Joint City Council and School Board Meeting Tomorrow

The Claremont City Council and the Claremont Unified School District's Board of Education will hold their annual joint meeting 6:30pm tomorrow night in the board room at CUSD's Kirkendall Center on San Jose Ave..

Here are the meeting's agenda items:

• The joint facilities use agreement between the two agencies, presented by the ubiquitous city Human Services Director Mercy Santoro.
  
  
• A proposed health study presentation by CGU's Dr. C. Anderson Johnson a professor at the university's School of Community and Global Health. The study would be conducted jointly by CGU, the city of Claremont, and CUSD.
  
  
• A report on a proposed fundraiser involving Claremont Toyota.
  
  
• A report on the City's updated transportation plan.
  

Joint City Council/School Board Meeting

6:30 PM
Kirkendall Center - Board Room
170 W. San Jose Avenue
Claremont, 91711

Highway Robbery

Yes, as through this world I've wandered

I've seen lots of funny men;
Some will rob you with a six-gun,
And some with a fountain pen.

Pretty Boy Floyd
- Woody Guthrie

DEAL GONE BAD

Well, if you happened to catch last Tuesday's Claremont City Council meeting, you would have seen the council vote 4-1 to approve terminating the operating covenant that Claremont Toyota and the City agreed to back in September 2005. Mayor Corey Calaycay was the lone "No" vote.

As we discussed in our last post, the property in question is a 1.25-acre parcel that once contained a Chili's Restaurant and a small parking lot. It's located on the west side of Indian Hill Blvd. next to the offramp from the eastbound 10 Freeway. Claremont Toyota owner Roger Hogan had originally wanted that property to expand his existing operation.

Back in 2005, Hogan, who exerts a great deal of influence in town thanks to the fact that his dealership provides the City with about half of its annual sales tax revenue, talked the council into giving him $100,000 to help him acquire the property. The City also agreed to put in $200,000 in street and signage improvements and used its eminent domain powers to threaten the previous owner. The "threat" was a paper one only. It allowed the seller a tax advantage, so the City had to engage in a oddly legal, wink-and-nod IRS tax dodge for the seller's benefit.

The payoff for the city was supposed to millions of dollars in tax revenue over the minimum seven years Hogan agreed to use the Chili's property to expand his Toyota dealership. So, some time soon after the city council agreed to the deal on a 3-1 vote (then-councilmember Jackie McHenry voted against it; Calaycay abstained), Hogan took possession of the property, had the restaurant structure torn down and paved over, and started parking cars on the lot.

Unfortunately, the car market, and the economy as a whole, crashed, which caused Hogan to reconsider his need for the Chili's lot. With three years remaining on his agreement, Hogan wanted out of the deal, so last week city staff urged the council to allow Hogan to back out of the 2005 agreement and payback only half of the $100,000 of the City's investment.

You can see the actual discussion here (scroll down to agenda item 13 and click on that link).


NOPE, NO CONFLICT HERE

Of course, the council agreed to the deal Tuesday, but not without some squirming on the part of an uncharacteristically sober councilmember Sam Pedroza (carousing, at left). Pedroza received $1,000 in campaign contributions from the Hogan family.

How much did the Hogans love Sam in 2007? Well, the maximum allowable contribution for a Claremont City Council campaign is $250 per person. Hogan got around that by having his wife, as well as his adult son and daughter, contribute $250 each to the Pedroza campaign. Roger Hogan, Jr., by the way, for his campaign donation listed his occupation fleet manager of Claremont Toyota.

One other interesting thing about the Hogan donations is that none of them - father, mother, daughter, son - live in Claremont. Roger Sr. and his wife live in Newport Beach. For all the talk about how much Roger Sr. gives back to the community, it certainly seems like he takes an awful lot out, and we have to wonder if there isn't sometimes an implicit threat to take his dealership out of Claremont if Roger doesn't get what Roger wants.

