– Piedmont’s Community Hall overflowed with well-wishers at the retirement of the Mayor and one Council member, swearing-in of newly elected Council members, and election of the new Mayor and Vice Mayor. –

Alameda County Supervisor Keith Carson in speaking to the gathering noted that retiring Mayor John Chiang and the entire Council had served Alameda County as well as their city. Assembly member Nancy Skinner complemented Chiang and retiring Council member Garrett Keating on their service.

Keating reviewed his experiences and advised the next Council to seek public support before embarking on major projects and to vigorously enforce the new risk management plan. He concluded by noting that Piedmont’s “debt is real” and the government is not financially sustainable.

Chiang recalled his service on the Alameda County Transportation Commission, Municipal Tax Review Committee, the projects accomplished in partnership with the Beautification Foundation and his great expectations for the new City Administrator.

Teddy King, Tim Rood and Jeff Wieler were sworn in by City Clerk John Tulloch.

Jeff Wieler nominated Margaret Fujioka as Mayor, seconded by Teddy King and approved without objection. King nominated Wieler as Vice Mayor, seconded by Bob McBain, also approved unanimously.

The newly elected Council members each spoke, beginning with King. She complemented Piedmont’s smart, sophisticated voters, noting that many of her voters had never voted for Council before. She is inspired by her heroine, the late Democratic Governor Ann Richards of Texas.

New Council member Tim Rood thanked his supporters and noted the loss of community volunteers Steve Weiner and Bill Drum. He pledged to address Piedmont’s unfunded liabilities, to work for safer walking and biking in Piedmont and provide robust discussion of issues facing the City. He affirmed the legitimacy of citizens’ voices, even when their viewpoints are unpopular.

Re-elected Council member Jeff Wieler promised his remarks would be short and brief. He complemented Piedmont’s public works, police, fire, and recreation departments. He also thanked retiring City Administrator Geoff Grote, noting that all Piedmont’s streets are now as “smooth as a baby’s bottom.” He thanked Chiang for acting as his campaign treasurer and congratulated the two new Council members.

Newly elected Mayor Margaret Fujioka presented five priorities for her mayoralty: strengthen Piedmont’s finances; improve public safety; repair the City’s aging infrastructure; enhance communications through technology; and encourage civic engagement by initiating a new annual award for volunteerism and holding a first ever women’s forum. (See video of the Council meeting.)

Paul Benoit will assume the duties of City Administrator on March 1.  He attended the meeting to meet the new Council members and introduce himself to the gathered Piedmonters.

Teddy King, Tim Rood, and Jeff Wieler have been elected to the Piedmont City Council; Doug Ireland and Amal Smith have been elected to the Board of Education; and Measure A received the required number of votes for approval.

On Tuesday, February, 18, at 6:30 p.m. in the Piedmont Community Hall, 711 Highland Avenue, the newly elected members of the City Council will be sworn into office.  The meeting agenda includes the certification of the final election results and an opportunity to acknowledge the outgoing members of the council, John Chiang and Garrett Keating.

Following the seating of the new council, the election of a new mayor and vice mayor will be determined by council vote.  The positions have had two year terms.

“SECTION 2.08 MAYOR  [City Charter]

Following each general municipal election, the City Council shall elect from among its member officers of the City who shall have the titles of mayor and vice-mayor, each of whom shall serve at the pleasure of the Council. The mayor shall preside at meetings of the Council, shall be recognized as head of the City government for all ceremonial purposes and by the Governor for the purposes of military law, but shall have no administrative duties. The vice-mayor shall act as mayor during the absence or disability of the mayor. In case of the temporary absence or disability of both the mayor and vice-mayor, the Council shall select one of its members to serve as mayor pro tempore.”

More than one third (3,030) of Piedmonts’ 8,268 registered voters cast ballots in the February 4 election. The election results are noteworthy for selective voting in the category of City Council. Although voters were given the opportunity to cast a vote three times (for a total of 9,090 votes) in the uncontested council race, most chose only one or two of the three candidates, amounting to 3,356 undervotes.  The contested school board ballot had 1,088 undervotes.

Measure A, the bond measure to pay down the CalPERS side fund with a lower interest rate, passed readily with approximately 83% approval. Two hundred forty voters omitted the measure voting neither yes or no.  Tax measure approval is based on the number of voters voting on each specific measure rather than the number of voters submitting a ballot.

View the election results in detail.

Board of Education members will be separately sworn in on at a future date and a different location. 

– Late night ad for loading up on debt – 

I just listened to the portion (from hour 2 to 2:30) of the Piedmont Unified School District January 22, 2014 Board meeting recording where Mr. Gautam Wadhwani, Financial Officer for the Piedmont Arts Center and a Finance professional, gives advice to the Board about which bond option to select for financing the Alan Harvey Theater (AHT) renovation.

The speech reminded me of 2007 late night TV advertisements encouraging homeowners to load up on debt and take second mortgages or interest-only first mortgages with balloon payments.

