County eyes have widened since news spread that McKinleyville Union School District, among other school districts local and statewide, has issued sketchy, high-interest “capital appreciation bonds” that saddle district residents with massive debt burdens that can stretch out for as long as 40 years. 

McK Union’s school board will discuss the bonds and possible ways of getting out from underneath them at its meeting tonight.

Far less discussed is the fact that the City of Eureka is currently seeking to sell some $8.2 million in bonds next year in order to fund its pension obligation to employees. Such bonds are not being put to a vote of the city’s residents, as state law requires of most municipal bond issues. Instead, the city is seeking a court decision that would validate its legal position: Since pension contributions are also required by law, the City Council may issue such bonds without the customary 2/3 vote of the citizenry.

What’s more: Although the first round of proposed bonds are, according to the city’s court filings, pegged at a fixed interest rate not exceeding 6 percent, the city is also seeking permission to issue subsequent pension bonds from time to time. These subsequent bonds, if approved by the court, could be structured in any number of ways — explicitly including the now-infamous “capital appreciation bonds.”

The city currently owes about $7.8 million to a fund run by the California Public Employees Retirement System. The first proposed round of bonds would pay off that debt and fund costs associated with the bond release itself, including payment to the city’s consultant, investment bank Piper Jaffray — the same firm used in the McKinleyville Union bond issue.

City of Eureka Finance Director Paul Rodrigues has not yet returned a call seeking comment, but he spoke about the matter at the Nov. 6 City Council meeting, in which the council approved a resolution to seek the bonds. He likened the bond issue to refinancing a home, and said that financing its CalPERS debt in this way would save the city about $100,000 per year. Currently the city is paying about 7.5 percent interest on the amount it owes CalPERS; issuing bonds could bring that down to three percent or lower.

Video of the Nov. 6 agenda item follows:

(“No one from the public addressed the council regarding this subject matter,” commented the meeting’s official minutes.)

In the city’s court papers, City Attorney Cyndy Day-Wilson says that a California Supreme Court decision (which she does not name) means that the city is not obliged to put this matter on the ballot, as would seemingly be required by the specific language of the California Constitution:

No county, city, town, township, board of education, or school district, shall incur any indebtedness or liability in any manner or for any purpose exceeding in any year the income and revenue provided for such year, without the assent of two-thirds of the voters of the public entity voting at an election to be held for that purpose…

(Full text of the relevant section here.)

If the court agrees with Day-Wilson’s argument, the bonds will go forth — along with the clause of the resolution that allows the council to issue subsequent bonds, at rates and terms to be determined, from time to time. A public notice on the city’s court case — technically a lawsuit against “All Persons Interested” in the bond sale — was published in the Times-Standard recently. It notes that people have until Jan. 3 to file a challenge against the bonds. 

Municipal bond issues are nothing new, of course … and neither is the weight of public pension debt as the boomers gray out. Over the weekend, National Public Radio ran a report on municipal finances in Detroit. Turns out that one of the city’s biggest problems is the debt service on bonds it took out to fulfill its own pension obligations. Audio below.