NNLB was unique funding model for fixing streets

Posted by George Hostetter on March 10, 2014 

I went to a news conference last month in the 5800 block of East Ramona Avenue, on the eastern edge of Fresno City Council Member Paul Caprioglio’s District 4.

The event made me think of No Neighborhood Left Behind. The event reminded me how City Hall can be an interesting place.

Mayor Ashley Swearengin, Council President Steve Brandau and Council Members Caprioglio and Lee Brand discussed plans to boost the city’s street-maintenance budget.

Here’s the idea in a nutshell:

Fresno has about 3,500 lane-miles of streets; potholes and cracks and bumps are everywhere; the city spends less than $2 million a year on street maintenance; the city about six years ago spent around $7 million a year; the city should spend $15 million a year; the street-maintenance budget would more than double in FY 2015’s budget (to about $3.6 million); an amendment to Measure C’s spending plan could add another $2 million a year; developer projects in the future must shoulder more responsibility for street maintenance.

Caprioglio gave reporters a brief review of street-maintenance problems. This particular stretch of Ramona was suffering from “alligator” cracking, Caprioglio said. The asphalt’s cracks had the pattern of alligator skin.

Elected officials made two key points: Fresno’s streets need a lot of help. It’ll take years to put a big dent in the challenge, but the time to start is now.

City Manager Bruce Rudd went to the microphone. I asked if the administration plans to use these newly-discovered revenue streams to borrow a big pile of cash so a lot of repair work can be done immediately.

Rudd’s answer: “No.” He said it in a way that suggested his real thought was “are you nuts?”

City Hall tackled a lot of controversial projects involving debt in the first eight years of the 21st century. No Neighborhood Left Behind (NNLB, as it’s called in staff reports) is the most mysterious of all.

The Met, Granite Park, the downtown stadium, the Convention Center parking garage, the Fresno Falcons-inspired Selland Arena upgrades — I can understand City Hall’s logic in rolling the dice on those debt deals.

But why borrow $45 million to do something that is part of City Hall’s daily mission when repaying the principal and interest is guaranteed to hobble the city’s ability to pursue that mission for years to come?

No Neighborhood Left Behind came to the City Council in the spring of 2004. The plan was to borrow $45 million to do a lot of infrastructure work (street repairs, new sidewalks, new curbs, new gutters) in a hurry. The thinking was that many of Fresno’s older neighborhoods lacked such infrastructure or the infrastructure was crumbling.

The city’s Public Works Department has annual budgets for such work. However, there wasn’t enough money to do an eye-catching amount of work in a relatively short period.

Debt, city officials said, is the answer.

Council Members Brian Calhoun and Jerry Duncan disagreed. They said repaying the big loan would come back to haunt City Hall. They lost the debate.

Equality — Mayor Alan Autry’s crusade to end what he called “the tale of two cities” — carried the day. Just about everyone in Fresno was impatient for equality to get here in full force.

So, the City of Fresno borrowed $45 million. Principal and interest payments were to go through 2023. The annual bill at the beginning was just under $4 million. Over the course of the loan, the city would spend about $2 of interest for every $3 of principal. In other words, the city would spend $75 million to buy $45 million.

Where to get the money to repay the debt?

Everyone decided the lion’s share would come from the council members’ discretionary infrastructure budgets. These budgets were born in the late 1990s as the city’s strong-mayor form of government was cutting its teeth.

The city used to have a council-manager government. A city manager handled day-to-day operations, including those of the Public Works Department. The City Council hired and fired the city manager. The city manager had to have a minimum of four council members in his corner at all times to keep his job. When a council member said he wanted a pothole fixed in his district, the city manager jumped.

All that changed when the strong mayor came on board. The city manager still controlled day-to-day operations, but his job security depended solely on keeping the mayor happy.

Council members stewed over their loss of power. They no longer could get a pothole filled at a moment’s notice.

But the council, with a veto-proof five votes, still called the shots when it came to approving the annual budget. Council members quickly figured out what to do — they would simply give themselves a big pot of money each year, give it a fancy name like “discretionary infrastructure fund,” then authorize each council member to spend the money as he/she saw fit on stuff like street-maintenance.

The result was a song-and-dance during council meetings.

Council Member John Doe would say to the city manager: “Elm Street in my district has a dozen potholes, Mr. City Manager. I want to use some of my discretionary infrastructure money to fill them.”

City Manager: “We’ll get on it ASAP.”

A month would pass.

Council Member Doe: “Mr. City Manager, the Elm Street potholes aren’t filled. What’s up?”

City Manager: “Public Works is busy with its usual work and the requests of other council members. We’ll get on it eventually.

Council Member Doe to himself: “That no good SOB!”

City Manager to himself: “That no good SOB!”

Some council members couldn’t even spend all their discretionary infrastructure money in one year. A rite at the end of each fiscal year was a council vote authorizing the roll-over of unspent funds to to their following year’s account.

Council members were perturbed by the administration’s foot-dragging when asked to fill a pothole. The administration was perturbed by the inefficiency this routine caused in a Public Works Department that was fully aware of the city’s street-repair needs and (allegedly) had a thoughtful and geographically-equitable plan to tackle the challenge with available funds.

It didn’t take long for critics to label the council members’ discretionary infrastructure accounts as “slush” funds.

Each council member in April 2004 was getting $475,000 a year in discretionary infrastructure funds. That’s a total of $3,325,000. The council majority and Autry said: “Here’s our answer. We’ll take this money and apply it to NNLB’s annual bond bill. No pain whatsoever.”

To sum up:

1.) Council members decided to take $3.3 million out of Public Works’ annual budget and deposit the money into their own district infrastructure accounts.

2.) Had this money stayed in Public Works, it would have been used to fix streets.

3.) The money made its way back to Public Works to fix streets, but first it had to go through the council members’ hands.

4.) Tiring of this circular process, council members decided to borrow $45 million in bonds to fix streets.

5.) Council members decided to use their annual $3.3 million for the next 20 years or so to help pay the annual debt on the $45 million in bonds.

6.) The council decided it was wise to spend approximately $75 million (principal and interest) of street-fixing money over 20 years or so in order to spend $45 million of street-fixing money in about five years.

7.) The annual principal-interest payments have no flexibility should the city’s budgetary fortunes turn sour — to miss a payment or force bondholders to take a haircut would be to cause a financial disaster.

That’s the legacy of the No Neighborhood Left Behind project.

I don’t get it.

 

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