Overlords Soak City

— Rescuing city finances may be futile as long as the society remains feudal. That is to say, San Diego's overlords are making sure they will get their corporate welfare -- no matter how broke the city is -- while the vassals pick up the tab.

In Europe's Middle Ages, the vassal swore fealty to the overlord, who raked in bucks from the serfs' labors. Today, the peasants elect politicians who are supposed to represent the underlings' interests. But instead, the politicians secretly pledge fealty to the overlord, who is slipping them money. The result is corporate welfare, and San Diego will never dig out of its $2 billion employee pension/healthcare hole until it cuts off the charity flow to the barons.

The city's January 27 admission that it is at or near the financial brink and has been covering it up since 1996 with phony accounting has apparently spurred the nobles to defend their God-given turf. On February 4, Jessie J. Knight Jr., president of the San Diego Regional Chamber of Commerce, wrote a letter to his members, speaking urgently of "the city of San Diego budget woes."

The budget deficit will be huge, warned Knight, urging members to get involved in the budget process to make sure business gets its due. "We cannot afford the risks to the business community to solely depend on our elected officials to provide solutions," wrote Knight. "History suggests that in times of crisis, it is the business community that suffers disproportionately."

History suggests no such thing. Indeed -- in San Diego in particular -- history suggests exactly the reverse: in a crisis, business gets its piece of the pie, and taxpayers get the crumbs, as well as the bill. That's because over the years, the nobles have rigged the system in their favor.

On February 6, only two days after Knight penned his letter, a seemingly innocuous memo to the mayor and councilmembers from deputy city manager Bruce A. Herring unwittingly spelled out how the overlords arrange for their own welfare.

Herring was outlining how the city would pay for the huge expenses related to Petco Park. He discussed possible sources of revenue from the facility. He explained that during the baseball season, the Padres get 70 percent of nonbaseball revenues, and the city gets 30 percent. In the off-season, the city gets 70 percent and the Padres 30 percent.

Then came this revelation: "However, it may be necessary to restrict or limit the amount of special-event revenues the city receives to preserve the tax-exempt status of the ballpark refunding bonds."

What's this? A nearly bankrupt city forfeiting revenue? It's another example of the great scam that pro-sports barons pull on cities. In this case, the greedy owners got the unintended help of Congress. Back in 1986, federal legislators were trying to remove the gross inequities in the tax code -- particularly the use of tax-free municipal bonds to subsidize private ventures that should have been required to issue taxable bonds.

In the process, the solons were actually trying to rein in team owners' fleecing of taxpayers. The lawmakers said that for stadium bonds to be tax-exempt -- thus qualifying for lower interest rates -- no more than 10 percent of stadium revenues could go to municipalities. The politicians reasoned that with such piddling revenues, cities would nix using public funds to build stadiums.

But reason has nothing to do with pro-sports subsidies. Compliant cities quickly figured that the stadium lease could be drawn up so that total government revenues -- from parking or whatever -- would be below 10 percent. The owners would rake in more than 90 percent of the revenue. Then the bonds could be tax-exempt. The politicians had figured that no city would be that dumb, but cities were indeed that dumb, or corrupt. The book Field of Schemes describes how the late Senator Daniel Patrick Moynihan, who had helped craft the legislation, was appalled that it essentially was "forcing cities to fund only facilities that were guaranteed money losers."

Asked Moynihan, "Who would have thought that local officials, in order to keep or get a team, would capitulate to team owners -- granting concessionary stadium leases and committing limited government revenues to repay stadium debt, thereby hindering their own ability to provide schools, roads, and other public investments?"

Stadium-related revenue can't be used to pay more than 10 percent of the debt service on the bonds, or they will be deemed ineligible for tax-exempt status. Hence, Herring warned that revenues may have to be forfeited. The city, as usual, did not return calls.

