THE FORTNIGHTLY CLUB
Founded 24 January 1895
January 1, 2008
Assembly Room, A. K. Smiley Public Library
ARE WE THERE YET?
By William E. Cunningham
A Bit of Prologue
I While casting about for a topic two recent events struck me. As some of you know my wife Beverley is now incapacitated with little likelihood of full recovery. Suddenly and without warning locked away are memories that can no longer be shared. Secondly, the current flap over city water rights in Mill Creek and who owns them have led to a search of documents which turn out to be sterile with a single sentence implying volumes left unsaid, the richness of the story forever lost to us.
While my perspective is no more valid than another=s (and there are some who would contend, less), I have been a close observer of local government for more than three decades and held local office for twenty six of those years. I=m also, as are many of you, a member of a fast disappearing generation marked by the Great Depression and service in WWII. I believe we share a unique perspective, colored by our individual experiences, that might fill in some blanks for those who follow.
Thus, one individual=s view and recollections of a snapshot in time that will most likely make for boring reading by anyone who might stumble upon it in future.
What follows is in no way a scholarly exercise but rather the musings of one admittedly biased,
far from youthful observer.
Frankly, I=m worried. Not for myself, my glass is nearly empty, but for those who follow. A bit envious, also, for missing out on the coming ride.
Are we there yet? A question of some timeliness as we face a convergence of economic and social forces that could, and some would argue must, reshape the way we move forward. At least one presidential candidate has tapped into a yearning by a great many for change, a slogan especially attractive to young people. Just what is meant by Achange@ and Ahope@ appears to be more rhetorical than substantive at this time. And whether the country is ready for a president like Jackson, who came out of the trans-Appalachian west and broke the back of eastern seaboard dominance and changed the monetary system with his elimination of the Second US Bank. Or Teddy Roosevelt=s challenge of his own party=s leaders and again transforming our economy with his Atrust busting@ ways. Or certainly the greatest of them all, like him or not, Franklin Roosevelt who changed nearly every dimension of our economic and social structure. Is this another of those dramatically transformative times?
While many of the swings of the economic pendulum over the years since WWII have dislocated one or another sectors of economic activity and were typically righted after a short period, today=s situation contains a number of truly troubling broad spectrum elements: Our nation=s current account deficit is massive and growing as a result of importing hundreds of billions in goods more than we export. Trillions of our national debt are held by foreign entities and governments. More than three trillion is estimated to have been lost in housing values over the last year or so. Major credit card companies are sounding warnings of a dramatic increase in payment delinquencies. Major banks and lenders, including many overseas, are being forced to write down hundreds of billions in bad paper.
We know the causes. Unfettered globalization fed a fleeing of goods manufacture to overseas cheap labor. A credit based, consumer economy fed the massive deficits, with the public encouraged to Ashop@ while hundreds of billions were being spent on unfunded wars. A real estate market driven by deliberately inflated appraisals; speculation; loans based on no more than the borrower=s unsubstantiated statement of income; loans bundled, Asecuritized@ and sold to investors, often with a AAA rating in spite of containing Asub-primes.@ And, of course, much was driven by pure greed, when, as always, there were those who gamed the system, most prominently in investment banking.
The result? An estimated two million households will face foreclosure over the next two years, according to the U S Conference of Mayors, a likelihood of as many as 1.4 million this year, alone. The press tells us that home prices in our two county area have fallen 13.3 percent and condos 34.1 percent as the real estate market has collapsed, with more losses predicted to come, motivating potential buyers to wait for the bottom.
Prices of goods and commodities are rising, especially energy, as the dollar erodes in value against major currencies, particularly the Euro. A stagnating economy forcing layoffs and mergers coupled with unparalleled credit debt, is squeezing consumer spending. And, particularly, the housing crisis is leaving millions with negative equity or none at all, drying up refinancing as a short term source of purchasing power. Pensions and employee benefits continue eroding, and in many cases disappearing, in the private sector, as American companies in the international marketplace move their activities to cheap labor markets. Lenders, made wary by their experience, are contracting credit sources, drying up not only much consumer credit but also that to business, making expansion and development difficult. Foreign creditors, particularly troubling foreign governments such as China, Singapore and the Emirates, are now turning their attention to and buying major fractions of some of our country=s major assets in banking, trade, real estate and manufacture, further eroding our standing on the world stage. As those dollars accumulating overseas move from US treasuries to the acquisition of our nation=s assets the dollar is weakened further, cheapening the price of our assets and accelerating the process. China=s government, alone, has currently planned $200 billion dedicated to purchases here.
In sum, any other country with our numbers and conditions would be considered economically sick and our government bankrupt by some measures.
There are those who argue not to worry, the world needs us, that others cannot let us slide into recession, as our overseas creditors, particularly China, must ensure that we not contract too much as their economies are too dependent on our consumption of their goods and our failure would be theirs, also. But China has a burgeoning domestic market and its trade with the other giant, India, and the rest of the world is growing exponentially.
Others contend that as prices of goods and oil inevitably fall as our contracting economy=s demand shrinks, that would, in effect, put millions in American consumers= pockets, softening the Alanding.@ But oil is a limited resource while consumption continues to grow. And it could be that the recent rapid rise in price is another speculative bubble. Nonetheless, perhaps not now, but inevitably, oil will have reached its Apeak@ (See Ty Schuiling=s paper)
Sitting out there are trillions we owe, and that debt is growing at a rate of more than $1 billion a day. Those holdings are worth far less to those overseas lenders today as the dollar has lost value against most other currencies, driving up the price of imports, especially oil. And, if the dollar continues its slide, even if world demand shrinks, America and its consumers could face even more inflationary pressure. How long those creditors are willing to underwrite our economy in the face of the dollar=s plummeting value is anyone=s guess, although there is some evidence that some are already shifting to funds denominated in Euros.
While the government pays lip service to a Astrong@ dollar, actual policies have driven down the value of our currency to stimulate exports in an attempt to slow the flow of dollars overseas to achieve some semblance of Abalance@ in trade. But that devaluation in an attempt to promote trade has the counter effect of transferring costs to consumers, as exemplified by the escalating cost of oil and other commodities. And the further effect on exporting countries, such as China, rather than seeing the value of those dollars they hold continue to shrink while held as treasuries, are turning to acquisition of our assets. Much as the Japanese did in the sixties, they are buying up America.
When the largest components of our exports are farm commodities and scrap (two out of three containers out of LA/Long Beach are filled with used paper, cardboard and scrap) we=ve become much like a colony of old, a source of raw materials in exchange for and dependent on the value- added goods of others. The exchange is sustained by credit in the near term. But in the not too distant future that imbalance must be reversed, or, inevitably, our artificially supported standard of living will collapse. Our continuing and growing dependence on imported oil compounds the problem.
Globalization, where capital and multinationals can maximize their mobility while labor is constrained geographically, will continue to exploit ever-cheaper labor markets. American labor can only hope that as each foreign labor cohort matures toward middle class that the playing field will eventually level. In the long term that may become true, but it also implies that equilibrium will be based upon the lowest common denominator. And when one considers this country=s grossly disproportionate consumption of the world=s goods and services, the obvious conclusion must be drawn that our future rebound will quite likely be one of much diminished consumption.
We=ve seen the crash of gilded ages in the past. Historically, each succeeding rebound was sustained by our unique advantages: abundant natural resources, a manufacturing base and, crucially, little external debt.
Today our manufacturing base has fled to cheap labor, our greatest exports, other than food stuffs are raw materials and we suffer from crushing external debt, ironically, not unlike the conditions we fought George III to free ourselves from.
Perhaps a forced way out- a traumatic change, but, hopefully, a cathartic one that might result in a more sustainable, a more socially responsible mindset, a coming to grips with limits - not another gilded age but a golden one. But that takes political will - with none to be seen.
A potential irony in that future is the possibility that our quality of life could improve. Wasteful throw away consumption of goods, often driven by impulse buying; ever-larger houses with space and amenities far beyond their occupants needs, wasteful of resources, especially energy; and transportation oblivious to its impact upon the environment, all could become a thing of the past.
But, first the catharsis.
If the housing and credit crises continue to accelerate, the government will likely be forced to underwrite our banking system, leaving them even more in control of our economic future. Whether by purchasing the bad assets or by direct treasury intervention we, and our tax dollars will be captive of a failed banking system.
In all, few today are even whispering depression, but there is no question that there exist concerns at the highest levels, when the Federal Reserve over-night and without warning, slashes rates by 75 basis points and lending rules of FHA, Fannie Mae and Freddie Mac are dramatically loosened. And when President Bush backs off a demand for permanent tax cuts and the Democrats ignore their newly adopted rule of Apay as you go@ as both sides scramble, for the first time cooperatively, to inject in the order of $150 billion into the breach.
