A SIMPLE LESSON ON HIDDEN COST OF BONDS
Joe Sullivan

The Howard Jarvis Taxpayers Association's (HJTA) winter edition of its Taxing Times Newsletter had an excellent article titled "Caution: Bonds Have a Hidden Cost" which detailed the significance of bonds, their true cost, and how they are repaid. Bond proposals are probably the least understood mechanism of extracting money from the public, creating indebtedness, how they are paid, and what they really cost. These are the most often asked questions of the League's office at election time.

The article points out that the California Constitution gives the electorate the right to vote on state and local general obligation bonds. However the rules for each category are different.

State bonds, commonly used for infrastructure improvements like highways, and to provide additional funding for school construction require a simple majority vote of the statewide electorate for approval. These bonds do not raise taxes, but are repaid from the state's general fund, into which everyone pays through sales and income taxes. However, even if this seems fair these bonds are hardly a perfect way to finance long-term capital improvements. These bonds are more expensive than many voters imagine. Most know that bonds mean debt that must be repaid, but it is easy to overlook the impact of compounding interest. Since most government bonds are issued with a 30-year payback, a good estimate of the actual cost is to double the face amount of the bond. Additionally, when the state takes on a lot of debt, bond buyers demand higher interest rates for the perceived higher risk, making the bonds more expensive.

As bond repayment has first call on the general fund, less money is left behind to pay fro transportation, education, health care and other important programs. The amount of debt we must pay from the general fund means less money for other "pay-as-you-go" basis which get far more "bang-for -the-buck" programs.

The second category of bonds on which we vote is local general obligation bonds used for local infrastructure projects, libraries, and schools.Although everyone can vote on these bonds, property owners are singled out as solely responsible for the repayment of principal and interest. Both commercial and residential property owners see a tax increase when these bonds are approved, but the hardest hit are single-family homeowners who, unlike businesses that pass the additional cost to customers, must pay their entire cost of their share.

The drafters of the California Constitution of 1879 recognized the inherent unfairness of letting everyone vote on a tax that would be placed on the minority of the community wisely required a two-thirds vote for passage of these general obligation bonds. The HJTA pointed out that the system served well for over a century, until Netflex CEO Reed Hastings and his band of billionaires bankrolled the misleading campaign that passed Proposition 39, which lowered the vote for local school bonds to 55 percent which guaranteed that virtually all school bonds pass, regardless of merit, and has saddled property owners with tens of billions of dollars in bond debt.

So during elections many voters will face bond proposals that require a majority vote, a 55-percent vote, and a two-thirds vote. Th HJTA article tells that there is a simple way to classify bonds. There are those that are "necessary evil" bonds to build a bridge or a sewage treatment plant that would be difficult to fund immediately out of existing revenue. Although paying for the infrastructure means going into debt it may be justified to provide ongoing vital services. "Unnecessary evil" bonds are those that are marketed as Measures by people who would benefit from the money, for example the state or local property owners become obligated to buy property bond adherents own, at inflated prices. Unfortunately, some statewide and local bonds contain both flimflam and worthwhile projects which make it difficult to weigh their merits. The HJTA article recommends that; "Ultimately, Californians would be wise to approach all bonds with extreme caution. The debt bonds create is an irreversible obligation that continues for decades. Don't buy into voting yes unless the need for a bond is proven beyond a reasonable doubt."

ARENA AFTERMATH
Bob Blymyer

Now that the dust has settled on the arena issue, it seems like a good time to review some of the concerns that would be critical to any future Sacramento arena. Here are some of the thoughts for consideration.

When the Kings arrived in Sacramento in 1986 as the communities first major sports team, they immediately made a hit by filling a temporary arena with 10,333 fans. Three years later, when Arco Arena opened, the trend continued with over 17,000 fans per game. The local success continued even though the Kings had a series of losing seasons through most of the 1980's and 90's. The Kings grew into a national favorite beginning with the winning team of 1999, culminating with the huge LA Lakers playoff rivalry in 2003 and 04. Now however, as the chemistry and the excitement of the team has changed, the Kings face many hurdles, with financing a new arena at the top of the list. In the future, the success of the sports franchise will more likely be more closely related to winning teams than in past years.

