Anaheim’s Shocking, Terrifying, Theory of Government — The Complete Story

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This is probably the most important piece you will read about the current election.  What it describes affects far more than just Anaheim itself.  Part of the delay in its publication has been due to waiting to receive a trial transcript, and then due to some court deadlines.  But part of the delay has been that the responsibility of writing it to be as clear as possible has been daunting.  (Your author finally gave up and hit “publish” anyway.)

This story previously appeared in four parts:

PART 1: The Big Donor’s Idea of Paradise

PART 2: The City Council’s Many Hats, Some With Magical Powers!

PART 3: CATER’s Lawsuit Over the Convention Center Bonds

PART 4: The City’s Attorney Explains the Theory

This will be explained in the article. Essentially, Anaheim believes that the center column, local government Joint Powers Agencies, have unlimited authority to put the city on the hook for future bond payments and no accountability to the public except during City Council elections — like the ones taking place this week. The basic core point is: YOU DON’T GET TO VOTE ON PUBLIC SPENDING.

1. The Big Donor’s Idea of Paradise

Let’s say that you’re a big donor to the City Council majority of a large city from which you wanted public subsidies.  (We can use the example of saying that you’re The Walt Disney Company — which is currently dumping over $600,000 in direct contributions and independent expenditures, the latter channeled through PACs, to support the campaigns of Mayoral candidate Lucille Kring and City Council Candidates Kris Murray and Gail Eastman, and to oppose the campaigns of Mayor Tom Tait and City Council challengers James Vanderbilt and Jose F. Moreno “(1)” — but there are plenty of others like them.)  Let’s have you answer this question:

In an ideal world, how much authority would you want that City Council majority to have to approve your favored proposed projects?

This doesn’t count your wanting them to hire City Staff friendly to you and unfriendly to your critics on the Council.  That much goes without saying. This is just about who gives the final go-ahead for what sorts of spending.  Let’s ask some questions:

(1) Do you want the public to have to cast a 2/3 vote in favor of the proposal?

No, you do not.  A 2/3 vote is very difficult to get.  This is part of what Prop 13 was about, remember — protecting the public treasury by requiring a 2/3 for new taxes?

(2) Do you want the public to have to give a majority vote in favor of the proposal?

No, you do not.  Certainly, that sounds a lot more reasonable than a 2/3 vote, but having to win elections before you can start a project is very slow — and, when you’re dealing with politicians handing out public subsidies to their big donors, can be embarrassing.  So, ideally, you would not want to see a public vote.

(3) Do you want a requirement that a Council supermajority would have to approve a proposal?

No you do not.  For Councils of five, seven, or nine members, this usually means having to pick up one extra vote.  But while it’s possible to achieve a supermajority — Anaheim’s City Council has one right now — the odds tend to be against it.  So a simple majority requirement for City Council is best.

(4) Do you want there to be any limits on how much they can spend out of the current year’s budget?

Of course you do.  Don’t be ridiculous.  The City Council can’t spend more than they have available to spend in a given year.  Everyone knows that!

(5) Do you want there to be any limits on how much they can BORROW, using up money from future budgets?

No you do not.  You don’t want any limit on their ability to take out municipal bonds to finance your projects.  In particular, you want the current City Council candidates you favor to be able to ransack Anaheim’s future prosperity for their current political gain and your profit — especially if future Councils may be less slavishly devoted to you.

(6) So the ideal situation is that JUST THREE PEOPLE — who you’re spending almost A MILLION DOLLARS to elect — can vote to put the City on the hook for ANY amount of future spending?

Yes.  That would be ideal.

(7) Doesn’t there have to be A LAW AGAINST THAT somewhere?

 We’ll see.  People have thought that there is — but we just got a trail court judge to say that there isn’t.

It may be hard to imagine, but this fight really is happening right now in Anaheim.  Your humble author is the Trial Counsel — although he is not writing this piece in that capacity, but just as a public interest blogger — for one of two organizations that is suing the City to enforce a very simple proposition:

When future City funds will be on put the hook for a major expenditure, the law requires that the public should get to vote on it.

That’s it; that’s what the fighting is about.  Unless you truly twist and stretch the law, this has been true since at least the moment when the laws on Redevelopment were eliminated in 2011 and 2012.  Most people in the state, including informed people, likely think that it’s still true.