But should investing in that borrowed Astimulus@ money meet resistance from our overseas lenders, the planned solution could end up making the situation worse as interest rates would be driven up as treasuries face higher costs of borrowing.
The solution? I don=t know if there is one, but I=m very dubious of the chosen attempt.
We=re told by the President that the economy is Aresilient,@ and that has certainly been true in the recent past. But in spite of the brave words, he is eagerly seeking an immediate $150 billion Astimulus package@ in an attempt to avoid a recession. The route apparently chosen is to issue Arefund@ checks which it is hoped will be spent, spurring the economy. But if the 2002 Astimulus@ is any guide, most will disappear into credit card and mortgage payments and a lion=s share into savings, as, of the $38 billion issued in the 2002 Astimulus,@ only $8.36 billion was spent. And, as to immediacy, in 2002 it took the government ten weeks to get all the money into the mail. While the government might be able to exceed the 2002 printing rate of $8 billion a week, the $150 billion will certainly stretch out for months, quite likely too late to have much effect. Will it work? Perhaps for a brief period in the short term, at best.
Keynesians would argue that classical Apump priming@ that served us so well in the past would do the trick, but the government is printing unfunded billions as it is to support two wars, and this proposed Astimulus@ only digs that hole deeper. Contrary to Keynesian theory which is predicated on saving in good times to then be pumped into the economy in down swings by massive investment in public works, this Astimulus@ proposed will be brief and those funds not used to retire credit card debt or saved will be spent on consumer goods from China, stimulating that economy, not ours.
In any event, the massive debt load, both public and private, is unsustainable, inevitably leading to a contraction that could be catastrophic unless government intervenes. Intervention or not, we will be constrained to live in a much more limited economy with flat or anemic GDP growth, perhaps for decades. As a worst case, we could be in for a contraction of GDP that would result in massive and long-term unemployment, increasing disparity of incomes, a self-feeding economic dislocation potentially ending in social unrest, as the country=s young, those hardest hit with unemployment, become impatient with their lot.
All compounded by the enormous costs of being the world=s policeman, continually mired in conflicts yet to end in positive results - from the decades old confrontation in Korea to the quagmire of Afghanistan today. In every instance our reach has exceeded our grasp, meanwhile draining our treasure needed for infrastructure and investment.
An irony. The million or so in military service do take from an over-full labor pool. No other country can match our numbers held out of the labor force by the military, incarceration and long-term welfare. Any reduction in any of these would further dislocate a fragile economy.
Many of us recall the massive Apump priming@ of the New Deal, when millions were put to work on bridges (e.g. Golden Gate), dams (e.g. Hoover, Grand Coolee), roads, buildings (our old city hall and the girls gym at Redlands High are prime examples). The huge investment in infrastructure and the wages paid to those who built it contributed greatly to bring to an end a crisis of staggering magnitude, the most desperate economic time in our history.
Facing another contraction after WWII, when returning veterans would have overwhelmed a shrinking labor market at the end of the war economy, the government=s adoption of the G I Bill had the economic effect, intended in part, of Aemploying@ millions of returning G Is in education (there were 4,600 in my bachelors class at USC in 1949), preventing, thereby, another huge dislocation as occurred after WWI . Also the injection of additional billions into the economy in subsidized veteran loans and unemployment benefits for returning GIs which produced the greatest housing boom of all time.
While it could well have been a truly noble gesture of gratitude toward those returning and I, among millions of others, benefitted greatly, those in government had an all too fresh memory of the Bonus March by WWI veterans, Hooverville, as well as the Depression and had pragmatic reason to avoid a repetition of those traumatic times.
The 50s and 60s saw the building of the Interstate Highway system begun in the Eisenhower years, which transformed transportation. The injection of those tens of billions into the economy in pure Keynesian fashion softened the last of the economic contraction of post WWII.
Today we are trillions of dollars behind in development and maintenance of our national infrastructure and money spent there, while slow to act, would be of enormous, long-term benefit. We stand alone among the major industrial nations, and, especially in contrast to the two developing giants, China and India, in the niggardly sums we are investing in our needs. While we squander billions on military conflicts and the means to support them, our competitors are investing in their futures.
Damping the small economic swings in the recent past has been so-called safety net spending by the federal and state governments: Legacies of the New Deal: Social Security, Medicare and Medicaid, jobless benefits, and welfare continue to Aprime@ the pump, as those funds are immediately fed into the economy. But there is little elasticity in that system for short term stimulus. Some additional short term cushioning could be achieved by the injection of additional funds into jobless benefits and food stamps as proposed by several members of the Senate. And although the portion of the Astimulus@ set aside for business investment could have long-term benefit, it=s questionable how many are willing to expand in this climate.
A prediction? I=ll dare a couple. Things will get worse before they get better. Immigration will grow as an issue as job competition intensifies. And a basic transformation in our consumer-driven economy could result: a reorientation of attitude toward spending, credit and saving by the younger generations to be much more in line with the conservative attitudes of those who were a product of the Great Depression. That would lead to a backing off of Ashop until you drop@spending as those new fiscal conservatives become ever more wary of the future. Effects? At the extreme a contraction of GDP, massive and long-term unemployment, increasing disparity of income - a self-feeding economic dislocation leading to social unrest. Should that occur, the ripple effect internationally, while unpredictable in extent, would lead to massive dislocations worldwide.
At the least, unless something is done to address the growing disparity of income and contractions in opportunity, mass movements are likely to result, especially among the young, that could have a disruptive impact on politics as usual, fragmenting the traditional parties.
And it is quite possible that the ABoomers@ could well be the last beneficiaries of the high water mark of our nation=s economic power and wealth, leaving those who follow with a truly challenging future of diminished opportunity.
While many Boomers have seen pensions cut or lost and job benefits eroded or lost, that dims in contrast to the projections for pensions, health care, Social Security and Medicare for future generations, as the Boomers consume a disproportionate share of the trust funds at the same time as fewer workers in good paying jobs are available to refill those funds= coffers, compounded by many of those Boomers continuing in employment to compensate for their losses, contracting the labor market further for the young.
In any event the massive debt load, both public and private is unsustainable, leading to a contraction that could be catastrophic unless government intervenes. Keynesians, I am one, would argue the one potential way out is massive government spending on infrastructure undergirding a new, re-focused economy. Unfortunately, our profligate ways have left all levels of government in fiscal crisis.
And, of course, our economy faces ever more intense competition from challengers best exemplified by China and India where capital has followed ever cheaper labor, transferring millions of jobs from manufacturing, to Aout-sourcing@ of everything from customer service, to X Ray reading, to transcription of police reports, etc, ad infinitum.
The new reality is that the historic balance between capital and labor in this country, which allowed labor to unionize and demand improved working conditions and economic benefits is gone, likely forever. Globalization has allowed, even encouraged, capital to migrate to the lowest costs, wherever they may be found, leaving American labor in an ever-eroding competitive position, most evident in the growing disparity between the Ahaves@ (capital) and the Ahave-nots@ (labor). Unless that ever-growing disparity is soon reversed opportunity for succeeding generations of today=s Amiddle class@ will be dim, indeed.
But it just isn=t on the national scene that the downturn will play out. I believe we face certain difficult choices in the near term that affect us at all levels.
Driven by our historic profligate exploitation of resources and compounded by an exploding population both here and worldwide the concept of limits, foreign to our culture, has come into play. Best exemplified by continuing shortages of food in some countries and now potentially reinforced by diminishing supplies of oil, all compounded by degradation of our atmosphere and oceans, we may well be facing a brief horizon in which to act.
Except for food, and that is being impacted by the scramble for Aself-sufficiency@ in energy by converting food stuffs to ethanol, we are now a nation of net consumers, Abuying@ from the rest of the world most of our transportation energy and manufactured goods.
Much of the world has little sympathy for our consuming ways. Even the countries of the EU and Japan consume just a fraction as much per capita, while maintaining a high quality of life.
No longer are we the world=s economic engine. Others are seeing to that.
And, we=re not alone. The EU=s economy, so much like our own, will suffer the same stagnation and difficulties.
In 1968 I went to India as a consultant in physics at Mysore University, sent by the NSF/AID. India, at that time, owed more in annual interest in payment for American wheat which had been sent after several failed monsoons, than its national budget. A rapidly developing India, today, holds hundreds of billions of our dollars. China in about the same length of time since the ACultural Revolution@ is even more of a challenge with an estimated $1.3 trillion! Those Amortgages,@ let alone those held by the Gulf countries, must be addressed, painfully, and the longer delayed the deeper the hole. We must change our ways, either by intelligent planning and design, or by imposition by outside forces, the tip of which we are likely seeing today.
