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ISSUE # 66: BlatANT Disregard

"We do not say that a man who takes no interest in politics is a man who minds his own business.  We say that he has no business here at all."

                             -- Pericles


As they say, when the cat's away, the mice will play.  In Aspen's case, while The Red Ant's away, the Ba'ath Party continues its regulatory march toward more intrusion into our personal and financial lives, its obscene cover-up of the costs and issues associated with the hydro plant, and its misguided and self-serving plans to shove more subsidized housing down the throats  of local taxpayers with a likely 8-figure general obligation bond for Burlingame Phase 2 as early as this November!


Ever rent out your Aspen place?  Ever think about it?  Given the IRS lets you do this for up to 2 weeks tax-free annually, many private property owners in Aspen do so in order to offset costs.  But our friends at the city see this "rental activity" as yet another revenue stream they can tap into for about $100K in annual incremental revenue.  It seems the "lodging community" sees private home rentals as cutting into their business and they want to "level the playing field" as well, so the city has cooked up a revocable Permit to Rent that includes a new forced-payment 2% lodging tax.  

Social engineering.  Class warfare.  It is NOT AT ALL about the money.  There just isn't very much in this program.  The city simply wants to extend its regulatory control over free-market residential properties.  And they can.  How? It's already in the local tax code!  Yep.  Section 23.32.090 subjects "lodging services" to a tax.  And Section 23.32.100 specifically exempts lodging rentals from a sales tax when the duration of stay is 30+ days.  This whole idea appears to be a land use issue -- the city will just change the zoning to include residential properties and voila -- control.  

If this thing is enacted, private property owners who choose to rent out their units/homes for less than 30 days at a time will have to jump through a number of bureaucratic hoops:  obtain a small business license from the city for a $150 annual fee, hire a local owner's rep, notify all neighbors within 300' of the intent to rent and provide contact info for the owner's rep, and get Homeowner Association approval.  Then, pay the city 2% of the gross rental income.  It's preposterous, and not just because it will cost more to administer than it will bring in to city coffers; it's just one more punitive slap in the face of private property owners in Aspen.  And it's sure to pit neighbor against neighbor.  For more information, read THIS  excellent letter to the editor from local realtor Mark Kwiecienski that outlines the pros (none) and cons (many) of this insipid idea.  I couldn't have said it better myself!

And did you know, when there's a "compliance" or "mis-use" violation (like illegal rentals) in SUBSIDIZED HOUSING, there is no anonymous reporting allowed. You must leave your name as the tattle-tale. Reports are therefore minimal. In the free-market program, however, this will not be the case. City enforcers will be strictly protecting the new revenue stream and exerting their new-found control!  And you know they'll just love the inevitable neighbor vs. neighbor conflicts!

Write to council today (see addresses below)! Tell them to focus on REAL community issues and shelve this idea!!  Besides, didn't we just approve a 1% lodging tax that specifically benefits the lodging community for marketing purposes?!  What is with the greed?!


They lied from the beginning.  In a recent review of the "Official Statement" (government parlance for "prospectus") for the issuance of the $5.5M in bonds for the Castle Creek Hydro Plant, several blatant problems leap off the page.  Remember, any time a government issues bonds, they must publish an Official Statement (O.S.) that discloses fairly and accurately the purpose of the debt issuance and how the bonds will be repaid. Such disclosures are regulated by the Securities and Exchange Commission (SEC), and federal anti-fraud laws require that all material facts be presented accurately, completely and honestly.

SEC attorney Mary Simkins stated (1999):
"The folks whose money you borrow expect your disclosure to be true.  Not surprisingly, so does the law.  This is where we at the SEC come in.  Federal securities law has protected investors for over 65 years by requiring the information provided investors be accurate, complete and not misleading.  Issuers of municipal bonds such as yourselves are forbidden from making statements or omitting material facts from the disclosure you make in official statements and annual financial information.  These provisions, known as the anti-fraud provisions, apply to any person."

The city of Aspen told lies.  Intentional lies, designed to mislead both investors (to promote bond sales) and the feds (to fraudulently obtain a conduit exemption).  The Red Ant is not an attorney, but should these intentional lies be determined to be "material misstatements" in a court of law, the city officials responsible for including them in the O.S. could face charges of securities fraud.  The O.S. cites the following city officials - elected and hired - as responsible for its contents (ca. 2008):  Mayor Mick, Dwayne Romero, Jack Johnson, Steve Skadron and JE DiVilbiss, along with City Manager Steve Barwick, City Finance Director Don Taylor, and City Attorney John Worcester.

