On Friday, November 16, 2007, the Houston Property Rights Association welcomed retired governmental auditor Bob Lemer, author of the TABOR inspired Proposition 2, to give an update on what is happening with the various city charter amendments concerning finance issues.
Before Lemer took to the podium, several HPRA members brought news on a few fronts. One said that he attended a John Culberson related function where the Congressman has lately been active on the immigration front. Culberson flew to El Paso a while back and watched incognito as border patrol personnel waved vehicles to go on by. Eventually Culberson himself stepped in and identified himself, at which point the bureaucrats predictably called out extra personnel and dogs to beef up security. This same person went that Wednesday to a League of Women Voters meeting where Stephen Kleinberg and Gordon Quan complained that the opposite was good - that immigration led to diversity and that diversity is good. Quan said that there are 20 million illegals in America now and that deporting them would take years. Some states of drivers licenses for illegals. Incidently, the idea that racial and cultural diversity is good for civic engagement has taken a very serious hit recently. Not only that, the hit was delivered by one of its longtime stalwarts, Professor Robert Putman.
Talk also drifted to the Astrodome proposal. One HPRA member who is politically well connected, talked to Oliver Luck. Apparently Dome Development officials were hoping for a $750 million redevelopment proposal on the Dome, but that a proposal has not materialized. This gentleman, who has been working with Mike Roselle and Mr. Luck, has reminded them that you cannot do anything to destroy a prospectus on a business deal, which seems to be the strategy that the Houston Texans and Rodeo are trying to do. Instead, this gentleman suggested that the easy way out of Harris County would be to do an economic impact statement showing that the Dome costs $5-7 million per year to operate and to let the impact statement do the talking that the Dome needs to be demolished.
The fellow in question also said up front that bonds are still in play for refurbishing the Astrodome! The claim is that the hotel and motel tax can cover it, but there probably isn't enough money in that fund to float a massive bond for Dome redevelopment - read here for some refresher history about previous public funding of Dome upkeeping. A question was raised as to whether the Houston Texans and Rodeo could actually stop new redevelopment and the contention is that yes, the tenants could do it through their agreements.
HPRA President Barry Klein, who recently completed cancer treatments, attended the gathering today. He took briefly to the microphone to say that there have been polls cited recently saying that the public supports keeping the Astrodome and maybe redeveloping it, but he pointed out that the polls in question do not ask such questions as whether taxpayers were willing to see their taxes go up to support Astrodome maintenance or redevelopment. He also went on to say that Metro's current market share of transportation trips is only about 2 percent of all trips and that the massive light rail build out would not make any dent in this overall pattern of development. Metro's own numbers show that its share of trips is still going to only be 2 percent of trips in 2025. Klein says that what is needed is a public education campaign that tells people about the fallacies of transit, including that it can relieve congestion. He pointed out that he has a file on Metro's commuter rail plans, which they have been planning away on since 1979 and for which they still won't make any sense.
But onto Bob Lemer. Lemer's talk concerned Propositions 1 & 2, as well as City Charter propositions G and H from 2004. All were approved, but all of them are also now in court. Lemer said that Proposition 2 was an outgrowth of something called TaxVote 97, which he contends had a flaw in that it applied the idea of rate of increase in allowed governmental expenditures to inflation and population growth, but did so to all rate structures. According to Lemer, this would have resulted in complex accounting problems. The Proposition 2 initiative was a refinement of that original idea.
Lemer went on to stress that Proposition 2, what he calls the Houston TABOR, does not prevent anything! It merely said that if the City of Houston wanted to increase expenditures by a rate greater than that of population growth and inflation, then the City needed voter approval. But oh my goodness! From the belly aching you heard from the City, the Houston Chronicle, and the allied interest groups, this was just preposterous and absolutely unacceptable!
On the other hand, Proposition 1:
1) Supposedly capped property tax increases to either the lower of 4.5% per year, or to population growth rate plus inflation.
2) Supposedly extended the homestead exemptions which were already in place, and
3) Supposedly kept growth in water and sewer rates at a level below population and inflation rates.
Lemer went on to say that Carroll Robinson, Jeff Daily, and Bruce Hotze joined together and went to an appelate court, first having to ask that the City report the result that Prop 2 passed to the Secretary of State. Then these men had to go back to court asking the court to tell the City to put Prop 2 into the City Charter. Mayor White has not done this. This in turn leads to the question as to whether Proposition 2 will be operative? Mayor White and City Council asked for a summary judgment saying no it doesn't have to be, but the judiciary said no. Robinson, Daily, and Hotze asked for a summary judgment in favor of putting Proposition 2 into effect and the judiciary agreed. Naturally the City has appealed.
Now here was the interesting part of Lemer's presentation. According to Lemer, under Proposition 1 and Proposition 2, the City owes taxpayers money. However, under Proposition 1, the City owes taxpayers about $129 million, while under Proposition 2, the City owes taxpayers only $30 million! That's right gentle readers. The Mayor's plan actually backfired and is turning out to be better for taxpayers than the plan put forth by the opposition.