I=m not optimistic that we are capable of making the effort. Not only are our collective efforts (government) failing us at the national level, but also at the state and local.
Governor Schwarzenegger, riding high and promising no new taxes just a year ago, but now facing a predicted $14.5 billion shortfall (which is probably an optimistic figure) has proposed a budget filled with severe cuts in education funding and many other services while adding Afees@ on licenses and a surcharge on home insurance. Whether any of his proposals will come to pass is yet to be seen, but all agree the downturn has left a huge hole in the state budget. Exacerbating the problem is the hidden burden of funding the ever-increasing state bond load, which has first call on revenues and which we continue to vote for as free money, as no additional taxes come with the debt. While it is true that much of that bond money often goes toward needed infrastructure, the trade off with spending available for services is negative, at least in the short term, and about half that money goes toward interest which has no impact on our problem. And if it flows to overseas our balance of payments situation worsens.
Not to be ignored, is the eight hundred pound gorilla of state finance: the huge, unfunded, contractual obligation to state employees, especially the prison guards, for retirement and health benefits, a problem, to his credit, that the Governor tackled in his first years in office but got his head handed to him and has said little about since.
For us, the most important immediate local impact of the Governor=s proposal will be on our schools and on the buying power of school employees as wages will likely lag inflation and layoffs become necessary. And since Redlands is home to many school employees from other districts that effect will be magnified as fewer dollars flow into the local economy.
And if, as those at the federal level are scrambling to avert, the inevitable recession starts and deepens, state revenues will be much shorter still, and the governor and we will be faced with ever more draconian choices.
Our state has massive unmet needs. Water; the Delta and its associated flood works; our transportation system are all in a near state of crisis. The high speed rail project. All would have far more long-term, beneficial effect than a few dollars spent in WalMart or the mall. If for no other reason, if even a fraction of the eight to ten billion we=re spending per month in Iraq could be brought home for such purposes, it would have an enormous benefit. Nothing could be more effective than diverting those federal dollars to the states for projects such as those.
Little mentioned but further depressing the regional economy out of proportion to the rest of the nation would be an acceleration of the apparent slowdown of cargo moving through the ports of L A and Long Beach reflecting the downturn, and directly affecting transportation, distribution and warehousing, with our own town being a growing presence in that arena.
Those containers leaving LA/LB are filled with raw materials: cardboard, paper, scrap steel, etc which should be feeding manufacture here. Instead, it=s coming back as finished goods most often bound for other regions, leaving us to subsidize the transit of a television or VCR, or whatever, to an Iowa farmer from a factory in China. Our gain? Congested and ever-deteriorating roads, poisonous air and an accelerating loss of the quality of life.
What of our local scene?
While Redlands will undoubtedly share the problems faced by the country and state, we do have some advantages. Our largest private employer, ESRI, is on the cutting edge of a new technology that has grown exponentially, has a world-wide presence and does much government work, especially for the military, which is not likely to contract soon. Privately, and locally held, it is reputed to have grown to a billion dollar enterprise in the last several years. Redlands is indeed fortunate that the owner has chosen to make his headquarters here.
And overlooked by many who argue that we must chase retail dollars as our salvation is the fact that ESRI, the University of Redlands, Loma Linda Medical Center, and to a much lesser extent even our citrus, setting aside their cultural and quality of life contributions, are especially valuable to our economy as they are generators of Anew@ money flowing in from quite literally all over the world.
Softening the impact of a local slow-down in the short term, also, is the fact that many public agency employees from other cities and the county government live here, and reductions in public sector spending always lag the economy. Additionally, our town is also home to many professionals and managers who, while possibly seeing some reduction in resources, are best prepared to ride out a storm.
In contrast, sales taxes, which cities will do most anything to gain are, at best, local money recycled locally, except that which flows to Bentonville and elsewhere. Plus, most retail is dependent on minimum wage employment where those workers= needs most often out-strip their and their employer=s contributions to the local economy.
Nonetheless, many homes here are in default or foreclosure, impacting the values of all. And if WalMart succeeds in its plans for a ASupercenter@ we=ll likely see one or more of our markets close, replacing well-paid union employment with minimum wage.
And, as I and others predicted from the beginning, Citrus Plaza, has begun to cannibalize downtown.
Recognized in 1998 as one of the four Amost livable@ communities in Southern California by the Southern California Association of Governments, Redlands is in danger of losing its quality of life on the holy grail of growth and tax dollars at any cost, at a price we will only recognize in hindsight, too late to reverse.
Our city government, itself, is another matter. Although revenues have grown at a pace well above the average of California cities and effectively doubled in the last decade, Redlands, today, is in its worst financial condition in decades, and any economic contraction must force difficult decisions. Decisions that are long overdue..
The council=s actions over the last six years have brought the city to a critical point. Staving off insolvency by consuming reserves, taking millions of dollars from the utilities in fictitious, meritless charges, Aselling@ Hillside to water and the airport to solid waste and robbing the water fund of $5.9 million of the money Lockheed paid the city to compensate for the perchlorate problem, the city, rather than tightening its belt, accelerated its spending, doubling in seven years..
As can be seen from the following, over the last several years, budgeted expenditures far out-paced revenues, except 06-07 when severe cuts were made in police and public works.
The first deficit budget followed the firing of City Manager Luebbers in 2001.
Year Revenues Appropriations
1999-00 $25,229,644 $25,225,375
2000-01 30,660,676 29,766,327
2001-02 31,941,072 32,545,745
2002-03 33,440,336 35,383,682
2003-04 32,726,467 37,109,236
2004-05 36,344,190 40,863,022
2005-06 42,873,770 47,203,662
2006-07 50,902,335 49,046,240
Some contend that the times required that level of expenditure, but the following comparison with our neighbors does not bear that out. These budget numbers are for the 2005- 2006 fiscal year at the height of the real estate boom.
Budget Population Spending/Person
Fontana $74,684,600 164,731 $453.37
Grand Terrace 5,612,750 12,392 452.93
Highland 14,407,610 50,800 283.61
Loma Linda 12,504,100 20,952 596.80
Rancho 77,224,760 155,000 498.22
Redlands 51,369,853 70,324 727.16
Rialto 44,829,160 97,000 567.46
Riverside 188,785,983 283,247 666.51
San Bernardino 126,200,300 198,322 636.30
Upland 35,060,027 73,000 480.27
Yucaipa 14,047,400 49,338 284.72
Average of ten cities per capita spending = $492.02 Median = $490
Redlands spends $727,16 - $ 235 more/person (148%) than the average
If we spent at the rate of the next highest, Riverside, we would save $4,255,305
As can readily be seen, Redlands falls well outside the region=s norm. If Redlands had been spending at the average or median, our city budget in 05-06 would have been $34,600,814, with a surplus of revenues over expenditures of $16,769,039.
But if we turn to what most citizens believe to be the most important function of government, public safety, Redlands spends even proportionately more.
According to federal statistics Redlands ranks among the valley=s safest cities, surpassed only by three. But at the same time our costs far exceed all others.
The following is informative as to how we compared in safety services spending.
City Population Police Cost/Resident Fire C/R
Fontana 164,731 $27,892,800 169.32 $22,000,000 133.55
Grand Terrace 12,392 1,696,069 136.80 650,000 52.54
Highland 50,800 5,117,200 100.73 2,548,875 50.17
Rancho 155,000 20,112,094 129.76 21,449,510 138.38
Redlands 70,324 21,129,056 300.45 11,685,841 166.17
Rialto 97,000 18,406,397 189.76 12,512,572 129.00
Riverside 283,247 76,651,662 270.62 36,736,607 129.70
San Bernardino 198,322 51,582,802 260.10 28,812,300 145.28
Upland 73,000 12,820,400 175.67 5,767,780 79.01
Yucaipa 49,338 4,686,128 94.88 2,487,239 50.36
Police average -ten comparison cities = $162.83 Redlands = $300.45
Fire costs for the average = $ 105.29 Redlands = $166.17
Several factors figure in to a part of the disparity in numbers. Young cities have no Alegacy@ costs. Others are Acontract@ cities with the sheriff or CalFire at costs per capita far below Redlands. Nonetheless, our spending outstrips all.
While Redlands pays both the employee and the city=s share of PERS (Public Employee Retirement System), a number of cities do not. The same with health benefits where other cities give a fixed amount for the employee to use. We are the most generous of all, the direct result of Redlands= employee unions, especially fire and to a lesser extent police, being the most powerful in the region. Council candidates and members take them on at their peril.
The most widely accepted measure of efficiency used in all national instruments is the cost of services on a per capita basis.
