Tag Archives: City Hall

California’s Hercules Municipal Utility in trouble

For about a decade, the Hercules Municipal Utility (HMU) in Hercules, California has been bleeding money. Journalists Bob Porterfield and Jackie Ginley have been following the story since last summer when City Hall officials met to discuss how to deal with the drain on the city’s budget.

Hercules Municipal Utility was created to be a profitable venture for the city: a subsidized utility with the power to issue debt. And it is only one of several publicly funded (and uncompleted) projects on Hercules’ books. Porterfield and Ginley report that the city has spent $16 million over the course of a decade for an unbuilt  substation. HMU represents $13 million in bond debt for Hercules. The redevelopment agency is $18 million in debt. The city has cut services, laid off workers, and watched its credit downgraded to junk by S&P.

The problems of Hercules stem from a few sources. First, as Porterfield and Ginley note the town mixed its general fund budget with the budgets of special authorities. A related problem is the how such  quasi-public entities are used to avoid debt limits by municipal governments. Allowed to issue debt that is then backed by the authorities’ revenues, in the event the authority cannot pay, revenue debt becomes the “moral obligation” of the municipal government. (I discuss the history of the moral obligation bond here. They were a creation of the Nelson Rockefeller gubernatorial administration. Revenue bonds now far outstrip General Obligation bonds as a total of state debt.)

Why was HMU created?  Rising electricity prices were another attraction for the city council. In 2003 they reasoned operating a utility would deliver cheaper prices to consumers. But the deal was a money-loser. The plant wasn’t built. Revenues did not flow. And then the finances got even more convoluted.

The city tried to pay back the bonds with revenue-lease bonds from a swim facility using the Hercules Public Financing Authority (PFA) as the borrower (on paper) to raise money. The PFA issued the bonds which were to be repaid from revenues from a specific project: a swim complex built a few years earlier totaling $7.4 million.This maneuver was to avoid the 2/3rds majority needed for the city to issue General Obligation bonds. In fact, the city of Hercules was the borrower, not the PFA, and the city remains responsible for paying back the $7 million it raised through the deal to finance the electric utility.

(This kind of sidestep to avoid issuing GO debt and getting around tax and spending limits is one of the reasons off-budget enterprises have proliferated in state and local governments as Bennett and DiLorenzo note in their study. OBEs have increased to 37,389 entities over the past several decades.)

Porterfield and Ginley detail what happened next. The project ran up costs, made almost no money with 840 customers and will continue to operate at a loss. For 2010 the city must pay $750,000 in interest on the HMU bonds (far more than it brings in) plus $10 million in interest and principle on other borrowed money. Hercules’ general fund budget is about $15 million. Read here for more details on the various debt-backed projects of Hercules


Digging Deeper into Bell, California’s Corruption

Earlier this summer a scandal erupted in the small, working class town of Bell, California. Three of Bell’s top officials were pulling down half-a-million-plus salaries, a feat the administrators accomplished by changing the city’s municipal charter status to bypass a state law that had imposed a limit on public salaries.

It turns out that these three were only the tip of the iceberg. This week Bell’s mayor and city council were arrested for raking in salaries between $100,000 to $400,000. Their work consisted of sitting on fake boards where a typical meeting consisted of an 8 minute roll call.

Much of Bell’s has come to light through the reporting of the LA Times.

As Daniel Foster at National Review writes, it gets worse from here. Investigators found illegal loans, property tax raids, and bonds issued without voter approval. Bell’s government was a racket and the city could be headed for receivership.

What ended Bell Council’s plunder? It took years of  “brazen and inept corruption, the stress of a recession, a statewide fiscal crisis, one anonymous tip, dogged reporting, and national publicity” for Bell’s citizens to march to City Hall.

With this insight, Foster raises a troubling paradox: the role crisis plays in bringing to light the causes of the crisis.

