Why Is Anaheim Borrowing Money to Fix Its Streets?

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Anaheim is borrowing money to pay for street repairs while spending funds typically dedicated to that purpose on a controversial transit hub that has fallen drastically short of ridership projections.

The City Council last month approved $9.3 million for residential street projects using municipal bond proceeds, with city leaders saying the maintenance is necessary to catch up on road-work that was delayed because of the Great Recession’s impact on the city budget.

But it will be 30 years until the debt is paid off, by which time the streets will almost assuredly have had to have been paved again. Meanwhile, the total payments, with interest, will be double the original amount borrowed, according to a municipal finance expert who reviewed the deal.

“So to get $20 million today, you’re going to have spend $40 million over the next 30 years,” said Heywood Sanders, a University of Texas San Antonio public administration professor and critic of Anaheim’s convention center expansion. “In financial terms, it’s not optimal.”

Anaheim is facing a shortage of street repair money because in 2012 the city committed those funds to purchase land for the Anaheim Regional Intermodal Center (ARTIC), a transit depot that has been heavily criticized for its enormous scale and hefty construction price.

ARTIC, which features a 120 ft. translucent shell that lights up at night, has cost taxpayers over $180 million to build. But critics say the project was oversold, and point to train ridership numbers that in the center’s first month of operation were barely a quarter of what city leaders had projected.

City leaders decided to buy the land beneath ARTIC to resolve a dispute they had with the Transportation Authority, which was reluctant to lease the property to the city. City officials found the money for the land deal by dipping into a subset of Measure M2, the countywide half-cent sales tax that finances transportation improvements.

That revenue source, known in its current form as “fair share” funds, had typically been used for street repairs.

All of this was done despite promises from city officials that money from the general fund, which pays for core services like police and fire protection, would not be used on ARTIC’s capital costs, say Mayor Tom Tait and local activist Greg Diamond.

Yet, Tait and Diamond assert, the millions borrowed – which will be paid back from the general fund — wouldn’t be needed if the city hadn’t used street maintenance funds to buy land for ARTIC. Tait abstained from voting on the land sale agreement because of his firm’s work for the Transportation Authority.

They also say the bonds — which will also pay for the convention center expansion, a new fire station and library renovations — should have gone to a citywide vote. General fund obligation bonds require voter approval under the city charter, but city leaders circumvented that provision with a complicated financing scheme.

“The general fund is certainly indirectly paying for the purchase of ARTIC land,” said Tait, who unsuccessfully pushed council members to table the issue at the Feb. 24 council meeting. “Even though I’m sure the street repairs are needed, we should have gone to the people before we borrowed the money and obligated our children to pay for it.”

Other city officials take issue with this argument. They say they’re not backfilling street repair funds by going into debt because most of the funds to pay for residential street projects come from the gas tax, which is a separate grant from the fair share funds.

Measure M2 funds are usually reserved for arterial road projects, which can be financed with a mix of grant funds, they said.

“We don’t do that,” said Finance Director Debbie Moreno. “Typically the turn back [or fair share] money is used for the arterial roadways, where the money goes further.”

However, a breakdown of financing for residential street repairs since 2009 shows that in 2012 the city spent $3.6 million in fair share funds on residential street projects. That figure represents most of the city’s $4.3 million fair share allocation for the year, according to the city’s figures.

City spokeswoman Ruth Ruiz said a “large residential paving project” initiated in fiscal year 2012-13 was the reason for the spike.

“Using the bond money now is an investment and opportunity to improve streets in our residential neighborhoods,” Ruiz said.  “Investments in residential street repairs have a long life and studies show making improvements before complete deterioration of the pavement is the most cost effective method of pavement management. In the long run these improvements will save time and money.”

But according to Jay Miller, estimator for the Pennsylvania-based paving company B.R. Kreider & Son, Inc., a major residential street paving lasts between 20 and 25 years. So the city will very likely need to repave the same streets again before the bonds for the current repairs are paid off.

Diamond — also general counsel for the Coalition of Anaheim Taxpayers for Economic Responsibility (CATER), which unsuccessfully sued Anaheim in an attempt to force the bonds to a citywide vote – says there is no getting around the fact that the city is using street repair funds to pay for ARTIC.