Anaheim believes that it has found a slippery legalistic way around it, one that will create the Big Donor’s Ideal Situation described above.  Whether that’s true is something that will be hashed out in court.  By the end of this series of posts, you will likely be rooting for the Plaintiffs.  But that’s not what this series is about.

This series of posts is about just letting you know what they are doing.  The City of Anaheim’s attorneys have spelled out what they want to do in court.  They’ve spelled out their theories — and the City’s Council majority’s utter contempt for any attempt to check its spending power.

But: the City Council majority probably doesn’t want you to know that this is what they’re arguing for in court.  How do you explain to citizens that your grand plan is to shut them out of the process entirely?  In the cases of Gail Eastman and Jordan Brandman, they may not understand all of this themselves.  (Lucille Kring probably understands it and Kris Murray, who is the most prone to lie about it, definitely understands it.)  In any event, there shouldn’t be any argument about the City’s position:  it’s all on paper; we have the transcript.

Now you’re going to know about it too.  You’d best read this series sitting down — or even lying down.  You will have a hard time believing what these people are doing.  But you really should know.

2: The City Council’s Many Hats, Some With Magical Powers!

Understanding PART of the Above Graphic — and Yes, This WILL Hurt

Let’s start at the bottom left, the one legal entity with which you’re already familiar: The City of Anaheim, which is governed by its City Council. All of the other yellow ovals in the graphic are different organizations that are, essentially, “The City of Anaheim” wearing different hats. Putting on one of these different hats is supposed to give the City Council different superpowers that it doesn’t normally enjoy.

The first of these magic hats to be created was the Anaheim Redevelopment Agency (“ARA”) — an example of a Redevelopment Agency (“RDA”) in the graphic above. (I’ll explain what a “Successor Agency” is below.) Redevelopment Agencies were supposed to direct state money towards areas of greatest need within a community; through some mysterious process they ended up making cronies of City Council members wealthy and not doing a whole lot to help the poor. (More on that latter.) The City and the ARA were able to use a law called the “Joint Exercise of Power Act” (“JEPA” in the above graphic) to enter into a Joint Powers Agreement (“JPA”) to create a new organization called a “Joint Powers Authority” (“JPA” in the graphic) some special powers differing from either the City and the ARA.

(You may note that the acronym “JPA” is used twice; once for a new legal entity and once for the agreement, authorized by the JEPA, that creates that entity. This is unfortunate, but you can usually tell which someone is talking about by context. OJB apologizes if all of this is killing you.)

The JPA (“Authority”) that was created by the JPA (“Agreement”) between the City of Anaheim and the ARA was called the Anaheim Public Financing Agency (“APFA”). Again, the RDA and the APFA were designed to be governed by the same people, just wearing different hats.

The APFA has had the ability to, among other things, issue municipal bonds for big projects that big donors want. The whole idea of allowing a City to create a JPA with, essentially, itself was to give the City Council the ability to do things like issue those bonds without a public vote — that is, a vote by the people who will be on the hook to repay them — that the City Council cannot do while wearing its own hat. This arrangement was peculiar and ill-advised — but in the late ’90s the Supreme Court of California held it was not illegal. (Whether that has changed given the elimination of Redevelopment is one of the issues in the lawsuit.)

Because that’s not enough — and because it was concerned that it might lose a lawsuit against CATER and IOC (described below) — Anaheim has also set up a separate JPA with the Anaheim Housing Authority (“AHA”), creating a new entity called the Anaheim Housing and Public Investment Authority (“AHPIA”). On the chart above, “AHA” has the same status to enter into a JPA with the City as a Redevelopment Agency had had, while AHPIA is another example of a JPA created by such an agreement. And, again, the ARA, SA, APFA, AHA, and AHPIA are all governed by the members of the City Council, wearing different hats.

(OJB apologizes if it is hurting your head. It did not come up with this sort of scheme; it is just reporting the news. Don’t worry — this section is about to get more interesting.)

