Why Is Anaheim Borrowing Money to Fix Its Streets?

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