Unlike its municipal neighbor to its immediate northeast, the elected leadership in Montclair was able this week to use its own authority to issue $110 million in bonds that will provide funding for past and ongoing civic operations including paying the pensions of its past and current municipal employees, deferring the debt Montclair city government has racked up to future generations.
While there was little in the way of difference between the strategies Montclair and Upland had hatched to juggle the burdensome debt both cities have accrued over the past 30 years in living beyond their means, Montclair’s city council was able to execute on the strategy of having bills that are now coming due borne by the children and grandchildren of the city’s current residents because, in large measure, its members have not yet lost the trust of the constituents they serve. In adjacent Upland, it appears, at least, that the city council’s stealthy effort to slip the issuance of $121 million in bonds past its citizenry failed because of the intense distrust its members’ past actions have generated in their constituents matched by the commensurate scrutiny of their collective actions by some of the more animated members of Upland’s citizenry.
For a variety of reasons, Montclair’s residents did not blanch this week when its elected leaders took on debt that is more than three-and-a-half times the city’s currently budgeted $32 million annual operating.
At 5.52 square miles, Montclair ranks, in terms of land area, as San Bernardino County’s second smallest municipality. With its 41,601 residents, it boasts the county’s ninth smallest population among 24 incorporated jurisdictions countywide. Because of a relatively intense commercial base – anchored by Montclair Place, which was formerly known as Montclair Plaza – the city has been able to hold its own financially.
Still, the bonded indebtedness that Montclair assumed Monday night represents the largest investment the city has made in itself since its 1956 founding.
The issuances were made in two increments. In one, through an arrangement involving the city and a subdivision of itself known as the Montclair Public Financing Authority, authorization for a total issuance of $49 million in lease revenue bonds was made. In the second, the city authorized the issuance of $61.87 million in pension obligation bonds.
The lease revenue bond arrangement involves the city leasing all 11 of the city’s parks to the Montclair Public Financing Authority. These leased assets are simultaneously being leased back from the Montclair Public Financing Authority to the city, and the rental payments are pledged to the owners of the bonds issued by the Montclair Public Financing Authority.
While cities are normally required to get permission from their residents/taxpayers to issue bonds in the form of a vote to do so my a majority of the city’s voters held in an election, an exception is carved out in California law that allows an issuance to be made without voter approval and on the authority of the city council, which also acts as the public financing authority board through a so-called lease/lease back arrangement.
The City of Montclair got around the voter approval requirement with the pension obligation bonds through a different means, that being by engaging in a validation action. In that case, the City of Montclair filed a validation complaint against all of the city’s residents and anyone interested in the bond issuance, seeking from them reasons why the bonds should not be issued. Thereafter, it had published in the Inland Valley Daily Bulletin once a week for three straight weeks a summons notice calling upon anyone who chose to do so to make an answer to the complaint within thirty days of the first publication of the notice. When no one responded with an answer to the complaint, Superior Court Judge Gilbert Ochoa entered a finding that the city was free to proceed with the issuance of the bonds.
Montclair officials kept the action relating to the bond issuance relatively quiet, and did not engage in any dialogue about what the city was trying to undertake. This contrasts with neighboring Upland, where city officials, despite their efforts to keep their issuance of pension obligation bonds low key, were confronted with widespread opposition to the issuance of the bonds, such that the city will need to wait at least until next February to put on a case against the Howard Jarvis Taxpayers Association, which filed an answer to the validation complain, to justify the use of the bonds to redress that city’s pension funding crisis. In Montclair, with regard to both the lease revenue bonds and the pension obligation bonds, the law firm of Nixon Peabody is serving as validation and bond counsel, the law firm of Richards, Watson & Gershon is serving in the capacity of disclosure counsel, Urban Futures is filling the role of municipal advisor relating to bond financing, Hilltop Securities is the bond underwriter and the U.S. Bank National Association is serving as trustee.
For its role as trustee on the $49 million lease revenue bonds issuance, the U.S. Bank National Association will be paid $3,925. The law firm of Nixon Peabody is being paid $57,500 for its role as bond counsel in the lease revenue bond issuance. For its work as disclosure counsel with regard to the lease revenue bond issuance, the law firm of Richards, Watson & Gershon is to be paid $395 per hour per attorney involved with a cap of $35,000, plus out-of-pocket expenses. Hilltop Securities is to make an estimated $213,750 as underwriter with regard to the $49 million lease revenue bond issuance. Urban Futures is to pull down $40,000 plus $2,500 for expenses for its role as the lease revenue bond advisor.
For its role as trustee on the pension obligation bonds issuance, the U.S. Bank National Association will be paid $3,500. The law firm of Nixon Peabody is being paid $75,000 for its role as bond counsel in the pension obligation bonds issuance. For its work as disclosure counsel with regard to the pension obligation bonds issuance, the law firm of Richards, Watson & Gershon is to be paid $395 per hour per attorney involved with a cap of $40,000 plus out-of-pocket expenses for its work as disclosure counsel relating to the pension obligation bonds issuance. Hilltop Securities is to make an estimated $309,350 as underwriter with regard to the $61.87 million pension obligation bonds issuance.
Information on how much Nixon Peabody was paid for its work with regard to the pension obligation bond validation action was not available.
Mayor John Dutrey justified the issuance of pension obligation bonds by remarking that Montclair had paid roughly $1 million to the California Public Employees Retirement System in 2012 to cover pension costs and that covering the cost of pensions to employees no longer working for the city has at this point jumped to approximately $5.5 million per year.
“This is a very stable policy decision,” Dutrey said.
-Mark Gutglueck