The stakes for builders are high; failure to pass the measure could result in a doubling of local fees placed on developers building new homes in order to help pay for school improvements.

The lead role in securing the 365,880 signatures to qualify the bond initiative was led by a politically-savvy trio – Californians for Quality Schools, Coalition for Adequate School Housing and the California Building Industry Association.

The latter two support the quality schools group, and are led by boards composed of developers, school officials, architects and financial advisors.

“This bond will go a long way to ensure school districts have the necessary resources to create the best learning environments for students,” said Eileen Reynolds, who chairs the board of the California Building Industry Association and works as government affairs director for Tejon Ranch Corp., one of the largest private land holders in the state.

The group has history on its side; California voters last year passed 128 of 157 local school bond measures, or 82 percent, approving $14 billion in spending.

Voters statewide last passed a bond measure for schools in 2006 – worth $20 billion – with 57 percent of the vote. The money from that bond is now gone, with $2 billion of improvements queued up in need of funding.

Local vs. Statewide Bonds

Proponents of the spending face opposition from Gov. Jerry Brown, who set the table for the bond imitative when he permitted little outlay in his budget this year for school improvements.

Brown said he felt that local bond elections better served the people.

“I think the locals can do it more efficiently,” Brown said earlier this year.

In many of the districts that passed bond measures last year, enrollment has dropped but voters continue to fund local measures.

Voters in the Alameda Unified School District last year approved $179 million in bonds with 62 percent of the vote. Enrollment is 9,502, which is 4 percent lower than seven years ago.

Voters in Anaheim Union High School District last year signed off on $249 million in bonds for, among other things, “construction, reconstruction, rehabilitation or replacement of school facilities.” Enrollment there has dropped 4 percent since 2010.

Teacher and administrator levels have remained steady since 2010, according to figures from the state’s department of education.

Brown’s formidable political heft already has halted one effort, a $4.3 billion school bond that passed the statehouse last session but stopped at his desk. It was this move that prompted the new measure, which proponents spent $2 million getting on the ballot.

Motivation for Developers

Those proponents stand to benefit if that $9 billion in school spending is passed.

Bonds rely on property taxes on homes in an affected area, which makes it easier for developers to get the go-ahead to build.

One of the most important elements in a selling disclosure for schools is the amount of taxable property in the district.

But those developers are also in a continual battle with municipalities that are charging some of the highest developer fees in the U.S. that have led to the highest housing costs in the nation.

It puts developers in a dicey public position – yes, there is some self-serving interest but at the same time, there is a legitimate need for statewide outlay on schools and a need to be an integral part of the discussion on how to fund that outlay.

“Obviously modern schools are an important marketing item when selling homes and people want homes in good school districts and that includes the facilities,” said Dave Cogdill, a former Republican lawmaker who leads the California Building Industry Association.

He also points out that developers, large and small, are hit up for money continually, from errant legislation that would require more and more “green” fees to affordable housing mandates.

“We are expected to deal with global warming and the cost of housing in general to provide affordable housing and to pay for all new school construction,” Cogdill said. “No wonder an average home costs $440,000 in California and we have the worst affordability in the nation.”

Political Contributions

Several PACs operated by the association in the past have donated to efforts to increase voter turnout in Los Angeles County, the campaign of Secretary of State Alex Padilla and several other candidates from both parties.

Contributors to the PAC include numerous construction firms, engineering companies and home developers.

“Yes, the building lobby benefits greatly in this,” said Kris Vosburgh, executive director of the Howard Jarvis Taxpayers Association, which advocates for limited public taxation. “It spends a considerable amount to support these school bond measures and the people opposed have no money.”

The unspoken message that underlies any school bond pitch is that it’s for the kids, he said.

“But a lot of people want good schools and that’s a good thing,” Vosburgh said. “But they don’t see that in the end, these people are expecting a boost to their wallets.”

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:

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.

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.

Assemblyman Scott Wilk, R-Santa Clarita, introduced Assembly Bill 6, which would cancel outstanding bond funds approved by Proposition 1A, a 2008 voter-approved initiative to fund the state’s high-speed rail project with $9 billion in bonds. In its place, voters would be asked to spend the remaining funds on constructing and modernizing dilapidated school facilities throughout the state.

