Facing a recall election for their approval of excessive utility rates, the Oxnard City Council on December 12, 2017 voted 4-1 to approve an interesting new financial agreement under terms designed to tie the hands of a future council from lowering utility rates.
This is a shameless effort to preserve their bad policy even if the voters recall them from office for it.
The entire plot is a little complex, but in short, the city needs a bank to provide a letter of credit (LC) to support some variable rate bonds issued by the wastewater utility. Oxnard had such a letter of credit from MUFG Union Bank, but that bank wants to get out of that line of business, so the city was searching for a replacement.
What the city’s staff and consultants brought to the council on December 12 was a proposed new letter of credit with JPMorgan Chase Bank (JPM). The staff report and presentation informed the council members that one of the terms of the contract was:
“If wastewater service rates below those prescribed in the service rates approved by City Council on May 23, 2017 become effective, it will constitute as an Event of Default and enable JPM to terminate the LC.”
In public comments we pointed out that the City of Oxnard still has to live within constraints of Prop 218, which states that utility rates can only be based on the actual cost of providing the service. Wall Street doesn’t get to override state law and set our utility rates at levels that maximize the bank’s profits.
It gets worse, though. The staff report didn’t tell the council the entire story. If you look at the actual contract language, it is much more restrictive than city staff represented it to be. Included in the list of things which are considered “events of default” (which allow JPMorgan to cancel the letter of credit, potentially leading to a recall of the bonds) are the following clauses:
“o) the City Council shall approve and adopt an ordinance or resolution or otherwise take binding action that reduces the future Rates and Charges to a level that is lower than the then current Rates and Charges or shall repeal an ordinance or resolution that approved Rates and Charges or amend or modify an ordinance or resolution that approved Rates and Charges so that the Rates and Charges in effect after such amendment or modification are less than the Rates and Charges in effect immediately prior to such amendment or modification;
p) the City Council shall approve for submission to the City's voters an initiative that if passed would result in a reduction or repeal of the then current Rates and Charges; or
q) there is placed on a City election ballot a measure that if passed would result in a reduction or repeal of the then current Rates and Charges;”
City staff told the council merely that future rates could not go below the levels approved on May 23, 2017. The above clauses, however, say that future councils cannot reduce rates to “a level that is lower than the then current Rates”. No rate reductions ever, while this contract is in effect. Not a penny, even if we demonstrate that their rates are unlawfully high.
Clause (q) above is a direct attack on Prop 218, which gives voters a constitutional right to use initiatives to reduce or repeal taxes and fees. The Oxnard City Council has just signed a contract with Wall Street to try to take away your constitutional rights.
When we petitioned for recalling the council members, we were often asked why not just wait until the next regular election to vote them out of office. We gave two reasons:
- repercussions for defying the voters need to happen as swiftly as possible, and
- the longer these council members are in office, the more long-term damage they can do.
This new letter of credit is a prime example of why we must recall them as soon as possible … before they can do more damage.