Yesterday's Claremont Courier had an article by Tony Krickl (sorry, no link) that quoted Pedroza's rationale for not recusing himself from the vote for his auto dealer patron:

"It just astounds me as we're talking about the challenges to our businesses at this time and people are talking about charging this number one income producer $100,000," Councilmember Sam Pedroza said. "I just think it's the wrong direction."

Mr. Pedroza defended himself at the meeting after Mr. [Dean] McHenry pointed out that some city council members had received campaign contribution money from Mr. Hogan and questioned whether their votes would be swayed due to a conflict of interest.

The other councilmember who received a campaign contribution from Hogan was Mayor Pro Tem Linda Elderkin (pontificating, at right). Elderkin, whom we like to refer to "The Process Queen" for her supposed adherence to rules that enforce orderly, fair government, received $250 from the elder Hogan in her 2007 campaign.

Neither Pedroza nor Elderkin were on the council back in 2005 when the City agreed to operating covenant with Hogan for the Chili's property. But it never hurts to have some allies when a vote is needed, as it was on Tuesday night. Fortunately for the council, it has always reliable city attorney, Sonia Carvalho, standing by. Tuesday, Sonia leaped to the defense of Pedroza and Elderkin. Krickl's article quoted Carvalho:

"Campaign contributions for the purposes of conflicts are not sources of income," City Attorney Sonia Carvalho added. "So you can receive campaign contributions and not have a conflict of interest."

Carvalho also said in her comments that as long as the council can claim a "legitimate public purpose" for any expense, there is no gift of public funds involved.

Thanks for that, Sonia. So, Hogan gets a break, and the city gets back $50,000 of it's $100,000 investment, a 50% loss on the investment. Think of what services that $100,000 might have purchased, or how much interest the city might have earned over the past four years if it had merely invested the money in a long-term bond or CD.

Pedroza was careful to point out that there was no conflict on his part because he hadn't accepted any money from Hogan, et. al., in the last 12 months. It's also good to know that 12 months hence, in his presumptive 2011 campaign, Pedroza will again be cleared to accept even more Hogan money.

Who in 2007 knew the best return on investment might be a Claremont City Council campaign? (Start with $1,250, $50,000 returned = a 4000% gain over about three years.)

Check out these 2007 City Election campaign finance documents:

(Click on images to enlarge)

Pedroza 2007 Campaign Finance Statement

Elderkin 2007 Campaign Finance Statement

POSTSCRIPT

The funniest thought of all occurred to us as we were driving past the Claremont Auto Center last week. What if three years from now Roger Hogan decides to pull up stakes and concentrate on the Orange County car market? Who can guarantee he doesn't anyway? We couldn't help but noticing how his Claremont Toyota ads now say "Claremont/Capistrano." Capistrano is sure a lot closer to Newport Beach than Claremont.


The sight of the Claremont Auto Center last week wasn't exactly a confidence inspiring image. There certainly seemed to be a lot of empty spaces. The Chili's lot appeared empty except for six vehicles:



So, we wonder, how long did Hogan's operation really use the property? The answer is less than three of the agreed upon seven years. As always, Google Earth tells all (the Chili's lot is outlined in red):

4/1/05 - Before the deal

3/15/06 - Restaurant gone

6-17-07 - Cars. Now you see 'em....

6/27/08 - ....Now you don't

6/19/09 - More cars gone

Friends Helping Friends

The Claremont City Council meets tonight to for its regularly scheduled meeting in the council chambers at 225 Second St. in the Claremont Village.


CLOSED SESSION

The council convenes at 5:15pm in closed session for a conference with counsel over the latest Palmer Canyon lawsuit. The current dispute with the Palmer Canyon Homeowners Association has to do with land the City pledged to cede to the HOA as part of the $17.5 million lawsuit settlement reached over damage from the 2003 Padua Fire. The homeowners claim the City did not transfer ownership of all of the land that it said it would.

Claremont was supposed to have its answer to the HOA's complaint this month, so perhaps the council will be reviewing that in their closed session. You can see that agenda here.


REGULAR SESSION

The regular session begins at 6:30pm. You can review that agenda here.