In November 2006, Sacramento voters showed their apathy towards a new arena ( at least towards the proposal brought to them), with a resounding 80%-20% defeat. There were several issues thaat appeared to hurt the arena campaign; a divided political base, some negotiations conducted in secrecy, a seemingly 'rushed' procedure in the latter months, and questionable rationale for the choice of the arena location. Also there was too much effort at making the Maloofs look like the 'bad guys'. The Maloofs, with Geoff Petrie at the helm, turned a locally successful basketball team into a nationally successful basketball team. The Sacramento Kings from 2001 to 2004 were the hottest team in the sport, with more TV games during one of those years than anyone else. Considering that the Kings were competing with teams like the Bulls (Chicago), the Lakers (LA), and the Knicks (NY) and their huge media markets, this was quite a feat. The Maloofs need to be treated in relationship to what they have done for the community.

The proposed location of the arena in the UP Railyards raised many issues. The actual location, as proposed, was almost one mile north of the current Sacramento Valley Amtrak Station, near the northern boundary of the railyards. Over the last two decades the Sacramento community has invested over a billion dollars in expanded State intercity train travel, and intracity light rail lines to serve the Amtrak Station. Does it make sense to build a major sports facility that is not within close walking distance of Sacramento's major public transit services? Probably not.

In addition, the proposed railyard arena location would not have anywhere near the good freeway access of the current Natomas location with the I-5 and I-80 Freeways on two sides. Neither 'I' Street nor Richards Blvd in the downtown area are equipped to handle the kind of traffic that would be generated by a downtown arena location. There is already available land near the current arena, which is close to the proposed future RT Natomas/Airport light rail line. Could that land be used for a new arena rather than the complicate the attractive railyard plan that appears to offer so much for the community?

And hopefully, the next time around, there won't be an attempt to circumvent Prop 218 that requires specific ballot measures to receive a 2/3 majority vote.

It would appear that the arena proposal still has a long way to go.

EMINENT DOMAIN ACTIONS NEED SAFEGUARDS
Joe Sullivan

The failure of Proposition 90. GOVERMENT AQUISITION. REGULATION OF PRIVATE PROPERTY to pass in last November's election was a major blow to all private property owners in the state. The Proposition
was a Constitutional Amendment to require government to pay property owners for substantial economic losses from new laws and rules, and limit government authority.

The problem that created the need for Proposition 90 was a ruling by the U.S. Supreme Court on June 23, 2004 in Kelo v. New London, that expanded governments use of the power of Eminent Domain, dramatically reducing the ability to safeguard private property rights. By definition, Eminent Domain is the government's power to confiscate private property against the will of the property owner. Using eminent domain, families can be forced from their homesteads and established businesses shut down against their will, and permits redevelopment agencies to use eminent domain to seize perfectly good homes, and turn them over to a private developer.

The U.S. Constitution's Fifth Amendment permits Eminent Domain only if the owner receives "just compensation" and only if the property is taken for "public use." However, the Court, agreed with the premise of a Connecticut redevelopment agency that even though a homeowner's (Kelo) property ended up in a developer's hands, evicting them and other homeowners, and up-scaling the neighborhood, would increase the city's (New London) tax revenues and "create jobs." The Court asserted that the mere promise of incidental public benefit, is all the U.S. Constitution requires for "public use." And, with that decision, good homes in New London will be demolished, replaced by a fashionable hotel, health club, and a marina to support a neighboring facility for a Pfizer Pharmaceutical Company. In California, such condemnations for private purposes are permitted as long as a local redevelopment plan has been approved, and the area in question has been designated as blighted.

