Short takes: DelBono, Chen & the AA+ grade

While researching a piece for the Merry-Go-Round, we occasionally come across information that, while not pertinent to the piece itself, strikes us as worth passing on.  For example, did you know about firefighters’ union honcho Jeff DelBono’s passion for ferries? Or about Councilman Stewart Chen, D.C.’s guanxi in Asia?  Read on and you will.  And as a bonus for financial junkies, we’ll tell you the real story behind the “upgrade” to the City’s bond rating.

DelBono’s passion

Following up on the news of politico-turned-lobbyist Don Perata’s $90,000 no-bid contract with the City, we chanced upon an article reporting that State Assemblyman Rob Bonta “recently took steps to replace” former Alameda Mayor Beverly Johnson on the governing board of the Water Emergency Transportation Authority (“WETA”), the agency responsible for overseeing Bay Area ferry service.  His choice for the seat?  IAFF Local 689 political director Jeff DelBono, whom the article described as “an Alameda firefighter with a passionate interest in strengthening ferry service.”

Sure enough, a check of the WETA board minutes showed that the chair had introduced Mr. DelBono to the rest of the board at its June 27, 2013 meeting as the appointee of the Senate Rules Committee.  His selection gave organized labor two seats on the five-member board.

Mr. DelBono, of course, is well-known around town for his eye for political talent and his skills at the bargaining table.  Newly elected Councilman Stewart Chen, D.C. put Mr. DelBono at the top of the list of supporters whom he thanked publicly after eking into the last available Council seat.  (Dr. Chen’s expression of gratitude was well-deserved, since IAFF Local 689 spent $10,000 to flood the Island with pro-Chen flyers during the week before the election).  And Mr. DelBono was the chief negotiator for the firefighters’ union in the talks that produced the four-year contracts boosting pay and benefits for public safety employees by $6.2 million and limiting annual increases in employee pension contributions to 1%.

Mr. DelBono’s “passion” for ferry service reveals a new side of his personality.  It is even more impressive since, as a resident of Pleasant Hill, he probably doesn’t use any WETA-regulated ferry to commute to work.

No sooner had Mr. DelBono joined the WETA board than he brought his expertise with labor agreements to bear.  At its June meeting, the WETA board approved a Project Labor Agreement (“PLA”) with the Napa-Solano building trades council for a North Bay construction project.  Thereafter, relying on the advice of WETA’s outside counsel, the agency’s executive director refused to make changes to the PLA demanded by the unions.  At the July meeting, Mr. DelBono challenged the attorney’s expertise and then, seconded by the board member from the IBEW, successfully moved that the previously approved PLA be withdrawn and staff be directed to negotiate a new one.

We can’t leave this topic without commenting on one intriguing fact about former Senator Perata’s prior lobbying efforts on behalf of the City.  Citing Assistant City Manager Alex Nguyen, The Alamedan reported that the City hired Mr. Perata in June “to help defeat a bill that would have eliminated Alameda’s seat on the new ferry board.”  In fact, existing state law did not give Alameda – or any other city – a seat on the WETA board.  This May, the Assembly passed a bill requiring – for the first time – that one of the board slots go to a resident of Alameda County.  (The Senate has not acted).  And even if there had been an informal practice of reserving a place on the WETA board for an Alamedan, it was abrogated not by any bill opposed by Mr. Perata but by the appointment of a Contra Costa County resident – i.e., Mr. DelBono – to replace ex-Mayor Johnson.

Dr. Chen’s guanxi

Watching the video of the discussion at the November 5 Council meeting of “evaluation criteria” for Alameda Point, our ears perked up when City Manager John Russo launched into an anecdote intended to show that developers wouldn’t like a proposal made by Planning Board member John Knox White.  “There’s a development team that was brought to me by one of the Council members,” Mr. Russo began, turning to his right.  “By Council member Chen.  We met with [them] a couple of times . . .”

This reference reminded us that, during his successful campaign for Council, Dr. Chen gave an interview to the China Daily in which he discussed his views about how to develop Alameda Point.  Since “billions of dollars” would be required and “not a lot of American developers can put up that kind of money,” Dr. Chen advised the City to seek Chinese investors.  If elected, Dr. Chen said, he’d “have a better position and platform to get to China for a potential partnership for the development of Alameda Point.”

