Grand Jury Provides More Fodder for Anaheim Battle Over Convention Center Financing

Anaheim Mayor Tom Tait has refused to sign a rebuttal to an Orange County grand jury report critical of a scheme the city used to set up a funding stream for a $180-million convention center expansion.

The report, issued in June, takes aim at a joint powers authority (JPA) the city set up for the convention center expansion that is now $1.2 billion in debt. Specifically, the grand jurors were critical of the JPA's structure, which they said is similar to the JPA used by the infamous city of Bell officials to pay themselves exorbitant salaries and benefits.

JPAs like Anaheim’s “have the potential to use this organizational structure as a shell company to avoid other legal constraints on the controlling entity and to obfuscate taxpayer responsibility,” the grand jury found.

Earlier this month, the city crafted a strong response to the grand jury's findings, saying, among other things, that the $1.2 billion in debt isn’t excessive because the grand jury failed to account for annual revenue that will be available to pay down the debt over the long run, essentially making the debt “revenue/expense neutral.”

It went on to say that dissolving the JPA, which the grand jury recommends, would be “impractical, uneconomic, and, given the long-term nature of the financed assets, unfair to the city’s current residents, businesses and taxpayers.”

Tait, however, didn’t find the city’s arguments convincing. So he refused to sign the city’s response, which was approved in a 3-2 council vote, with Tait and Councilman James Vanderbilt dissenting. Council members Kris Murray, Lucille Kring and Jordan Brandman voted for it.

Grand jury responses from city councils in Anaheim and elsewhere are typically signed by the mayor. However, in this case, the signature block was reserved for the city manager and will likely be signed by the finance director, Tait said.

At the heart of the dispute is the way in which JPA's are formed. Essentially, two or more governing agencies can partner to create a JPA, which exists, at least in legal terms, as a completely separate and independent public agency.

One example of a JPA is the Orange County Fire Authority. The regional firefighting agency exists because of a partnership between the county and 23 cities, providing fire and paramedic services within the jurisdictions of its member agencies.

The grand jury had no qualms with these kinds of JPAs, which it labeled “horizontal.” They provide “real service” to the community and are accountable to their member agencies, according to the grand jury.

But the grand jury had a different take on what it called “vertical” JPAs. In theory, they’re comprised of two or more different public agencies. But in reality, a vertical JPA’s member agencies are controlled by a single governing body.

According to the grand jury, the city of Bell padded the salaries of city council and administrators by issuing debt through a vertical JPA. This allowed them to circumvent state requirements that the issuance of long-term debt has to go before voters.

In Anaheim’s case, the city circumvented a city charter requirement when it wanted to spend $180 million to expand its convention center by using a JPA called the Anaheim Public Financing Authority. The JPA is comprised of the city and the “successor agency” to its redevelopment agency.

The grand jury found that vertical JPAs are essentially shell companies with “the potential to cloak funds and accountability of those funds.” Also, the “opaque, layered structure” of vertical JPAs makes them difficult to hold accountable.

A group of Anaheim activists -- called the Coalition of Anaheim Taxpayers for Economic Responsibility (CATER) – alleged much of what the grand jury found in a lawsuit filed in 2014.

However, a superior court judge threw out the suit, ruling that city attorneys were correct in finding that state law allowed for creation of a new public agency (JPA) independent of legal restrictions governing its member agencies. A CATER appeal was also denied.

Tait has nonetheless continued to speak out against the financing plans. At this month's meeting he pointed out that the city essentially partnered with itself when it issued $200 million in new debt to pay for the convention center.

“So you have five people here forming a partnership I guess with the five people here to form an entity to then borrow the money, a complete end around the intent I believe of our charter and state law,” Tait said. “The grand jury says we shouldn’t do it. And I believe we shouldn’t do it.”

Murray pointed out that the Financing Authority also issued debt to pay for basic city infrastructure, including water, electric and sewer utilities. To “accelerate payments” to pay down the debts faster might result in higher interest rates than if the city had to wait for an election to issue debt, according to Finance Director Debbie Moreno in response to Murray’s questions.

Kring said following the grand jury’s response might impose “stumbling blocks” by making it more difficult to issue debt. She pointed out that the grand jury’s report was just advice and nothing more.

“The grand jury did not say that we couldn’t, they just said that we shouldn’t,” Kring said, and then quoted former Councilwoman Gail Eastman. “'If everything went to the vote of the people, why would we be here?'”

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