On October 15, Upland municipal officials abandoned their ploy to stealthily issue $121 million in bonds and impose thereafter what would ultimately have become a $3,560.56 tax on every man, woman and child in Upland to cover the cost of pensions for municipal employees.
Ironically, it was a decision by the city council to try to sneak the issuance of the bonds past Upland’s citizens which ultimately led to a challenge of the strategy to use bond financing to borrow the money to plug the budget shortcomings the city will experience over the next half century as a consequence of the too-generous benefits past councils gave and the current council continues to provide to city employees.
Projections are that if the city does not act to reform the arrangement it has to provide for its past and current employees after they are no longer working, the city will have no choice other than to declare bankruptcy or disincorporate by 2032.
The plan to have the city borrow its way out of the coming crisis and thereby stall off the bankruptcy or disincorporation until 2042 or thereabouts was hatched by former City Manager Rosemary Hoerning, Assistant City Manager Stephen Parker, the consulting firm of Urban Futures and City Attorney Steven Deitsch. Hoerning is eligible to draw an annual pension of roughly $200,000 for the rest of her life. Parker is likewise on a trajectory to eventually receive a pension at or approaching $200,000 if he remains employed in the public sector until he reaches the age of 60.  Urban Futures stood to gain $62,500 if the bonds were issued, and it employs as one of its key directors former Upland employee Steve Dukett, who is currently drawing combined public pensions providing him with $185,540.28 annually. Deitsch’s law firm, Best Best & Krieger, stood to reap $70,000 through the issuance of the bonds.
Rather than asking the city’s voters to consider a bond measure by placing a question as to whether the city should issue the bonds or not on a citywide ballot in either a special election or as part of an upcoming regularly scheduled election as the 2022 primary or general election, the five members of the city council, Parker and Deitsch attempted to use the backdoor means of using a validation complaint, a legal action filed in Superior Court against the city’s residents, to get clearance to issue the pension obligation bonds.
The plan ran into the stiffest of headwinds, however, when the Howard Jarvis Taxpayers Association, which had a perfect record of success in opposing four other California cities in their efforts to issue pension obligation bonds without first obtaining voter approval to do so, filed a response to the city’s validation complaint on behalf of Upland residents.
The validation process the city attempted to use is one that involves the filing of a validation complaint against the residents/taxpayers of the jurisdiction for which the bonds are to be issued. Upon the filing of that complaint, which is a type of lawsuit, a judge considers and ultimately approves the language to be contained in the summons that will alert those who are being sued that they have an opportunity to object to the bond issuance and state their reasons for the objection. The summons is then published in a newspaper of general circulation within the jurisdiction on three days over three weeks. If no one comes forth to answer the lawsuit within 30 days of the newspaper’s first publication of the summons, then the judge will declare that the city or governmental jurisdiction is at liberty to issue the bonds. If an individual, individuals or a group comes forward to oppose the issuance, then the court schedules briefings, hearings and a trial for the city to establish that issuing the bonds is justified in the face of the opponent[s] putting on a case contesting the legality and propriety of utilizing bonds for the city’s stated purpose.
Upland city officials maintained as much secrecy as they could with regard to the move toward the bond issuance in the hope that the 30-day deadline would pass before an answer to the complaint was filed with the court.
In all of its actions relating to the contemplated bond issuance, the city council did not consider those items in an open public hearing such that they were separately called out in the agendas for the city council meetings at which that action was considered and took place. Rather those actions were presented on the consent calendars for each of those meetings.
Normally, in Upland and all cities elsewhere, the consent calendar is reserved for routine and noncontroversial actions that merit no discussion. The practice in Upland as it is in other cities is to not consider any of the items that are placed on the consent calendar individually but to vote on them collectively. In this way, it is very easy for the public to take no note of the items on the consent calendar. Accordingly, the public is very likely to miss the significance of any items that appear on the consent calendar and to have no understanding whatsoever or awareness of the substance of consent calendar items.
The actions the city took under the shroud of secrecy the consent calendars provided included:
* The hiring, on April 28 of this year, of Urban Futures as the city’s bond issuance consultant;
*The retaining, on May 10 of this year, of Best Best & Krieger to serve as the validation counsel and bond counsel for the bond issuance;
*The retaining, on May 10 of this year, of the law firm of Straddling Yocca, Carson & Rauth to serve as the disclosure counsel for the bond issuance; and
*The hiring, on August 9 of this year, of J.P. Morgan Securities LLC as the managing underwriter and Stifel, Nicolaus & Company, Incorporated as the co-managing underwriter for the proposed pension obligation bond issuance.
On July 21, in a lawsuit designated CIVSB2121939 by the San Bernardino County Superior Court and titled City of Upland v. All Persons interested in the matter of the proceeding for the issuance and sale of bonds for the purpose of refunding certain obligations that the City of Upland owes to the California Public Employees’ Retirement System, the City of Upland quietly sued its 77,754 residents by means of a validation complaint, challenging them to come forward within 30 days of being served with notice of the lawsuit with reasons why the city should not issue $121 million in pension obligation bonds.
Late in July an eagle-eyed Upland resident spotted the recordation of the validation complaint on the San Bernardino County Superior Court’s website, and word spread among a small circle of Upland residents that the city had filed suit against all of its residents. On Thursday August 12, the city quietly filed with the court for its approval of the language for a proposed summons naming no single individual but a collective, that being “all persons.”
“You are being sued,” the summons to participate in the validation process read in part. “You have 30 calendar days after this summons and legal papers are served on you to file a written response.”