“It wouldn’t be as irritating if they would just own up to it,” Diamond said. “But it’s not just that they want to pick our pockets, its that after they do so, they want to look us in the eye and get us to agree that no they never picked our pockets at all… I can’t tell whether they’re brazen or delusional.”

Please contact Adam Elmahrek directly at aelmahrek@voiceofoc.org and follow him on Twitter: @adamelmahrek

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  • 6eaie2

    If Measure M’s 43% of taxpayer revenue were not allocated to freeways and instead were redirected to public transit, then ARTIC would not have become the burden that it has. Rather than focusing on improving OC transportation efficiency, OC officials are widening freeways (designating some lanes as toll lanes) while we’ve slashed Metrolink trains from the schedule. No wonder ARTIC is under performing. People can’t use trains that don’t exist or are inconveniently scheduled.

  • Cynthia Ward

    Steve that still does not explain why Anaheim is using borrowed funds through bonds from an unrelated project, absent voter input, for a fairly expendable project. Anaheim is supposed to have a pay as you go plan, but we stopped planning for roads, curbs, sidewalks, etc a long time ago, because we keep siphoning off “future revenues” to bond issues for special interest projects which benefit only ONE segment of the population-coincidentally the segment of the population that pays for campaigns.

  • Steve W.

    Question: there must be quite a few paving companies in SoCal, and hundreds in the US. Why did Adam Elmahrek go to a company 2,600 miles away on the other side of the country for an estimate of how long street paving here lasts? Why BR Kreider & Son. Inc of Manheim, PA? Their experience is in Pennsylvania, where roads take a harder beating from a climate that’s much harsher than SoCal’s. It stands to reason paving doesn’t last as long in PA. Why not ask a local paving company? I did some online research: according to the website of an Australian city with a mild climate similar to ours, overall pavement life is 39 years, quite a bit longer than 20-25 years.

    • Philmore

      Unsure if your post is either sarcasm or bad research, they are hard to tell apart. In the age when Google has replaced the telegraph, is the physical source of information even an issue? When you attempt to refute it with even MORE distantly (2.5 X) sourced data(?), conveniently devoid of specifics for confrmation, you might pause to reflect that climate is not the sole relevant factor , there could involve other location dissimilaritiues including common vehicle type, traffic volume, surface sealing/finish, subsurface geology, prevalence of earthquakes, and in Anaheim’s case, the political tendency to tear up most major arteries about every decade or less for utility, drainage, expansion, or superfluous cosmetic additions, making THAT their economic life, regardless of supposed statistics on physical endurance. Did the alledged web source of your anonymous Australian City also offer on-demand prinout of civil Engineering Degrees?

      • David Zenger

        Phil, don’t get suckered by this guy into a debate about the longevity of AC paving. That’s just a cheap diversion. The real issue is why the City is FINANCING it. Every bond dollar spent costs twice as much via interest payments. I have never heard of anybody selling bonds to spread asphalt in streets. That sure smacks of big-time desperation. That’s what the Gas Tax and Measure M turnbacks are supposed to be for. Too bad for Anaheim taxpayers: the Giveaway Council was spending their share on Pringle’s Folly – the empty ARTIC bus barn.

      • Steve W.

        When did facts or being accurate stop being important? Adam used that 20-25 year estimate from the Pennsylvania paving company to dispute the City of Anaheim’s assertion that these improvements save time and money in in the long run. Why is it out-of-bounds to question the reporter’s arguments, or whether it even makes sense to seek out a PA contractor rather than a company that actually paves roads in OC or SoCal?

        Here’s the website page for the city of Orange in Australia:

        http://www.orange.nsw.gov.au/site/index.cfm?display=329376

  • Cynthia Ward

    Well why not? The money was lumped in with a Convention Center that will be obsolete long before the bonds are paid for. Heck we just refinanced (kicked the can further down the road) the LAST Convention Center expansion that is already out of date. These people are the government equivalent of those who sucked the equity out of their no-money-down homes and went to Europe for vacation. It gets worse…way worse. Stay tuned.

  • David Zenger

    The facts are clear. Blow away the official fog-spin and it’s crystal clear.

    Let’s recap: the Kleptocracy is financing maintenance work on asphalt streets. Just like they do in Greece, I’m sure. Meanwhile the turnback funds promised in the M2 renewal are being used to pay that 5 million a year to keep the glass bus barn all sparkly clean.