However before everyone starts celebrating their good fortune, there is a problem with Proposition 1. Namely, Proposition 1 does not have a provision for refunding money and there is no remedy available to enforce the Proposition. This was one of the issues that Lemer was trying to stress during the 2004 elections. CM Toni Lawrence brought this issue up in City Council and the Mayor asked in public, "Do we have to replay money? No! Then we don't do anything." Lemer expects the matter of refunds and enforcement of Proposition 2 to go to court soon. This is not good for a city whose pension bond obligations are seen as being under stress.
A question was asked why it was that Proposition 1 has been more effective so far than Proposition 2? Lemer replied it was because that, though the airports were exempt, as well an enterprise funds (i.e. franchise fees, hotel / motel occupancy taxes), those taxes have been flat over the past few years, whereas property values have been going up.
Another person asked whether it could be construed that Mayor White's actions could be seen as having a fraudulent intent? In other words, if the Mayor put the Proposition on the ballot and did not intend to give any monies back if it were deemed to do so, then could the Mayor be charged with something? Lemer said he did not know. The Proposition was presented as a relief act to be incorporated into the Charter as an amendment. It would be up to the lawyers to see if anything could be filed.
One member of the audience, an attorney, mentioned that the true remedy is actually political in nature, namely that the voters are in theory supposed to vote out the current Council which is reluctant to implement these propositions and to vote one in that will. This gentleman expressed the idea that these Propositions are aspirational in nature. There was also a question of who has standing, but I do remember that Proposition 2 actually said that any Houstonian could claim standing when it came to enforcement of it.
The City has no obvious incentive to enforce both propositions, indeed Lemer told the audience that the City had given Vinson and Elkins $150,000 to fight the appelate battle, a figure V&E blew through very quickly. White will be out in two years, and Lemer thinks that the City will not approve any more money to contest appelate rulings on the propositions, and it is important to remember that City Council as a group is party to these suits.
Barry Klein interjected at this point to remind the audience that when the City goes out and hires a law firm like V&E, the City is also buying whatever influence the law firm can wield because V&E is tied into the establishment and such a big contributor to both political and judicial campaigns.
Mr. Lemer went on with discussing the situation involving Propositions G and H. Lemer pointed out that neither of these propositions acknowledge Proposition 2. They also remove so called "enterprise funds" - meaning money reaped at the airports, water and sewer fees, and other infrastructure from the revenue cap. Proposition H asked for an increase of $90 million regardless of any other caps which may exist. Lemer said that the City is also trying to get drainage monies back into general funds.
Lemer explained to the audience that when it came to the City airports, Hobby and George Bush Intercontinental, that the City is effectively a landlord only. Outside of a few police officers, the vast majority of people who work at the airports work for either the airlines or for other government agencies. What the revenue cap would have done with regards to the airports is that it would have forced a public vote on any airport expansions and the airlines did not want that. Lemer stated that the airport bonds are effectively junk bonds. An obscure piece of legislation allows for the City to authorize up to 5 cents per $100 property tax valuation to pay for airport bonding in the event that the airport system gets into trouble. Meanwhile, Lemer says that the City has been hitting up John Culberson for money to expand and refurbish the airports - while simultaneously demonizing Mr. Culberson about rail at the same time I might add.
Lemer stated that the Mayor's actions effectively say that propositions G&H are in effect, but that Propositions 1 and 2 are not. Logically you cannot have both. Lemer said that Proposition 1 is a hoax on taxpayers and that the Mayor should not continue pretending that it is not. Meanwhile the Mayor has received, without his asking, a substantially lowered valuation on the price of his property, allegedly because he lives in a flood plan. That however only goes to prove that property taxes at the local level are no different than corporate or income taxes at the federal level when it comes to lobbying and favoritism in order to be relieved from their burdens.
On a final note, Lemer recently received a confidential email from auditor at Deloitte and Touche, stating that "the City of Houston has material weaknesses in its internal audit controls", which is layman's language for saying that the financial sector thinks that you have been doing Enron Accounting and cannot effectively trust your books. Lemer stated that if this were to happen In the private sector, heads would start rolling. Lemer asked the auditors for more information on why they stated this, but D&T said that the City was determining the scope of their auditing. Moreover, the City has said in response to recent enactment of tighter GASB and GAAP controls on governmental entities that the City will interpret whether its own books are in compliance with these measures.
As Marshall Sam Gerard once famously said of one train wreck, "My, my, my, my - what a mess!"
Addendum: If blog readers want to listen to the podcast from which this blog entry was transcribed, they can download it here. The podcast is approximately 80 minutes in length and is 18mb in size. I will keep it available until December 1, 2007.
Wizard
Posted by The Mighty Wizard at November 24, 2007 01:54 PM