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Monday, February 18, 2013

What happens without oversight

Last weekend the OC Register Watchdog focused on school board bonds issued to avoid oversight by state legislators, and more importantly, by the citizens who will have to pay for the bonds.

The bonds are like mortgages; the principal, which is the amount borrowed, and the interest, must be repaid. Over a 30 year home loan most buyers can expect to pay about twice what they borrowed as they repay both interest and principle.

Pay back 23 times what was borrowed

Several school districts in Orange County, including Newport-Mesa, have issued bonds that require much higher payoffs than home loans. 

And, most home loans have provisions for paying the loan off early, to avoid paying so much interest. The sooner the borrower starts paying off the principle, the lower the amount that accumulates interest. The school board bonds can’t be paid off early, though.

Payment on the bonds doesn't start for a long time, so interest is compounded for many years before the payments start. (Compounding means the interest is computed on the principle plus the total of all past interest.)

Would a rational person agree to it

Well, would a home buyer agree to pay back 13-23 times what he borrowed? Of course not. But a San Bernardino county school district did. It agreed to pay 23 times what it borrowed, while other school districts, including those in Orange County, issued bonds obligating the districts to pay back 13 times what was borrowed, or more.

The Register article last weekend included a couple of noteworthy quotes:

"It's another method of pushing debt to future generations," said state Treasurer Bill Lockyer, who compares the bonds to "payday loans."

"I just don't understand how these board members got away with this," said Alexandria Coronado, a former member of the Orange County Board of Education. "These people need to be recalled."

No oversight let it happen

Why didn't anyone who pays the bills know what the bonds would cost until the Register investigated? No oversight, that’s why. Had the citizens of these school districts seen the proposals – and understood what the payback would total  . . . Surely they wouldn't have opted to lay huge debts on their children and grandchildren

They would have done without fieldhouses and performance venues. Or they would have financed the buildings much differently. (The bonds don’t pay for teachers.)

Would our city do that

In Costa Mesa the biggest City expense is employees; their pay, benefits and incentives total over three-fourths of the budget. Could we get saddled with heavy, even unsustainable employee expenses? Yes – but, under COIN, only if we agree to it.

Our COIN (Civic Openness in Negotiations) ordinance insures that costs of employee expense are explained and published, followed by a waiting period before a Council vote. 

(Remember that ordinances are laws, however, they can be overruled through a referendum. So, if the Council adopted a pay scheme that was outrageous, we could overrule them.)

Not everybody likes COIN

A local blogger (West) has written that the COIN process is “going to be an impediment to timely resolution of labor negotiations . . . (and) . . . dooms every negotiation to a long, long protracted activity.” If that’s true, which seems unlikely, isn't a “protracted activity” that avoids catastrophic debt justified? We think so.

And the (City) employee union spokeswoman Jennifer tried to divert attention from COIN to a need for “more rigorous transparency about the discussions that take place leading up to the bids for city contracts.” By City Contracts she means the cost of services that account for the other quarter of the City budget.

Why change the subject 

Why does she want to divert attention from big expenses to little ones that are handled through our normal procedures? The contracts for these purchases are negotiated by City employees. City Council members have nothing to do with issuing any service or supply order. In fact, they’re forbidden by law from affecting City Procurement. The City Council merely approves use of City funds for the purchases.

Our biggest expense is being negotiated in plain sight so we citizens can see what it’s going to cost. Jennifer wants us to look instead at what the Council Members hear and say about purchases they can’t affect. That seems disingenuous at best, deceptive at worst.

Not so virtuous in the past

Have past labor negotiations in Costa Mesa been suspect? Yes, but. . 

We have to honor the present contracts. How they ballooned, who did what to whom – all of that is unfixable  so there’s little point in belaboring it. (We did that a lot in the last election, anyway.) But we don’t have to make the same mistakes again.

From now on, we, as citizens of the City of the Arts will know what our Council is agreeing to pay for every employee’s salary, benefits, and special skills bonuses . . . what we’ll pay for everything. And with that oversight we insure that we know what we’ll get for our money.

Can't go back to fix 

The school bonds mentioned above are unfixable now. They were written that so that they can’t be paid off early. The citizens will enjoy a school gym for 20 years, then, as it ages, will start paying for it. They will pay 23 times what it cost to buy at the time it was built.

After the Register investigation new school district bonds will probably be examined more closely by the taxpayers. And maybe some board members who make stupid decisions will find other lines of work.

Protects us if we pay attention 

The COIN ordinance protects Costa Mesa from that kind of debacle. Now it’s up to the citizens to read the explanations. To read, think, compare – and if the deal is a bad one, to complain. And if the Council won’t listen, to start a referendum. Or, as a last resort, to recall any of our representatives who don’t represent us to our benefit.

Of course it's our business 

Costa Mesa is our City, after all.

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