The national data base found on the web, surprisingly, shows New York City with lower fire costs per capita than Redlands
Certainly cities differ in many ways and an apples to oranges argument can be made. But if we look at our most similar, Upland, in age, population and demographics, the comparison is no more, in fact less, favorable. The budget numbers are for fiscal year 2006-07.
(06-07) Redlands Upland
Population 70,324 73,000
Households 26,300 25,700
Revenues $51,018,729 $38,430,270
Operations Budget $52,373,794 $37,898,660
Deficit or Surplus ($1,355,065) $531,610
Reserves $3,000,000 $16,500,000
Personnel Cost $38,585,588 (71.3%) $24,466,790 (64.5%)
Police/Capit $21,690,199 ($308) $15,467,850 ($212)
Police Personnel/Officer $19,006,740 ($218,468) $11,656,990 ($142,158)
Fire $12,152,149 ($173) $7,181,420 ($98)
Fire Personnel/Man $10,663,041 ($159,150) $5,647,210 ($120,153)
Street Slurry Seal 3 miles 7.6 miles
+ 1,200,000 s.f. alleys)
Street Tree Every 28 yrs (Palms 64) 5 yr. Schedule
Sidewalks Asphalt patch 30,808 ft replaced
These numbers reflect just how profligate we are, and have been, when compared to others.
Although Redlands has a smaller population, its general fund revenues are $12,588,459 greater than Upland=s. At the same time it spends $14,118,798 more on personnel, $6,222,349 more for police ($96 more /resident) and $4,970,729 more on fire ($72 more/resident).
One statistic is especially interesting. Redlands and Upland at the time this is written have the same number of sworn police officers. If one assumes that efficiency of overall department expenditure is measured by cost per officer, Redlands spends $76,310 more than Upland to put a badge on the street.
Nonetheless, and in spite of where we were in 05-06, this year=s budgeted expenditures are $6,518,993 greater, at $57,888,846, than those of 05-06 and millions more than revenues.
Residents= growing frustration with deteriorating streets, untrimmed street trees and reduction in services made the city=s fiscal management the issue in the recent city council election, which saw the ouster of an incumbent, replaced by a critic of the city=s direction, and the narrow re-election of a recent appointee who rather speciously claimed the mantle of fiscal discipline.
Which leads to the question. Just where did our town make wrong turns that have placed us where we are and which costs have grown disproportionately?
Overtime: In the late nineties the city council adopted the 3 -12 plan for police, where officers work three twelve hour days and a fill-in four hours per week. The stated goal, as recommended by the chief, was to reduce overtime. Instead, overtime has grown to more than $1 million a year.
Over the last several years fire department overtime has grown to more than $1 million a year from a small fraction of that early in the decade.
Salaries and benefits: As might be expected, a city council dependent on the support of the powerful city employee unions, especially fire, which pours tens of thousands in to city campaigns, shows no willingness to oppose the unions= demands.
Employee salaries and benefits grew from $18,915,092 in 99-00 to $36,554,355 in 05-06, nearly doubling in six years and rising from 65 percent to 71.1 percent of general fund expenditures. Millions more have been granted since, with additional millions promised in 2008-09 and 2009-10
While the private sector is moving away from pensions, with many suffering its loss, and Social Security under stress, safety personnel in Redlands (and in many other cities) are now eligible to retire at ninety percent of their highest salary plus lifetime medical benefits for themselves and their dependents and, if Adisabled@ a net of up to104 percent of their pay. This has resulted in the most important of all budgetary impacts. When the council changed retirement from two percent of the highest year=s salary to three percent at age 50 for police and fire and from two to 2.7 percent at 55 for others, this enormous, unfunded fifty percent increase in obligation (uniquely, the city pays both the city=s and the employee=s share) has resulted in the city with an overnight need to find money to fund forty seven percent of salary for firemen and forty two percent for police to meet this obligation, alone. The solution? Last year the council borrowed an additional thirty million in taxable bonds (not subject to citizen vote) to cushion some of this additional cost for current employees.
Coupled with the rapidly escalating cost of lifetime medical services for employees and retirees and their dependents, that council decision, alone, has placed an almost unsustainable burden on city finance. That massive unfunded liability, which if projections are true of increases of eleven percent for health insurance per year occur, will see a doubling of annual costs in just seven years.
Redlands also faces a new legal requirement to demonstrate how it will fund the full burden of its retirees= health benefits. A requirement long overdue.
Economists question whether these levels of benefit, and the problem is state-wide, can be sustained, ultimately driving some cities, Redlands among them, toward crisis and bankruptcy.
Elections at all levels of state and local government have been dominated by public employee unions. As the ever-escalating costs of those politically gained benefits force reduction in services and/or higher taxes, those in the private sector, who pay the bills and who see their well-being rapidly eroding and falling behind by comparison, may well rebel
Consultants: Redlands spent more than a million dollars over the last several years for four, divergent proposals for the development of downtown.
Where does all this leave us?
Bound by multi-year contract obligations to the employee unions, especially police and fire, the city council is caught in a bind of its own making. In the face of a shrinking economy, with its impacts on business and sales taxes, and the likely reassessment downward of properties with attendant reduction in property tax revenues, the city must come up with an additional $3.1 million this coming year and another $4 million in 09-10 to meet projected needs, including contracted pay increases.
Compounding and adding immeasurably to the problem have been three decisions and events over the last several years which have cost the city millions in potential revenue, while adding massive contractual obligations for service.
Measure U: One of the greatest impacts of development is that on infrastructure and services. Measure U, adopted by the people in 1997, mandated that the city set development impact fees sufficient to cover those costs. Appropriate fees were set in 1998. Succeeding city councils deliberately ignored the dramatic increase in costs over the following boom years, providing developers with millions of dollars in subsidy, while obligating residents to either fill the shortfall by taxing themselves further or reconciling to live with a deteriorating environment. A dilemma citizens are confronted with daily.
A second element of Measure U, the requirement of a socio-economic study of all projects over 5000 square feet in size, was intended as a measure of the impact of a project and a filter. Not intended to stop development but rather to enable the council to make a conscious and informed decision on those projects that fell short as to whether community benefit would out-weigh its costs. Soon emasculated by a pro-growth city council the requirement became a farce and tool to justify any and all projects.
The measure came into effect the same day that I was elected mayor. In spite of opponents= attacks claiming that the measure was a business and job killer, both I and the staff were soon dealing with four competing major business projects. Majestic Realty with its Apower center@ in the AHole.@ A three million square foot major mall on California by Taubman, the fourth largest mall operator in the country. Another Apower center@ where Home Depot is today by the Zelman Company, later by Lewis. And the Pavilion project on the forty acres where Wal Mart plans its Asuper@ store.
The Pavilion project was well along and had its approvals and in many ways would have been a real asset to the community: two ice rinks, one competitive, sports shops, a fitness center, a multi- screen theater and boutique hotel. The California Street project had been promoted by Jim Barton, who had been active in commercial development in Rancho. The Taubman site was across Almond from a 38 acre parcel Barton had sold to Kaiser to be developed for a major hospital. As a part of our negotiations I managed a contribution from Barton and Kaiser, $400,000 each, to fund construction of our senior center.
Taubman dropped out after Inland Center spent a reputed $16 million in upgrades and tenant subsidies. Majestic then began an attack on the other two, especially the Pavilion, with every weapon it could find, suing the city nine times in the process. The Lewis= dropped out, expressing concerns over Majestic attacks, leaving the Pavilion the only target.
My defeat in November 1999 brought a council majority to power that was bought and paid for by Majestic and hostile to Measure U. Apparently driven by a bias that all development is good, that, as Chamber of Commerce Executive Director Kathie Thurston defined it, the more Arooftops@ the better, the new council, while factoring in increases in revenue, never adjusted the costs attributable to projects driven by the rapidly escalating increase in city expenditures. The net effect has been no filtering at all, resulting in a significant increase in the city=s obligation to provide services with a proportionally, ever-diminishing revenue base to provide them. In some cases revenue-producing zoning was changed to accommodate more residential. (See example on last page)
Estimated loss for capital projects - between $5 and 7 million.
Aggregates: A number of cities which have aggregate mining within their boundaries extract a fee; Irwindale, for example, as much as two dollars a ton with periodic renegotiation. Redlands, in an agreement Anegotiated@ in 2002 by Mayor Kasey Haws and Councilman Gary George, bound itself to a sixty five year minuscule amount of ten cents a ton, with a CPI inflator. With a finite and limited resource essential to all construction, the city is now locked out of any true and proportionate share for the projected life of the resource.
With about 100 million tons of material economically mineable, the council=s action will likely cost as much as $100 million in lost revenue over the life of the agreement.
