$100 million handout to ASU by Mesa Mayor on middle class is just wrong

There’s a ton of misinformation going around regarding the new downtown ASU project that I wanted to take the time to address. Everyone is entitled to their opinion on this issue but not to their own facts. The issues I will address below are as follows:

Did the taxpayers turn down ASU building in 2016?

Is this ASU building free as some would have you believe?

Will paying for this ASU building cause my water bills to increase?

Against my principles.

One of the core problems with this ASU campus is how it is funded. The budgeted amount for this project is $100 million dollars. These monies are currently budgeted to come from our utilities. The utilities are also known as the enterprise fund it is essentially a bank account that is capitalized from the water, wastewater,  solid waste(trash cans), and gas bills. My passion is fueled by protecting the middle and lower class from being unfairly taxed. Energy inflation costs are slowly eating away at the discretionary income of our middle class and worse on the poor; it takes the income they need to survive. It is true that we have always used the utilities to fund the city’s operations. However, if you look at this chart below you can see that the water rates are consuming more and more of the income of our residents as a percentage of median income.  This metric shows that we are on a course of unsustainability. I am absolutely sure this is being felt in the bank accounts of our citizens. 

A couple of questions I believe people should ask themselves, “should the city be speculating with money coming from my water and utility bills?” and “is it fair that my water and utility bills are priced higher because of unassociated costs to manage these enterprises?”

If we maintain the current trajectory the picture is not a pretty one. Do you believe our rates are just and reasonable?

Wasn’t the ASU campus idea organic from ImagineMesa.com campaign?

No, creatively Mayor Giles and downtown cohorts tried to pretend that this idea organically sprouted through the “Imagine Mesa” campaign and that we could “bring an ASU campus to Downtown Mesa – without a tax increase in Mesa”, reference – https://neighborland.com/ideas/mesa-az-to-bring-an-asu-campus-to

However, this idea was not organic or unique at all. Sean Huntington the author of this post was also the same person who did the original video when “Question 1” was on the ballot in 2016 and failed. This was merely a ploy to make people think this was a community inspired idea to further the Mayor’s agenda. Further this idea had 441 approvals (a metric to determine popularity). Do their voices matter more than the 81,933 voters to who said no to “Question 1” in 2016? http://www.mesaaz.gov/home/showdocument?id=21081

I keep hearing conflicting numbers about ASU. How much will this building cost?

Below you can see that staff is projecting that this building will cost $100 million dollars. There is a $6 million dollar placeholder for ASU(highlighted). This will be paid for using a 20-year bond which is assumed at 5% per staff estimates. 

Reference – http://mesa.legistar.com/LegislationDetail.aspx?ID=3486494&GUID=CD64B6C7-4E10-47A0-ACAB-97B7EA76F903

It is important to note that it is dishonest to talk about the construction costs of the building at $75 million dollars. Do we have cash to pay for the $75 million? No, we don’t. The way we finance this is through an excise sales tax bond. This is a 20 year bond in which staff uses 5% as an estimate to calculate costs. This is how $75 million in construction costs turns into $100 million to our resident’s water bills. For reference an amortization schedule can be found at the end of this article.

Why is there so much confusion on the price?

The people have been misinformed and lied to constantly. As a councilmember, I personally was mocked by the city manager citing, “fake news”. The video below was posted by a Facebook group pointing out the discrepancies in the costs. I personally find these demeaning comments from the city manager unnecessary and appalling. https://www.facebook.com/752993211756142/videos/762107290844734/

I keep hearing even though this building costs $100 million it won’t impact my water bill, is this true?

Every dollar added to the budget eventually has an impact on utility rates. Using common sense if you spend $100 million dollars out of the utilities the money has to come from somewhere to pay for this. Here is our budget directors response to the yearly cost (multiply by 20 for total). You can see here the bulk of the costs are being shifted to our water customers. If you believe that this building will not impact your utility rates, caveat emptor, next they will be selling us ocean front property in Mesa.

Per state statute, our rates must be “just and reasonable”. One has at what percentage of the median income do water bills become unjust and unreasonable?

I thought Mesa joined the Federal Reserve and could just mint money so ASU wouldn’t increase sales tax?