“Don’t get me wrong, I love trains and would be happy to be able to take one from Los Angeles to San Francisco for ‘dinner and a show’ and back,” Wilk wrote in a recent piece at the Los Angeles Daily News, “but not at the expense of the people of California.”

Before allocating up to  $8 billion for school construction, AB6 first would first pay off the outstanding debts incurred for the state’s high-speed rail project. The bill requires two-thirds approval of the state Legislature and a majority approval of voters.

“Our students deserve to have well-maintained facilities and it is irresponsible to continue prioritizing the crazy train over our schools,” Wilk said, echoing a favorite phrase coined by GOP gubernatorial candidate Neel Kashkari, who on Nov. 4 lost to Gov. Jerry Brown. “The high-speed rail boondoggle has been a proven failure and it’s time we spend taxpayer dollars in a responsible way.”

State Allocation Board: California needs as much as $12 billion for schools

Wilk points to a Jan. 2014 report by the State Allocation Board that contends California needs to devote as much as $12 billion toward new school construction and another $5 billion to modernization of existing facilities. The obscure board, which includes representatives from the governor’s office and the Legislature, couldn’t definitively peg the total cost of school modernization.  Other State Allocation Board estimates put the figure between $5.9 billion and $6.6 billion.

“There is demand for new construction and modernization funding,” the State Allocation Board School Facility Program Review Subcommittee concluded earlier this year. “The Subcommittee did not come to a consensus on a total dollar amount needed for future school facilities or the exact structure of a future bond.”

The committee struggled to identify the state’s total school modernization costs, in part, because “California does not track the number of schools and classrooms available for use. …

“Currently, data on the number of school sites and classrooms and/or the age of the facilities in the State is unknown.”

Wilk: Put schools before bullet train

How likely is Wilk’s idea to gain traction in Sacramento? Brown remained a steadfast supporter of the project during his reelection campaign. However, support is wavering among other Democratic leaders and state lawmakers. Wilk’s proposal to transfer rail funds to schools could provide liberal Democrats a reason to join a burgeoning right-left alliance against the state’s rail project.

CalWatchdog.com contributor Chris Reed, who has reported extensively on the problems with California’s high-speed rail project, noted that one of the  biggest critics has been Kevin Drum, a reporter for the liberal Mother Jones magazine.

Drum has questioned the ridership assumptions produced by New York-based Parsons Brinkerhoff, which claimed “the high-speed rail system could carry 116 million passengers a year, based on running trains with 1,000 seats both north and south every five minutes, 19 hours a day and 365 days a year.” Drum also pointed out the potential conflict of interest: Parsons Brinkerhoff  helped fund the initiative and has a stake in the outcome.

Flaws in California’s use of school facilities

Wilk’s idea is likely to gain support among conservatives and taxpayer groups, who view the state’s high-speed rail project as an irresponsible boondoggle that enriches private companies at public expense. Since 1998, state voters have approved $35 billion in school construction and modernization bonds. The most recent state bond package, $5 billion approved in 2006, has nearly been exhausted, with just $187.3 million remaining for school construction and $142.4 million left for seismic repair.

California’s school facility repair program, much like the state’s high-speed rail project, has faced similar questions about flawed oversight and accountability. School bond funds have been spent to modernize portable school buildings, despite their shorter life spans.

“Some concerns about the current program included whether a portable can be truly modernized, as well as the concern that was also expressed in the new construction section that 30 year funds were being spent on buildings that would not have a 30 year life span,” the State Allocation Board found in its Jan. 2014 report.

Any attempt to shift the high-speed rail bonds to schools would different state political functions to the head of the class. Brown has made the rail project his baby, but also is working on reforming school finances.

The teachers’ unions are strong Brown allies. But in addition to the need for school construction and repairs, the California State Teachers Retirement System needs $4.5 billion a year from the general fund to remain solvent.

With such financial problems ahead on the train tracks, high-speed rail may be a ready candidate for the junk yard.

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.

