Did use of school bonds for iPads deceive bond buyers?

by Chris Reed | April 21, 2015 1:27 pm

When California voters passed Proposition 39[1] in 2000, they thought they were simply making it easier to pass school bonds for construction of facilities by lowering the approval threshold from two-thirds of the vote to 55 percent. But a provision in the measure that says it covers “bonds for repair, construction or replacement of school facilities, classrooms, if approved by 55 percent local vote for projects evaluated by schools, community college districts, county education offices for safety, class size, and information technology needs” has been interpreted to mean bonds can be spent for just about anything.

Previous bond oversight language was far stricter. It only allowed the use of long-term borrowing to pay for school buses if there were a reasonable expectation that they would last at least 20 years. But in Proposition 39’s wake — especially when operating funds were squeezed because of the state revenue plunge from 2008-2012 — bonds have been used for everything from graffiti cleanup, minor repairs and painting to purchases of short-lived laptops, iPads and other tablet computers.

SEC wades into LAUSD mess

But now regulators with the federal Securities & Exchange Commission are questioning the propriety of what California school bonds have been used to buy. Their angle isn’t the legality of these uses under state law. It’s whether these uses conform with what bond buyers were told — specifically when it comes to L.A. Unified’s troubled iPads-for-all program[2]:

The federal agency is charged with protecting investors and maintaining fair, orderly and efficient markets. Its enforcement division frequently looks into “misrepresentation or omission of important information about securities,” according to the commission.

With the help of an outside law firm, L.A. Unified prepared a presentation, dated March 31, that outlined measures it took to inform the public and potential investors about how the taxpayer-approved bond funds would be spent. …

California law allows school construction bonds to be spent on technology; districts also list the intended uses of bond funds in ballot materials available to voters.

L.A. Unified clearly designated funds for technology, but did not mention tablets. At the time of the district’s most recent bond issue, in November 2008, iPads were still two years away from entering the marketplace.

But officials have maintained that tablets are a modern equivalent of the traditional computer lab and therefore a legal and appropriate use of bond funds.

That’s from the L.A. Times[3].

Boilerplate bond language used across state

Though the SEC probe is informal for now, it could have alarming implications for school districts throughout California that have used 30-year borrowing on short-lived electronics. That’s because the bond descriptions that LAUSD provided to potential buyers were boilerplate of the sort routinely used by all districts.

If the SEC decides the language is so vague as to be illegally deceptive, that would be a problem for dozens of school districts, only starting with LAUSD and the state’s second-largest district, San Diego Unified[4].

Source URL: https://calwatchdog.com/2015/04/21/did-use-of-school-bonds-for-ipads-deceive-bond-buyers/

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