Lockyer blusters about symptom of union power — but not union power

Oct. 18, 2012

By Chris Reed

The recent spate of attention paid to California school districts’ use of capital appreciation bonds — insane borrowing in which districts don’t begin to pay back the principal for decades — has been appropriately critical.

Now this has prompted state Treasurer Bill Lockyer to weigh in. The veteran Democrat lived up to his reputation for bluntness and candor in telling the Voice of San Diego that the bond staff of Poway Unified — which signed off on the district board’s decision to borrow $105 million at a long-term cost of $981 million — should be fired.

“Lockyer said high-interest school bond loans are an important issue statewide: ‘I think there are lots of examples of really bad deals that were made. In the last dozen years, there were over 1,000 [capital appreciation bonds] done by school districts. We’re still analyzing the data. There are a number of these deals where the repayment ratio is, like, 30-1. I just think they’re disgraceful, and I would hope the people that underwrote or helped make those deals would make a genuine effort to renegotiate them.’

“He said the deals were being driven by consultants: ‘There’s a group of financial advisers who kind of circuit ride and pitch these products to people.'”

Stupidity not driving bad deals

But Lockyer may not realize that he is wading into politically treacherous territory here. The reason so many school districts are heeding bond consultants pushing these outrageous deals isn’t just because they are stupid. It’s because — at the behest of the California Teachers Association and the California Federation of Teachers — board members are often desperate to free up funds for the operating budget for their districts to pay employees, specifically teachers.

In San Diego Unified, the state’s second largest school district, voters were persuaded to pass a $2.1 billion bond in 2008. To quickly get their hands on $164 million of those funds, the school board in 2010 issued capital appreciation bonds for that amount that will cost nearly $1.2 billion to repay. The funding was supposed to be used for capital improvements. Instead, as I wrote about here, the bond funds are often going to the most routine repairs and to buy short-lived electronics.

Why? Because in San Diego Unified and so many school districts around California, compensation practices that award automatic annual raises to teachers just for showing up for 15 of their first 20 years are the norm.

The compensation vs. educational supplies ratio

In San Diego Unified, employee compensation now totals 93 percent of the operating budget. Thirteen times as much is spent on compensation as everything else combined in California’s second largest district, with 131,000 students.

In Los Angeles Unified School District, by far the state’s largest with 664,000 students, the 2012-13 budget that was just finalized Oct. 12 is murkier and downright mysterious in its breakdown of spending. But if one keeps looking, one statistic jumps out: Nearly 12 times as much is spent on employee compensation ($4.7 billion) as all textbooks, educational materials, teaching tools and classroom supplies combined ($410 million).

In the Sacramento City Unified School District, the compensation vs. educational supplies figures are brutally stark. In 2011-12, the district spent $308.6 million on compensation vs. $9.5 million on textbooks, educational materials, teaching tools and classroom supplies for its 42,000 students. That’s a 32 to 1 ratio that makes Los Angeles Unified seem friendly to students in comparison.

(The attempt to keep from the public the extent to which California’s schools increasingly resemble modern Potemkin villages hits the extreme in Fresno Unified, home to 71,000 students. The school district’s busy home page doesn’t even include a link to any budget information. Nor does its website map. On June 26, the Fresno school board adopted a 2012-13 budget. But the web page that lists the agendas and provides the links for relevant documents for each board meeting offers no information of any kind for the June 26 meeting.)

The warped priorities reflected in the San Diego, Los Angeles and Sacramento school district budgets are the norm in California. These priorities are what drive school boards’ bond shenanigans. In thrall to teachers unions used to automatic raises, school boards shift routine maintenance and supply costs to long-term bonds.  If board members are in a particular hurry, they use the capital appreciation bonds that Lockyer properly loathes. If this means schools don’t start paying until 2032 for iPads that stopped working in 2014 or for routine painting and paving in 2013 that needed to be repeated in 2015, who cares? In the short term, at least their political patrons are happy.

So now that our outspoken state treasurer has identified this ugly symptom of extreme union power, will he step up and spell out the larger picture?

Don’t hold your breath. Bill Lockyer speaks truth to power — just not to union power.