The Foster City Levee - $279/year or $2,500/Year - That is the Question
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The Foster City Levee - $279/year or $2,500/Year - That is the Question
OK, no one likes to pay more taxes and fees. Not me, not you, not anyone. But today our choice, as given to us by the Federal Emergency Management Agency (FEMA), is that we can increase the height of our levees or be in a designated flood zone. The question then is whether the average homeowner wants to pay about $279 per year to repay a bond to increase the levee height or about $2,500 per year or more to buy flood insurance. Seems to be a no-brainer to me. We will get the right to vote on that bond in June and I am certain that we will all understand the consequences and vote to tax ourselves, despite our adversity to paying more taxes.

Several weeks ago, a small but vocal group of people tried to change the question we are facing and instead make the question whether we should use bond financing for the entire $90 million we expect the levee to cost us, or if we should use some of our emergency reserves to make the bond smaller. Despite having voted last year to bond for the entire amount, two of our City Council Members did an about-face and supported the idea of using $10 million of our emergency reserves for the levee. Let me tell you why that is a really bad idea.

We have all seen the devastation in our State and in our Country from recent natural disasters such as fires and hurricanes. We have seen people forced out of their home, their homes destroyed, and we have seen people wait in long lines for assistance. FEMA has expressed to cities, counties and states that they need to increase their reserves so that in the event of a disaster, they have funds to provide for immediate temporary housing, food and water. Spending our emergency reserves would be going the wrong way.

Our City is also quickly approaching 50 years old. 50 years is the true effective life of a lot of infrastructure. That means that the issues older cities have been dealing with, such as replacing sewer laterals, pumps, operating systems and the like, that we have not yet had to deal, with are going to quickly become our problem. Right now, based on very preliminary reviews, we are likely looking at about $9 million in public works infrastructure replacements and about $20 million in parks infrastructure replacements. Very little of this is currently budgeted for.

Our long-term pension obligations dwarf our reserves and the current system is going to need significant restructuring if we are to prevent its failure. That needs to be done at the State level and we are generally at its mercy, but regardless we do not have the funds reserved to pay those obligations.

While having $10 million more would clearly help us in an emergency and with dealing with our aging infrastructure, using the funds for the levees also does not make sense from the standpoint of its impact on the property owners because for most, the impact would have almost no economic relevance. For the median single-family home with an assessed value of $680,000, the difference in using $10,000,000 in City funds and not doing so is just under $31 per year.  

For a property with an assessed value of $6.8 million, or ten times the median single-family home assessed value, the difference would be $309.80 per year. If one were to pay the remarkable amount of $711 per square foot for such a building as was paid earlier this year for an 81,000-square foot building in Redwood City (which was more than double what that building sold for in June 2014), then the assessed value of such property would be $22,026,780, which would equate to an additional $1,003 per year more or about $0.03 per square foot per year.  

Compared to average lease rates of $5.00 per square foot per month as of this past December, the fiscal impact of $.03 per year would be a mere 0.0005%. In other words, someone owning a 30,980-square foot building for which they paid $22,026,780 would pay about $9,000 per year for a $90 million bond and about $8,000 per year for an $80 million bond, an almost imperceptible difference at this scale given that a 30,980-square foot building leasing at $5 per square foot per month generates $1,858,800 per year in gross income.

While this deals with impact on the individual property owner and/or business and shows that the actual impact is economically negligible, it does not take into account the enhanced risk to the City in not having the funds for an emergency nor the difference to the City in investment income over that same thirty years, which can be monetized. Using it to pay for the levee means not only that we do not have the funds, but we will also not have the income earned on those funds.

Finally, having started my career on the Council with a structural deficit of $5,000,000 I can say that $10,000,000 will go fast when you need it and will create big problems if you don’t have it. If the City needs the funds at some point in the next decade, it will likely have to try to get another bond underwritten and at that time the City’s debt will likely be nearly $250,000,000 or more for both the levee and wastewater treatment plant and that assumes that we do not further obligate ourselves for a new Recreation Center. Such a bond will likely bear a higher interest rate due to increased risk because of the level of existing debt but certainly because we continue to be at historically low borrowing rates, something which clearly will not continue forever.

As our Mayor said at the City Council meeting, from a property owner’s perspective using $10 million of the City’s money sounds great. However, from the perspective of having to care for the City, its residents, businesses and guests, it is neither fiscally prudent nor socially responsible to take those funds from our emergency reserves rather than use the bond. I cannot imagine anyone looking back if we could not provide emergency housing when we need it and saying, “well that’s OK because we saved people $31 per year.” It’s that perspective that we as Council Members need to have.

I hope now that you all understand why we decided what we decided and are fully prepared to help us keep Foster City safe and dry by voting in favour of the bond in June.  

Those are my thoughts. You can always share your ideas with me by email at cbronitsky@fostercity.org.

 

Council Corner

February 07, 2018
The Foster City Levee - $279/year or $2,500/year - That is the Question

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Foster City, CA 94404
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