State, local governments misusing voter-approved bond money

by Josephine Djuhana | August 22, 2013 11:14 am


It seems common sense that bond money approved by a state’s voters would be spent directly on the projects it was intended for.

Politics, cagle, dogs, constantin, Aug. 21, 2013[1]Unfortunately, lawmakers, trying to find resources to bandage constant budget imbalances, often raid bond funds by borrowing against them to finance other areas of state and local government.

In California, this shuffling is shameless. The state Legislature went so far as to reject a measure by the Republican Senate minority leader that would have prevented it. As a 2013 investigative report by Katy Grimes detailed on[2], California politicians “are well known for their budget fund shifts, ‘borrowing’ from agencies and funds, and creative accounting gimmicks.”

Voters approve bonds for specific purposes, such as spending on roads, freeways, affordable housing and levees. When politicians transfer the funds among agencies and commissions, they are essentially borrowing against borrowed money, and violating the taxpayers’ intent.

Bond Mismanagement

In 2011, for example, a California state audit[3] found that voter-approved funds for the Santa Monica Mountains Conservancy, which was created by the Legislature in 1980, were going to ineligible programs that had vague missions and opaque budgets. Progress reports and reimbursement claims were “incomplete and inconsistent with grant scopes and budgets.”

The misuse of voter-approved bond money included a range of other expenditures for park and clean-water projects, adding up to a total of $6.4 billion in bond funds. The audit cited notable weaknesses, including “improper management, monitoring, and authorization of fiscal activities,” and “awarding grants or incurring expenditures not in accordance with the Bond Acts.”

That’s a lot of diverted money. It wasn’t the first time the Santa Monica Mountains Conservancy was chastised. A 2004 Department of Finance report found the group had mismanaged bond funds. The conservancy’s chairman at the time, Jerome C. Daniel, was unapologetic: “It bothers me to be questioned about the way we’re doing business, when what really matters is the end result,” he told the Los Angeles Times[4].

Audits of other local projects in California have shown similar mismanagement. Bond funds from Proposition 40[5], which totaled more than $120 million allocated for the California State Library Cultural and Historical Endowment, were used to reimburse “unallowable or unsupported expenditures” and pay for facility costs that “were not equitable or properly supported.” Planning grants were also used as a means to fund capital projects, and the CCHE “did not assess the grantee’s financial capacity to complete the project beyond the planning phase.”

Borrowing against bonds is not simply a violation of the public trust. It is also a dangerous balancing game that could end in a fiscal meltdown of state and local government. And it’s technically illegal.

Article 13A[6] of the California Constitution holds that the money must be used for the specific purposes outlined by in the bond measure “and not for any other purpose, including teacher and administrator salaries and other school operating expenses.”

Lack of Accountability

But no one party in the state government has the authority to sanction those who misspend the money. Audits are periodically conducted by the state Department of Finance office that can assign a “corrective action plan.” But the department doesn’t have the authority to halt the misuse of funds or penalize agencies that don’t comply.

And those officials doing the borrowing can point to other government codes to justify their practices. For example, when the Sweetwater Union High School District in San Diego County caught flak in January 2011 [7]for a plan to borrow $58 million against local bond measure funds, district officials pointed to a California Education Code Section 42603, which allows that money in any fund “may be temporarily transferred to another fund or account of the district for payment of obligations.” The district opted not to borrow funds in 2011 because of public pressure, but previously had borrowed $40 million in 2009-2010 and $28 million in 2008-2009, according the U-T San Diego[8].

Politicians seem to pay little attention to angry local voters. Last year the state Senate passed SB 633[9], by state Senate Republican Leader Bob Huff, R-Diamond Bar. It would have given the Department of Finance additional authority to issue cease-and-desist orders to state agencies and conservancies found to be using bond funds inappropriately. But it died in the Assembly.

Among the powerful interests that opposed the legislation was the Los Angeles Unified School District. A spokesman for LAUSD said the district hadn’t used bond money for unapproved purposes. But with the billions the district has raised in bond issues in the last several years, it wants to keep its hands untied.

Why aren’t the investors in the bonds up in arms? Under the current law, even if a government body goes bankrupt, bond investors are among the first creditors to be paid, no matter how their investment money is used.

The taxpayers will be the ones on the hook. Yet California voters have taken on billions in debt in recent elections for the high-speed rail system and for improvements in children’s hospitals, among other obligations. “Californians have authorized the sale of $54 billion in general obligation bonds” since 2006, said Huff.

Come 2014, Californians will vote on another bond initiative, one that promises a “safe, clean, and reliable drinking water supply[10],” according to its namesake. The last time California passed a water bond, in 2006 through Prop. 84, part of that money went to Santa Monica Mountains Conservancy — which, as noted above, misused the funds.

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  8. U-T San Diego:
  9. state Senate passed SB 633:
  10. safe, clean, and reliable drinking water supply:

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