On November 9, 2015, the second Contra Costa Times column (See Daniel Borenstein: Richmond city manager blocked release of report forecasting city's financial fall, November 7, 2015) by Dan Borenstein in two days hit the presses, predicting that the fiscal sky over Richmond is falling.
Today, Karina Ioffee, also of the Contra Costa Times piled on with “Facing heat from creditors, Richmond tries to shore up finances.” And even Richmond Standard had to get its licks in with “Richmond Councilmember Vinay Pimple pushes for fiscal transparency,” also out today.
Bates and Pimple are being characterized by the media as budget hawks, but neither has proposed exactly which projects and programs they would cut for immediate relief. Pimple has focused on a $1,000 (maximum) park bench, which I understand will be paid for by a grant or gift, not by the general fund.
Borenstein and the bond raters may not like the way it was done, but City Manager Bill Lindsay delivered a budget surplus for FY2014-15, and the budget for FY 2015-16 is balanced. It may not be pretty, but it’s not bloody.
Dan is my go-to person for pensions, and he is very good at what he does, but that is unfortunately limited to numbers and reading bond raters’ reports. For Borenstein, the sun rises and sets based on what Moody’s and S&P write about a city’s creditworthiness and by the magnitude of a City’s unfunded pension and OPEB liabilities. While these are clearly important, they are just one of the complex factors involved in running an effective city government. As an investigative journalist, Borenstein should also take a look at the credibility of the bond raters themselves, which would probably qualify for less than junk if such a rating system existed.
Both Moody’s and S&P have been investigated for decades for manipulating credit ratings to shake down municipal governments (http://www.wsj.com/articles/SB921197561149784842):
"The civil inquiry, launched in 1996, examined one of the most controversial issues in the bond-rating business: the use of "unsolicited ratings," or ratings issued without the consent of bond issuers. Most bond ratings are issued with the consent of the municipality or company selling bonds. The company, city or state pays a fee to a credit-rating company, which publishes a rating, often in the form of a letter grade, for the investing public.
But in recent years, issuers have begun to shop for the lowest prices among the agencies that rate debt. Putting Moody's in the Justice Department's cross hairs were allegations by some bond issuers that Moody's fought this trend by threatening to issue lower, unsolicited ratings to prod bond issuers into buying its assessments.
Moody's, which along with McGraw-Hill Cos.' Standard & Poor's rating unit had dominated the ratings business, all along denied the charges. But the inquiry threatened to shake up the secretive and highly lucrative bond-rating business, where profit margins are huge and negotiations between issuers and bond raters aren't open to the public."
The Department of Justice settled with S&P in February of 2015 for $1.375 billion or defrauding investors in the lead up to the financial crises, and they are continuing an investigation into Moody’s for the same thing.
“What we found at Moody’s was very similar to the practices and conduct at Standard & Poor’s. The conduct and results were the same,” said Mr. Angelides. The 10-member [Financial Crisis Inquiry] commission concluded that credit-rating firms were “essential cogs in the wheel of financial destruction.”
In contrast with big Wall Street banks that have paid more than $100 billion to settle postcrisis lawsuits, credit-rating firms have mostly escaped the surge of legal scrutiny and regulatory changes.
The Richmond “crisis” that Borenstein and the Contra Costa Times continue to manufacture and nurture revolves around the refinancing of bonds involved in a swap where a Moody’s downgrade has triggered a right by the counterparty JP Morgan/Chase, to call the bonds. City staff and bond consultants have been hard at work the last several weeks and have crafted a solution that will be on the City Council’s November 17 agenda. The solution will take both JP Morgan/Chase and Moody’s out of the picture for Richmond, reduce the chance of an adverse S&P rating affecting Richmond and position the City for significant future savings in three years related to a potential refinancing of the Civic Center bonds. See Item D-1 on the November 17 Agenda.
Meanwhile, City Manager Bill Lindsay is continuing to move the City of Richmond towards more liquidity and increased reserves, the issues that seem to impress bond raters the most. Squeezing more money out for liquidity and reserves means increasing revenue and/or decreasing expenditures. The City’s largest expenditure is for labor, and the city manager has been downsizing Richmond’s number of FTE (full-time equivalent) employees since the peak of FY 2007-08. The total has dropped from 962.5 in FY 2007-08 to 700 in November 2015, a remarkable 27% reduction.
On the other side of the equation, revenues are based largely on property taxes, utility user taxes and sales taxes. Both property taxes and sales taxes continue to trend upwards, and utility user taxes are holding at least steady because they are affected by increased energy conservation efforts of both businesses and residents, something that is also reducing the City of Richmond’s operating costs.
Zillow shows a 15.1% change in Richmond home values in the last year, and forecasts a 4.5% increase in the coming year. Richmond foreclosures are the lowest since 2006. Commercial property values and rental rates are up, and vacancies are down. See Cushman & Wakefield Third Quarter Report. More Richmond residents are employed than ever before, and the City’s unemployment rate is as low as it has ever been.
Meanwhile, residents are increasingly impressed with Richmond. In the five semi-annual National Citizen Surveys conducted since 2007, Richmond residents have rated Overall Quality of Life improving 82%, Overall Image improving 100%, Richmond as a Place to Live by 105%, Neighborhoods by 14%, A Place to Raise Children by 100% and Overall Appearance by 112%.
On September 29. 2015, the City Council approved a contract with the National Resource Network, a program of the White House, to provide $110,000 of technical assistance to the City of Richmond (of which the City had to fund only $27,500) to construct a sophisticated, interactive 5-year budget forecasting model. This will be introduced to the City Council and the community in the next 60 days and can be used to explore alternative fiscal futures.
This is not, as Borenstein would have you believe, “ a slow moving train wreck.” This is taking a responsible look at City priorities and public policy options.
Lindsay’s contract expires in February 2016 and is up for renewal on November 17, 2015. There has been some grumbling about a few things that are imperfect, including the drawn out evacuation of the Hacienda, Measure U and the bond ratings. Malcontents are complaining that Measure U proceeds were diverted from street paving to balance the budget. Read the official description of Measure U, which states, “A ballot measure proposing a one-half cent sales tax to maintain and enhance essential city services, such as public safety, public health and wellness programs, city youth programs and street paving.” Street paving is only one of five stated purposes. Measure U has no sunset ,and there is plenty of time to use proceeds for street paving in future years.
Vacation of the Hacienda has been fully funded and HUD approved for months and is proceeding as fast as it can. Other issues with HUD left over from dissolution of Redevelopment have been largely resolved.
In the ten years since Bill Lindsay came to Richmond as city manager, the City has changed dramatically for the better under his leadership and under an independent and progressive city council. It is essential that we not be distracted by media chicken littles and budget hawks. We need to renew Lindsay’s contract for another four years and continue this unprecedented journey to a better City of Richmond.
Reposted from Mayor Tom Butt's E-Forum