Will Assembly education chair heed own words on bond abuses?

29 Jun, 2013 by CalWatchdog Staff

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June 29, 2013

By Chris Reed

A bill that would prevent expedient, irresponsible school districts from issuing insane “capital appreciation bonds” that can’t be paid off early and that cost, over the long term, 10 to 20 times as much as the amount borrowed has had an interesting journey in Sacramento. It passed the Assembly unanimously only to be subject to an attempted hijacking in the Senate. As I wrote three weeks ago …

“The analysis of the reform bill by the Senate Education Committee’s top consultant, Kathleen Chavira, reads as if it were written by the firms that make fortunes by touting CABs. The analysis never cites a single example, such as Poway, that shows the bonds’ gigantic long-term cost — the factor driving the reform push. Instead, Chavira recapitulates process arguments about taking away flexibility from districts and describes the reforms as ‘punitive.’”

As John Fensterwald details on EdSource, the measure ended up surviving with most key provisions intact. In negotiating with state senators, Assembly Education Committee Chair Joan Buchanan, D-Alamo, played a key role in staving off Chavira and school administrators who want to continue to use CABs in order to avoid making tough decisions.

Much-bigger bond abuses tolerated — so far

But if Buchanan believes what she said about CABs — such borrowing “violates a basic principal of capital financing that ties the life of the financing to the life of an improvement” — then she should tackle a much-bigger abuse of school bonds, something that amounts toa systematic attack by school districts on the integrity of general obligation bonds, as I detailed for Cal Watchdog last fall.

I wrote about my findings as they relate to San Diego city schools here. My thesis:

“The old principle that bonds should only be spent on long-term capital improvements has given way to an anything-goes approach that uses borrowed funds paid back over 30 years to pay for what should be regular school expenses. Why? To make sure there is enough money in the operating fund to pay for teachers’ salaries and benefits.

“How is this possible? The old days in which rules were so tough that the California Education Code said bond funds could only be used for school buses if they lasted 20 years have given way to this fuzzy consensus about OK uses for borrowed funds:

“’The construction, reconstruction, rehabilitation, or replacement of school facilities, including the furnishing and equipping of school facilities.’”

“That is from guidance from the California School Boards Association.”

Cleaning up graffiti in 2013, then paying for work until 2043

What inappropriate uses are 30-year bonds being used for? The most eye-catching examples are short-lived iPads and laptops.

But what’s just as ridiculous is the use of 30-year bonds for the most basic of maintenance.

If you live in any of dozens of school districts in California, the chances are good that graffiti removal is being paid for with 30-year borrowing. That’s as absurd as capital appreciation bonds. Why is this being done? Because after salaries and benefits are paid, after automatic “step” raises are granted, there’s very little money in school districts’ operating budgets.

So will Buchanan and other champions of CAB reform, such as Treasurer Bill Lockyer, go after these abuses?

I hope so. But since it would require taking on the CTA and the CFT — not school administrators — I’m not holding my breath.