The Howard Jarvis Taxpayers Association is waging an increasingly successful battle against California cities that are seeking court approval, but not voter approval, before issuing risky pension obligation bonds.
POBs are financial instruments that allow local governments to borrow from future tax revenues to prepay all their projected unfunded liabilities. The idea is to invest the borrowed money and earn a high enough return to cover the pension obligations plus the interest owed to investors who buy the bonds.
Taxpayers are on the hook if it doesn’t go as planned. So the Howard Jarvis Taxpayers Association is holding cities to the requirement in the California Constitution that guarantees voters the right to approve or disapprove any new debt that would exceed revenue available to pay for it.
However, instead of seeking the required approval of two-thirds of the electorate, some cities have been filing lawsuits known as validation actions, seeking advance approval of the bonds from the superior courts to “bulletproof” them against future challenges. HJTA has been answering these lawsuits on behalf of taxpayers, and some cities have backed down. Recently the cities of Alameda, Sebastopol, Susanville and Lomita dismissed their lawsuits asking the superior courts to validate resolutions authorizing pension obligation bonds in amounts ranging from $10 million to $300 million.
Jon Coupal, president of HJTA, was pleased with the quick resolutions. “Incurring bond debt to pay pension debt is like using your Mastercard to pay your Visa bill,” he said. “It is unsound fiscal policy, and clearly something that should not be done without input from the taxpaying voters who will be responsible to repay the debt.”
Some cities are choosing to fight it out.
The City of San Jose, seeking a $3.5 billion bond without voter approval, is actively litigating the issue with HJTA, joined by Citizens for Fiscal Responsibility and its President, Pat Waite.
The City of Oxnard, seeking a $330 million bond without voter approval, is also expected to litigate the issue. HJTA, joined by the Ventura County Taxpayers Association and Aaron Starr, filed their Answer to Oxnard’s validation lawsuit yesterday, May 20, 2022.
“HJTA is especially concerned when a local government does not seek consent from its voters,” said senior staff attorney Laura Dougherty. “Citizens should have the right to review terms, conditions, and risks, and approve or disapprove these large transactions.”