Thereafter, inquiries with regard to the legal action were made with City Hall. In response, Parker put out a statement on August 18. “To be clear, the city has not directly or even indirectly sued its constituents,” Parker asserted. “No action is being taken against any individual, constituent or not, and at the end of the day, there will not be any judgment or adverse action taken against any individual because of the validation action.”
Councilwoman Janice Elliott backed Parker with the assurance that it was not accurate to say the city was suing its residents.
“In the validation language, the word ‘sue’ means to notify of a court action,” Elliott stated. “In this case, it is not an action against our constituents; it is a notification of a court process that allows us a cheaper and faster means of issuing pension obligation bonds than putting it on a ballot and calling for a special election.” Those who did not believe her, Elliott said needed to “review the various definitions of ‘sue.’”
Parker’s and Elliott’s statements suggested that the city had rethought the wisdom of the engaging in the validation complaint and might dispense with or change the language of the summons. As events unfolded, however, it was revealed that Parker, Elliott and other Upland city officials were continuing with the validation effort and were seeking to lull Upland’s residents into a state of complacency.
At that point, sensing evasion and double-talk on the part of Upland officials, seven Upland residents began monitoring the Inland Valley Daily Bulletin, the most widely circulated local daily newspaper in Upland and in which the City of Upland does its legal advertising, on the lookout for the summons. In the same timeframe, some of the people interested in the City of Upland’s issuance and sale of pension obligation bonds, figuring they were no match for the city on their own in the face of its deception, opened a channel of communication with the Howard Jarvis Taxpayers Association. The Howard Jarvis Taxpayers Association’s legal team secured a copy of the validation complaint, and signaled to those Upland residents that upon the publication of the summons, they should inform the association of that occurrence.
On September 9, the city served that summons on its residents by means of a legal notice published in the Inland Valley Daily Bulletin. Despite Parker’s and Elliott’s assurances the previous month that the city wasn’t suing its residents, the summons to all parties interested in the issuance of the bonds, meaning all residents, landowners, business owners, taxpayers and citizens of Upland, informed them, “You are being sued by plaintiff: City of Upland.”
There was no immediate visible reaction to the filing, and within a week City Hall insiders were counting their chickens, expressing confidence that there would be no residents willing to go to the expense or bother to make an answer to the validation complaint. Indeed, a full eleven days elapsed without any indication that the city’s effort to issue the bonds was to be contested. On September 21, with a mere 18 days to go before the city would have been free to initiate the issuance of the bonds, the Howard Jarvis Taxpayers Association, representing its members residing in the Upland community and itself represented by its President, Jonathan Coupal, who is an attorney, and two of its staff attorneys, Timothy Bittle and Laura Dougherty, filed an answer to the validation complaint. Two days later, the Howard Jarvis Taxpayers Association filed with the court and had served upon the City of Upland a first request for the production of documents relating to the case and a first set of special interrogatories.
At its next regularly scheduled meeting on September 27, the city council discussed the validation suit during a closed session outside the scrutiny and earshot of the public. City Attorney Deitsch informed the public after that session concluded that the council had taken no reportable action.
On Monday October 11, at 5 p.m., one hour prior to the normal 6 p.m. start of its regularly scheduled meeting, the city council met in a specially scheduled closed door meeting to discuss the validation action. When the council emerged from that session, City Attorney Deitsch stated that the council had taken no reportable action.
On October 15, Scott Ditfurth, the attorney with Best Best & Krieger representing the city in the validation action, filed a motion with the court to dismiss the entire case and all of its causes of action. Thereupon, Judge Lynn Poncin, who was hearing the matter, entered a dismissal of the complaint without prejudice before trial.
Unbeknownst to, and unappreciated by, the city council, Parker and Deitsch was that the Howard Jarvis Taxpayer Association had been brought into the case in large measure because of the manner in which the council, Parker and Deitsch had sought to secretively effectuate the bond issuance and then prevaricated about the lawsuit the city had filed against its own residents to achieve that goal.
This week, at the council’s second regularly meeting of the month on October 25, Deitsch sought to cast the city’s action in a benign light.
“Several weeks ago the city of Upland filed a validation action in San Bernardino County Superior Court, seeking court approval for issuance of pension obligation bonds,” Deitsch said. “The proposed issuance of such bonds and the filing of the validation action had been fully considered and discussed by the city council. The issuance of the bonds would allow the city to satisfy at least part of its current obligation to the public employees retirement system by issuing pension obligation bonds at a lower interest rate than the public employees retirement system obligation now carries and is expected to carry into future years, and then the city would use bond proceeds to satisfy the public employees retirement system obligation. It should be noted that other cities in California have successfully issued such pension obligation bonds, and have done so following successful completion of a validation action in court similar to the one filed by the City of Upland. The validation complaint in our matter named as defendants quote all persons interested in the issuance of the bonds end quote. The court granted Upland’s request for an order to publish notice and summons of the validation action, and this would be published, and was, in a newspaper of general circulation. The city did this. The Howard Jarvis Taxpayers Association recently filed an answer with the court. The answer constitutes a challenge to the city’s ability to validate its pension obligation bonds, and would require the parties to litigate the city’s ability to issue the bonds. The city does not believe that the Jarvis answer has merit. However, it would take much time to complete the validation litigation with the possibility of a subsequent appeal by the losing party. It would also cost the taxpayers significant money to litigate. One down side is that the current attractive bond interest rates might no longer be available at the conclusion of the protracted litigation. As a result, the city has decided not to pursue the validation action and has dismissed the validation complaint. So, now the city will consider alternative financing approaches to address the city’s existing pension obligations.”
-Mark Gutglueck