A $120 million “handout” to ASU by the City of Mesa has two City Council members crying foul. Mesa City Council members Kevin Thompson and Jeremy Whittaker are questioning a series of decisions and statements involving the funding of new facilities for ASU.
In 2016, Mesa voters rejected a proposed increase in the city sales tax to fund the facility. Currently, under the leadership of Mayor John Giles, the project’s funding will come from revenues generated from utility bills.
Giles’ scheme has received the support of council members Mark Freeman, Francisco Heredia, Christopher Glover, and Vice Mayor David Luna.
Elected officials on every level of government in Arizona are expected to adhere to ethical standards. Those standards include disclosing and avoiding any actual or apparent conflict of interest. Conflicts of interests would involve voting on issues involving entities in which an official would have a pecuniary interest. This conflict exists even for public officials who have recently left a job in an entity whether public or private.
As a result, votes cast in favor of the ASU deal by council members Glover and Luna have raised eyebrows. Ironically Glover teaches “Organizational Ethics” at ASU, according to the University’s website. Luna “also spent time as an adjunct professor for both Arizona State University and Mesa Community College,” according to the City’s website. ASU’s website shows that Luna last taught there in 2017. Luna was clearly employed by the University in 2016 when the project was first proposed.
To avoid even the appearance of a conflict, both Luna and Glover should have recused themselves from voting on any matter related to ASU.
Apart from the apparent conflict of interest, residents, Whittaker, and Thompson question the decision to raise utility costs in order to fund a risky investment.
“I’m not faulting ASU in this situation, rather the leadership in Mesa for how this entire issue has been handled since day one after Question 1 failed in 2016,” said Thompson referring to the 2016 ballot. “The citizens spoke loud and clear that they did not want public funds to go towards the building of ASU in our downtown, and I will continue to be the voice of that 53 percent that voted no. And to think we are going to spend $100 million dollars and not recover that through a tax or utility rate increase is just not a true statement.”
In a letter dated May 4, 2018, Mesa resident Gene Dufoe, the head of Keeping Mesa Great, advised the mayor and council members of the group’s consideration of filing a lawsuit in response to the funding scheme and what they believe is an inappropriate use of utility revenues.
Dufoe’s group gave the City until June 5, to “cease its unlawful practices.” Defoe wrote, “If such confirmation is not received by June 5, 2018, we will have no alternative but to file suit and seek declaratory relief, refunding of expenses incurred in any legal proceedings, and a permanent injunction enjoining the City from issuing bonds.”
Defoe and his group believe that the utility rates for water and wastewater are already “too high” due to the “mixing of 1) business-type revenues with non-business expenses, 2) charging all of the five transfers to water and wastewater, and 3) charging the retirement of general obligation bonds to water and wastewater.”
Dufoe’s group questions why the City is “choosing to raise utility rates when it has $140 million in general obligation bonds unspent in 2016.” He argues that the “tax is not needed but will enable spending without limitation.”
Other residents are rumored to be considering launching recall efforts against Giles, Freeman, Heredia, Glover, and Luna.
For his part, Whittaker outlined his objections on his website last week due to the “ton of misinformation going around regarding the new downtown ASU project…. Everyone is entitled to their opinion on this issue but not to their own facts.”
Among other objections, Whittaker wrote that the deal is against his principles. Whittaker also shared Dufoe’s concerns as to how the ASU project is funded:
“One of the core problems with this ASU campus is how it is funded. The budgeted amount for this project is $120 million dollars. These monies are currently budgeted to come from our utilities. The utilities are also known as the enterprise fund it is essentially a bank account that is capitalized from the water, wastewater, solid waste (trash cans), and gas bills. My passion is fueled by protecting the middle and lower class from being unfairly taxed. Energy inflation costs are slowly eating away at the discretionary income of our middle class and worse on the poor; it takes the income they need to survive. It is true that we have always used the utilities to fund the city’s operations. However, if you look at this chart below you can see that the water rates are consuming more and more of the income of our residents as a percentage of median income. This metric shows that we are on a course of unsustainability. I am absolutely sure this is being felt in the bank accounts of our citizens….”
Contrary to claims that the scheme will not prompt an increase in utility cost, Whittaker wrote that “every dollar added to the budget eventually has an impact on utility rates.”
“Using common sense if you spend $120 million dollars out of the utilities the money has to come from somewhere to pay for this,” explained Whittaker. “If you believe that this building will not impact your utility rates, caveat emptor, next they will be selling us ocean front property in Mesa.”
“The lie that is being propagated is ASU will not affect utility rate increases,” continued Whittaker. “The first important thing to note is that staff only projects and budgets for 5 years. So, technically yes this does not affect rates for the next 5 years, arguably. However, this sleight of hand forgets to mention that it draws down our reserves (savings) until they are projected to be depleted to 8% in year 5 of the budget. Further, one can deduct that this is a 20-year bond and only 25% of the costs are being budgeted for (5 years divided by 20 years total is 25%). This means $30 million for the first 5 years and $90 million for the remaining 15 years. We can conclude that someone has to pay for this other $90 million in years 6-20. It will either come in the form of a sales tax increase or more water bill rate hikes after year 5, this is not debatable. In this staff scenario below you can see the 5-year projection of our utility rates. Notice first that our budget is not balanced (net sources and uses line) this means we’re slowly depleting our savings year after year. We eventually draw down to 8% in fiscal year 23/24. We are required by policy to maintain 8% reserves (savings). This means in year 6 we’re in trouble. As highlighted we just depleted all of our savings from 25.2% to 8 %.”
However with power players and lobbyists pushing the scheme short of a lawsuit or recall, little with stand in the way. “ASU sent three lobbyists to convince us this deal was good for Mesa. Rick Neimark, Angela Creedon, and Matt Salmon,” advised Whittaker. “Respectively they make $229,000, $180,000, and $285,000 a year. How does this stack up against your salary? When there is that much money involved you can make any project look profitable.”
Whittaker then offers evidence that “ASU’s net position (an overall indicator of financial health) vs. the City of Mesa’s,” clearly show that the University “can afford to pay for this building more than the citizens of Mesa can. These charts below, show that as Mesa’s net worth is declining year after year, ASU is doing just fine.”
The Council is expected to vote on an Intergovernmental Agreement between the City and the Arizona Board of Regents for the project in the next few weeks.