By Chris Reed

The federal indictments this week of CalPERS’ former president and his alleged briber show that the federal government does occasionally notice the outrageous behavior of our state government. But what about the Securities and Exchange Commission? It went after the state of New Jersey in 2009 for pension deceptions. It went after the state of Illinois last week for pension deceptions. When is it going to come after CalPERS for its 1999 campaign to give away retroactive pension benefits costing billions to state workers with the insane argument that it would cost taxpayers little if any money?

Stephen Malanga of the Manhattan Institute has some interesting, and disturbing, insights into how the SEC operates:

“Unlike its investigations into corporate issues, the SEC’s probe of the states seems largely limited to what you could learn by reading newspapers and perusing bond documents. As legal scholar Philip Grommet observed in a 2012 Journal of Legislation article about the New Jersey case, which the SEC initiated after reading about the state’s suspect disclosure practices in the New York Times, ‘This antifraud action was hardly the result of an in-depth investigation.'”

SEC ignores California’s scores of outrages

But the SEC doesn’t even necessarily to read the media when it comes to our pension outrages. What Malanga writes about Illinois — which was targeted by the SEC — largely applies to the Golden State as well:

“State officials consistently tout their dubious achievements in ways that would get a corporate executive whose firm is in registration for an offering in trouble. In its complaint against Illinois, for instance, the SEC notes that the state stopped misleading investors and took remedial actions to fix its bond documents in 2009. But in a June of 2010 roadshow presentation for potential investors, state officials were ballyhooing recent pension legislation as a significant reform and cost-savings even while the press and independent budget experts were deriding the changes as insignificant. Today, Illinois continues to have one of the worst-funded pension systems in the country, evidence of how little improvement the so-called reforms touted by the state achieved.

“These kinds of omissions and misleading statements by municipal issuers are especially pertinent now because of the ways that state and local governments are using debt. As Grommet points out, whereas once states and cities used the bond market principally to raise money to build roads and bridges and other capital projects, increasingly governments are employing borrowing to plug budget shortfalls, sometimes with creative forms of debt that stretch the limits of what states’ own laws allow. This makes state and local debt increasingly ‘intertwined’ with the ability of some municipal issuers to pay their basic operating bills.”

Ring a bell? If California school districts’ financial integrity were investigated by federal regulators with one-tenth the rigor the SEC employs with Fortune 500 companies, scores of superintendents and school board members would be heading off to jail.

By Chris Reed

The use of 30-year school “construction” bonds to pay for routine maintenance and short-lived electronics like laptops is a huge, ongoing, but basically uncovered scandal in California. Since automatic annual pay raises for most teachers don’t get suspended when revenue is flat or declining, in many state school districts, California’s recent budget woes have lead to compensation eating up 90 percent or more of the operating budget.

So what do schools beholden to teachers unions do to cover costs that used to be in the operating budget? They make kids illegally pay for some school-related program, constantly pester parents with fundraising efforts and, oh yeah, use 30-year borrowing to pay for basic upkeep and electronics that aid in learning but last two years or less.

How does the state’s top educator feel about the latter practice? When I interviewed him, he all but said ho-hum.

“… state Superintendent of Public Instruction Tom Torlakson expressed more sympathy for the irresponsible officials who engaged in it than for the taxpayers who are brutalized by it. He cited the ‘stress’ officials faced because of the state’s budget woes and implied it was understandable and reasonable for routine maintenance becoming a ‘capital improvement’ cost paid for with bonds.

“Torlakson declined to offer the slightest criticism of the folly that is 30-year borrowing to pay for products that will be broken in four years or less. His concession to appearances: ‘I’ve asked my staff on school construction to look into this and figure out where the line is on what’s eligible.'”

And now what does Torlakson want to do? Float a possibly unaccountable bond of his own, one in the megabillions.

No, it’s not a case of, “If you can’t beat ’em, join ’em.” Torlakson is all for the scams. It’s more like, “Hey, I want a piece of that action!”

By Chris Reed

Dan Walters had a good column over the weekend about the staggering political expedience we’re seeing throughout California. But after spending many hours researching a $2.8 billion school bond being pushed by the San Diego Unified School District, I’m now certain that there’s yet another massive scam unfolding in California: a systematic attack by school districts on the integrity of general obligation bonds.

