Grab Your Wallet
NEWS FLASH, MARCH 4, 2024
Another downtown boondoggle…..
More money from taxpayers…..
The same group, Sausalito’s Economic Development Advisory Committee (EDAC), that recommended the faltering and City subsidized “Sausalito Center for the Arts” below-market lease of the Bank of America building is now proposing a Property Business Improvement District (PBID) for the downtown tourist area, which will also be subsidized by City funding, i.e. your tax dollar. Some thoughts are:
· Since the role of EDAC for the most part overlaps that of the proposed PBID, a small city should only need one or the other, and possibly neither;
· Less than half of the downtown businesses, whether you measure by store frontage, building square footage or lot size square footage, want a PBI District. So the majority of downtown businesses may be charged a PBID “tax” for something they didn’t want.
The gerry-mandered draft of the proposed PBID boundaries include both City parking lots and City owned buildings with the result that the City (YOU) will be conveniently obligated to pay half of the annual PBID budget (currently projected at $130,000.)
· The City’s participation in the PBID is complicated (see hour 2, minute 4 of the Dec 19, 2023 City Council meeting). Even though the PBID is currently drafted with over 50% of the area and expense charges allocated to the City, the draft restricts the City membership on the PBID board to one (yes – only 1) member. If you factor in the City’s hesitation to enforce agreements, i.e. the Sausalito Arts Center lease, this could be another situation where the City is turning over your tax dollars to a non-profit of currently unknown leadership.
· Proponents talk up the potential benefits – but there is NOT EVEN AN IDEA OF MEASURABLE PERFORMANCE METRICS. The agreement with the PBID should require measurable performance analysis, and a voting position on the PBID Board commensurate with the City’s cash contribution..
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The City Council’s Financial Dealings
** News Update, 2/18/23
NEW TAXES??
On February 10, 2023 the Sausalito City Council had a Priority Setting Retreat. According to the agenda: “The City of Sausalito is exploring new revenue and tax mechanisms that may be implemented by the City to increase the overall financial health and resiliency of the general and other operational funds.” Here is a list of potential taxes coming your way: Sausalito Tax and Revenue Opportunities.
**News Update, 7/4/22
The Cost of Public Safety
In the Fiscal Year 2022-2023 budget, the City Council is finally coming face-to-face with the two financial issues we previously reviewed below:
1. The 46% allocation of the City’s real estate tax revenue to the Southern Marin Fire District (SMFD) to pay for fire and ambulance protection; and
2. The bizarre financing of the Public Safety Buildings which has now advanced into the period during which the City will be amortizing the enlarged principal amount over some 15 years.
These two items are contributors but definitely not the sole causes of the projected $2.6 million operating deficit in the City’s FY 2022-2023 operating budget.
THE GROWING COST OF FIRE PROTECTION
1. As noted below, SMFD was allocated 46% of the City’s annual real estate tax revenue in the course of the 2011 annexing of the former Sausalito Fire Department into SMFD. At the time residents voiced concern that this percentage allocation approach could eventually result in an overly high cost for fire and ambulance services.
2. This allocation to SMFD is not reflected in the City’s budget report since it is done at the County level. Apparently several council members were not aware of this split of revenue.
THE VERY EXPENSIVE PUBLIC SAFETY BUILDINGS
The tragedy of the financing of the Public Safety Buildings is covered below. The overly clever City council members at the time used a negative amortization bond for the first fifteen years to be followed by a more standard amortizing bond for the remaining fifteen years. Negative amortization means your early payments are not enough to cover the interest owed so the amount you owe goes up by the amount of the unpaid interest. REF.
The City has or will begin payments on the amortizing bond. The principal amount could be as much as double the original roughly $12 million amount and the interest rate is higher than the first bond. If memory serves, the final year’s payment could be $2.4 million. These payments will hurt over the next 15 years.
In both of these cases, the SMFD allocation and the financing of the Public Safety Buildings, politicians opted to “kick the cans on down the road”…and the cans landed here.
BACKGROUND -2021
Charlie Francis, Sausalito’s Interim Finance Director, recently stated at a public meeting that the City saved $1 million or more on its annual operating budget by shifting the City fire department to the Southern Marin Fire District (SMFD) in 2012.
What Francis didn’t say was, to achieve this “savings”, the City agreed to pay SMFD roughly 45% annually of the Sausalito property taxes with no cap on the increase.
o In 2014 residents paid $2.9 million for fire and ambulance protection.
o By 2020 this figure had increased to $4.9 million, an average year over year increase of 9.5%.
The real problem is the cost going forward.
o Currently it appears Sausalito’s costs for fire protection are roughly equivalent to neighboring communities, a comparison currently under study.
o However, if this cost continues to grow at the 9.5% level annually, Sausalito will soon be subsidizing other areas under the SMFD umbrella.
Wish we would have had the SMFD negotiators on our side for this deal. They were obviously sharper than Mr. Francis and the then City Council members who supported this scheme.
Measure S: The Financing of the Sausalito Fire and Police Stations
·In 2006 voters approved Ballot Measure S for financing the construction of the proposed new police and fire buildings. The approval was in part based on the City’s assurances regarding financing terms.
In 2007 the City Council supporters of Measure S discovered they couldn’t lock in the bond interest rates they had promised the voters. They had two options:
o Go public with the problem and seek a workaround; or
o Resort to a negative amortizing bond structure which would have an initial interest rate at the promised level but with an overall high cost.
·To save short term face, the then Council opted for the high-cost option. Why?
o The crafty Council members knew these Measure S bonds would be classified as “General Obligation” bonds, a type of municipal bond backed by the City’s ability to levy taxes on its residents.
o So the City could pass the high cost of the negative amortization bond to the unsuspecting residents. It’s always easier to spend Other People’s Money than admit you made a mistake.
·What is the “high cost” of negative amortization?
o Negative amortization means your early payments are not enough to cover the interest owed so the amount you owe goes up by the amount of the unpaid interest. REF.
In the Measure S case, we are still accruing interest for several more years for a bond placed in 2007 and the bond principal may be double the original amount. Then we will begin slowly amortizing the principal until 2040, at which our payment will be $2.4 million on an initial face amount of $12-$13 million.
o Note: Negatively amortizing loans are considered predatory by the federal government and were banned in 25 states as of 2008, according to the National Conference of State Legislatures. Their appeal is obvious: an up-front low monthly payment.
Source: Investopedia
“ No one will really understand politics until they understand that politicians are not trying to solve our problems. They are trying to solve their own problems…”
Thomas Sowell