It's time for public agencies to come clean about their debt.
On Wednesday morning, we editorially criticized the Moraga Orinda Fire District for plans to borrow $2 million for a new administration building that was twice the size it needed when there was adequate office space available for lease in Orinda City Hall. That night, the fire district board, in a stunning reversal, canceled the deal.
It was the right decision, although some board members said they made it only because of bad publicity. Director Frank Sperling said individuals and organizations "have created a perceived reality through purposeful misinformation."
Actually, it's the district that's deceptive, that doesn't publicly acknowledge how deeply in debt it really is. I suspect that one revelation in our editorial moved the community more than any other: The 15-year-old district already has run up $68 million in debt just for unfunded pension and retiree health care liabilities, or an average of $1,600 for each district resident. It's equal to the cost of running the district for nearly four years.
Many public agencies face similar obligations, and they don't disclose them in an easily accessible way. If public officials want to regain trust from voters and taxpayers, they need to begin by revealing all their obligations.
Indeed, the fire district's $68 million debt doesn't even appear in its financial statement. It must be cobbled together from numbers buried in notes in the back:
Add it up and you get a total of $67,769,000. It's the sort of number public agency officials don't like to discuss. In Berkeley, as I reported a year ago, the number is $310 million, or $3,000 per resident. In Oakland, the retirement debt in 2010 was about $2 billion, or about five times the annual general fund budget.
By one estimate, the statewide taxpayer burden for unfunded pension system liabilities alone is $180 billion to $620 billion. The latter number works out to $45,000 for each household in the state.
There's other debt, too -- such as bonds issued for capital projects and such as bonds that redevelopment agencies issued, for which they did not need voter approval and total more than $97 billion.
It's time for government agencies to provide a simple-to-understand accounting of liabilities so taxpayers and voters know how deeply in debt they really are. Next time you see an elected official, ask how much his or her agency owes when all the debts are added up. Seriously -- try it and see what sort of response you get. Most public officials have no idea.
To be sure, not all debt is the same. Pension and retiree health care liabilities are especially insidious, because they're part of labor costs for services that already have been provided. The debts are largely due to failure to set aside enough money as employees earn the benefits, and failure to realistically forecast costs and investment returns.
At the Moraga Orinda Fire District, directors had been planning to borrow to fund the purchase and improvements for a building.
At least there would have been some underlying value to the structure, although, to make it pencil out, the deal relied on assumptions about its value, future real estate inflation and the lease value of extra space the district didn't need.
As we've learned, there is nothing certain about real estate values. Moreover, rational people do not buy a new house when they've maxed out their credit cards.
That's essentially what the directors had been planning to do. But that's not what they were saying.