SACRAMENTO CITY'S STRANGE HANDLING OF MELLO-ROOS BONDS AND TAXES

In 1982, Senator Henry Mello and Assemblyman Mike Roos combined to pass the Community Facilities District (CFD) Act, which permits local governments and developers to create CFDs to sell tax-exempt bonds for public improvements to overcome Proposition 13, which limited some public agencies ability to finance new projects. The services and facilities can cover streets, streetlights, storm drainage systems, police and fire protection, schools, parks, libraries, museums, and cultural facilities. Establishment of a CFD requires two-thirds voter approval in the district. A CFD has all the legal privileges of a governmental body.

Property owners in CFDs pay a "special tax" to repay the bonds. The amount of the "special tax" is not directly based on the value of the property, but instead is based on formulas that take into account property characteristics such as square footage of the home and parcel size. The "special tax" normally appears in an annual county tax bill, or sometimes is paid on a monthly basis.

Sacramento Bee reporter Terri Hardy and The Bee's Editorial staff wrote articles relating that developers may have been over-paid millions of dollars for construction of facilities infrastructure for subdivisions in the North Natomas area. The City of Sacramento's 1994 North Natomas Financing Plan included CFDs in North Natomas, which could use tax-exempt bonds, covered by Mello-Roos taxes for certain elements of the infrastructure. Builders doing the work would be reimbursed by proceeds from the bonds. Under rules covering the tax-exempt bonds the builders could only get paid for actual costs incurred for the utility projects. If they were paid more than the cost, and made a profit, the tax-exempt status of the bonds would be at risk. These legal requirements seem straight, but the city added some wrinkles that have set off a firestorm.

It appears the city's plan was to pay the builder(s) $5.4 million beyond actual cost for facilities, which would seem to constitute an illegal profit. It also included "fee credits" on future development. "Fee credits" are like cash, and are used to pay for future fees owed to the city on development projects. Developers who have such credits can sell them to other developers. Bee reporter Hardy relates that before the plan was implemented, "the city's legal staff, treasurer, and bond counsel warned that the double reimbursement was 'clearly illegal." This occurred at a City Council meeting on September 26, 2000. Notwithstanding the warning, the city signed a Memorandum of Understanding (MOU) with the principal developer on October 5, 2000, based on the plan. An interesting feature in this story is that the same people who opposed the plan switched to support, just before the MOU was signed. And to date, no reason has been given by those involved.

Hardy relates that the story "came to light in court documents in a wrongful termination lawsuit filed against the city by Deborah Schulte, a former Sacramento senior deputy attorney. Schulte said she was demoted and forced to quit when she questioned the reimbursement plan, saying it violated state and federal laws." The lawsuit's allegations will be decided in court, but legal issues are expanding. The Bee reported that the city tried to gag Schulte through a proposed court order that would have prevented her "from speaking to anyone, including law enforcement performing a state criminal investigation of the matter." Now, County's District Attorney Jan Scully's office is investigating the matter, and The Bee is recommending a grand jury investigation. In its January 5th Editorial "Illegal, then legal" subtitled "Sacramento pay to developer needs probe" The Bee asked some interesting questions and made interesting comments. They stated, "Schulte, the city bond attorney who has since resigned, does not appear to have wavered from her opinion that a second payment was illegal. And that raises the obvious question: Why is the city trying to muzzle her? A most unappealing stench accompanies the question which is why Scully should continue its probe." The Editorial ends with, "Obviously someone from the outside will have to get to the bottom of this."

A January 12, 2006 letter to the Taxpayers League from a resident in the North Natomas area asked for the League's assistance to stop any future allegedly improper assessments, and to help in recovering any money that was allegedly improperly collected to date. The information and request was addressed by the League's Board of Directors during its meeting on January 19th, and the Board instructed the Executive Director to obtain relative information, and to present a plan for action by the League to assist in the request.

SMUD VOTES TO LET SACRAMENTO RATEPAYERS VOTE ON ANNEXATION
By Joe Sullivan

On March 17, 2005 the Taxpayers League hosted a Forum involving SMUD and PG&E presentations on Yolo officials request that SMUD annex part of Yolo County for electrical service to over 70,000 customers. PG&E, which serves the area is protesting. Officials of Yolo County had concluded annexation of their areas by SMUD could reduce electric rates. During the Forum PG&E stated its facilities are not for sale. They remarked that SMUD brings no energy to the table, and must purchase power on the open market. PG&E stated the estimated $270 million SMUD projects as an acquisition cost for PE&E facilities is too low, and if costs escalate, it would impact Sacramento County customers also. SMUD advised that Yolo County customers would be asked to vote on the annexation, but that Sacramento and Placer customers would not The League asserted that, as SMUD is a Sacramento Municipal Utility District all Sacramento and Placer customers must be included in any vote, not just potential Yolo customers only.