Dr. Chen explained that he had learned how to communicate with Chinese officials and businesspeople.  Even better, he added,

You can have all the talent in the world, you can be distinguished in business, but you cannot bridge the gap if you don’t have guanxi (social connections).  Guanxi is basically the driving force for China. You have to have that connection.  It’s a tool that officials can use when we come back from China and bring in potential partners.

From Mr. Russo’s comment we guessed that Dr. Chen had followed through on pursuing Chinese investors for the Point. So we emailed to ask him about it.  It turns out our guess was right – and then some.  “Actually, I had referred several potential developers to our City Manager,” Dr. Chen replied.  “If my memory serves me correctly, I referred one Chinese investor, two Filipino investors, one Vietnamese investor, and one investor from California to meet with staff.”

But the financial challenge posed by the Point has proved thus far to be as daunting for Asian investors as it is for American developers.  “Unfortunately,” Dr. Chen told us, “none of these potential investors ha[s] taken an interest in Alameda Point.  Infrastructure cost is a major roadblock to the development of Alameda Point.”

The bond upgrade

Almost every time anyone at City Hall talks about the City’s financial condition these days, they’re sure to tout the “bond upgrade” from AA to AA+ that a prior issue of Alameda’s general obligation bonds received from Standard & Poor’s in September.  And they’ve made clear that they regard S&P’s action as a well-deserved tribute to their managerial skills.  As Mayor Marie Gilmore said in the press release announcing the ratings change, it “shows that the steps we have taken together with our employees, having them assume more responsibility for their benefits, are making a difference and are recognized by the financial markets.”

The drumbeat finally got so loud that we were moved to see what S&P itself had said publicly about the “bond upgrade.”  The story is somewhat less scintillating than the one being shouted from the rooftops of City Hall.

The Alameda G.O. bonds have carried an “AA” rating – which, according to S&P, reflects its view that the issuer has a “very strong capacity” to pay off the debt – since June 2008.  This February, S&P affirmed that rating and issued a report praising the City’s financial performance “in the last three audited years” (FY 2009-10, FY 2010-11, and FY 2011-12).  For the first half of this period, of course, Beverly Johnson served as Mayor and Ann Marie Gallant was interim city manager.  Ms. Gilmore took over as Mayor in December 2010 and Mr. Russo was appointed city manager in June 2011.

Seven months later, S&P raised the rating to AA+.  According to S&P, a plus sign simply shows the “relative standing” of a particular security among similarly rated issues.

The release issued by S&P announcing the change did not cite either improved management skills or enhanced employee cost-sharing as the reason for adding the plus sign to the long-standing “AA” rating on Alameda G.O. bonds.  Instead, it turns out that S&P had just updated the methodology it uses to rate some 4,000 municipal bond issues.  According to the S&P press release, the revision to the Alameda G.O. bond rating was “based on our recently released local GO criteria.”  (Essentially, S&P decided to employ a system in which a particular bond issue is graded on each of seven “key factors,” the most important of which is the economy, and then the average weighted score is used to determine the rating).

When S&P updated its methodology, it estimated that using the new criteria would result in about 30% of the municipal debt it rated – i.e., about 1,200 issues –  being upgraded a notch.  More than a thousand municipal bonds thus were expected to get the same favorable treatment, for the same reason, as the Alameda G.O. bonds did.

The politicians have turned the upgrade into yet another occasion for congratulations.  So here goes:  Kudos to Mayor Gilmore and City Manager Russo for following in Mayor Johnson’s and Ms. Gallant’s footsteps in achieving positive financial results.  And thanks to S&P for giving them the chance to kick the City Hall spin machine once more into overdrive.



WETA June 2013 Board minutes: WETA June 2013 Board minutes

WETA July 2013 Board minutes: WETA July 2013 Board minutes

AB 935: AB 935


Interview with China Daily: Chen interview with China Daily

Bond upgrade

S&P ratings definitions: S&P ratings definitions

S&P September 12, 2013 press release: S&P _ Criteria _ Governments _ U.S. Public Finance_ U.S

S&P February 19, 2013 ratings letter: S&P ratings letter

S&P September 18, 2013 press release: S&P press release

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
This entry was posted in Alameda Point, Budget, City Hall, Development, Firefighters, Pensions and tagged , , , , , , , , , , , , , , , , . Bookmark the permalink.

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