Let’s Talk TRUTH
About Certificates of Obligation
And Candidates for Council
By Susan M. Halpern
Former Addison Councilmember (1992-1999)
Candidates for Addison’s council seek the votes – and, more importantly the trust – of Addison residents. Part of earning that trust MUST include efforts on the part of candidates to educate themselves about the issues, because sharing a vision for our town that is uninformed and not grounded in fact serves no constructive purpose. That is why serious candidates take the time to educate themselves about our Town and how it works. And it is also why fearmongering and making false claims have no place in the process.
I am prompted to write by a mailer I received from one of the council candidates that evidences a significant misunderstanding on his part regarding Addison’s finances. This candidate apparently thinks that there is $41 million floating around somewhere, missing. From that false premise he asks ridiculous questions like “do you know where it went?” and “do you know who got it?” He also claims at one point that the City Council approved certificates of obligation (CO’s) “without your knowledge,” but then contradicts that claim, asking: “Do you know who approved the $41,000,000?”
The clear point of this mailer is to create a false issue and then claim to be the only one who can solve the problem (elect me “to find out what’s going on”). It’s a formula straight out of the negative spinners’ playbook: pick an issue, circulate misleading and inaccurate information, claim that the sky is falling, criticize anyone who isn’t them, and then claim that only they have a solution. Here, the faux issue is Addison’s finances, based on the fiction that $41 million is unaccounted for, which is patently false and utterly ridiculous. It is fearmongering at its worst.
Start here: Addison’s council doesn’t act in secret, and it didn’t “secretly” approve $41 million in certificates of obligation (“CO’s”) in the last five months. These statements are false on many levels. The council’s meetings are publicly posted and their votes are all taken in public, as is required by the Open Meetings Act. Addison also broadcasts council meetings via the town’s website, which is also the repository of a vast array of reports, agendas, resolutions, minutes, and other information. Had this candidate wanted to know the TRUTH, he could easily have educated himself by referencing these materials and studying the town’s finances. His mailer tells all of us that he did not do so, choosing instead to misinform voters with his silly mailer.
Let’s turn to the numbers. On January 10, 2019, Addison closed on the sale of $13.1 million in CO’s (more about them later), from which Addison received $13.5 million. $7 million will be used to construct a new building for (a) U.S. Customs and Border Patrol and (b) Airport Administrative offices. The remaining $6.5 million will be used for various water and wastewater capital improvement projects. These CO’s are self-supporting, i.e., repayment will be funded from airport operating revenues and utility revenues, respectively.
The process culminating in issuance of these CO’s was anything but private. On October 23, 2018 (Item R18), the council held a public hearing that culminated in authorization for Addison to provide notice of its intent to sell $13.5 million of CO’s on December 11, 2018. This council meeting was properly noticed, and it was additionally referenced in the town’s October 19, 2019 newsletter, which included a description of the proposed CO’s.
Next, the public notices authorized by the council were placed in the Dallas Morning News on November 10 and 17, 2018. Then, as noticed, bids for the CO’s were taken on December 11, 2018 at 10 a.m. There were seven bidders, and because of Addison’s excellent financial health (more about that later), the CO’s actually sold at a premium, hence Addison sold only $13.1 million in CO’s to generate $13.5 million in revenue. Later that day, the matter came back to the council (Item R19), and the council formally authorized issuance of the CO’s. The closing occurred on January 10, 2019, when Addison received the $13.5 million, which it placed in a segregated account. The funds are conservatively invested to offset carrying costs, and are used to pay bills associated with the referenced projects.
No other CO’s have been issued in the past 5 months, so this candidate’s $41 million figure is utter fiction.
Perhaps he is referring to the policy discussion held by the council on November 13, 2018 (Item R18), which culminated in council guidance to City Manager Wes Pierson to the effect that the council was in favor of using CO’s to fund: (a) an additional $25 million for completion of the Midway Road reconstruction, and (b) another $3.25 million to fund the town’s remaining obligation on Addison Grove.
Regarding Addison Grove, the money is committed, like it or not. Prior to the November 13, 2018 council meeting, the remaining $3.25 million of the obligation was to be paid out of current maintenance and operations budgets. That would have burdened the town’s operations and current residents. It was never appropriate. By issuing CO’s, Addison will be able to spread the burden out over time, which is a far better policy decision.
Regarding Midway Road, Addison has opportunities to work with DART in conjunction with its rail project, which should start soon. Provided that Addison has the funds available, it can consider using DART’s vendors, which might yield a better price based on economies of scale. Further, if Addison reconstructs Midway Road in conjunction with DART’s construction, that will minimize the time during which traffic flow on Midway will be disrupted. The decision to issue CO’s guarantees that funds will be available so that Addison can move quickly, as appropriate. And, the council undoubtedly felt confident in using CO’s given that voters approved the Midway Road reconstruction project in the 2012 bond election.