The new wrinkle here is this: Due to rampant corruption deployed by special interests that wanted to tap into these huge pots of money, Redevelopment Agencies were scuttled beginning in 2011. Then-newly elected Governor Brown got the legislature to eliminate the system of Redevelopment Agencies (“RDA” in in the graphic above) and replace them with Successor Agencies (“SA” in the graphic above.) Successor Agencies did not have the ability to create new projects, such as issuing new bonds, but solely to “wind down” the activities of the Redevelopment Agencies. A Successor Agency was also just the City Council wearing a different hat. One power it retained was that it would now become the counterparty to the City in the JPA (Agreement) governing the JPA (Authority) after the RDAs were eliminated.

Why did Redevelopment Agencies get eliminated by Governor Jerry Brown, with an uneasily unified Democratic Party joined by some honorable anti-Redevelopment Republicans such as Chris Norby? It’s because there was a tendency for municipal (i.e., city, county, special agency) governments to abuse Redevelopment funds. So many people stood to make so much money by arranging approval of lucrative projects that it was corrupting municipal governments. Those interests could spend so much money not only to lobby candidates, but to make independent expenditures on campaigns to elect candidates who wouldn’t even need to be lobbied, but would just do as they were told — that serving the greater public good just went out of the window. And so Governor Brown pulled the plug — which Anaheim wants to stick back into its socket.

Just in case that this is news to anyone: Lots of people stand to make a lot of money on these major public construction projects if they go through. For really big projects — such as the proposed expansion of the Anaheim Convention Center, which led to the lawsuit discussed here — the two primary winners are (1) Wall Street investment bankers, such as Citigroup, whose clients just live for this sort of huge sale of tax-free municipal bonds, and (2) the construction company (in this case Turner Constructors) who got the (no-bid, of course) contract to build it. (Major construction projects in Anaheim tend to be divided up between Turner and Clark Construction, whose name you may have seen on the $200 million ARTIC rail terminal on the 57 between the Honda Center and Angels Stadium.)

Other people stand to make money as well. Any middlemen involved in creating the deal — and especially in steering it through the passages of the City government — get a healthy cut. The middleman in this case is apparently Curt Pringle’s group, Pringle and Associates — who either directly or with the Anaheim Chamber of Commerce or by some other path funds and populates Anaheim Blog, managed by Matt Cunningham and reportedly directed by Pringle and Associates’ VP and chief lobbyist, Todd Priest. Anaheim Blog, largely led by what is believed to be Priest himself writing as “Anaheim Insider,” which takes regular potshots at both CATER — the Coalition of Anaheim Taxpayers for Economic Responsibility, of which your humble author is General Counsel which will feature prominently in the next installment of this series — and Orange Juice Blog and Anaheim Mayor Tom Tait. (Those three entities are far more different than the City Council and its different personae; CATER’s Board and Staff — the latter being me — literally does not talk to the Mayor about litigation matters other than in open sessions of the City Council.)

Construction unions also want to see the Convention Center expanded, because that creates jobs, and even when I have challenged them to their faces they have literally refused to apply any sort of cost-benefit principles to their analysis. “How many jobs must a half billion dollar commitment of public funds create for it to be worthwhile?”, I have asked (probably not using those exact terms). “This project CREATES JOBS!“, is the (non-)answer.

In my experience, the service unions are a little more sophisticated, because after the Building Trades workers are gone they are the ones who will be working in the expanded Convention Center — or not, if it turns out to be a bad economic bet. And the public employee unions have to be even more sophisticated than that — because if the City commits too much money to too many projects that bring too little money into the City — convention centers are generally understood to be loss-leaders — then public employees are going to be cut (and possibly, depending on how the law looks in the decades ahead, pension obligations as well. The recent Stockton Bankruptcy decision gives real cause for concern on that point.)

So the policy concern is: “This project may DESTROY JOBS.” Of course, those jobs belong to the future, and people in the future don’t necessarily get represented well in the present.

In summary: this reform took a lot of money — and a lot of opportunity for corruption — out of the system. Ever since Redevelopment money went away, some cities — Anaheim being one of the leaders statewide — have been trying to figure out a way to GET IT BACK!

However, until Redevelopment money comes back — and it may never come back given the historic degree of corruption in the system — Anaheim’s City Council majority wants to be able to keep on spending money to enrich its cronies anyway. If they can’t get that money from the state, it will get it from its own people. That is, mostly from its future people — the ones that mostly aren’t yet voting in the current election.