Among the more interesting items are:

• Agenda item 10, the continuation of a remote caller bingo ordinance. We'd never heard of such a thing, but we did see the city's public notice of that item in the February 17 edition of the Claremont Courier:
  
  
  Click to Enlarge
  
  
  
  We assume that some non-profit in town with friends on the City Council wants some sort of fundraising event using remote calling bingo. This apparently is an arrangement in which different locations are linked together via video links into a single bingo game. A company in Ontario called Bingo Innovations, Inc., has more information on how this all works.
  
  In any event, something must have come up between last Wednesday when the Notice of Public Hearing for the discussion of the proposed ordinance was published in the Courier and Thursday when the agenda for tonight's meeting was posted on the city website.
  
  
  
• The other main item of interest to us was item 13, the termination of the operating covenant with Claremont Toyota for the old Chili's property at the northwest corner of Indian Hill Blvd. and Auto Center Dr.
  
  
  Back on September, 27, 2005, the City Council agreed to help Claremont Toyota owner Roger Hogan acquire the property by giving him $100,000 with the understanding that Hogan would use the land to expand his dealership. The City was also supposed to kick in another $200,000 in street and signage improvements (we're not sure what happened with that bit of change).
  
  The big selling point, as Councilmember Peter Yao said when he was explaining his "Yes" vote, was that the expanded Claremont Toyota would generate much more sales tax revenue for the city. City staffer Anthony Witt promised in his report that the council could expect between $600,000 and $700,000 in additional sales tax revenue for the first five years of the agreement, and $1,000,000 for every year thereafter.
  
  Well, the dealership never expanded onto the Chili's land, never generated the promised payoff, and now Roger Hogan wants to pay the city back only half of the $100,000 the city gave Hogan and release him from the agreed upon covenant. That operating covenant stipulated that Hogan would use the land for auto sales for at least seven years, from 2006 to 2013.
  
  None of it happened, and now the current council seems prepared to make an apparent gift of $50,000 worth of public funds to Claremont Toyota. Tonight's staff report on the issue, this one by Claremont Housing and Redevelopment Manager Brian Desatnik, is remarkably brief and notes that Hogan hopes to sell the 1.25-acre parcel to someone interested in putting a restaurant there.
  
  Oh, baby, now that's a deal!
  
  With the city facing another year of cutbacks in staff, employee benefits, and services, this all looks like just another case of the city staff papering over one of their blunders. There's another twist to this story, but we'll withhold commenting on that part of it until we see how this one plays out.

You can catch all the action in person tonight, or you can watch it on the city's website.

Sales Slumps Roll Downhill

Claremont Toyota, whose sales have slumped severely because of the recession, faces even tougher times. Yesterday's Los Angeles Times had a front page story about Toyota's decision to halt the sales and manufacture of eight models because of problems with the gas pedals sticking.

The Times article reported:

Industry experts could not recall any time in recent history when a carmaker had stopped both production and sales of so many models at once. Tuesday's move follows two recent recalls aimed at preventing Toyota-made vehicles from surging out of control, which has been blamed in at least 19 deaths and scores of injuries over the last decade, more than for all other automakers combined.

Toyota could pay dearly for the problem, industry analysts said.

Aside from the immediate drop in sales, Toyota's position as the global sales leader, built on its vaunted reputation for trouble-free cars, is now being called into question.

"This could be an extended issue. It is very serious," said Aaron Bragman, an analyst at IHS Global Insight.

The eight models affected accounted for 57% of U.S. sales last year of all Toyota brands, including Lexus and Scion.

Toyota's woes will hurt Claremont Toyota, and that in turn will trickle down to the City of Claremont, which is heavily dependent on the Toyota dealership for sales tax revenue. At its peak, the local dealership accounted for something like 57% of the City's income from sales tax.

Claremont has been working hard to diversify its sales tax base, but Claremont Toyota remains the town's largest source of that revenue stream. Toyota's decision couldn't come at a worse time for Claremont. The state of California forecasts a $20.7 billion budget deficit through fiscal year 2010-11, thanks to the refusal of the state's leaders to deal with problem in a meaningful way last year. That means the state will be looking to raid more local money to fix its problems, and towns like Claremont will have another budgetary hole to climb out of.