Donut Hole: And, certainly, the most egregious of all, the give-away of the so-called Donut Hole.
At every step of the way beginning in 2000, the new council moved to give away our rights.
Arguably the most important element of Measure U requires that all development outside the city=s boundaries but within the city=s sphere of influence or planning area can only receive city utilities by annexing, if contiguous, or by agreement to do so, if not.
That, added to the requirement of the county=s 1989 general plan that cities would have planning control within their spheres of influence, should have inevitably brought the AHole@ into the city as earlier county agreements had guaranteed.
Although Majestic Realty had spent an estimated $2 million seeking (and buying) special state legislation which would remove Redlands= sphere, the governor had not signed it into law, Redlands retained all its powers through 1999, my last year in office
December 1999 saw the seating of a new council majority, put in office by Majestic campaign money. Joining holdover Pat Gilbreath, a long-time Majestic protagonist, were Susan Peppler, wife of the county undersheriff and Kasey Haws, an attorney and one-time employee of Majestic=s law firm, Latham & Watkins. That campaign, by any measure, was the most costly in the city=s history with the pair and their Majestic protagonists spending in excess of $350,000 to defeat me.
Majestic and other AHole@ owner money was funneled through the fire and police unions, the Hansberger machine and Bob Roberts, a Hansberger foot soldier, who out-did his earlier distortions and lies and created the most negative, vicious campaign in city history.
Governor Davis signed Majestic=s special legislation into law in 2000 and a $100,000 contribution immediately flowed in to his campaign fund.
Majestic=s special law was patently unconstitutional, as legislation serving only one special interest violated equal protection. A council majority of Freedman, George and Gilbreath, rightly and with the support of the League of California Cities, sued to have it overturned. Later Gilbreath, always a Majestic protagonist, reversed her position and voted with Haws and Peppler to drop the city=s challenge, a devastating decision that the city will suffer from for decades.
LAFCO, (Local Agency Formation Commission) which is dominated by county supervisors, at the urging of Supervisor Hansberger, a major Majestic beneficiary who led the charge against Redlands, agreed to remove Redlands= sphere in conformance with the special law. Redlands, unique among all California cities, was then left with a nearly two square mile county hole within its boundaries over which it now had no influence or say, a direct violation of requirements of the state=s planning laws.
In a coordinated act earlier, Hansberger, a recipient of tens of thousands of Majestic campaign dollars, had attempted to amend the county=s general plan to eliminate city planning control in their spheres, directly targeting Redlands. Protested by all 24 of the county=s cities, Redlands, Rancho and Fontana (Fontana later dropped out) successfully sued. Eventually, the court of appeal turned down the county=s challenge of the lower court=s ruling in the cities= favor. When Redlands then made an attempt to give up its successful court challenge of Hansberger=s move, the only time ever that a city council voted to invalidate a successful court decision protecting its rights, the appellate court rejected Redlands= absurd request with a reprimand.
At that point Redlands had surrendered all planning control of the AHole@ and any right to compensation for the $5.2 million the city had invested in water and sewer facilities to serve the area, which had been installed in reliance on county promises that annexation would follow.
To many it was obvious that Haws and Peppler took their action to satisfy their Majestic backers while gaining political cover from a promise by Assemblyman Granlund for a like amount as a grant to fund a sports park, a linchpin of their campaign promises. Granlund, Majestic=s lead voice in Sacramento, and close associate of Hansberger, thus provided the quid pro quo Haws and Peppler needed.
In spite of all, Redlands still held the upper hand. Majestic could not build without the city=s water and sewer, the provision of which required annexation under the requirements of Measure U.
Casting about for services, Majestic approached San Bernardino for connection to its Mountain View sewer line. Initially resisting, San Bernardino finally acquiesced. When the Redlands council refused to act to prevent the loss, a successful legal challenge of San Bernardino=s offer by the Redlands Association stopped the move, protecting Redlands= interests.
Majestic had also drilled two wells at considerable cost north of their property and while claims were made that the wells were free of perchlorate or other contamination, no tests were revealed and water experts predicted that although they might be free at first, any drawdown would pull the perchlorate plume their way, making the wells unusable for domestic use.
The second city gift came when the council agreed to let Majestic re-route a major city sewer trunk line which bisected the center of the developer=s property east to west, a location that would have made an integrated project difficult, to perimeter streets. Redlands gained nothing while giving away an important bargaining chip.
In 2003 Majestic finally managed to sign its first tenant, Kohl=s, which scheduled an opening in six months time, the following March, when the retailer planned the simultaneous opening of thirty stores in its West Coast debut.
The developer had neither water nor sewer to serve Kohl=s nor time or ability to get them elsewhere. Redlands was the only possible source and Measure U required the city to demand annexation for service. At that point the developer had nowhere else to turn. The one alternative left to the developer for sewer service was an earlier authorization by the Santa Ana Water Control Board, chaired by Carole Beswick, a Majestic protagonist, to build a package treatment plant. But time had run out, the engineer=s estimate of cost was a prohibitive $28 million and the disposal of effluent and sludge posed difficult problems.
Instead of acting to protect the city=s interests, the city council in an action hidden from public view and only leaked by a concerned city staff member, gave away both without condition, in direct violation of Measure U and city requirements dating back to the seventies.
The Association sought a writ to stop the giveaway, which the courts denied on the basis of a Majestic engineer=s declaration that they were able to develop without Redlands= services. In a subsequent court action by the Association the engineer later repudiated his earlier claim.
The Haws-led council then accepted a county agreement which gave Majestic, Hansberger and the County everything they wanted. In response the Association mounted a referendum campaign to force the council=s action to a vote.
In spite of harassment by hired Agoons@ brought into town by Majestic, numerous slick mailers signed by Haws and the fire and police union presidents designed to frighten voters with the threat of a loss of $18 million a year being stolen by San Bernardino, plus the active campaign of both the police and fire unions and other long-time Majestic protagonists, especially former mayor Carole Beswick, the Association gathered enough signatures in just twenty two days to force a referendum vote.
Majestic was reputed to have spent in excess of $250,000 in an attempt to stop the Association=s effort.
Haws= totally unfair, absurd and less than honest statements in the campaign resulted in his forced, abject apology to San Bernardino=s mayor, Judith Valles, when she came to a Redlands council meeting to publicly confront and rebuke him. An incident unparalleled in county history.
Although determined to be technically flawed, the referendum did cause Hansberger to withdraw his initial deal.
He then returned with what is in place today: Redlands to receive 90 percent of AHole@ sales taxes for twenty five years, then all; in exchange for the city=s renunciation of all claims, including the 1989 stipulated judgment over the formation of the IVDA (the Norton redevelopment agency) which had effectively given all property taxes to Redlands; plus the obligation to provide police and fire services to the AHole.@
The council accepted, forfeiting thereby all planning control, property taxes, licenses, fees, etc. The city council gave away Redlands= economic future in exchange for service obligations that would become ever more burdensome over time. Sacrificed were all the gains made by the city=s successful lawsuit against the IVDA in 1989, the county=s earlier promises of annexation and the guarantees of both by the provisions of Measure U.
The Association sued.
To thwart any potential challenge under Measure U, the council put the agreement on the
ballot as Measure N.
The Association submitted a ballot argument in opposition. Once again, Beswick led the Majestic forces and sued the Association, challenging its argument. When asked the root of her involvement early in the controversy in 1995, Beswick was quoted as saying that she had been a classmate of Ed Roski, Majestic=s owner, at USC. Rumors in town and at city hall implied a much closer relationship. The only certain knowledge I had was that throughout the years she was the most vocal and single-minded in pushing Majestic=s interests against the city.
Her last minute challenge was heard by Judge Krug, at a late afternoon hearing and after prefacing his remarks that he had not read the briefs and would not rule until he had read them, he abruptly, and after just a few minutes of testimony ruled in the developer=s and city=s favor. Obviously tired and irritated that he had to take a five o=clock issue, he ruled out of hand, tossing aside any intention of reading the Association=s brief or considering its merits.
The voters, sold by another expensive Majestic-funded campaign led by the fire and police unions, the chamber of commerce, Beswick and others into believing that N would rain an immediate $7 million annually into the city=s coffers, overwhelmingly approved the measure.
Redlands, once again, and finally, had given up its rights and ability to require the AHole@ to be in the city. Two square miles of county Aisland@ now exists, and likely will in perpetuity, in our city=s heart. A situation that could never have occurred absent the efforts of a handful of residents and groups motivated solely by self-interest. Redlands= future traded for personal gain.
