Guest column submitted by Citrus Heights resident David Warren–
Last month, the City Council approved a contract to obtain a $12 million line of credit, i.e., a loan, secured by the Citrus Heights Community Center if the city defaults. For years, the City Council’s mantra was the city has no debt and pays cash as you go for all purchases and operating expense, knowing from the date of incorporation the city’s financial reserves would likely be so depleted that the city would require a loan to maintain operations.
Now that the line of credit has been secured, how that money is spent is an important municipal issue for which every community member should be contacting the councilmembers.
As a condition of incorporation, the first 25 years of property taxes were assigned to Sacramento County as part of a “revenue neutrality” agreement. The city’s incorporation advocates projected that the city’s financial reserves would be exhausted on a date prior to the 26th year.
Notwithstanding that knowledge, the City Council — over the objection of numerous residents — paid cash for the new city hall, knowing that same money could have been spent to avoid the projected deficit. Had the city not (1) purchased, or (2), if the councilmembers insisting on the purchase, financed the purchase then at lower interest rates, instead of paying cash for the new city hall, there would be no need for this current loan.
That poor planning has allowed the train to leave the station, creating the even greater problem of using money which will be received from future property tax payments to be used to retire the new debt.
The presentation to the City Council last month inferred that the borrowed money will be used for both municipal improvements, a good idea, and for operating expenses, a very bad idea.
Proposed uses of loan proceeds included making repairs, matching funds for road improvements, acquiring a former school site at Sylvan Corners to have more control over future development, and meeting the municipal operations expense shortages. All of these are worthwhile activities, but all are poor choices for two important reasons: (1) the assumption that future property tax revenues will be sufficient to pay the debt, and, (2) loans should be used solely for capitol improvements, not for expenses.
Although it is important that the city purchase the former school site, any loan to make that purchase should be secured solely by the parcel itself, protecting the Community Center from a default due to changing economic conditions.
Two other proposed uses include street repair matching funds, a good use because the repairs create a reduced street repair liability to the city, and operation expenses, a bad idea, because there is no matching increase of municipal assets or reduction in liability.
Current economic forecasts include a downturn in the third and fourth quarter next year extending into 2020. If the forecasts bear out, the only way to pay the debt will be to reduce municipal staff, i.e., public safety staff, a catastrophic mistake during a time of economic uncertainty because it brings with it increased crime.
A municipal loan should be for only two purposes: either to acquire capital assets or to meet an unforeseen emergency. Although there is an emergency created by the unexpected change in the law providing where the homeless may sleep, it is no excuse for waiting until the very last minute which requires a loan instead of letting the voters decide in November if it would be better to pay as you go, i.e., a tax increase. It is regrettable that for the past 10 years since the end of the great recession, the councilmembers did not heed the lesson of Genesis 41.
If the councilmembers are the conservatives they describe themselves to be, instead of encumbering future revenue and residents, the councilmembers should put forward a tax increase for residents to match the projected operating deficit. Future residents should not be called upon to pay current residents’ municipal expenses. The city should not live on a credit card to be paid by future residents.
As the loan is a line of credit, it allows for incremental increases in municipal debt. Before a single dollar of loan proceeds is disbursed, each of us should demand a public hearing to allow each of us to voice our opinion concerning the wisdom of any disbursements. The councilmembers have a responsibility to not play “kick the can down the road” so that future residents pay for current operating expenses.
David Warren is a Citrus Heights resident and legislative advocate at the State Capitol with Taxpayers for Public Safety. He can be reached at David@forpublicsafety.com.
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