The Tucson agenda
Gimme debt: Sahuarita (& other local gov'ts) should act fast on new bonds
A quick look at what's planned for local government meetings
The Sahuarita Town Council is set to do something absolutely brilliant when they meet Monday. The geekery starts fast here because they aren't actually meeting as the Town Council. No, no, no. That would be too easy.
The council will no sooner adjourn their regular meeting as they assume their collective alter-ego as the Rancho Sahuarita Community Facilities Board of Directors.
This happens. It's normal. It's legal under Arizona Revised Statutes. The Community Facilities Board represents the Rancho Sahuarita Community Facilities District, which is for tax purposes a "town" within a town, where capital investment is paid for by a special assessment on future property owners within the district.
It's like if a new development were built next door and all the future residents and business owners were taxed for the improvements, largely required by the new growth. It's a way for growth to pay for itself and to bond for infrastructure in a community without existing home owners being on the hook for it.
The Facilities Board (aka Town Council) is set to vote about whether to feasibility study required on the next phase of projects within the district. They would be paid for by selling $18 million in municipal bonds.
Bonds are IOUs to creditors who lend the cash up front.
One bit of advice: Flank speed!
It's a light week for elected officials meeting to do much governing but maybe it shouldn't be. Perhaps all should be holding emergency confabs to discuss how fast can we call bond elections... assuming an impossible situation remains in play.
In fact, it would be great to have a state law that allowed communities to declare an emergency and call snap elections to sell bonds when inflation is high but interest rates are low.
If none of this makes sense to you, then please don’t answer questions from Gallup or any other polling outfit about inflation. Well, you can keep reading and learn more.
No, I’m no expert on macroeconomics or freaking finance. It's like I would never trust myself to automotive work. I can, however, explain how a spark is lit in the cylinder where fuel mixes with air and creates combustion that drives a piston, which creates power passing through the rest of the drive train and turns wheels.
I know that much.
Hearing the national press discuss inflation is like hearing them explain automotive theory by discussing how a stork delivers sedans and coupes to new mommies and daddies. I'm screaming into pillows a lot about how dumb we got and how fast we got there.
Inflation, we just learned, is at 6.8 percent. The interest on the Triple A Municipal Bond stands at 1.06 percent. One percentage point over is crazy. Five? Five point five? That never happens. It's almost impossible for those two numbers to exist side-by-side.
It defeats the purpose of bonds to be buying them in return for an interest rate below inflation because it shrinks the value of the investment. The idea is to get an interest payment that is higher than inflation.
If you are paying bonds, it's great news. Fixed debt is immune from inflation because the price debtors pay never goes up. A 30-year fixed mortgage ain’t getting more expensive because of the consumer price index. A debt holder can come out ahead if incomes/revenues rise while the cost of the debt stays the same.
Act now! Every community knows it's going to have take on debt sometime to pay for infrastructure because erosion happens. Do it now and save gobs of cash. Hell, it's like a mob shakedown where the heavies are stuffing 20s in the debtors pockets saying "Don't make us come back around because there's more where that came from."
The Rancho Sahuarita board would be smart to act quickly because things could change and fortunes can reverse in a hurry. A window is open now.
The very basics of spark in the cylinder to power through the transmission are about to play out and could bite the board in the asymptote.
Where have you gone, Alan Greenspan?
We used to know about inflation, what caused it and what should be done about it.
At the 1896 Democratic National Convention, a preacher from Omaha, Neb., named Williams Jennings Bryan gave that Cross of Gold speech expounding on the virtue of converting to a “silver-backed” dollar instead of the gold standard. Silver is less valuable than gold. A silver backed dollar would create inflation and help free farmers from their debts.
That was the theory. It was a really bad idea, for a whole bunch of other reasons. That there, was the start of the modern liberal movement.
The public education system wasn't exactly in overdrive in the late 19th century but farmers understood the basics of inflation better than electrical engineers today.
We even knew this back in the 1990s. Every time inflation ticked upwards, we knew Alan Greenspan would save us from it by hiking interest rates at the precise amount to keep the economy growing and inflation in check. He was slowing new growth into the economy.
I used to (and still do) make the case to finance-type people that welfare is actually an inflation fighter but I won't bore you with that now.
It's the Federal Reserve Board's job to keep an eye on inflation and raise interest rates to beat it back. Taken to its most extreme, the Fed raised rates to about 20 percent in the early '80s to break the back of a decade-long fight against inflation.
Interest rates right now — as far as the Fed sets them — are at 0.25 percent.
'Why?' is key to Sahuarita
Why is it happening? I’m not going to tell you how to change a fuel injector because someone might die. This is not financial advice. This is cause and effect.
The U.S. Federal Reserve is keeping its collective foot on the gas of the economy with such low rates and rising prices. That’s the macroeconomic equivalent to flooring it through a school zone with kids in the upcoming crosswalk.
The Fed has pledged to keep interest rates fantastically low through next year to keep pouring gas into the economic engine during the pandemic and to prop up the stock market.