Again, Mary Simkins:
"In essence, the anti-fraud provisions say that any person may not make any untrue statement of material fact or omit to state a material fact necessary to make something said not misleading in connection with the offer, purchase or sale of a security."

Remember Enron? Worldcom?  On a scale of 1-100, with these being examples of 100 in the world of securities fraud, Aspen's hydro plant probably rates a 20.  But lies and fraud are lies and fraud just the same.  It is simply egregious to see what our city officials (elected and hired) have done!

The following 6 lies by city officials are quoted directly from the O.S.  

LIE #1:

"The project is planned to RE-ESTABLISH the generating capacity of the original plant.... The project is also planned to include ENLARGING portions of the Castle Creek pipeline (raw water supply) to eliminate deficiencies in hydraulic capacity."  (Emphasis added)

Horse-puckey! The original hydro plant has been non-existent for over half a century. Enlarging?  There is no raw water line to enlarge!  At one point in time, prior to when the former hydro plant ceased operation  in 1958, there had been a small raw water pipeline, but in 2007, this was non-functioning and had been abandoned for decades.  But before its remnant disconnected parts and pieces were finally removed when the city constructed its fraudulent $2.3M drain line from Thomas Reservoir under "emergency" auspices, city officials intentionally lied in an SEC-regulated O.S. that a working raw water line was already in place.  The only reason to make such a false statement was to intentionally mislead the feds while applying for a "conduit exemption" that would enable the city to bypass federal oversight and environmental review.

LIE #2:

"The City's total budget for the project is currently $6,197,981."  (This was the project's original budget.) "The project is anticipated to be funded from proceeds of the Bonds, payments from CORE (Community Office of Resource Energy), and available monies in the City's Electric Enterprise Fund."  

The city's budget for the hydro project is $8.3M today. That's 34% over budget, and there's no end in sight.  No funds were cited to be pillaged from the Water Utility which recently kicked in over $700K as an interim cash-infusion just two weeks ago, with millions more still needed and certain to additionally be taken from this source.  It's also highly likely that utility rates will increase substantially to cover additional cost over-runs.  

The O.S. additionally stated the hydro plant would begin generating power in 2010, but its custom-built turbine remains in storage in another state.  At the rate the hydro plant is going, it will not recover its capital investment for nearly a century, and that's only if it operates at 100% capacity!  (Never mind the O.S. promises a 75-year life expectancy for the plant. And it's not likely the plant will EVER run at 100% capacity!)

The Red Ant asks, at what point does underestimation become a material misstatement of fact?  While this example may not be criminal, it surely is incompetent!!

LIE #3:

"The City presently expects to receive the exemption in ordinary course, and is not aware of any insurmountable obstacles, based upon a reconaissance-level evaluation of the FERC requirements."  

The city states in the O.S. that the conduit exemption is all but a foregone conclusion, but it seems they didn't count on the Castle Creek neighbors, the environmentalists (local and national groups) and The Red Ant to look closely at what they were trying to sneakily accomplish!  Big big mistake!

Reconaissance?  Try hubris!  The city made this statement with full knowledge that its application for a conduit exemption did not ever once comply with federal requirements. They said an existing raw water line needed to be upgraded when there was no raw water line to upgrade.  Then they spent $2.3M to build one and claim THIS NEW LINE as the "existing" line!

At press time, the city is dithering over whether or not to withdraw its conduit exemption application in favor of a "small project license" application, but there are no guarantees even if they go this route, and the latter comes with a long list of requirements and intense federal oversight.  The conduit exemption application was a sham from the start.  Far from the slam-dunk the city asserted in the O.S., the entire project has proven itself to be a web of lies, intended to avoid/escape federal oversight and true disclosure of the environmental impacts.

Yep, the city is in a pickle!  In fact, there are several hydro plant opponents who hope the city sticks with their current application because they believe the feds see right through the city's fraudulent behavior and there is no chance on earth they will grant a license.

LIE #4:

"In addition to applying for FERC licensing, the city is presently in the process of completing engineering design work for and construction of some of the project elements that are necessary for the purpose of ENHANCING the raw water supply system available to the city for is potable water supply or that are otherwise necessary for utility purposes, and that do not require FERC licensing."  (Emphasis added.)