A possible last opportunity for Redlands presented itself, when three months before its opening the city was informed that Kohl=s insurers would not allow the store being stocked without Redlands fire protection. Rather than making its rightful demand for annexation as a condition of service, the city acquiesced.
Thus, Redlands, when presented with four separate opportunities to require annexation, or at the very least favorable conditions, gave away essentially all.
Given away? We=ll never know the total, but over time it could well run to hundreds of millions. Potential impact fees, alone, were calculated at $60 million in 1999, ranging upward of $100 million in today=s dollars. Tens of millions more in property taxes, business license and franchise fees, plus any sharing in bond costs, such as the recent retirement bond and, of course hundreds of thousands a year in the lost ten percent of the sales tax. Plus, a contract to provide police and fire for a percentage of sales tax where the costs already far out-stip the income and the burden can only escalate in future.
And just as important to the city=s future, any say in the future development of the AHole,@ where some owners had sought to build thousands of apartments, with Majestic, itself, planning the first 300 in its second phase.
Safety service costs, already, well exceed the sales taxes currently received. Development over time will, inevitably, result in a massive, unsustainable subsidy and obligation.
Who=s to blame?
From Majestic=s first approach in 1995 through 1999 Redlands held firm in its demand for annexation. Both Swen Larson (mayor 1995-97) and myself negotiated in good faith an attempt to bring them into the city. Larson gave up in disgust early in the fall of 1997, his last year in office, when after spending most of the afternoon negotiating with Majestic=s representatives, he was told while on a break that Majestic had just sued the city once again. Furious, he walked into my office and said, AI=ll never meet with those sons - ------- again.@Larson really wanted an agreement during his term and had worked many hours with Majestic. A measure of his effort, earlier in the spring of 1997 he had claimed that they had offered him $100,000 to run again.
Through it all was the sticking point of Majestic=s demand that they have immediate authority to build a theater. The council=s position was that Krikorian was just opening and that it was vital to the survival of downtown that it be a success. The city wanted an eighteen to twenty four month delay before a competitor. As a number of observers suspected, later events proved that the demand was a ploy, as ten years later Majestic has yet to break ground for a theater.
Twice I had agreement with Majestic, first in December 1997, just after being seated as mayor, when Brook Morris, Majestic=s project manager, made an agreement at a morning meeting, only to be repudiated by John Mirau, Majestic=s local attorney, at that afternoon=s council meeting.
The second came months later after a luncheon and afternoon meeting with Ed Roski, Majestic=s owner and John Curci, who held the property (my second with them). Roski=s then project manager and attorney, Timmish Chaikovsky, worked until after eight that evening with City Attorney McHugh, in his city office, finalizing the agreement, several times calling Roski, and getting confirmation, on questions of detail. City Manager Luebbers and I waited in his office all Friday morning (city hall was closed) for the confirming call, as promised. I was then to call a special meeting of the city council at noon on Saturday to finalize all. Majestic=s call never came.
In each case the reversal came after input from Pat Meyer, Majestic=s local planner and John Mirau, their local attorney. The firm=s negotiators, Bruce Morris and especially Timmish Chaikovsky, Morris= replacement, complained of interference and blamed the locals for not wanting an agreement, which would have terminated the need for their services. A belief shared by many at city hall. An agreement would have brought to an end the many thousands both were charging Majestic, which would continue only so long as no agreement was reached.
In spite of the broken agreements, until the end of my term Redlands continued to make a good faith offer to negotiate. None of the local Majestic protagonists supported the council=s efforts.
A bit of irony. About this time I, on the council=s behalf, negotiated a deal with Lowe=s, granting a sales tax incentive which amounted to a net $287,000 and which required Lowe=s to build a necessary storm drain in Redlands Boulevard, a need created by the US postal facility which the city could not require of a federal agency, however necessary. Lowe=s also agreed to build on West Redlands Boulevard, bringing necessary stimulus to a depressed area. Majestic=s claque raised a hew and cry of criticism of the council majority=s efforts to bring a major retailer into Redlands and hired professional signature gatherers in a referendum campaign, the loudest voice, that of Councilmember Gilbreath
Unknown to the public, Home Depot almost immediately contacted the city and wanted to build. The Lowe=s deal had brought both to town.
The $287,000 was paid back six months after Lowe=s opening. Home Depot, eager not to lose market share, asked for no concessions. The two firms have been great generators of city revenue, bringing home taxes previously lost to San Bernardino and elsewhere.
Why did Majestic have local partisans willing to back the developer against their own city=s interests? We=ll never know, but...
Meyer=s and Mirau=s motivations were obvious to many, reinforced by Majestic=s own employees.
Haws was reputed to still have ties to Latham & Watkins, Majestic=s lawyers, continuing to receive referrals from them.
Gilbreath was reported to be golfing with David Wheeler, Majestic=s first representative and rumor had it that her accounting firm anticipated doing work for the developer.
And we have no idea of the ties between Beswick and Roski except to say that from the beginning in 1995 she was an almost weekly visitor to city hall lobbying for the developer and at the last she was the most visible voice for Majestic=s interests. It was she who sued to prevent the Association=s argument opposing Measure N from appearing on the ballot. A suit funded by Majestic money, $10,000 of which was spent on the specialist San Francisco law firm brought in to represent her.
Plus the most puzzling input of all. In spite of definitive studies that had determined that the cost of police and fire service would be a major obligation of the services= resources amounting eventually to millions of dollars per year, then Fire Chief Enslow, when asked, stated that fire service would cost nothing , as Athe men were in the station and on duty already.@ Police Chief Bueerman agreed, stating that police costs would be no more than $25,000 per year. Had either chief responded with the true costs which were millions, as defined in earlier studies, and which their departments had previously participated in determining, the whole process might have resulted in a far more favorable bargain for the city. Enslow had requested and the council had purchased a parcel on Nevada, opposite the AHole@ for a station which would have required three shifts of four men each plus their equipment. Bueerman had earlier stated that a sub-station manned by six officers would be required. The chiefs= motivations have never been revealed.
Hansberger=s motivation was clear cut. Majestic poured tens of thousands into his campaign coffers, plus, by thwarting annexation, he retained both control of how the AHole@ would be developed, and a continuing source of potential campaign cash. Had Dennis acted in the people=s interest as he was elected to do, the AHole@ would be in the city today. Of all involved, Hansberger, as in many other situations, flouted the public interest and placed his personal advantage first.
And, last but not least, the chamber of commerce leaders, not a merchant among them, who had supported Majestic from the beginning.
Ironically, the most immediate losers have been the very businesses the chamber purports to represent. Merchants throughout the city are now confronted with competitors in the AHole@ who pay no business license fees, no bond payments, no franchise fees, no paramedic tax and were subsidized by avoidance of most impact fees. Businesses in the city, and especially on State Street are just beginning to suffer. That disadvantage will grow if the city bonds any projects or introduces a city sales tax. Hotels in the AHole@ will have a ten percent pricing advantage based on the city=s hotel tax. The exemption from bond liability, taxes and fees will continue to increase the AHole=s@ competitive advantage. The chamber leadership chose Majestic and the AHole@ owners over their own members= interests. Some State Street retailers now express the feeling that the chamber leaders Athrew them under the bus.@
Of them all, another loser, in addition to the city, itself, stands out. City employee unions, ever eager for more city money and the increased wages and benefits it brings, have historically been vigorous and vocal supporters of all development and opponents of growth management. The police and, especially the fire union, led the charge for Majestic and the AHole@ property owners at every stage of the process. The fire union head at one time threatened to use the potent firemen=s lobby in Sacramento to support Majestic=s special legislation. But their support of Majestic has come back to bite them, as those lost millions will inevitably come home to them in a way not anticipated, as the city=s obligation to provide services, where the demands already far outstrip the bargained sales tax, is compounded by the loss of city revenues as the unequal competitive environment inevitably worsens.
Throughout it all, and most unusual for commercial developers, Majestic sued the city multiple times to stop competing projects, eight lawsuits against the Pavilion project, alone. Plus, going so far as to inject itself into the bankruptcy of the Pavilion project=s developer as well as that individual=s subsequent criminal trial where Majestic was active. In the bankruptcy proceedings Majestic injected $175,000 on behalf of a $5,000 small claim Pat Meyer, their planner, had against the competitor. The criminal trial resulted in an appellate court reversal of the trial court judge=s judicial error after the individual had suffered thirty months of incarceration in state prison while waiting out the appeal. That injustice not only robbed her of more than two years of her life, it also inevitably led to the failure and loss of her Pavilion project. Majestic had eliminated its last competitor. Eventually, and after she had filed a $250 million claim against the county, she pled guilty to two misdemeanors and all other charges were dropped in exchange for her dropping her claim.
