Newport Beach voters will decide whether additional large debts will require their approval

Newport Beach voters will decide this fall on a rule change that would require a public stamp of approval for more major debts.

On a 6-1 vote Tuesday, with Councilman Jeff Herdman dissenting, the City Council agreed to put a question on the November ballot asking whether voters would amend the city charter to require individual approvals to issue lease-revenue bonds, such as certificates of participation, or COPs, for capital projects needing to be financed for more than $50 million.

Individual project approvals would require at least 55% of a vote.

Councilman Kevin Muldoon said he wanted voter approvals for COPs two years ago, but pulled back to allow the finance committee, city staff and the public more time to review the proposed amendment. He gave the public credit that it knows what projects it would like to support.

“If our proposal tonight is not a good proposal then the voters will say no,” he said. “I imagine they’ll say yes, because they’ve earned their money from working hard, and they should be able to have some decision over how that money is spent when debt is incurred.”

In a COP arrangement, the city creates a lease stream by essentially leasing its own facilities back to itself — technically, itself as a different public facilities corporation created to hold the facilities — with the facilities offered as collateral to its bondholders. When the debt is repaid, the facilities become the agency’s — unencumbered by a lease.

COPs do not require voter approval like general obligation bonds, which lead to increased local property taxes.

The city last used the COP funding mechanism in 2010 for the Civic Center and Park, a $140-million undertaking that was completed in 2013 with about $17 million in cash and $123 million in COPs.

Costs for the Civic Center project — which included City Hall, an expansion of the Central Library, a 14-acre park with sculpture garden, a dog park, a pedestrian bridge over San Miguel Drive and a 450-space parking garage — ballooned from about $105 million at the start of construction to $140.2 million by the time it opened about three years later.

Before that, the city took out $7.5 million in COPs for the Central Library in 1992.

Larry Tucker, a city finance committee member and former longtime planning commissioner, had questions.

Some of them: Would the City Council run campaigns to support the debts? Could public money be lawfully spent on this support? To avoid going to the voters, would the council opt to use reserves instead? Could voters be confused by the complexities of COPs? What level of public support should manifest itself before a project goes on a ballot?

“Of course, the details of a future debt instrument campaign can be waived off by asserting that you trust the wisdom of the voters. I do too,” Tucker said. “But you do owe it to successor councils to think about how such a campaign would work if they do become required.”

Financial advisor Keith Curry, who was mayor when the Civic Center opened in 2013, decried the voter-approval mechanism. He said vital big-ticket projects like seawalls and dredging could be hard sells for residents who don’t live along the harbor, and that the timeline from introduction to election day could make bids several months old, causing them to expire, contractors to pad their figures to address the financial risk, or for projects to hit the ballot without cost estimates.

“Either way it’s bad policy, and it costs the taxpayer money,” he said.

Councilman Scott Peotter, a longtime critic of the complex he’s dubbed the “Taj-Ma-City-Hall,” said the Civic Center probably wouldn’t look like it does if the voters had a say. Peotter, along with Diane Dixon, Marshall Duffield and Muldoon, was a member of the “Team Newport” slate that built its 2014 platform in part on the Civic Center price tag.

Newport spends about $8.2 million a year on the Civic Center debt. The city projects paying it off in 2041.

“People sit there and think that voters are incapable of understanding,” Peotter said. “They understand just fine, and when we campaigned we didn’t even have to mention it. It was brought up for us. This building was an overreach.”

Joy Brenner, who is running against Peotter this fall for the seat representing Corona del Mar, said the timing of the ballot item is political.

“We know that. We’re not stupid. We know when you’re playing politics with us,” she said. “Maybe you need to start paying attention to the fact that the community is waking up. We see what’s going on when there are ways that you’re trying to manipulate us.”

Herdman said he respects efforts to involve community in decision-making when it’s directly affected but said residents aren’t directly affected with COPs, because they aren’t a tax.

“The prudent use of certificates of participation is a sound financial practice, which should continue at the discretion of the council,” he said. “There is a legitimate purpose for debt that extends out over 80 years or even more. In order to provide for the people now and into the future, it’s necessary to assume debt.”

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