And if the weight of today’s dumb and short-sighted deals means that no taxpayer in their right mind would want to in Anaheim given its budget collapse, and the City’s flatlands turn into mostly slums that one can evade by taking the bullet train to Angels Stadium or to the streetcar to Disneyland or the Convention Center — a small enough portion of the Resort District that it can be well-guarded by police — then maybe, some people seem to think, that will be good enough.

There’s one thing that they have to do to make that dream come true: they have to keep people from voting on these big-budget proposals! So it’s finally time to talk about the lawsuit.

3: CATER’s Lawsuit Over the Convention Center Bonds

The Case That May Determine Whether Anaheim Has Any Real Democracy Left at All

The case of Coalition of Anaheim Taxpayers for Economic Responsibility and Inland Oversight Committee v. City of Anaheim, et al. was decided on Friday August 26 in Orange County Superior Court — although it will be appealed.  Let’s begin by unpacking those names.

The first party noted above is better known as “CATER,” a good government watchdog group operating in Anaheim.  (Your humbel author is General Counsel of CATER, but is not writing in that capacity, but rather writing because there’s just a couple of us in the blogosphere who appears able to do so — and given the stakes to the City it must be done.)  The second party is better known as “IOC,” and is represented by the law firm of Cory Briggs, who has successfully challenged the City of Anaheim on behalf of Orange County Communities Organized for Responsible Development, better known as OCCORD.  Briggs has a wonderful track record of success, especially at the appellate level, in cases involving improperly constructed municipal bond offerings.

The “et al.” after Anaheim’s name refers to various other entities that are all governed by the members of the Anaheim City Council, wearing “different hats” when acting as different agencies.   So we have the Successor Agency (“SA”) to the Anaheim Redevelopment Agency (“ARA”)  and the Anaheim Public Financing Agency (“APFA”), the offspring of City and the ARA, now being sustained by the City and its step-parent, the SA.

For those who haven’t read the previous installments — and why not? — the City claims that when the Council puts on a given hat, it can evade any democratic restrictions on its power, allowing it to commit essentially unlimited future City funds to present-day financing without a public vote. 

The whole central issue in CATER and IOC  v. Anaheim boils down to this:

If the City wants to commit public monies to pay for a new bond indenture for the purposes of construction, where the bonds are issued by a Joint Powers Authority now managed by the City and the Successor Agency, do they have to take it to a public vote?

That’s what we’re fighting about.  CATER could ultimately be proven right, or be proven wrong, but the startling this at this moment is that the City is taking this to court, rather than settling this case, to defend the principle that they DON’T have to let the people vote!

That’s your Anaheim City Council majority in action!

CATER and IOC say:  “YES, you have to take it to a public vote.”  In the example of CATER and IOC v. Anaheim, the city is putting obligating the city’s to repay over half a billion dollars over the course of somewhere between 30 and 38 years in order to, primarily, fund the expansion of the Anaheim Convention Center (“ACC”), without which Anaheim might allegedly lose two large annual conventions.  (The conventions may leave Anaheim anyway, of course, even if the ACC expands; the City has  no binding long-term contract with them.)

The City says: “NO, we don’t have to take it to a public vote.”  Note that we’re not even talking here about a 2/3 vote that would be required by Proposition 13 and other provisions if the City were issuing the bonds itself.  We’re talking about a simple majority vote.  The City doesn’t want to put this half-billion dollar project to a vote because it is afraid that it would lose.  And, if it doesn’t have to put this project up for a vote, it also doesn’t have to put any other similar project up for a vote.

The City of Anaheim does not want citizens to be allowed to vote on approving half-billion dollar expenditures of public money — or billion dollar or ten billion dollar expenditures, for that matter.  The City wants citizens to vote only on the members of the City Council — a majority of whom, once elected, can use the JPA, in this case the APFA, to spend pretty much as much city money as they want on whatever they want, with the profit going to whomever they want.

It’s “the tyranny of the trio.”  See — we told you that this was about to get interesting.