The council’s reasoning on these issues is sound, but no CO’s have been issued at this time. That means that currently, there is $13.1 million sitting in a restricted fund as noted above. You can easily see how absurd this candidate’s mailer really is.
Let’s talk briefly about Addison’s financial condition, which was the subject of our April 18, 2019 Bond Committee meeting. First, Addison enjoys the highest possible ratings from Moody’s (Aaa) and Standard & Poor’s (AAA). To be clear, those are literally the highest ratings given by Moody’s and S&P, and Addison is one of only ten cities in Texas so rated. Notably, Addison achieved the Aaa rating from Moody’s in conjunction with the December 11, 2018 sale of CO’s, which is partly why the CO’s sold at such a favorable premium. In any event, Addison is healthy and prosperous and it most certainly is not, as claimed by the candidate responsible for the ridiculous negative mailer, “sliding down the drain.”
It should be clear from all this that Addison is managing its debt appropriately and responsibly. On this point, municipal debt is different from personal debt. I wrote about all this a while back (http://truthinaddison.com/?page_id=1663), so I’ll be brief here. Municipalities aren’t like people, who save money and strive for a debt-free existence so they can retire and pass assets on to their heirs. Municipalities don’t retire and they have no heirs. Municipalities exist in perpetuity, and thus have a responsibility to plan for future residents who will need sound infrastructure.
That raises the question of how municipalities fund infrastructure and other large capital projects. Clearly, it is neither practical nor advisable for municipalities to accrue large cash reserves just in case a capital project needs doing. That would mean collecting tax revenue from current residents to be used in connection with future projects, and taxpayers would never go for that. As well, it isn’t fair to require current residents to pay the full cost of projects that will outlive them and/or their residency in the town, benefitting future residents who would not bear any of the burden. What municipal debt does is spread the cost of such projects out over time, so that the burden is shared both by current and future residents. Municipal debt also stabilizes tax rates, ensuring that they don’t bounce up and down as the capital needs of the town change from year to year.
All of which means that unlike people, municipalities don’t strive to be debt free. Rather, they strive to manage debt responsibly. And Addison has clearly done that, as evidenced by the fact that after many years, Moody’s finally raised Addison to a Aaa status.
There is also nothing unusual or inappropriate about issuing certificates of obligation. Go back and review Addison’s budgets (available online) and you’ll see that they have always played a role in Addison’s debt package. That makes this mailer as inexplicable as the statement made by Mayor Joe Chow’s opponent to the effect that he will never vote to use CO’s. Such statements are irresponsible and such policies would likely harm Addison’s bond ratings, increasing the cost to taxpayers of future borrowing.
Back to the mailer one last time. I couldn’t help but notice that the mailer says the candidate is a “resident” of Addison, whereas at other times he refers to himself as a homeowner. Turns out that the distinction is significant. If you go to the Dallas County Appraisal District website (www.dcad.org) and type in the name of the candidate you get no results. That means that according to DCAD, this candidate does not own ANY property in Dallas County, let alone a house in Addison.
Well, as it turns out, this candidate once owned the house at 5301 Paladium Drive in Addison, but he deeded it to his bankruptcy trustee in December 2015, as ordered by Bankruptcy Judge Stacey Jernigan. You see, this candidate filed a personal bankruptcy case under Chapter 7 of the Bankruptcy Code on December 31, 2009 (Case No. 09-38820). He was prompted to do so by a multi-million dollar judgment entered against him in New York that was revived when his bankruptcy discharge was revoked in 2014 (a whole other story). Nine years later, his case is still pending, and his creditors are still chasing him for millions.
Back to the house issue. At the 2015 trial that culminated with the referenced order to transfer the 5301 Paladium house to bankruptcy trustee Diane Reed, this candidate was also questioned about the house on Oaks North Place, where he apparently lives now. He testified that the Oaks North home was owned by Continental Partnership, Inc. (“CPI”) and that CPI was owned by his brother. He also testified that he did not hold any position with CPI, whether as owner, manager or officer. Perhaps things have changed since 2015, but DCAD’s records still list CPI as that house’s owner. So it appears that this candidate is not, in fact, an Addison homeowner.
Here’s the thing. Addison voters are entitled to TRUTH from their candidates. As well, Addison voters should expect candidates to take the time to inform themselves regarding the issues. It is disappointing at best when candidates fail to do so, and then employ fearmongering tactics based on demonstrably inaccurate information. And that’s before you get to the claims about owning home(s) in Addison.
That is not the Addison Way. Addison voters deserve better.