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Loren Taylor’s Empower Oakland Proves It Doesn’t Get Measure U Public Bond Financing
Empower Oakland, the organization founded by former Oakland District Six Councilmember and current Oakland Mayoral Candidate Loren Taylor , has proven it does not get this thing called public financing. The proof is in an email news letter issued earlier this week regarding the Measure U Bond Financing Controversy.
The problem is that the City of Oakland’s City Administrator and Finance Director elected not to issue bonds until economic conditions both local, national, and worldwide, were better. The reason is simple: if they were to issue bonds that would come with higher interest rates, reflecting greater risk, the resulting bond debt service may be too great for the designated revenue streams to cover. (This may be a good time to suggest that in the future, Oakland bonds be designed with three-to-one debt coverage ratios and not two-to-one. So, we get revenue pledged to pay the bond debt service that’s three times the bond debt service.)
But Loren Taylor’s Empower Oakland has a different view. In the news letter, they said the following, which will be pasted in its entirety:
Loren Taylor’s Empower Oakland’s Views From The Newsletter
In 2022, 75% of Oakland voters overwhelmingly approved Measure U, authorizing $850M for affordable housing and public infrastructure.
- This included $290M for transportation projects managed by Oakland’s Department of Transportation (OakDOT), which is responsible for things like street paving, bike lanes, and sidewalk repairs.
- OakDOT largely relies on a combination of grants and bond measures like Measure U (and Measure KK before it).
- Over the past 5 years, OakDOT has raised $300M in grant money, but these grants are typically contingent on matching funds from the city, which come from bond sales.
What’s the problem: The city is yet to issue the Measure U bonds, even though Oaklanders have been paying for them by way of property taxes for the past 2+ years.
- Without these funds, OakDOT recently informed city leaders that it cannot move forward on new paving projects.
- This means the city will pave a mere 8 miles this year, far short of the 40-50 miles per year afforded by Measure U.
What’s the holdup: The City Administrator’s office, led by Jestin Johnson and responsible for issuing the bonds, blames the delay on high interest rates.
- Oakland’s ability to secure favorable interest rates is in part due to economic factors (rates are historically high), and exacerbated by Oakland’s recently downgraded credit ratings.
Why that doesn’t hold up: For one, interest rates are out of the city’s control, but they also don’t impact our ability to repay the bonds.
- The property tax revenue that funds the bonds already accounts for today’s higher rates.
- Even if the city waited for rates to come down, any marginal savings would be outweighed by the cost of continued delay.
- The result: projects get more expensive due to inflation, matching grant dollars sit unused, people get injured and killed on unsafe roads, and trust in local government continues to erode (along with our streets).
History of roadblocks: This isn’t the first setback for Oakland’s paving projects.
- From 2017 to 2022, OakDOT was a well-oiled machine, repaving 160 miles of the city’s total 830-mile road network.
- That progress came to an abrupt halt in 2022, when city council rejected all paving bids for being a few percentage points shy of the city’s 25% small local business requirement.
- Councilmember Carroll Fife, who spearheaded the rejection against OakDOT recommendations, argued that “Black businesses need to be centered in these contracts.”
- The result was an 18-month delay in road work, moving $2.2M in contracts from a Hispanic-owned firm to a Black-owned firm, and an overall $6M increase in costs to taxpayers.
Housing also delayed: Oakland’s housing department faces similar challenges, waiting on $141M in Measure U funds.
Is Loren Taylor’s Empower Oakland Taking Its Measure U Talking Points From OakDOT Director The In-Atlanta-Controversial Josh Rowan?
First, the stated idea that “interest rates are out of the city’s control, but they also don’t impact our ability to repay the bonds” shows a total lack of understanding of public financing. Bond interest rates govern the size of bond debt service.
As a rule of thumb, I apply a basic multiplier of 1.56 for every bond issue I analyze that includes a muni-finance standard bond interest rate of six percent. That gets me my estimate of total bond cost (needed money from bonds times the multiplier). But if economic conditions worsen, I will run tests at up to a 7 percent rate.
That small change can add enough money to an annual bond debt service to put any estimated projection of revenue over bond debt in the red. Obviously, you want to revise your bond issue to get more potential revenue, which the City could and should do.
But Empower Oakland did not say that. They just want the City to issue the Measure U bonds even though they could go into a default phase. In other words, we in Oakland wind up paying more for the bond issue that revenue we possess. Why? Well, this gets me to Mr. Rosen.
Josh Rowan came to Oakland from Atlanta OakDOT. There Rowan was unfairly fired without cause and had a lawsuit active against MARTA, the parent organization over Atlanta OakDOT. The lifelong metalhead had his fans. One observed “Imagine being in charge of infrastructure in a city that can’t afford to finish projects while mayors line their pockets. I don’t blame him. No sense in being a pariah.”
The bet here is Josh peppered the Empower Oakland team with his observations, financing takes, and frustration. If Loren wrote the take by Empower Oakland, then he missed a chance to fix what may be a relationship problem between OakDOT’s Rowan and the Oakland Finance Director Erin Roseman.
So, if Loren is Mayor, it’s a fair bet he’s not going to recognize siuch problems and repair them, or ask others to do so.
That, on top of the bond-issue misread, is troubling. I do not know that anyone of the candidates can do better, but since Loren’s outfit raised the issue, what’s falling back toward him doesn’t look good.
We could be in for more mismanagement.
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