In 1998, at the peak of the whole mess, I began receiving threats. I ignored them as crank calls, but my wife intercepted one and insisted that I contact the police. Once reported, they drew enough concern that Chief of Police Nelson encouraged me to acquire a handgun and take varying routes when traveling to and from city hall. I refused any further protection. He gave me directions to a gun shop in San Bernardino where I acquired, at his suggestion, a snub-nosed, Smith & Wesson, 38, AChief=s Special,@ and followed up with several lessons on the city=s firing range and a concealed weapon permit. I soon felt foolish, couldn=t find the thing half the time, dropped it in a drawer where it resides today.
We=ll never know the true level of Majestic=s influence in the Pavilion developer=s trial and incarceration and how much they spent on the whole miscarriage of justice, which ended up costing county taxpayers an estimated $3 million, was costly to the lives and reputations of several individuals and in the last analysis ended with the competitor accepting just the two misdemeanor charges (neither fines nor probation) by the time it was over.
As a side note, later statements made to me by both the defendant and her attorney declared that as she was being loaded on the bus to state prison she was offered a dismissal of all the charges against her, if she would testify that I had been involved. And early in the course of the trial the competitor=s attorney had submitted a Majestic document (which the court disallowed as not relevant) but which reporters, who had seen it, immediately called me to say it contained a list of tens of thousands of dollars paid to individuals to attack me, $10,000 each to three law firms and $15,000 to a private eye.. The defendant=s Ainvestigator,@ a former Redlands policeman, had acquired it from among some documents Majestic thought were safely disposed of. He turned prosecution witness. Sometime later I was reliably informed that in the course of interrogation he had told district attorney investigators that he feared for his life if Majestic learned that he had it.
The fact that an individual was offered a deal to escape state prison if she would agree to lie about me, that an experienced retired police officer feared for his life over possession of a Majestic document containing a list of names and money amounts focused on me, the almost unheard of two day IRS Afield audit,@ which Beverley and I had suffered through and which had yielded nothing other than our stress and hours wasted digging up three years of documents. The thousands Majestic spent with a Woodland Hills attorney attacking me through the FPPC, requesting all my filings for the ten years I had been in office. The filing of a charge over my six year old participation in the canyons= annexation, which, while I had represented the city through the process, I had recused myself from voting on. (On that one the acting director of the agency initially agreed that the annexation likely resulted in my loss of property value and the action would be dropped. The new director, a former member of Majestic=s law firm, reversed the earlier tentative decision). The phone call from the DAs office within hours after the arrest of the two individuals involved in taking trash from Majestic=s law firm, an activity I had learned about just that morning, implying that I was involved.
It all added up. The unprecedented IRS field audit. The combing of all ten years of my records at city hall and attacks at the FPPC. The attacks on my relationship with West Redlands Water Company. The several hundred thousand spent in the 1999 council race to successfully defeat me for reelection that November. The threats. The clumsy attempt to tie me to a trumped up criminal conspiracy charge against a Majestic competitor. All fell into place.
I had been the ultimate target all along.
To cap it all, it wasn=t until years later when, in response to an FPPC attorney=s suggestion, I requested my files from that agency. To my surprise I received a more than 900 page complaint filed by Beswick in the summer of 1999. The massive file of documents had to have taken many hours of an attorney=s time and many thousands of dollars to assemble, again, the only suspect, Roski=s Majestic. The obvious motive was to destroy my reputation, burden me with significant fines and prevent my re-election that November.
In sum. I=m sure that there are those who would contend that Redlands never had a chance from the beginning. Majestic had steamrollered Chino and had created and basically owns the ACity@ of Industry, the creation of which had sent one participant to prison and even today has but a reported 78 registered voters in its fourteen square mile area. Majestic had refused a council offer of half fees in 1995 and had thwarted every city effort at annexation. They used every weapon known to stop competitors, suing the city nine times. It was to be their way, only. Unfortunately, they were able to buy special legislation in Sacramento and from the beginning they had help from a number of Redlanders who put self-interest and personal gain above citizenship.
That inevitability assumption was nonsense, put forward by those whose motivations led them to actively support the developer against the city. During my term as mayor Majestic modified its plans, adding a claimed million to the cost of the project to meet Redlands= demands. And had the following council continued to hold firm on utility and safety services the AHole@ would be in the city today. We held the one card they could not do without, water and sewer services.
Instead Redlands is caught with a metastasizing cancer of our own making, a two square mile area in the heart of the city over which we have no control, while at the same time trapped into providing services at an ever-increasing loss. Those services, utilities and public safety, are that cancer=s life blood without which it could not exist or grow.
No other California city suffers such a plight, made even more galling by the fact that it could not have happened absent Ainsider@ help.
One further bit of irony stands out. While years of controversy surrounded Majestic and the AHole@ little public attention was paid to Edison=s Mountain View power plant which was being upgraded from an oil-burning Apeaking@ plant to a 1,000 megawatt gas-fired turbine, two cycle unit. In spite of Hansberger=s many attempts to stop annexation to Redlands, the Edison representative and I worked together to bring the plant into the city.
While Majestic and the AHole@ have yet to bring as much as $2 million in annual taxes to the city, far from the promised and ephemeral $7 and $18 million touted by Majestic=s protagonists, the plant=s city franchise fees for the natural gas used are running $2.2 million annually.
Where from here?
Soon after taking office the Haws led council majority fired fiscally conservative City Manager Luebbers, a Redlands resident, whose position always was that Majestic and the AHole@ must annex for services, as required by Measure U and long-standing city policy.
In his successor, John Davidson, an LA County resident who had no personal stake in the city, the council had a manager who was more than willing to Ago along.@ Davidson became the sole negotiator for the city on union contracts and since his contract guaranteed that his salary would be 6 percent higher than the highest staff member, he was in a most tempting position for serving his self - interest with knowledge that whatever was given, he also would automatically gain.
Budgets exploded. Money was taken from wherever it could be found, millions from the water fund, alone. But after six years of growing deficits, by 2006 the city was in fiscal crisis. The well was dry. Something had to give. Someone=s head had to roll and his was the obvious choice.
His replacement, Enrique Martinez, came in under a cloud from his previous positions, but touting himself as a tough Aturn around@ agent the council unanimously voted for him over some 43 other candidates.
His first budget, for 07-08, claimed to be balanced with a surplus. But that was only achieved by cuts totally $2,174,499 in the police and public works budgets below their previous year=s levels.
His next step was formation of a ABlue Ribbon@ mayor=s advisory committee to seek revenue Aenhancements,@ including a first ever city sales tax (which would have put local merchants at an even greater competitive disadvantage). That body recommended two tax measures, a warehouse fee and an increase in the transient occupancy tax. The council and the voters opted for the warehouse tax, alone.
Scrambling to fill a projected deficit of $3,234,452 in the 08-09 budget, which, itself, is dependent on a projected, now threatened, $1,918,667 growth in revenues, Martinez hit upon a scheme to once again take from the utilities in several ways.
Three department directors retired (reliable sources indicate that two were forced out) which allowed Martinez to then combine general fund and enterprise fund departments, blurring the lines and thereby being able to backfill general fund shortages with enterprise (water, sewer, solid waste) money from ratepayers, effectively a hidden tax through utility bills.
While that would help, it wasn=t nearly enough. The next step was to reach back 81 years and claim a bond for the acquisition of Mill Creek water rights was a general fund expenditure never reimbursed and therefore should be paid back based on the cost of state project water for 15 years at today=s rates, some $17 million. In a sharply divided vote councilmembers Harrison, and Aguilar, led by Gilbreath supported the move over strong opposition by members Bean and Gallagher. Public furor and a threat of litigation by the Association soon reversed Gilbreath=s vote.
His next step, as stated during the January 18 council meeting-was to create a JPA (Joint Powers Authority) between the redevelopment agency and the city with the council sitting as its board. The JPA would Atake back@ the assets of the utilities, then, in turn, charge a Alease@ rate to them. The rumored goal? To take about $3 million annually out of the utilities, only achievable by increasing rates, deferring maintenance or eliminating necessary capital improvements to the systems. Gilbreath, again, at first supportive of the theft, changed her mind when faced with an outraged public=s clamor.
But the manager and council are far from done.
City properties are being sold off and the proceeds being spent, in part, to fund on-going city operations. Not only is the city losing long-held assets, but the practice flies directly in the face of the manager=s pledge not to use Aone-time monies@ for operations.
Most of north Redlands is now slated to come under a redevelopment umbrella. All new property taxes from development will now go to the agency, not the city=s general fund. Nonetheless, the city will continue to be responsible for providing services to that new development. Unless major retail (Super WalMart would just move sales from their current sources) locate in that area, the city will be stretched even further and all sections of town will suffer. Northside residents who have long complained of a perceived inequitable share of city services could well see them reduced further.