What??  ENHANCING some old decrepit broken-down pipeline that hasn't functioned since 1958?  Yeah, right.  This sounds like a nervous attorney's vague C.Y.A. disclosure that there was indeed no raw water drain line from Thomas Reservoir in 2007, thus revealing the city's dark secret: With no existing drain line, the city would just have to build one to claim one.  Maybe no one would notice! Nice try!

LIE #5:

"The city expects the proposed facility to last at least 75 years.  The proposed date for completion and operation of the project in 2010 meets the requirements of the city's action plan for reduction of greenhouse gas emissions.  Meeting this schedule will also enable the city to avoid expected increases in fuel costs that would potentially raise the rates the municipal electric utility charges its customers, maintaining stable and low electric rates in comparison with other electric utilities throughout Colorado."  

OK, this isn't really a lie per se, but these are goals the city clearly did not meet, despite being promised in a SEC-regulated document.

LIE #6:

"The city expects its expenditures for the purchase of electric energy from the Municipal Energy Agency of Nebraska (MEAN) will decrease, resulting in an increase in the city's Electric Enterprise Fund revenues expected at approximately $300K annually."  

Worst of all, and illustrative of the fact that the city knew from the start that the hydro numbers did not pencil out, they lied to voters in 2007 and in the O.S. about the revenue-generating potential of the hydro plant.  In short, there is none.  

The O.S. promises a $300K annual increase in revenue for the city once the plant is fully operational, while simultaneously disclosing annual debt service costs on the $5.5M bonds of $350K per year for the next 20 years.  

The city started this project knowing full well that the hydro plant would NEVER cover its own costs, and it's only gotten worse.  With the budget increases approved by council, the annual cost of capital is approaching $540K annually for the next 20 years.  Add in operating costs and the city's overhead, the Castle Creek Hydro Plant will cost around $700K per year, and run at a $400K annual loss for the next 2 decades!

Translation:  Higher utility costs for all, especially Aspen businesses who comprise the majority of the electric utility cost base.  The city did not disclose this (for obvious reasons) in the O.S., nor did they disclose that the project will require subsidies from sources other than self-generated revenue for its entire lifetime!

Appalled yet?  Are there legal ramifications to all of this, specifically intentionally lying in an O.S.?  I'm not entirely sure, but the stench is becoming unbearable!  What do you know?  Any bond-holders out there?  Talk to me.... (And if you want an email copy of the O.S., please let me know and I'll send you one.)


Ahh the pre-sale process for Burlingame 2 is on.  And what a joke it is.  "No Lottery - No Deposit - No Commitment" reads the brochure.  It's true.  The city will be looking at this pathetic show-of-hands measurement to determine whether or not to move forward with a likely 8-figure ($50+M) bond to build the 167-unit 2nd phase of the Burlingame subsidized housing project.  The only requirement of those raising their hands?  They must qualify with APCHA, our inept housing authority.  No mortgage pre-approval.  No matter if they already live in subsidized housing elsewhere in the inventory.  No nuthin'.  Just raise your hand and Mick can declare this as sufficient demand to build more and more subsidized housing.  This is what the city does with what they see as "free money." 

In its inimitable fashion, the city has come up with an idea to "minimze" costs:  build Phase 2 in 2-4 small parcels!  As if!  Like building in smaller parcels will net a lower end-cost.  Ha.  Do these fools REALLY know NOTHING about economies of scale?  Apparently.  They're far more focused on the APPEARANCE of a less-costly project than actually building one!  Never mind there is NO (zero, zip, nada) compelling research that truly demonstrates an actual need for more subsidized housing in Aspen, especially at subsidies of over $300K per unit!  But I digress... At press time, council has all but green-lighted Phase 2.  They treat it as a foregone conclusion -- the only question is how to fund it and when.  It doesn't look like the bond issue will be on the November 2011 ballot, but that is still to be determined. The future of Burlingame 2 is an issue to follow closely this summer.  


They will not stop on their own, obviously.  Keep writing to council members: Mick, Steve, Derek, Adam, Torre.  Attend the meetings (council meetings and specific agendas can be found in the Calendar & Events section on the home page of  Express yourselves through letters to the editor.  This is no time for apathy!  And FYI, the dreaded AACP seems to be a big summer topic for both the city and the county.  Stay involved and stay in touch!


The county has announced that the Pitkin County Library has decided not to hit voters up for $10M in November to fund an expansion.

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