The lie that is being propagated is ASU will not affect utility rate increases. The first important thing to note is that staff only projects and budgets for 5 years. So, technically yes this does not affect rates for the next 5 years, arguably. However, this sleight of hand forgets to mention that it draws down our reserves (savings) until they are projected to be depleted to 8% in year 5 of the budget. Further, one can deduct that this is a 20-year bond and only 25% of the costs are being budgeted for (5 years divided by 20 years total is 25%). This means $30 million for the first 5 years and $90 million for the remaining 15 years. We can conclude that someone has to pay for this other $90 million in years 6-20. It will either come in the form of a sales tax increase or more water bill rate hikes after year 5, this is not debatable. In this staff scenario below you can see the 5-year projection of our utility rates. Notice first that our budget is not balanced (net sources and uses line) this means we’re slowly depleting our savings year after year. We eventually draw down to 8% in fiscal year 23/24. We are required by policy to maintain 8% reserves (savings). This means in year 6 we’re in trouble. As highlighted we just depleted all of our savings from 25.2% to 8 %.

Isn’t ASU a state public university that we should just help out?

ASU is ran like an enterprise. The President, Michael Crow, is the highest paid public university President in the country according to Forbes. Reference – https://www.forbes.com/sites/laurensonnenberg/2017/07/17/the-top-paid-public-university-presidents/#6f14d534114c

ASU sent three lobbyists to convince us this deal was good for Mesa. Rick Neimark, Angela Creedon, and Matt Salmon. Respectively they make $229,000, $180,000, and $285,000 a year. How does this stack up against your salary? When there is that much money involved you can make any project look profitable. One has to dig into the details to find the fine print. Reference, http://www.statepress.com/article/2017/04/spinvestigative-salary-database

Below is ASU’s net position (an overall indicator of financial health) vs. the City of Mesa’s. You can clearly see they can afford to pay for this building more than the citizens of Mesa can. These charts below show that as Mesa’s net worth is declining year after year while ASU is doing just fine.What about all this additional promised revenue?

Below is a dirt field known as “site 17”. Proponents will have you believe future assumed revenues from projects like this are going to pay for ASU. To make these connections is purely speculative at best. Furthermore, all the projections for increased utility revenue show the revenue as if it is direct profit. It fails to account for any of the overhead or cost of goods sold that any person with minor knowledge in accounting or business knows is necessary to determine true profit to the city.

But isn’t Mesa’s water cheap now?

Reference – https://www.tempe.gov/city-hall/city-manager-s-office/budget/average-residential-household-cost-comparison 

The voters already turned this down, to argue the contrary is being dishonest. 

There were only two items under “Question 1” from 2016. Public safety and ASU. The reason these were coupled together is the powers that be understood the voters would not approve ASU. Given that public safety sales taxes always pass the two were put under one ballot measure. This ballot measure still failed.

Reference – http://www.mesaaz.gov/home/showdocument?id=21081

Is $75 million really a lot of money?

If you were to take $75 million and assume the S&P index as a benchmark for performance an investment $75 million would be worth $428,059,433,000 dollars, yes that’s billion. With the proposed contract for ASU paying the lease we’ll generate a mere $10 million dollars. This pales in comparison.

Why do you hate ASU?

I do not hate ASU. I would welcome them with open arms if they paid their own way to build a campus in downtown Mesa.

Why I do not support the Mesa Question 1 which is a massive 23% tax hike

My opponent supports raising Mesa sales tax by 23%.  This must be approved by voters and will be on the November ballot.  There are primarily three reasons why I do not support raising the Mesa sales tax from 1.75% to 2.15%.  When a government entity whether it be a city, county, state, or federal says they want to raise our current tax rate by 23% everyone should be paying attention.  The first reason is a lot simpler than the other two.  We should not be bundling public safety and education when asking voters to approve a 23% tax increase.  The second reason is multiple studies show we are in a higher education bubble.  When this bubble bursts one has to ask if the city of Mesa has built-in protections against the higher education occupants of these buildings that we’re all subsidizing with our tax dollars.  Xavier just did this same exact thing in downtown Gilbert and the taxpayers in Gilbert were left footing the bill – http://www.azcentral.com/story/news/local/gilbert/2016/05/31/gilberts-saint-xavier-university-close/85207474/.  The last reason I do not support this 23% tax increase a little more difficult and will take some time to explain.  In summary, we have a special interest group buying our city council candidates.  They buy them because they can then use them, once elected, to raise taxes rather than address the insolvent public safety pension system.  This needs to be fixed at a state level.  Instead of dealing with the reality that they bankrupt the system they would rather raise taxes and force our city into more debt through unfunded liabilities.  I believe we need to face this issue head-on.  But we cannot do this without first addressing that the leaders of the system have purchased our council candidates.