But that will pale in contrast to plans for downtown where some 1447 apartment units are being proposed as a goal. Again, since all new property taxes will flow to the agency, the city=s financial crisis will only grow if those units are built, as no property taxes from them will go to the city=s general fund. Based upon socio-economic analysis, costs will far out-weigh revenue, each of those units will be an annual drain of about $1,524 to the general fund, based on current city costs for services. Or, put another way, an additional $2,205,228 must come from some other subsidizing source, or services to the remaining areas of the city will have to be diluted by that amount. (See analysis on last page)
One project, by General Growth, the owners of the Mall, is for a four story structure housing a modest increase in retail/office (35,000 sq. ft.) and 230 condo units on the upper three floors. Plans call for all city-owned parking areas associated with the Mall (the lot, the underground, the post office lot) to be deeded to the developer and become private parking. According to the developer=s representatives, parking for off-site business, the Bowl, parades, Market Night, etc. would be prohibited. Lost would be the existing 907 public parking spaces as well as the imposition of a massive block-long, four story structure, destroying the village character of downtown. Fortunately, to many eyes, it is reported that General Growth has $2.8 billion in debt coming due this year which may have some effect on this project of questionable merit.
On top of those two issues, the council is moving to extend the life of the redevelopment agency, already 34 years old, for another ten years for collecting taxes, to 2035 and 2039. The result will be that the city=s general fund will not see any property tax revenue from downtown development from the RDA=s beginnings in 1974 (the agency stretches out to K Mart and Home Depot) for another 28 years, 61 years in all, truly another metastasizing cancer on the city=s fiscal health. Now compounded by the ANorth Redlands Revitalization Project.@
The general fund loss? Currently more than $2 million per year.
Those actions coupled with continuing encouragement of residential development that demands more in services than it produces in city revenues does not auger well for the future, especially as we can anticipate the impacts to be compounded as the real estate market collapses.
Any residential development in the redevelopment area is a direct cost to the city, as it produces no city property tax, plus, any residential unit of less than $550,000 in assessed value, anywhere in town, costs more in services than it generates in revenue.
Where do we go from here?
Redlands has been ground zero in the debate between those who maintain our salvation and quality of life lies in managed growth and the preservation of environmental amenities pitted against those who believe growth is the necessary and ultimate goal.
Accepted wisdom of growth proponents and their supporters contends that AWe must grow or die,@ AGrowth is inevitable,@ and AOur children will need a place to live.@The mantra of developers and chambers of commerce.
If those premises are true, and accepting our present situation, why has our recent rapid growth left us with a fiscal crisis? Unless we are willing to accept ever-increasing erosion of our municipal services and quality of life we must agree to higher taxes and fees to underwrite the additional costs and losses that growth inevitably brings.
AWhy growth and how?@ A question seldom, if ever, raised today but of great concern to the community in the past.
Five separate times, Prop R in 1978, Measure N in 1987, Measure H in 1995, Measure U in 1997 and Measure P in 2005, growth management forces (the Association) went to the people with initiatives designed to manage growth. Two were defeated by massive amounts of developer (almost exclusively Majestic) money, which spent $325,000 to defeat H in 1995 and $413,000 to defeat P in 2005.
What is the real source of the pressure for growth?
Nearly all the growth pressure in California is from immigration. It is estimated that today 27 percent of Californians are foreign born. Redlands schools are now more than 50 percent Aminority@ (80% in LA), with 44 percent of our students eligible for subsidized lunches. Immigrants have a birthrate well above replacement at 2.3 births per childbearing aged woman. As they become integrated, and should the border finally become a true barrier to illegal immigration, a questionable given, the population growth rate could slow and reverse. For, as demographers tell us, among those who have been here a generation the birth rate is 1.8, a rate comparable to Western Europe, far below the 2.1 needed for replacement.
Absent immigration, the U.S., as is occurring in all other industrialized nations, would be losing population.
Plus, since the generations following the ABoomers@ are so much smaller, housing demand for their children should shrink further.
And not to be forgotten, out-migration to other states is a continuing phenomenon. The US Census Bureau estimates that during the past decade, alone, a net 1.1 million Californians, almost universally middle and upper-middle class, educated AAnglos,@ have emigrated to other states. While 200,000 of those loses occurred in our county, the county=s population grew by 600,000, a shift of dramatic proportions. That change in demographics had little to do with the hyped housing needs of our children.
And it needs to be pointed out that Western Europe and Japan, while losing population to a declining birth rate, are no worse off economically when compared to ourselves.
Issues raised in my rambling discourse inevitably lead me to believe that we are most likely at one of those dramatic turning points that have periodically and fundamentally changed our course in the past. All of the above local issues and forces, when coupled with and impacted by a national recession, which has the potential to spread worldwide and which I believe could well be of significant severity and length, could put transforming pressures on our community, ourselves and our nation=s place in the world that we can only begin to guess at today.
Can we be greater still. I strongly believe so. But like all things of real value, it will be neither cheap nor easy. We cannot continue consuming more than we produce, trading our birthright for credit from others. Those debts are coming due and many will inevitably be hurt. Whether a crisis can be averted is an open question, but I=m far from optimistic. The list of challenges to be met to prevent the gathering storm, at this point, at least, far outweigh either the will or the means at hand.
Is there a way out? I=m not sure.
But if I were king, beginning tomorrow:
I=d stop the bashing of education. Abandon the fill-in-the-box tyranny of testing. Restore the belief that each child is unique and learns in individual ways. Recognize music and the arts as an essential component of what makes us human. Revive and expand the National Science Foundation program for teachers, which transformed science and mathematics education for an earlier generation.
Create an Apollo program to address climate change. Recognize it as the next large transforming opportunity for technological development and economic stimulus, as well as the most critical long-term issue of our time. A goal, I believe, which will require the acceptance of the fact that we cannot achieve it unless we abandon the emotional rejection of nuclear power coupled with a national policy predicated on energy conservation and renewable sources.
Implement a universal health care system for all based on the best elements of the programs in use in other advanced, industrialized nations.
Begin work on our huge infrastructure deficit. And think large in transportation: e.g. high speed rail; a new look at how we organize ourselves as communities.
Invest the money necessary to stimulate and support basic research in all fields, particularly health.
Insure that all, no matter what their gifts or limitations, both contribute and share in the country=s tasks and its bounty. The widening chasm between the rich and all the rest must be addressed. Tax policies such as those that take a greater percentage of income from a secretary or custodian than from a billionaire hedge fund investor must be changed, if our democracy is to survive.
Stop the sacrifice of our heritage, our rights and liberty, as we seek security out of fear. Else we will be left neither safe nor free, only diminished, and no longer a beacon to the rest of the world.
Recognize that war is the bluntest tool of all for peace. That all international problems require cooperative solutions. That unless we address the needs of others, the pressures of immigration and conflict will always have a breeding ground.
Recognize, also, that we cannot indefinitely position ourselves as the world=s policeman. That peace is not bought by being the arms merchant to the world, with those Apurchases@ by many client countries paid for with our own money. That our security lies less in our might but rather in our leadership and example.
And, lastly, and most importantly of all, accept our obligation to be a leader in addressing the problem of world population growth, the ultimate driver of environmental degradation, immigration and hunger. Absent the solution to that problem all other efforts toward improving the human enterprise are doomed to futility and failure.
But for us, none of these efforts will come to pass until the belief is restored that government is our common enterprise and the one engine capable of transforming all our lives. Unfortunately, that will not come until the distorting effects of special interest money is removed from the Ademocratic@ process and the motivation for office will be that of public service rather than the venality that exists today.
How can we in good conscience bequeath to those that follow any less than our best efforts to solve the problems of our own making?
I am not king, but I am convinced that if we do not make such efforts, and others of similar nature, we will place ourselves at peril of secondary status before the close of the century and leave those that follow a radically poorer legacy than the one left to us.
I truly believe we=re at more than a periodic inflection point. Fiscal issues at all levels, government and personal (to say nothing of the erosion of our rights), a beginning realization of limits whether on commodities such as oil, metals or food, the tipping point on possibly irreversible degradation of the atmosphere and the oceans, and our blind culpability in all - is that to be the measure of our legacy?
As to the short term?
Are we there yet, as the child might ask. I don=t know but hope not. I believe it=s well beyond the next bend. In fact, I=m not sure we can get there from here. But I am convinced that we have embarked on a wild and exciting ride, perhaps the defining one of the human enterprise, itself. Although I=ve had far more than my Afair@ turn, I hope get to go along, at least for a short way.