That interest rate is a baseline for interest rates like the prime lending rate. U.S. treasuries used to finance the federal deficit are another. Both are really low.
Is this out-of-whackedness going to last? I ... I ...
Both are as good an answer as any that I can provide.
I can tell you this much: The bond market thinks inflation transitory. Interest rates would be a lot higher if they bond market thought inflation were a new normal. They can't afford to issue debt at one fifth the level of permanent inflation.
The market is acting like higher prices and inflation aren't even the same things.
How can that be? Prices are going up. That's inflation, right? Maybe.
The answer is critical to the future of the Rancho Sahuarita Community Facilities Governing Board or any other governing body deciding to swan dive into debt.
Prices seem to be rising because of temporary problems with the supply chain and not too much money in the economy. A school of economists called "monetarists" say a flood of money is the only definition of inflation. They dismiss what is known as “demand pull” inflation (a run on certain products) and “supply push” inflation (temporary issues with the supply chain leading to added costs or shortages) as just temporary noise.
This could all change tomorrow. Bond auctions could begin to fetch much higher interest rates. That’s a big danger of inflation. Inflation will lead to higher costs for debt. Debt is new money coming into the economy, creating growth. Increasing the cost of growth will lead to less of it, if not an outright recession.
The facilities board could be in big trouble if debt prices (another way of saying interest rates) get re-pegged above that 6.8 percent number because the collective market changes its mind about inflation.
The whole Sahuarita financing scheme depends on new growth moving into the facilities district to pay the bondholders. Very little can kneecap homebuying faster than higher interest rates. It's what punctured the bubble in the mid-2000s.
Higher interest rates wouldn't just cost the district more money in the cost of the debt but blunt means by which the board intends to pay for improvements.
The downside gets dicier.
The district is issuing "general obligation" bonds and there's no walking away from them. They are the safest form of municipal bond to invest in but they are safe for a reason. They are described in state law as an immediate lien on the property and taxing authority.
So if Rancho Sahuarita is going to bond for this, then all ahead full. It couldn't be a better time. God only knows what's coming over the horizon.
Imagine my joy that the Flowing Wells Unified School District Governing Board will vote to include "financial literacy" as part of an economics course required for graduation.
Immediately enroll the entire Washington press corps.
Nice segue, huh?
That board has a light agenda but will meet 6 p.m. on Tuesday.
The Rio Nuevo Facilities Management Board is meeting Dec. 14 at 1 p.m. by Zoom call.
What are they doing? Your guess is as good as mine based on what they posted.
I'm just going to take a random agenda item from the Sahuarita Town Council meeting. I grabbed it without making the page bigger or grabbing reading glasses I suddenly need because time is a mofo.
Adoption of Resolution No. 2021-0687, authorizing the Town to enter into Sahuarita Contract No. 220057, an Intergovernmental Agreement between the Town of Sahuarita and other signatory political jurisdictions within the State of Arizona regarding participation by the Sahuarita Police Department in the Arizona Child Abduction Response Team (AZCART) for a term to expire on June 30, 2030.
Ah, that's horrible writing but I know what they are doing. More to the point. The public knows what what they are doing and which department is doing it and the purpose behind it.
That's an agenda item.
This is not an agenda item (from the Rio Nuevo Board):
Hotel Arizona – Possible Action
The Board will hear a presentation from the developers of this and related projects and will discuss such presentation. Based upon such discussion the Board may vote to take action, which action could include directing staff and/or counsel to draft and finalize any and all agreements necessary to implement the Board’s desires and authorizing the executive officers to execute such agreements.
This isn't an agenda item, either:
Fox Theatre -- Possible action The Board will discuss the Fox Theatre's intention to simplify its corporate structure. Based upon such discussion the Board may vote to take action, which action could include directing staff and/or counsel to draft and finalize any and all agreements necessary to implement the Board’s desires and authorizing the executive officers to execute such agreements.
What agreements are they referring to regarding the corporate restructuring of the Fox Theatre? What board desires are they referring to? Which officers might be involved in such a decision?
I can't imagine if the Tucson City Council started posting agenda items like:
Public health -- Possible action The Council will discuss communicable disease remediation and then may vote to take action doing whatever it damn well pleases.
The purpose of public meeting laws aren't simply to check a box to say "we posted an agenda vaguely suggesting what we might do." It's to give the public information about actions that public bodies are planning on taking so the people know what these public agencies are up to and how tax money is spent.
It's so the business of the public is done in the proverbial light of day.
I'm not even asking for an agenda packet with background material. Just don't design agenda to give maximum leeway to board members by providing limited information to the people they serve.
I mean, the Rio Nuevo board has done an OK job getting projects up and running since taking over downtown redevelopment nearly 10 years ago, but throw us a bone here.
Stay tuned next week for the final meetings of the year at the Tucson City Council and Pima County Board of Supervisors.
Blake Morlock is an award-winning columnist, who worked in daily journalism for nearly 20 years and is the former communications director for the Pima County Democratic Party. Now he’s telling you things that the Devil won’t.