Before 1986, municipalities that poured money into stadiums required teams to pay at least respectable rent. But since 1986, teams have expected to rake in that 90 percent-plus. The Chargers and city officials have defended the 60,000-seat guarantee by saying that, after all, the Chargers pay high rent compared with other teams in the National Football League. Ha, ha. Thanks to the 1986 tax package, those other teams pay ridiculously low rents. They consider it their entitlement, and governments protect it more than peasant entitlements, such as adequate police and fire protection.

In many ways, San Diego's new ballpark is a classic example of overlord self-aggrandizement. The city defends the deal by saying that the peasants voted for it. Not so. The voters were told that it would involve no new taxes because of all the tax-generating hotels and business establishments that would spring up around it. But the surrounding development has been mainly condos, which eat up more in infrastructure expense than they produce in taxes. That tax-generating development is years away.

Former councilmember Bruce Henderson, who has been right about the project all along, estimates that the ballpark will cost taxpayers more than $27 million a year -- $16 million in interest, $3.5 million for maintenance, and close to $8 million in opportunity cost, or what the city lost because ballpark cash outlays did not go to other critical needs. Ballpark bond refinancing -- now a long way off -- could reduce interest costs somewhat, but the bite will still be huge.

Last Thursday, in announcing that the ballpark bond refinancing and one other bond offering have been delayed, the city boasted that it has hired a former Securities and Exchange Commission official to review its past municipal bond filings. Beware. Such consultants, particularly those who have had high posts in government, are notorious for providing a whitewash if given a signal by the person paying the bill. Amazingly, Mayor Dick Murphy said the move was meant "to reassure the public that financial statements are accurate." That certainly looks like orders to give a whitewash -- although such sellout instructions are normally communicated with a wink, not a statement to the press.

After the Federal Bureau of Investigation seized records to launch an investigation, Murphy astonishingly said the consultant had been hired to stave off the probe. The consultant, Paul S. Maco, refuses to comment on Murphy's statements but says his marching orders come from the city attorney's office (that's hardly comforting). Maco has a good reputation, but his law firm, Houston's Vinson & Elkins, hardly does: it was Enron's former chief outside counsel and faces lawsuits over the matter. Maco was not involved in the Enron matter.

Another startling example of the overlords' entitlement is Proposition C, which will be voted on March 2. It would raise the hotel tax, called the transient occupancy tax, from 10.5 percent to 13 percent. By itself, an increase in this tax may well be necessary.

But proponents deceitfully hail Prop. C as a measure that would provide more funds to police and fire protection, parks, open-space acquisitions, libraries, and the arts -- all eminently worthy recipients.

The city should be so lucky. Read the fine print. By far the largest chunk of the money goes for corporate welfare -- in this case, tourism promotion. Of every 13 cents collected, tourism promotion gets 2.5 cents. The worthy causes each get from one-fourth of a cent to one cent.

"The impression is that the bulk of the entire transient occupancy tax increase goes to public safety," says councilmember Donna Frye. "In reality, the net effect is that 2.5 cents, which is the entire hotel-tax increase, is earmarked for tourism and sports. Then an additional four cents is earmarked for police, fire, parks, and roads, leaving only 6.5 cents that the council has discretion over."

And of that 6.5 cents, much of the money has to go to paying off debt, such as the ballpark and stadium bonds. "I believe that an increase in hotel taxes is warranted, but we need to make sure that the bulk of the increase goes to support public safety rather than tourism promotion," says Frye.

This spending is locked in -- another reason Frye and others such as the League of Women Voters and Murphy oppose it. The council has limited flexibility to put the money where it is desperately needed, such as the pension fund, which could drive the city into bankruptcy.

Just who is locked into receiving this largesse? In addition to the tourism marketers, many sports groups rake in bucks, particularly the San Diego International Sports Council, a group of pro-sports worshippers/profiteers. The group lobbies for pro-sports subsidies. And then takes money from the city council that it is lobbying. If Prop. C passes, this cozy and ethically repugnant arrangement will be permanent.

Occasionally in history, the peasants revolted against their overlords. Are you ready yet?

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