The Empire Strikes Back!

City Attorney Provides Memo to Council Detailing Possible Dis-incorporation of Sierra Madre. 

A few weeks ago, we reported exclusively on Radio Free Los Angeles that the City of Sierra Madre is threatening to “disincorporate,” i.e., shut down the city if taxpayers repeal the Utility Users Tax. Apparently, the City Council decided that it just could not – or would not – deal with its spending problem or make the changes necessary to operate within a lower budget. The Council asked the City Attorney, Theresa Highsmith, to prepare a legal memorandum about what is involved in closing down a city.

Ms. Highsmith, at the request and direction of the council, has prepared an extensive memorandum. Although the memorandum is several pages long, it boils down to these essential points:

  • If taxpayers repeal the current Utility Users Tax, the city will lose $2.6 million dollars in revenue; has no way to replace those revenues; will not be able to pay its bills; and will have no choice other than to shut down.
  • The police department will be shut down along with the fire department and the library.
  • All current municipal functions will cease and will be taken over by LA County.
  • Sierra Madre residents will continue to pay taxes, of course, but will pay them to the county.
  • The pension obligations will continue to grow.

The Real Bottom Line: Sooner or Later the City Will Shut Down

Let me translate all of this for you. First of all, Ms. Highsmith’s memorandum is actually a first-rate piece of legal work. Her firm, Colantuono, Highsmith & Whatley, is one of the top municipal law firms in the state. She accurately sets forth the facts and the law that applies to those facts. Our problem is not with her or her law firm. Our problem is with the intended use of this memorandum.

The City Council and the public employees behind the scenes no doubt intend to use this memorandum as a political cudgel. They want the voter to recoil in horror at the thought of losing their city. More importantly, they want the taxpayers to conclude that if they are still going to be taxed and if the pension obligations are not really going away, they might as well stay with the status quo and keep the UUT.

In other words, the city council, rather than face up to its financial problems, has resorted to using political terror tactics to retaliate against taxpayers and keep their con game going.

Although I am sure that she did not mean to do so, Ms. Highsmith’s memorandum confirms everything we – and many others – have been saying for years.

The City of Sierra Madre has arrived at the point that a shift of $2.6 million in either revenue or expenses will force the City to shut down. Right now the City owes its employees somewhere between $12.3 million and $40 million. It owes that money right now, not later. The California Public Employees’ Pension and Retirement System (CalPERS) has begun to increase the actual cash contribution the City has to make to keep up with its pension obligations. The point here is that the city is already upside down and insolvent on paper. Sooner or later, that bill is going to come due. When it does, Sierra Madre and most cities and counties in California are going to shut down.

The only reason Sierra Madre isn’t in bankruptcy court already is because CalPERS artificially understates the City’s real pension obligation and gives them time to pay off their pension debt. Any private pension plan would have sued the City a long time ago.

In effect, the City is borrowing somewhere between $12.3 and $40 million from the employees’ retirement fund to keep their business going. This would land any private citizen or board of directors in jail. And, any private pension or retirement system that allowed this to happen would be shut down and its operators vigorously prosecuted.

The only reason this has not happened already is politics. The public employee unions and the politicians in the cities, counties and state don’t want the taxpayers to wake up. The politicians, both past and present, don’t want you to  know that CalPERS itself is upside down a trillion dollars.  Even the longest bull market in history is not going to get them out of the hole. By the way, this number does not include CalSTRS or UCRS, which are also dangerously underfunded.

Remember: You not only pay taxes in Sierra Madre, you also pay taxes to the Pasadena Unified School District (about to go bust), the County of Los Angeles and the State of California. The pension and bond debt you are responsible for extends beyond Sierra Madre as far as the eye can see.

The politicians, the public employee unions and those who profit from Big Government want to keep the game going as long as possible. Their greatest fear is that taxpayers will wake up to what is going on. They know that when taxpayers figure it out, they will stop the money.

Sooner or later, however, reality always catches up with politicians. In California, the total pension debt is somewhere between $1 and $2 trillion. I will state categorically that these pensions cannot and, therefore, will not be paid. Any attempt to do so would require radical reductions in government “services”.

It is time that taxpayers face up to fiscal reality and force government to do the same. Voting Yes on Measure D will be an important first step toward Making California Golden Again.

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By |April 5th, 2018|Categories: Sierra Madre Edition - April 2018|Tags: |Comments Off on The Empire Strikes Back!

About the Author:

Michael Alexander is President of the California Tax Limitation Committee. A native Californian, Mr. Alexander grew up in Huntington Park and served in the United States Marine Corps before graduating from U.S.C. Law School. He has a broad background in law, business and finance. Together with his wife, Patricia, he is a founder and managing principal of Private Trust Management Group based in Pasadena. The firm provides private trust services and investment counsel to trusts, individuals, families and retirement plans. He is involved in a number of community organizations, and together with his wife Patricia, helped found St. Monica Academy in Montrose, California. He and Patricia live in Altadena where they raised their four sons.