The Pacific Legal Foundation contends the U.S. Constitution only sets minimum standards; state constitutions and the state courts that enforce them remain free to provide greater protection to homeowners and others threatened with eminent domain. California's Proposition 90 was a step to protect property rights against such Eminent Domain abuse.

The Howard Jarvis Taxpayers Association is considering a replacement Proposition for 90, which The Bee attacked in a December 24th editorial "Voters should just say 'no' again - in advance." The new Proposition would counter the unfortunate US Supreme Court "Kelo" decision, which has outraged the nation. Further, the initiative would require local governments to properly compensate property owners when they abridge property rights and dictate land usage, or render it useless. When the Jarvis organization begins collecting signatures to put the initiative on the ballot The Bee recommends that potential voters not sign, intending to kill the proposal.

The League countered The Bee recommendation with a Letter to the Editor, which they published on December 31 st, stating that, "What this does is to keep the public from listening and reading the pros and cons of the issue, and deciding for themselves. We recommend the exact opposite. Property owners, in particular, should line up to sign the initiative to protect themselves. Then let's let the voters decide who's right."

THE YEAR 2007 BOARD OF DIRECTORS

The Ballot slate of recommended Directors to lead the League during 2007, its 46th year, was voted on by the Membership during December. The result returned all of the 2006 Directors to the 2007 Board, except two, Senator Dave Cox and Pat Kelly. Both will continue as Members, but had asked not to be listed on the 2007 slate, as neither could attend meetings and preferred not to be represented by alternates. A new Board Member, Bob Blymyer, was approved by the Board at its November meeting and is included on the 2007 Board

Our Bylaws require that we have at least 20 Board Members. The new 24 member Board of Directors will select its Officers during the January 18th meeting.

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

Sitting here, typing what will probably be my last such message to our Members makes me a little sad, as it will end over a quarter of a century working as an advocate, first for senior's rjghts and needs, and then for the protection of taxpayers under guidance of the League. Both venues have always been interesting and fun, and a standing joke between our Office Manager Susan Ferrell and I is that if its not fun, we don't do it.

During those years I have interfaced with, or met, many of our national, state, and local leaders and elected officials, and learned that almost all are dedicated people, notwithstanding that I met with many under unfavorable conditions, often on opposite sides of important issues. My longest contact has been with Illa Collin, who, after 27 years on the Board of Supervisors, is also moving to stage left. Illa has always been a delight to deal with as beside great patience, I found that she was always prepared, in detail, on any issue over which we have differed. Fortunately, Illa is being replaced by Jimmy Yee, among the best I know.

I have worked through five Sacramento City Mayors. The first was Phil Isenberg, the smartest; then with Ann Rudin, the kindest and gentlest; then had a ball with Joe Serna, a strong leader who had an underlying great sense of humor. Memories of our encounters always brings a smile. After his untimely death, Jimmy Yee stepped in and held the seat steady until Heather Fargo was elected. We still interface with Heather, and as she is still Mayor, hasn't fully defined her legacy. Actually, on a personal basis, I am more familiar with Heather's husband Alan Moll, whom I worked with in the early days of a 10-year effort, representing the League in the Water Forum. I found Alan to be gentleman in all respects, intelligent, and a pleasure to associate with.

There is a marked difference in monitoring City Councils, as compared to the County Board of Supervisors. City Councils are more raucous then the staid Supervisors, and their roles are, in my estimation, quite different. A supervisor is confronted with the same type problems as a council member, but in addition must handle the myriad of tasks, very often unfunded, dumped on them by the state legislature. I have always been in awe of the wide span of problems the supervisors are forced to deal with.

And so, kind Members, I must stop being the "face" of the League in the County. Hopefully, the League's Executive Board will select Bob Blymyer to replace me. Bob has all the attributes necessary to be a great Executive Director, and the skills necessary to assure that the taxpayers of our county and its cities are guarded from those miscreants who believe taxpayer's money is up for grabs for their personal whims.

Joe Sullivan

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