OJB can sense some disbelief in its reading audience.  You don’t have to take our word for it.  We will soon have a transcript of the arguments that took place in the Courtroom — and you will be able to read with your own eyes what a partner in Rutan & Tucker, the City’s outside Counsel, told the Judge while the City Attorney for Anaheim, Michael Houston, looked happily on from the gallery.  This “Keep the People from Voting” position REALLY IS the position of the City Council majority — unless they are simply too dense to understand the meaning of their own votes.

Here is that meaning, as stated by CATER’s President Cynthia Ward:

Imagine if you will that there IS NO CODE that these agencies have to abide by. That once they are created, no matter what basis they were founded on, they no longer answer to that legislative code because they have become their own monster, unstoppable, and unaccountable. The State may giveth, but according to Rutan and Tucker the State may not taketh away, or even make demands once the JPA is formed.

Beyond the law, able to spend without consequence (to them), and controlled only by the results of one election every two years — into which the very interests that benefit from this City Council spending can pour unlimited amounts of money.

Look at your mailboxes and your cable TV ads, Anaheimers!  If Disney and the other folks who are flooding them get at least three seats on the City Council — which means electing ONLY ONE AMONG Lucille Kring, Kris Murray, and Gail Eastman — this is what they claim the right to do to the City.  Any and all major construction spending and subsidies through the JPAs — and as much of it as they and their big donors want.

If you didn’t realize that the states were this high — they are.  And that is why you may soon be finding yourself in a position that you never expected: reading a trial transcript.  Stay tuned.

4: The City’s Attorney Explains the Theory

The diagram that you see way above comes from one drawn by the City’s outside Counsel with Rutan & Tucker.  (I’m not naming him so as not to be personally provocative.  We’ll call him “Rutan.”)  He omitted everything in off-white, like the JEPA, the caption calling it a power grab, and the designations about “limited power” and “unlimited power.”  Those last parts are the important parts.

Rutan’s argument was essentially that you have a whole other part of local government that you probably didn’t know about — and that it allows a care three-person majority of the City Council to do pretty much anything it wants to when it comes to obligating the City to dedicate large chunks of its General Fund to building Big Construction Projects that profit Big Donors.

Four years ago, while we were still in the heyday of the Age of Redevelopment, they would have been correct.  But in 2011, the Legislature got rid of Redevelopment because it opened up the door to so much waste and corruption — essentially, if you put a huge pot of money out there in public, even for a good purpose, greedy people are going to find out a way to get ahold of it.   You either have to continually bat them down in a never-ending game of “Whack-a-Mole” because you think that your purpose is good enough to justify it — that’s the ideological liberal position — or you give up on that purpose because you can’t tolerate the corruption (the ideological conservative position.)

Both positions have their merits; being a believer in the power of government to foster positive change, I take the liberal position, while others here take the conservative one.  But honest liberals and conservatives agree that what you don’t do is just leave that pot of public money out there and let the greedheads feed at it like pigs at a trough, usually producing nothing much that actually serves the good purpose for which the money was intended.  That’s the “practical” position of Business Democrats and Easy Street Republicans.  That’s what California was doing — just letting a bipartisan coalition the bastards feed and feed — and that’s what California, in Governor Brown’s most dramatic and effective legislative initiative of his first year (and maybe his first term) eliminated.

The end of Redevelopment had two effects.  First, it cut off the spigot of Redevelopment funds.  Second, as a necessary consequence of that — and this was the point of the reforms — it cut off the authority of City Councils to approve these huge piles of spending.  After all, you can’t spend what you don’t have.

Or can you?

You can spend what you don’t have if you can take out a loan — or, especially if you’re a municipality, if you can issue a bond.  Anaheim’s position has been that it wants to be able to continue to issue bonds for Big New Construction Projects even in the absence of Redevelopment money.

Unfortunately for the Anaheim City Council — although fortunately for its residents — if the City is going to issue a huge bond, it has to go to the voters for approval.  For example: if, as it is arguing, the expansion to the Convention Center will be worth the $200 million plus financing fees (apparently based on its likelihood — no guarantee, of course — of keeping two large conventions in the City that might otherwise leave), then it has to convince the voters.  And, if it’s case is as good as it claims — which I doubt, but it’s possible — it shouldn’t have much trouble doing so.  That’s democracy in action.

Also, Anaheim has additional constraints on its power that are imposed by its own City Charter (its local constitution) and the State Constitution.  That’s constitutional democracy in action.