After the Forum, SMUD did a risk analysis, determined annexation would benefit the District, and at SMUD's Board meeting on April 6, 2005, decided to proceed with the annexation. The League sent a letter to SMUD advising we would oppose any attempt at such an annexation, if the process does not include an authorizing vote by existing SMUD customers, the true owners of SMUD. The letter included questions from League Director Paul Carr (a former SMUD Director), that should be answered before SMUD turns the issue over to the Sacramento Local Area Formation Commission (LAFCo) for consideration. Among the questions was whether Yolo County officials informed their residents there would be a million dollar loss of property tax revenue currently paid by PG&E annually. We have had no response, and SMUD has since sent the annexation request to LAFCo. We have learned SMUD is considering a rate surcharge from Yolo County customers to replace the lost revenue. And they specifically stated that in their opinion there is no need to put the question to present customers in Sacramento and Placer Counties.

A League working group examined options, including a Measure requiring a vote of existing SMUD customers on whether they agree with the annexation. However, PG&E moved out in October to gathered signatures for a non-binding Initiative asking SMUD ratepayers what they think about adding service to Yolo County. The Initiative is supported by Sacramento labor unions, homeowners associations, and taxpayer organizations - principally the League. The signature gathering campaign obtained 53,000 signatures, whereas only 35,000 were needed. The advisory Measure will be on the June 1960 ballot. After the submission of signatures The Bee reported that, "In a major political turnaround, SMUD is considering giving its Sacramento County customers a direct - probably - decisive say on whether to annex eastern Yolo County." League President Ken Payne, who was with the group submitting the petitions, is reported to have said, "It indicates there are a lot of Sacramento County taxpayers that are a little bit nervous about this annexation, thinking that they may have to pay for it."

At a SMUD working group meeting on January 11th the Board expressed support for a November ballot Measure requiring current ratepayers to approve annexing the Yolo PG&E customers. I commended the move on behalf of the League. At the January 12th SMUD Board meeting they passed a Resolution to put the binding vote on the November ballot, and another asking PG&E withdraw their Initiative for the June advisory vote. I commended them again on behalf of the League. I also advised that there were other issues to be addressed, such as a realistic evaluation of the value of the PG&E facilities, and that the planned assessment of Yolo customers to replace the loss of PG&E taxes. The assessment is, in itself, a special utility tax that had be put before the Yolo customers for approval. This had been pointed out by the Howard Jarvis Taxpayers Association, after examining SMUD's annexation application to LAFCo. Unfortunately, the Board's Resolution aimed to stop the PG&E Initiative came too late, as once the signatures are presented formally, no organization or individual can withdraw the desires expressed by thousands of registered voters. It will be on the June Ballot.

A January 17th workshop covered expected benefits of the annexation, and included more recent projections of natural gas costs.. The SMUD staff was instructed to draft ballot language for the November vote, and to make it clear that the full cost of annexation will be borne by Yolo customers. At the meeting I reiterated that the League will review the annexation costs for accuracy , and that the Yolo voters must be advised of the potential need of a special utility tax..

ELECTION OF 2006 OFFICERS OF THE BOARD OF DIRECTORS

The Board's new officers for 2006 were selected at the Board meeting on January 19th. Ken Payne was re-elected as Board President as were Vice Presidents Jonathan Coupal and Bob Creedon. Bruce Lee was elected Secretary, replacing Joe Sullivan, who was appointed Executive Director. Former League President Bill Hirschfelt was elected Treasurer, replacing Paul Carr, who is presently residing in Oregon.

LEAGUE ESTABLISHES A FAMILY MEMBERSHIP

In January, the Executive Board recommended a new Membership Classification for Families to the full Board of Directors, which was approved. The cost of the new Family Membership is $50/per year for a husband and wife, in lieu of the $70/per year a married couple pays the League now for two Individual Memberships. The change was made as part of this year's Membership drive being led by Membership Committee Chairman Bill Kassis. Bill is relentless. He informed the Board of Directors that as far as he as concerned the entire Board makes up his Committee, and that he expects each Board Member to recruit at least 10 organizations or people as new Members of the League. And, we also urge Members of the League to also recruit new Members. Remember that the League's strength comes from its Members, and nowhere else.

BOARD MEETINGS MOVED FROM COCO'S TO THE GOLDEN TEE, PERMANENTLY

Twice over the past year and a half Coco's on Arden has taken reservations from the League for its monthly Board meeting, and filled their only meeting room with another group before we arrived. In both cases they had been visited by a League representative the day before to confirm the reservation. And also in both cases the Olive Garden Restaurant behind Coco's graciously accepted our Board Members without prior notice. As a result, the Board recommended we move permanently to the Golden Tee. That has been arranged.

