Tick Tock: Newport is Insolvent; Broke in 7 years

As we had covered back in 2016, the ticking timebomb of unfunded pension liabilities– then, 9 years in the future– is just 7 years away.  Now, the OCRegister is finally taking notice.  State Senator John Moorlach penned this article, and if you remember he was the then-accountant who predicted the County Crisis many years ago, but was laughably dismissed then, just as many are doing now with our city pension boondoggle.  There is only one problem: This is basic math, and it’s irrefutable.

The City of Newport Beach would need to pay more than $1.2billion to exit the CalPERS system today, placing an easy-to-verify number on how much we owe as a city.  Many city officials will cite our annual debt payment or the total outstanding current debt, but that doesn’t account for what we are on the hook for in the future.

Let’s put this into perspective: If you subscribe to a magazine which is non-cancellable for 20 years at the price of $100/year, then your total debt is not just $100/year– even if that sounds good on a political spin.  Your total debt is $100 times the 20 years of commitment, or $2,000 total.  While it may “sound” more fiscally responsible to tell people that you only owe $100 this year, the fact is that if you don’t have a way to pay for $100 for every upcoming year, you’re going to have a real problem.  And Newport Beach has a real problem.

With our pension liabilities that politicians promised our city workers but then completely neglected to actually fund, Newport Beach will be paying about 30% of total tax revenue to support workers who don’t even work here anymore.  That’s right: That doesn’t even account for the people who are currently working for the city.  With an effective borrowed-interest rate of a whopping 7.5% and a pension cost that rises daily, Newport will be unable to pay even the basic payments on our unfunded pension liabilities in just seven short years.  In 3 years, that percentage will be about 50% of total revenues, and it only goes up from there.

The “good news” (if you can consider it such) is that while our city is one of the worst offenders in the state– and our state is one of the worst offenders in the nation– that this is indeed a nationwide problem.  There are three schools of thought for a solution on this one:
1) Pretend it isn’t happening and then jump on the bailout that everyone else is supposedly-sure to receive by the federal government.
2) Pretend it isn’t happening and wait for a judge to rule that pensions have to be slashed or eliminated so that our national economy doesn’t tank due to their weight.
3) Recognize that it is happening and do everything we can to mitigate it.

How could this massive debt be mitigated?  We can do several things, but none of them are pretty.  First, we could sell off the outrageously-priced city hall.  Second, we could encourage higher skyrises… for a price (I don’t like this because it extorts from the free market).  Third, we could sell off under-performing properties like the moronic “Marina Park”, which used to generate $1m/year in positive cashflow when it was residential, but then the city spent $40m of taxpayer money to turn it into a park which is rarely used and costs $1m/year to maintain.  Yes, you read that right: They took a resource that generated $1m/year and spent $40m to make it cost taxpayers an additional $1m/year.  This 3-block area of bayfront land which previously held 65-units with space to spare could easily be sold for $130m at face value alone ($2m/unit) but with optimized zoning, could fetch far closer to a quarter-billion dollars.  Selling the land which the upcoming Lido House Hotel sits on would generate many dozens of millions more (even with their far-under-market 99 year lease).  With these ideas alone, we would take care of half of the unfunded pension liabilities.

If we removed crony deals like the city leaving the better part of a million dollars on the table for the sale of the Balboa Theater– which sold for $1m when they had offers approaching $2m on the table) and the sale of the McDonalds building on the peninsula which the city bought for over $4m when it sold for less than $2m a year before– then our city could actually make up the difference on its own and pay its own way.

Further, through technology, in the next 7 years we could eliminate 20% of positions in Newport Beach through attrition alone (not firing anyone), while still maintaining the same quality of service that residents have come to expect.  If we want to get very aggressive with it, lowering the service level would reduce our costs even more– but frankly: That’s not necessary.

These are basic, obvious, and realistic ways that Newport Beach can prevent itself from going bankrupt, saddling the citizens with even more debt and higher taxes.

But will politicians even mention it?  Or will they continue to proclaim that we are in “great fiscal health”?  The clock is ticking, and political lies will only cost us more in the long-run.  Concerned?  Email city council at citycouncil@newportbeachca.gov and ask them how much longer we have until we can’t pay our bills.  They will likely tell you about how they have “increased pension paydowns”, but what they won’t tell you is that the pension payments are rising faster than their “faster paydowns” are increasing.  If they give you an answer assuring you that there are no problems, forward it to me at michael.glenn@devion.com and I will point you to their own resources showing how wrong they are.  Be clear: They know about this and they know about the timeline, the extent, and the fallout, but they are doing nothing to actually fix the problem and are taking options to ignore it, instead.

The bottom line is that we shouldn’t be offering positions to people with promises that we can’t afford to fulfill.  This isn’t the fault of our city workers– who should all be doing their best to find the jobs that can feed themselves and their families.  This is the problem caused by politicians who kick the can to the next group of electeds and refuse to take responsibility for the balances while they are in office themselves.  If you call them on it, they’ll blame their predecessors… but they will do nothing to fix it.  These are the people we have elected to be fiscal stewards of our tax dollars.  That’s both a sham, and a shame.

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About Mike Glenn

Mike is the founder and publisher of Save Newport, owner of the software company Devion, the VP of Newport Beach's Republican Assembly, Chair of Government Relations for the Elks Lodge, an outspoken taxpayer advocate, and a sworn alternate voter for the Orange County GOP. He writes, shoots photos, and edits, but much of the time, he's just "the IT guy". He can be reached at: Google+, Facebook, or via email, at michael.glenn@devion.com