Anaheim says that there’s another pathway that the Legislature didn’t cut off — one that allows the Council majority effectively unlimited power to commit future City Council budgets to current expenditures.  It involves something called a “Joint Powers Authority,” or “JPA.”

After a JPA is created by a City and another governmental entity — even one that, like the Anaheim Redevelopment Agency or the Anaheim Housing Authority, is controlled by the very City Council that governs the City — Anaheim says that it can do WHATEVER IT WANTS TO, in WHATEVER DOMAIN IT WANTS TO, when it comes to issuing bonds.  Of course, they have to make sure that they’ll have the money to repay the bonds — but that’s not a problem for them, because the majority voting to issue the bond under the JPA is composed of the same people on the City Council promising to repay it.

More strikingly, a JPA between the City and the Anaheim Redevelopment Agency doesn’t have to limit itself to dealing with Redevelopment issues.  A JPA between the City and the Anaheim Housing Authority doesn’t have to limit itself to dealing with housing issues.  Take a look at what’s written above and let it sink in:

They Can Do Anything — when it comes to approving construction bonds.  Anything, so long as they vote to put the City on the hook for paying the bill.

The City’s Rutan & Tucker attorney said about the Anaheim Public Financing Authority created by the City and the Anaheim Redevelopment Agency, that the APFA “has its own business that has nothing to do with redevelopment.”

A JPA, he says, “is greater than the sum of Its parts. It can do things that even the city and the Successor agency or the RDA cannot do. That is what Rider stands for. And that is the premise on which this house of Cards is built.”  The other agencies you see in the graphic “were all constrained by something. The city was constrained by the voting requirement. The RDA would have been constrained by the fact that it’s a redevelopment agency and could only issue bonds for redevelopment projects, which this is not.”  (He notes elsewhere that the Successor Agency is constrained by the fact that it exists only to wind down the Redevelopment Agency’s activities.)

That’s what those lines are about, separating “limited power” from “unlimited power.”  Using what he elsewhere calls “magic language,” the City Council grants itself extraordinary — within this domain, almost limiteless power — that ITS VOTERS DID NOT WANT IT TO HAVE.

The important thing about the JPA, from the Rutan attorney’s perspective, is its ability to act without voter approval.  When the Court points out that the City can issue these bonds if it can get a majority vote for the project, he replies: “[T]o me, that’s comparable to saying it can’t do it. It can’t do what the JPA did in this case, which was go forth and approve the bonds without getting a vote.”

All of this is about the ability of the City to shut its voting citizens out of the process.

Now if you’re up to date on the City Charter, you’ll know that it states that even for revenue bonds like these, the City has to get a majority vote for a project.  No problem, according to the Rutan attorney: “In exercising the powers granted pursuant to this, you don’t have to comply with any other law. … You don’t have to comply with any other law that is applicable to your members.”

The idea is that because this bond is being issued by this empty straw entity, the JPA, the terms under which it is offered are beyond regulation by the City or the State.

In other words: “No vote required.  Three people can commit the City to whatever they want.”

Now, don’t panic — CATER and the IOC disagree with the City’s position here.  We’re fighting to restrain them.  Even if — incredibly, horrifyingly — this was the law prior to the State’s elimination of Redevelopment, we argue that it’s not the law today.  That is a big topic — and one for another day.  That’s not the point of this particular discussion

The point is this:

Why does the City of Anaheim EVEN WANT this huge, dangerous, anti-democratic power for three people — on their own, and without much evident understanding of the stakes and consequences to commit the next 30-38 years of the city’s annual budget to these huge construction projects that benefit their own Big Donors?

They want this power badly enough to fight us in Court over it.  They refused to put this issue even on the November ballot — it could have been on June’s — because they care so much about this principle that three people should be able to have dictatorial control over Anaheim’s economic future.

Why?  WHY?

5. Instead of an Executive Summary, A Parable

The spirit hasn’t moved me to write an “Executive Summary” of all of this — although anyone else who wants to try their hand at it is welcome.  Instead, during a moment of reverie, I had the inspiration for a parable, to be called “The City of Anaheim and the City of Bell.”  If all goes as planned — and doesn’t it always? — you’ll be able to read it tomorrow morning, the day before Election Day.