All in all, 2010 is beginning to look a lot like 2009.

Bad News Bearers

We hate to be the bearers bad news on a Friday, but Claremont's new city council could be facing more financial problems than originally expected.

The Los Angeles Times reported Tuesday that, thanks to the plummeting real estate market, property tax revenues are falling for the first time in more than 10 years, making hash of a lot of fiscal assumptions local governments, including Claremont, had made coming into the year.

According to the article, San Bernardino County estimates its property tax base will fall 5.7% in 2009, and Los Angeles County Assessor Rick Auerbach was quoted in the Times as saying the county faces a 1.1% decline. That doesn't sound like much, but it amounts to a tax base reduction of $11 billion for LA County.

The article also said that the fall off is just beginning to ripple through the commercial real estate market as vacancies rise, so this decline in property tax revenue is likely just the tip of the iceberg. The Times article explained how this plays out on the local level:

This is bad news for local governments that have been relying on property tax proceeds to help make up the shortfall from reduced incomes and spending in their areas. Already, cities and counties across California have been freezing jobs, imposing work furloughs and pay cuts, postponing repairs and reducing some public services.

"Cities are calling us almost weekly now trying to find out where we are at and what kind of effects the reduced assessment will have on their budgets," said Larry Ward, Riverside County's assessor, clerk and recorder.

* * * * *

Claremont's staff recently completed revisions to the city's budget for fiscal years 2008-09 and 2009-10 in order to cope with what had early this year been projected to be a $3.5 million budget deficit through June, 2010. In February, city staff balanced the FY 2008-09 budget, where they had projected the deficit to be around $1.5 million. That left $2 million for the next fiscal year.

The Claremont Courier reported on Wednesday that City Manager Jeff Parker announced that agreements had been reached with all of the city's employee associations to take pay and benefit cuts that will total $1,159,000 in FY 2009-10. (The article is not posted on the Courier's website, so you'll have to find a copy for yourself if you want to read it.)

The Courier's Tony Krickl reported that staff will not receive any cost of living adjustments for the remainder of their respective contract terms. Additionally, pay-for-performance bonuses (a legacy of the Glenn Southard-era in City Hall) and health and fitness reimbursements are things of the past. Police officers are also giving up a benefit called Compensatory Time Buy Back.

This all leaves the City still $841,000 short of balancing its budget. Parker was quoted as saying the remaining cuts would come through reduced operations expenses and a hiring freeze on "non-essential positions." (Hey, if they're non-essential, why do we have them in the first place?)

The City's emergency fiscal measures were needed primarily because of falling sales tax revenue. Recall that Claremont Toyota once accounted for something like 53% of the city's sale tax revenue, and you don't need to be told how car sales have fared in this recession.

The falling property tax revenues will surely force another round of adjustments, and we shouldn't forget that in June the city will hear from CalPERS about any increases in the amount the city's pays into its CalPERS employee pension account. Currently it's at around 13% of the city's payroll, but that could rise significantly if CalPERS investments continue to perform like every other investment asset class.

Given all these factors, there's really no reason to believe that the city's budget problems will end here.

* * * * *

Claremont, like every other city in the nation, is salivating at the prospect of federal stimulus package money to help offset its budget crisis. However, the LA Times also reported that although the stimulus money coming to California figures to hit $31.5 billion through 2011, even that amount may not be enough to help the state in the short term:

Legislators had hoped to ease those new taxes and budgetary cuts with funds from the U.S. rescue package, but a fresh analysis of California's flagging fiscal situation suggests the state needs about $2 billion more than Washington is providing.

If he's right, the state will probably be unable to avert the $1.8-billion personal income tax boost and $1 billion in slashed spending that were part of the budget package Gov. Arnold Schwarzenegger signed into law in February.