Why this is another taxpayer bailout

I will prefix this by stating that our public safety personnel are critical to a well-functioning city but the problem is their leadership has failed them. Unfortunately, the money is gone and nobody wants to talk about it. As we’ve come too familiar with in politics we just try to patch the issue.  The problem is with the PSPRS (Public Safety Personnel Retirement System) management. We as taxpayers in Mesa and every other municipality have already funded the retirement system through taxation. So much so that in the early 2000’s it was almost 130% funded. The pension was gambled away and all of the assets were put at risk. Now to date it is somewhere around 50.13% funded and that is assuming a 7.5% annualized return, which is also not realistic given central banks imposing negative interest rates around the world.  Some estimates have said this system is as much as $49 billion in the red.

We should ask, why are none of the politicians and leaders of PSPRS watching out for the beat cop and firefighter who risk their lives every day to protect us?  Our leadership has bankrupt their pension and if elected I would demand we investigate and file a lawsuit against those who have a fiduciary responsibility to watch out for our public safety workers.  These men and women risk their lives every day.  The last thing they should have to worry about is if their pension is going to be there when they’re done serving our community.

In the chart below you can see this system used to be fully funded in 2003.  Now in 2015, it’s 48% funded.  This is almost $6.6 billion dollars in the red.

Keep in mind this is assuming the system can return 7.5% a year.  Since 2002 it has barely cracked 5%

This loss of capital by the pension management has created a huge unfunded liability for the city, as the city is on the hook to refund these lost funds. This also becomes apparent when you look at the skyrocketing cost of hiring a new public safety official. This simple chart shows the drastic increase in cost for a public safety worker over the last 10 years. The majority of this is due to the pressure of the pension system in which the funds were gambled away by the leadership.  I should be clear, this is not the fault of the men and women who defend our city every day.  This is the result of reckless gambling by the leadership of this system.  The state legislature needs to fix this before it is too late.  

Did the state legislature make this problem worse?

As bad as this situation is the state legislature this year passed SB1428 which allows for new public safety workers to opt out of the pension system and into a 401K like program or tier.  This relinquishes their responsibility to support any public safety worker hired prior to 2012. If you are a public safety worker and were hired prior to 2012 you should be paying attention to what this does.  It does not take a highly intelligent person to figure out what happens to a pension system when it’s 49% funded and $6.5 billion in the red and new public safety workers can opt-out. The system gets top-heavy when older workers retire, then the system collapses. Here is an example of what happened when the city of we got rid of the elected official retirement pension or EORP. It took 2 years but you can clearly see as the older workers retired the unfunded liability jumped off the charts. Luckily the membership in this system is EORP pension is low. That is not the case with PSPRS which is billions of dollars.  Furthermore, it is important to note that the new hires under SB1428 are only responsible for their own tier of unfunded liabilities.  This almost guarantees the system will collapse and municipalities around the state of Arizona will be on the hook for billions of dollars of lost money.  Public safety workers hired prior to 2012 will be hurt the most.  As soon as this system begins to collapse the municipalities will all push back and will have no choice because of the strained budget.  We have got to demand that a full investigation is done to recover the funds that were gambled away.  Our public safety workers deserve better.  They should not be risking their lives every day only to find out their pension will not be there one day.

Should the special interest groups be able to buy city council candidates so they vote to raise our taxes?

To “fix” this issue the current leadership has decided they will buy the City Council and raise taxes by 23%.  This is typical of any politician.  If you can’t fix it let’s just keep taxing people until they can no longer afford to live.  If we do not demand accountability then what stops this reckless investing from bankrupting the system a second time?

This is apparent in the public safety “question 1” which is being proposed in November to raise sales tax 23% from 1.75% today to 2.15% if it passes(more info). What system is allowed to risk billions of dollars of assets and if it is all lost allows for taxpayers to keep replenishing it? There is no responsibility and accountability here and PSPRS might as well keep investing in the riskiest of assets.  If they do well they make a great return.  If they don’t the taxpayer simply pays for the losses.  This is why the public safety management fundraises and spends thousands of dollars buying city council members every election, this is an example of special interest groups on a local level buying candidates who support raising our taxes for their own special interests.  This is what is wrong with our government today.

$12,500 later from special interest groups…  

You can’t really buy City Council candidates… Can you?  

Why has nobody talked about this issue before?

WashingtonPost.com – Mesa, Arizona city threatening city council candidate with lawsuit for using Mesa logo

TechDirt.com – City Of Mesa Abusing Trademark Law To Punish City Council Candidate They Don’t Like

Reference:

Mesa FY15/16 Executive Budget Report

Goldwater Policy Report – Recognizing Pension System Insolvency a catalyst for lasting reform

SB1428 Provisions

Who’s watching out for our public safety workers?  Is the PSPRS pension bankrupting Mesa and other municipalities?