Buena Vista, Virginia in Default

Buena Vista, Virginia, a small city near the Blue Ridge Mountains,is in default. The Wall Street Journal reports they are only the latest municipality to find themselves drowning in debt. Central Falls, Rhode Island can’t pay its debts and has handed its finances over to a receiver. Harrisburg, Pennsylvania’s incinerator project has pushed the municipality to the brink of bankruptcy.

These cities all share something in common. They raised too much debt and are now collecting too little in revenues. What is even more telling is what municipalities have been getting into debt for. In the case of Buena Vista, the city borrowied $9.2 billion million to refinance a municipal golf course. As collateral they pledged City Hall and the police station.

New Jersey to Cut the Fee to Copy Government Records

Last summer I had the experience of learning how cost-prohibitive it is to obtain local budget records for Woodbridge, New Jersey.

Only the current year budget is online. Previous year budgets were not available electronically. So I went to City Hall expecting they would be available to the public. Instead, I was asked to file an Open Public Records Act (OPRA) request with no guarantee the request would be fulfilled.

The costs were jaw-dropping. The first 10 pages cost 75 cents. Pages 11-20 dropped to 50 cents a page. And for each page thereafter the cost was 25 cents.

For 10 years of municipal budgets I would be charged roughly $242.50.

Undeterred, I went across the street to the Woodbridge Public Library. The librarians were incredibly helpful. They carted forty years of  budgets to my table. And, told me if I called ahead they would have them ready should I want to do future  research.

I spent about an hour copying at fifteen cents a page. Turns out, I only needed five pages from each document. (Something I could not have specified through an OPRA. In order to know what pages I needed I had to look at the documents first.)

I spent $30 for 40 years of specific budget data.

A New Jersey court has ruled that the state should reduce copying fees at state agencies. It seems my complaint is shared by good government groups and many New Jersey residents.

While reducing copying fees grants greater accessibility to public records, why not go a step further and put more online? Is it that costly for New Jersey’s local governments to keep a record of budget data on their websites? In the time it took to photocopy 40 years of budgets the pages could have been scanned into a computer.

Granted my fiscal history of Woodbridge is incomplete. I could not find the school district’s budgets at the library. But it is a start which you can check out at Sunshine Review.

Record-breaking Property Tax Appeals in New Jersey

New Jersey residents are taking their property tax bills to City Hall. In Essex County, property tax appeals doubled to 6,487 and in Ocean County appeals have tripled to 14,129. “I’ve been in the industry 35 years, and it’s a record,” claims Ocean County’s tax administrator.

According to The Star Ledger, it’s so worrisome, the NJ League of Municipalities will be taking it up at their meeting in Atlantic City this month in a session entitled, “Strategies for Defending the Tax Base Without Wiping Our Your Budget.”

In appeals the town must defend its property assessments with the burden of proof placed on the homeowner. When residents win their case, it means less revenue for the town. One thousand successful appeals in Montclair mean a $1 million hole the budget.

While tax rates have increased in many communities, reassessments also drive swings in property tax burdens. Trenton requires a reassessment every five years – though this isn’t always enforced. After 42 years, Newark underwent a property tax reassessment in 2003. In the 1970s, members of Newark’s City Council including former Mayor Sharpe James were arrested for refusing to institute a reevaluation. While reassessments are never popular, the longer municipalities go without a reassessment the bigger the sticker shock.

What’s driving the record number of appeals across the state is a combination of factors. Increasing rates, reassessments, and bad economy cutting into people’s ability to pay. In some cases, a reassessment is good news for the taxpayer. At the high end of the housing market, values have come down, leaving some with a lower bill.  In Livingston, N.J.  the average homeowner has seen a property bill reduction. But this didn’t make one Florida-bound resident happy, “Overcharged for the first 8 years I lived here.

Criminalizing Prostitution in Rhode Island

Rhode Island was the only state where prostitution was legal indoors and on private property, but Governor Carcieri signed legislation Tuesday that made the act a misdemeanor crime.