“I will encourage you to borrow as much as you can in a low interest environment.”
“We should not worry about debt being a bad thing.”
“Educated voters are a minority of the populace.”
“If you agree that we are in a low interest environment, you want to borrow for as long as you can.”
“It is always better to defer taxes.”
“Every dollar that I save in not paying taxes, I can use … to make my wife happy.”
“You want to borrow interest only.”
“It is good economics and good finance for everybody.”

During the Board meeting, Hari Titan made an appeal to modify the text of the June ballot measure to exclude the use of creative financing instruments. I do not know if the Board adopted his suggestions, but I strongly urge it to do so if there is still time. Please join me in doing so.

Am I alone in suspecting that the whole AHT project has been approached upside down? “What is the maximum amount of money the District can borrow? Get that money from the voters. Design a project that spends the money.”  We all know that every education dollar counts! Think what one million three hundred thousand dollars (the additional amount saved downsizing from a $14 to $13 million project – slide 9 KNN Consultants December 11, 2013 Presentation) would do to improve education in Piedmont classrooms?

Bernard Pech, Piedmont Resident

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

The following two letters from Tom Clark and Bruce Joffe were sent to PCA. On February 4, Piedmont voters overwhelmingly approved Measure A, the restructuring of Piedmont’s CalPERS side fund pension obligation. See previously published letters on the PCA Opinion page.

 Mr. Mix, very well done!

I commend your standing firm in your reply to the response by Piedmont Council member Wieler.

As a member of the public you deserve respect when you speak to important public issues such as the Piedmont pension bond measure, particularly when, as here, you obviously have sought out the relevant facts, focused on the issues and made your public comments with all the intentions of a good, conscientious citizen.  This is all true notwithstanding that  I don’t agree with all of your comments and that yesterday I voted Yes on the Piedmont bond measure.

Your comments on important matters of public interest in Piedmont are, and always will be, greatly appreciated by me and many other Piedmont residents.  We don’t have to agree with you to show you decency and respect for your efforts. The only way our democratic system works is for individuals, like you, to remain forever vigilant to uncover the truth behind the conduct and representations of public officials. Many public officials want only to hear and read praise, and talk (in the words of George Orwell) in a manner “designed to make lies sound truthful . . . and to give an appearance of solidity to pure wind”.  With the best of our wonderful democratic heritage in mind, I want to express my respect for those like you who are not afraid to stand up to the powers that be and comment publicly, in good faith and directly on point, eye-to-eye on public issues to public decision makers.  Moreover, I appreciate your gift of an outline to which Piedmont residents can refer when the pension refinancing appears on the Piedmont Council agenda.

For all that you have done, you should not to be scolded.  You should be applauded.

And let’s take just a brief look at the record of the Piedmont Council of experts touted by Council member Wieler.

This is the Council of experts that wasted over $2 million in badly planned and poorly executed electric line undergrounding projects, including being forced by court order to pay with taxpayer funds the legal costs by objectors to one project because of the City’s legal defense.  This is the Council of experts that rushed through approval of an out-of-scale city sports complex (Blair Park) that Council members and City staff promised would cost taxpayers nothing, but when the badly planned project crashed and burned it left Piedmont taxpayers holding a bag with hundreds of thousand dollars of losses.  This is the Council of experts that tried to scare the community into voting for an unnecessary tax increase for the sewer fund, a fund from which the Council transfers large amounts for unsubstantiated  overhead to the general fund and uses the money to cover such things as the Blair Park sports complex losses and the electric undergrounding losses.  We proved with the City’s own public records that City officials violated the Brown Act and used public funds to promote the sewer tax ballot measure. We proved that failure of the tax would not, contrary to these expert officials’ false claims, make the city a sewer outlaw before EPA and leave our gutters running brown.  Our grass roots disclosures and opposition killed the tax and proved that Piedmont’s sewer system was fully in compliance with all relevant laws and EPA mandates. Our sewer system have worked fine and our gutters have remained clean without the new sewer tax.

Thank you very much for your time and effort in speaking out to our local government and voters.  Your future involvement on public issues in Piedmont and elsewhere is most welcome.

Tom Clark, Piedmont Resident

~~~~~~~~~~~~~~~~~

Hi Tom,

It’s too bad we didn’t have this conversation a few weeks before the election.  I read Mayor Chang’s reply on Piedmontcivic.org and voted Yes because it looks like we’d be paying lower interest, and that our city council is not stepping into the CAB trap.  This is complicated stuff for folks who don’t regularly travel along bond-financing highways, and we have to trust our city council members to do the deep studying and find the best approach for Piedmont citizens.

Unfortunately, the mistakes outlined by Tom Clark have eroded confidence that our city council has the knowledge and capability to make the right decision.  Well, looking forward, a sage once observed that “Good judgement comes from experience, but experience comes from bad judgement.”  Let’s hope our city council has learned from past experiences.

Bruce Joffe, Piedmont Resident

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

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

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.