THE GOVERNOR STEALS BRUCE LEE, AND JOE SULLIVAN IS RECALLED TO ACTIVE DUTY

League Secretary Joe Sullivan and Executive Director Bruce Lee are, once again, swapping jobs. The Executive Board, at its January 10th meeting, re-appointed Sullivan as the League's Executive Director, replacing Director Bruce Lee, whose new position with the Governor's Department of Finance time demands make it impossible for him to cover the tasks of the League's Executive Director. Reluctantly, Bruce relinquished the job. The League understands why the Governor made the choice. Where else can you find a man who is, among other things, at once, skilled in governmental and business affairs with double Masters Degrees; a former Executive Director of the California Business League; twice elected as Mayor of the City of Loomis; a former Director of the Placer County Water Agency; and a university educator. He instructs and consults in market development, business management, strategic management, international business, and critical thinking. In addition, he was Executive Director of the County Taxpayers League. Having earned a variety of citations, he is listed in Who's Who in America.

Joe Sullivan, on his part, joked that Kaiser has installed enough repair parts, that to use an old WWII Army expression, "Has painted me with iodine, and marked me, duty." With Joe, the League recovers a Past President and former Executive Director with over 25-years of volunteer advocacy on behalf of taxpayers and seniors. In addition, he is a WWII Army veteran; a Geological and Pipeline Engineer; a former Manager of Engineering of the Gulf Coast Telephone Company; a retired Deputy Director from McClellan AFB; a former water district Director who, while President, was instrumental in combining two public water agencies for the first time in Northern California to form the Sacramento Suburban Water District, serving over 185,000 customers. He represented the League on the Water Forum for over 10 years; and was one of the founders, and first Executive Director of the Regional Water Authority (RWA).

LETTERS TO THE LEAGUE

We seek “Letters to the League” from Members concerning projects and issues on which we are working, along with recommendations on those we should look at. Letters may be edited and republished in any format, primarily in the interest of available space. Send letters, faxes, or e-mail to the Sacramento County Taxpayers League. Our e-mail is sactaxleague@prodigy.net; our telephone number is (916) 921-5991. Our fax number is (916) 567-1279. And our address is:
Sacramento County Taxpayers League
1804 Tribute Road, Suite 207
Sacramento, CA 95815.

EXECUTIVE DIRECTOR'S MESSAGE

IN RETROSPECT
Looking back, I thought the recruitment of Bruce Lee ended my career as a full-time taxpayer advocate, and would give me time to relax, and write. Then the Governor stepped in, stole Bruce, and the Board put me back at the helm, hopefully temporarily.

The Executive Director's duties for the League are little known outside the League's Boards. First is that he or
she is not a Member of the Board of Directors. The job was originally created for a full-time employee who was to be responsible for management of, and research projects in, the League's office. The "outside job" is to be the
League's "voice" in public, and to be the "gunfighter" who deals with collective individuals intent on
fleecing taxpayers. And there are many, both elected and selected. Former City Manager Bob Thomas once
asked me what my job was as Executive Director, and my answer was the same as his job, I ran the shop and
answered to a Board.

The Executive Director is selected or hired by the League's Executive Board, made up of the League's Officers and active Past Presidents, who are responsible for the League's fiscal well being. The full Board picks or rejects activities for League's actions, and provides their collective experience and skills as a group, to cover the myriad of tasks in which we become involved. Our By-Laws state there must be at least 20 Board Members, but no more than 50. Also little known is that all Directors and League Officers work pro bono, including me, notwithstanding my title. The only paid individual in the League is our Office Manager Susan Ferrell, and even she is part-time. We're a stingy bunch.

Over my quarter of a century fighting for seniors and taxpayers, the four groups I've watched most carefully are the Board of Supervisors, the Sacramento City Council, the Sacramento County Flood Control Agency (SAFCA), and the Sacramento Municipal Utility District (SMUD) 'cause that's where the heavy money is. The two most intriguing are the Board of Supervisors and the City Council. The "Sups" are like the U.S. Senate - staid, slow moving, and deliberative, whereas the "Council" is like the House of Representatives - fractious, sometimes funny, who can create more mischief in a month than the rest of the County, and its other cities can whomp up in a year. I have had the fun of watching the antics of five mayors, and have interfaced with three city managers. As long as the City Council exists there will always be a need for the Taxpayers League. After all, Membership in the League is the best insurance investment a taxpayer can make.

Joe Sullivan

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