 settlement of the suit plus $5,000 previously paid by the homeowners) of the landslide cleanup costs without the risk of uncertain results and the legal expense of a trial.

Read the settlement agreement.

Read the City announcement.

Councilman Wieler:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

David E. Mix

School Board candidates Smith and Ireland won easily.  King topped the Council election returns followed by Rood and then Wieler. Measure A, the refinance of a City pension fund obligation through bonds, won big. 

On February 4, 2014, Piedmont election results were quickly tabulated.

School Board candidates Amal Smith and Doug Ireland readily won election over Hari Titan.   In the uncontested Council election, Teddy King had the highest number of votes, followed by Tim Rood, and then incumbent Jeff Wieler. The ballot results show hundreds of voters did not cast all allowed votes.

Measure A, the City measure to authorize the issuance of bonds to refinance the CalPERS Side Fund pension obligation received approval by 83% of the those voting on the measure.  This large margin of approval negates any question relative to the percentage required for approval of the measure, as it meets all discussed requirements – over 50% or 66.66%.

The unofficial final election results as reported by the Alameda County Registrar of Voters follow:*

* NP signifies “No Party” designation in the race.

Many voters cast their ballots through the Vote by Mail (VBM) option.  At 8:00pm when the polls closed, the VBM results were released, as follows:

There are 8,268  registered voters in Piedmont.  Mailed ballots cast were 1,895 or 22.92% of all registered voters.  Voters who cast their vote at the polls numbered 649.  Total ballots cast were 2,544 or 30.77% of the registered voters.

Final official voting tabulations will not be certified for days.  Precinct results can be viewed on the City website.

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

Dear David,

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

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

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

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

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

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

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

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

Jeff Wieler
Member Piedmont City Council

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

Mayor Chiang:

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

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

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

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

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

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

David E. Mix

– New City Administrator will Transition from a Lumber and Fisheries Town to Piedmont – 

Piedmont’s recently chosen City Administrator, Paul Benoit, is scheduled to assume his Piedmont duties on March 1, 2014.  The contract  with Benoit agreed to by the City Council during contract negotiations will be acted upon publicly at the February 3, 2014 Council meeting in City Hall.  He is to receive a salary of $200,000, an increase over his current $165,750 salary as City Manager of Astoria, Oregon according to the Astoria budget.

Benoit has spent 25 years in Astoria, Oregon:17 as Community Development Director and; since 2005, as City Manager. While the population of Astoria is similar in size to Piedmont, it’s land area is far greater and it is a former industrial city.

Fishing, fish processing and lumber have been the lifeblood of Astoria, with 30 canneries located along its waterfront.  In the 1970’s and 1980’s the canneries closed and the lumber industry declined. The last large employer, Astoria Plywood Mill, closed in 1989.  Railroad service to Astoria ended in 1996. City Data Inc. reports that the median household income was $37,161 in Astoria in 2011. Benoit commented that the very different nature of the Piedmont community would provide a welcome challenge for him.  “I love getting to know a community and being a part of it.”  Benoit has a son, daughter-in-law and grandson residing in Alameda.

Photos funded by the University of Oregon offer an introduction to Astoria:

Pilings that once served the former canneries lining the Columbia River front of Astoria. Paul Benoit’s Marine Affairs degrees from the Department of Marine Affairs of the University of Rhode Island and from the College of Ocean and Fishery Sciences of the University of Washington made him a natural fit with Astoria’s marine industries.

Astoria’s more recent pattern of development built on suburban parking-oriented pads siphoned off retail from downtown, creating vacant storefronts in the core — a challenge faced by many American cities.

In 2012 the Astoria Downtown Association hired Civilis Consultants to formulate a strategy for bringing life back to vacant storefronts in downtown Astoria. Thus far, Civilis has produced the “Building Blocks for a Successful Downtown project” report.  Research, assessment and workshops continue to explore Astoria’s possibilities for the future. Nearby, Cannon Beach and Seaside, Oregon have active, walkable downtowns that may serve as models for Astoria,  according to consultants.

photos copyright Patrick S. McGovern (by permission)

see 23 Astoria photos sponsored by University of Oregon Benjamin & Louise Carroll Visiting Urban Politics Professorship

The following letter was provided to PCA on January 30:

John Tulloch
Piedmont City Clerk

Re: Piedmont Pension Bonds

Mr. Tulloch

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

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

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

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

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

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

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

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

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

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

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

David E. Mix

The following letter was provided to PCA:

Mayor Chiang:

Please allow me to raise a couple of points regarding your letter last week (January 24th) published in the Montclarion regarding the Pension Bond proposal.

Whether or not bonds will actually save the City money remains an open question. Of the several municipalities (public entities) who have taken this venture, most, for a variety of reasons, have not done well.

What you suggest regarding the vote count (requiring a two thirds voter approval) is problematic. Although it (2/3) complies with the Constitutional debt limit, altering the measure at this late time (long after the Election Code statutory time limit provisions) is prohibited.  The Code clearly does not allow for any type of alteration or modification to the measure, especially a substantive and material change as you suggest. Clearly, the bond measure is fatally flawed. 

Neither is judicial “validation”  (CCP secs. 860 et seq.) an option.  The City was correct in the first instance (Ordinance No. 711 N.S.) that the City’s charter provision (Section 4.14) requiring an affirmative vote of the electorate precludes an action under the validation statutes. Further, even without the prohibitive charter language, considering the recent court rulings, it cannot be shown that the obligation is one, “required by law” thereby eliminating the validation process.    

D. E. Mix

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