Voices from the Media
(Note: These "unwise school bond practices" are well 'n alive in ABCUSD.)
Editorial: Bills Would Curb Unwise School Bond Practices
Los Angeles News Group, Press Telegram, June 12, 2013
Though the California Legislature is much maligned - often, deservedly so - sometimes state legislators must act to protect local-level elected officials from their own bad judgment.
Cases in point are two Assembly bills that would restrict school districts from selling bonds in ways that, in effect, abuse local taxpayers. Both bills sailed through the Assembly and should be passed by the Senate and signed by the governor.
AB 182, by Assemblywoman Joan Buchanan, D-Alamo, would put the kibosh on districts' sale of capital appreciation bonds, which far too many districts have chosen to sell and which this page has deplored as mortgaging the future.
AB 621, by Assemblyman Donald Wagner, R-Irvine, will end a dubious practice that a few districts have used to get bonds passed.
A traditional school bond is something like a mortgage. The term is typically 25 or 30 years, and the payback over that period is about three times the amount borrowed. An assessment on property tax bills pays off the principal and interest steadily for the term of the bond.
A capital appreciation bond (CAB) has a term of up to 40 years, with no payments due for the first 20 or so. But the interest compounds, so that taxpayers wind up paying back some 10 times the amount financed. That's obscene.
The Poway School District in San Diego County became notorious for borrowing $105 million in 2011 through CABs that will cost district taxpayers $981 million - nothing due for 20 years and then all of it in the next two decades.
Buchanan's bill would limit the length of a bond to 25 years and the payback to four times the amount borrowed. Those are reasonable restrictions that will keep districts from committing financial folly.
So will Wagner's legislation.
It is illegal for districts to spend school money campaigning for a bond measure. But some districts have slithered past that restriction by hiring an underwriter to sell bonds before voters have approved the bond measure, and without competitive bidding. Then the underwriter runs or contributes to the campaign to pass the measure.
The district is prohibited from reimbursing the underwriter for the campaigning, but who's to say what part of the underwriter's fee might be reimbursement on the sly?
The practice is not illegal, but it walks the line. "Pay to play," Wagner calls it.
His bill would prohibit a district from contracting with a financial company that provided or will provide money or services to the bond campaign. That's good.
Traditionally, first the voters would pass a bond measure and then the district would choose an underwriter through competitive bidding, which could save district taxpayers millions over the course of a bond's payback. That's the way it should be done.