Why are none of the politicians and leaders of PSPRS watching out for the beat cop and firefighter who risk their lives every day to protect us?  Our leadership has bankrupt their pension and it’s time to investigate and file a lawsuit against those who have a fiduciary responsibility to watch out for our public safety workers.  These men and women risk their lives every day.  The last thing they should have to worry about is if their pension is going to be there when they’re done serving our community.

The most important issue facing Mesa as well as every other municipality in Arizona is the public safety pension system. I will prefix this by stating that our public safety personnel are critical to a well-functioning city but the problem is their leadership has failed them. Unfortunately, the money is gone and nobody wants to talk about it. As we’ve come too familiar with in politics we just try to patch the issue.  The problem is with the PSPRS (Public Safety Personnel Retirement System) management. We as taxpayers in Mesa and every other municipality have already funded the retirement system through taxation. So much so that in the early 2000’s it was almost 130% funded. The pension was horribly managed and all of the assets were risked. Now to date it is somewhere around 50.13% funded and that is assuming a 7.5% annualized return, which is also not realistic given central banks testing negative interest rates.

In this chart below you can see this system used to be fully funded in 2003.  Now in 2015 it’s 48% funded.  This is almost $6.6 billion dollars in the red.

Keep in mind this is assuming the system can return 7.5% a year.  Since 2002 it has barely cracked 5%

This loss of capital by the pension management has created a huge unfunded liability for the city, as the city is on the hook to refund these lost funds. This also becomes apparent when you look at the skyrocketing cost of hiring a new public safety official. This simple chart shows the drastic increase in cost for a public safety worker over the last 10 years. The majority of this is due to the pressure of the pension system in which the funds were gambled away by the leadership.  I should be clear, this is not the fault of the men and women who defend our city every day.  This is the result of reckless gambling by the leadership of this system.  The state legislature needs to fix this before it is too late.  

Did the state legislature make this problem worse?

As bad as this situation is the state legislature this year passed SB1428 which allows for new public safety workers to opt out of the pension system and into a 401K like program or tier.  This relinquishes their responsibility to support any public safety worker hired prior to 2012. If you are a public safety worker and were hired prior to 2012 you should be paying attention to what this does.  It does not take a highly intelligent person to figure out what happens to a pension system when it’s 49% funded and $6.5 billion in the red and new public safety workers can opt out. The system gets top heavy when older workers retire, then the system collapses. Here is an example of what happened when the city of Mesa got rid of the elected official retirement pension or EORP. It took 2 years but the you can clearly see as the older workers retired the unfunded liability jumped off the charts. Luckily the membership in this system is EORP pension is low. That is not the case with PSPRS which is billions of dollars.  Furthermore it is important to note that the new hires under SB1428 are only responsible for their own tier of unfunded liabilities.  This almost guarantees the system will collapse and municipalities around the state of Arizona will be on the hook for billions of dollars of lost money.  Public safety workers hired prior to 2012 will be hurt the most.  As soon as this system begins to collapse the municipalities will all push back and will have no choice because of the strained budget.  We have got to demand that a full investigation is done to recover the funds that were gambled away.  Our public safety workers deserve better.  They should not be risking their lives every day only to find out their pension will not be there one day.

Should the special interest groups be able to buy city council candidates so they vote to raise our taxes?

To “fix” this issue the current leadership has decided they will buy the City Council and raise taxes by 23%.  This is typical of any politician.  If you can’t fix it let’s just keep taxing people until they can no longer afford to live.  If we do not demand accountability then what stops this reckless investing from bankrupting the system a second time?

This is apparent in the public safety bond which is being proposed in November to raise sales tax 23% from 1.75% today to 2.15% if it passes(more info). What system is allowed to risk billions of dollars of assets and if it is all lost allows for tax payers to keep replenishing it? There is no responsibility and accountability here and PSPRS might as well keep investing in the riskiest of assets.  If they do well they make a great return.  If they don’t the tax payer simply pays for the losses.  This is why the public safety management fundraises and spends thousands of dollars buying city council members every election, this is an example of special interest groups on a local level buying candidates who support raising our taxes for their own special interests.  This is what is wrong with our government today.

$10,000 later…  

You can’t really buy City Council candidates… Can you?  

Why has nobody talked about this issue before?

WashingtonPost.com – Mesa, Arizona city threatening city council candidate with lawsuit for using Mesa logo

TechDirt.com – City Of Mesa Abusing Trademark Law To Punish City Council Candidate They Don’t Like

Reference:

Mesa FY15/16 Executive Budget Report

Goldwater Policy Report – Recognizing Pension System Insolvency a catalyst for lasting reform

SB1428 Provisions