I wrote about my findings as they relate to San Diego city schools here. The short version is that 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 the California School Boards Association gives local districts.

In San Diego, where compensation eats up 93 percent of the operating budget, that means bond funds are being used or could soon be used for laptops, iPads and the most routine maintenance, such as painting and minor repairs. Proposition Z, on the November ballot, also includes repair funds for schools that just opened five years ago.

John DeBeck, a San Diego school board member from 1990-2010, told me using bond funds to supplant operating funds has gotten far more brazen in recent years. He said that bonds could easily be written to make the supplanting of general fund spending with bond fund spending impossible, but that such language was increasingly rare. DeBeck also said bond trickery used to be more likely from district staff, but now it was likely to be cooked up by staff in cahoots with trustees.

It reminds me of what a school finance investigator told me in 1996. He said fraud in which schools and entire districts lie about their average daily attendance was rampant. ADA is the basic formula by which schools get money from the state. He told me — and a school principal in San Bernardino confirmed — that this lying wasn’t just about who came to school. It was about how they were classified. Schools get more for troubled students than normal students.

Why was it tolerated and widespread? The school finance investigator said that was because school officials viewed it as a victimless crime.

Bond scam

The school bond scam is another version of that. Using funds that aren’t repaid until 2042 to buy an iPad that may last three years is insane, but it’s a “victimless crime” as far as the scammers are concerned.

Back to my theory that mass fleecing is going on with school bonds. I am now going to use Google to find another school bond on a local ballot in California. I bet it’s full of the same vague glop as San Diego Unified’s.

OK, the Burlingame Elementary School District pops up. (Really, I didn’t rig my Google search to come up with the district where the CTA is headquartered.) It reads:

“Measure D: “To maintain excellent local schools by modernizing science labs, upgrading instructional technology/computers, adding classrooms/reopening an existing school to reduce current overcrowding, upgrading classrooms to meet current safety codes, renovating heating and electrical systems to save money, shall Burlingame Elementary School District issue $56,000,000 of bonds that cannot be taken by the State, at legal rates, to renovate, construct, acquire local neighborhood schools, sites, equipment, and facilities with independent audits, citizens’ oversight, and no money for admnistrators?”

LOL. Bingo. 30-year borrowing for computers that last two years. 30-year borrowing for basic repairs. No guarantees that the funds will not be used to supplant regular operating budget responsibilities.

As one would expect, the official yes on Prop. D website doesn’t include specifics of any kind that would counter concerns that this was just another scam to allow teachers to keep getting automatic step and column increases in pay.

Greed

Now here’s the wrinkle: In the CTA’s backyard, it appears they are particularly greedy:

“Voters in the affluent district have also signed off on two recent parcel tax measures. Unlike bond money, proceeds from a parcel tax can go toward teacher compensation. In 2010, voters renewed a 10-year, $180-per-parcel levy. The following year they approved Measure E, a four-year, $76-per-parcel tax.”

Whole story here.

Dan Walters’ column closed by noting that state Treasurer Bill Lockyer was interested in statewide legislation that would prevent school districts from floating horrible bonds in which only the interest is paid back for decades, reacting to a scandal discovered when Poway Unified was found to have borrowed $105 million that would ultimately cost $981 million.

But will Lockyer go after the way more common bond scam of using 30-year borrowing to pay for tablet computers and routine repairs?

Nah. That would require courage. The California Teachers Association is the king, and it’s good to be the king. Going after the CTA’s “puke politics” is beyond the guy who once took on Gray Davis’ “puke politics.” California’s alleged political maverick picks his spots in displaying his maverick qualities, and the CTA scares him as much as it does everyone else in his party.

I hope everyone who reads this takes a close look at school bonds in their own backyards. I bet they are as pathetic as those in San Diego Unified and Burlingame Elementary. As far as the CTA is concerned, any crime that benefits the CTA is a victimless crime. If you do so and find anything juicy, please share it with me at: chrisreed99@yahoo.com.