The Associated Press reports:

State lawmakers inadvertently opened the loophole in 1980 when they passed legislation trying to crack down on prostitutes and their customers creating havoc in the West End of Providence. They adopted a law targeting those who sold sex in public, but it was silent on indoor prostitution. Judges would later rule the change had the effect of legalizing paid sex in private.

That legal gap allowed dozens of suspected brothels to operate in the state’s cities and suburbs, including many thinly disguised as Asian spas advertising services such as body rubs and table showers in a weekly newspaper. Until recently, police had struggled to prosecute those involved in the trade.

In 2003, a state judge dismissed charges against prostitutes working just blocks from City Hall. Their lawyer admitted the women offered sex for cash, but he said it didn’t matter because indoor prostitution was legal.

Now, parts of Nevada are now the only counties in the United States where prostitution is legal. In an ABC News report, psychologist Scott Hampton said:

Prostitution, whether it’s high-end or any other form, is really just an expression of men’s beliefs that women are disposable sexual objects or men’s property.

Though public policy in the United States has come down strongly against the world’s oldest profession, Steven Levitt and Stephen Dubner write in their new book SuperFreakonomics that some prostitutes are happy with their career choice and make high incomes.

In his book Sex for Sale, Ronald John Weitzer writes that the majority of Americans are not in favor of liberalizing the nation’s prostitution laws, which are determined at the state and local levels. However, some academics suggest that legalization could make the trade safer, particularly in countries that have the highest HIV/AIDS rates.  Furthermore, legalization would end the need for police to spend their resources on preventing prostitution.

New Orleans Blight Update

The Greater New Orleans Community Data Center released a new data brief comparing blight in New Orleans to that of other cities around the country:

Nearly 66,000 residential addresses across New Orleans are unoccupied. A relatively small portion of these (7,000) are “vacant” according to the post office, indicating that they are likely habitable residences that have not been purchased or rented. Post office data suggests that the remainder – approximately 59,000 residential addresses – are blighted or represent empty lots. With less than 12,000 permits issued by City Hall for demolitions, the high number of abandoned or blighted residential buildings, can suppress home values and burden the city’s overall redevelopment efforts.

They include this graphic comparing New Orleans with other major cities:


Eileen Norcross has argued that to fight blight, it’s important that property in the New Orleans area being held by the city and state be moved into private hands as quickly as possible.

In other New Orleans land use news, recovery czar Ed Blakely has announced he’s quitting his job and moving back to Australia; Stephanie Grace assesses his tenure.

The Stimulus Package is Coming to Town – But Where?

Recovery.gov, hosted by the Office of Management and Budget, is supposed to let Americans see how stimulus dollars are being spent. But it turns out the most comprehensive, clear glimpse of how funds are likely to be spent is still the U.S. Conference of Mayor’s Wish List, which I and some colleagues put into a searchable format at StimulusWatch.org.

The USCM decided back in November that by publishing its list, it could show Congress how many worthy local projects could be funded with federal dollars. The list is a great resource: it breaks down federal spending in terms of actual projects, instead of budget accounts.

But this may be the last bit of meaningful detail we see for the forseeable future.

The stimulus legislation only requires that States and immediate beneficiaries report how funds are spent. Spending data isn’t likely to be deep, or detailed. We do not yet know if we will we get project level information (who got the contract?, what did they build?, how many people did they hire?) or in what format it will come.

Last week my colleague Jerry Brito and I testified at separate hearings in Congress on how the Administration should provide data to the public to enable them to monitor the stimulus. My testimony is here; Jerry’s is here.

Unfortunately we learned that the data aren’t going to be on Recovery.gov for a year, and even then they may not be useful: The act doesn’t require data be put in structured format.

The stimulus package is terribly significant for the future fiscal health of local governments. Federal money comes with strings. It locks into place federal programs, leaving a fiscal imprint; it also creates a future demand for spending that the locality might not be able to support. It weakens the the control of local government, and stimulates the growth of the public sector.

That makes paying attention to City Hall all the more important. How is your city spending its stimulus money?