[State Legislative Analyst Mac] Taylor's 48-page report comes one week before a meeting of Treasurer Bill Lockyer and Schwarzenegger's finance director, Mike Genest, who are empowered by the Legislature to decide by April 1 whether enough federal money is available to scale back the taxes and cuts. Schwarzenegger's finance experts have concluded so far that the available federal funds are insufficient.

So, even with that wad of federal cash, we should expect to wait until at least May 19 before we really know where we're going to end up with the state budget. That's when a number of the items approved in the recent state budget agreement go to the voters in a special election, and that's not figuring in the property tax decreases and other revenue shortfalls that might occur if the economy doesn't improve as quickly as the state assumes.

Limits

With the the economy tanking, the stock and housing markets plummeting, and a credit freeze just beginning to thaw, you'd think that there'd be some serious talk at Claremont's City Hall about what contingencies need to be in place for the inevitable hits the city budget is going to take. But don't hold your breath.

This past week, the credit markets loosened up enough for California to sell $5 billion worth of short-term revenue anticipation notes that allow the state to bridge the gap between now and the beginning of 2009, when tax revenue starts rolling in.

The news for California and local governments like Claremont isn't especially rosy, however. And, as the LA Times noted on its front page today, the potential damage will likely be widespread:

Some of the most dire problems are emerging in states such as California and Florida, where the housing collapse has been the most pronounced.

California lawmakers, who faced a $15.2-billion deficit going into the fiscal year, argued over the budget for months. In the final draft, state services took a big hit: Medi-Cal was temporarily cut by 10%, and the education budget was set at $3 billion less than last year.

The bad news continues to mount. Last month, the state's revenue fell about $1 billion short of projections. Gov. Arnold Schwarzenegger and legislative leaders have been meeting weekly to discuss the problem and are considering calling lawmakers to a special session. In Florida, lawmakers faced a similar challenge as they wrote their yearly budget. The plan they devised was nearly $6 billion smaller than the year before. It resulted in 200 net job losses, tuition increases, cuts to nursing homes and the shuttering of 13 driver licensing offices.

Now the Legislature is scrambling to patch a new $795-million gap. Lawmakers may face yet another multibillion-dollar shortfall when they sit down to craft a budget for the fiscal year starting in 2009. Declining revenue is just part of the problem in Florida: Education costs are soaring because of the passage of a 2002 class-size-reduction ballot initiative, and rising enrollment and healthcare costs are bloating the Medicaid program.

Budget woes engulfed more than 40 states beginning in 2001, a result of the dot-com crash. At the time, economists said it was the biggest fiscal crisis for states since World War II.

"If you look at some of the basics of the economy -- unemployment, the stock market decline, the decline in consumer spending -- there is some reason to fear this crisis will be worse," said Nicholas Johnson, an analyst with the Center on Budget and Policy Priorities.

Local governments, in particular, may get hammered harder this time around. In 2001, Johnson said, cities and municipalities, flush with cash from high property tax rolls, were able to pick up the cost of services that states had abandoned. But that will be more difficult now because declining home values have dragged down property tax revenues.

Yet, despite the obvious looming budgetary problems, no one in Claremont is talking, at least publicly, about the hard decisions that we may have to make. Rather than having an open, public discussion of our fiscal realities, the powers-that-be in town are carrying on as if the party's still in full-swing on the one hand, and on the other they sneak in things like trash collection rate increases based on false and misleading information.

The City took steps earlier this year to try to address reduced sales and property tax revenue by instituting across the board spending reductions and putting a hiring freeze in place. But we suspect that no one anticipated things like a nationwide 32% decline in Toyota auto sales - something that has dire implications for a city like Claremont which gets over 50% of its sales tax money from Roger Hogan's Claremont Toyota.

In trying to cement what she considers her legacy, Claremont Mayor Ellen Taylor has placed a lot of costly projects on the city's plate - an affordable housing project, Padua Park, a new police station, to name a few - but her real legacy may be committing the city politically and fiscally to things that will push the city's budget far into the red.

We like to believe in a limitless future, but that simply does not square with today's reality. We hope our city's leaders have the vision to understand that reality.