California Bondage: $200 Billion Education Bond Bill Buoyed by iPads, Financial Chicanery, and Conflicts of Interest

FOR IMMEDIATE RELEASE
July 22, 2015
California Policy Center
Contact: Lee Schalk
Lee@calpolicycenter.org
(916) 258-2396

New study offers Californians first glimpse at total state and local education bond obligations

Today the California Policy Center (CPC) released a major new report analyzing the size and scope of California’s education bond obligations. Analyzing all state and local education bond measures, the study finds that since 2001, taxpayers have approved 947 education bond measure at a cost of $110.4 billion, or roughly $200 billion by 2055 factoring in interest payments.

Maintained through a political-industrial-financial complex. The study finds that this intergenerational debt has been propagated by a political-industrial-financial complex, whereby each party scratches each-others backs to feast at the taxpayer trough. Politicians push the creation of grand projects. Construction companies and unions push lucrative make-work projects. And wealthy investors push tax-free and risk-free interest payments guaranteed by the taxpayers.

Dark money and a lower passage threshold mean 80% of bond measures pass. Due to the support of these entrenched interests, and massive public- and investor-funded bond proposition campaigns, the study finds more than 80 percent of education bond measures have passed since 2001. In 2000, Proposition 39 reduced the threshold needed for bond issuances to pass form two-thirds to 55 percent, greatly increasing their rate of passage.

Some bond proceeds go to instructional materials like iPads rather than intended school construction. The study uncovers widespread waste in the spending of bond money, with districts stretching legal definitions to use proceeds from bond sales to pay for instructional materials like iPads rather than construction. Such equipment may be obsolete well before the bonds mature, meaning that future generations will pay for these devices long after they are outdated and discarded.

Zero-coupon bonds stick taxpayers with entire inflated bill – including interest – at future date. The study also points to the pernicious and overlooked use of “Capital Appreciation Bonds” or zero-coupon bonds, which allow school and college districts to borrow now for construction and pay it back – with compounded interest – many years later at an exponentially higher sum. The borrowing strategy has been a tempting and dangerous lure for elected school and college boards, and its complexity means that taxpayers are often unable to understand the true extent of future bond obligations.

Poway Unified is cautionary tale for such reckless bond-financing.The study highlights the story of Poway Unified School District as the poster child for this reckless borrowing with Capital Appreciation Bonds. Between 2008 and 2011, the district borrowed $179 million and now faces a burden of $1.27 billion in debt service through 2051 because of massive interest obligations. San Diego Unified School District faces a similar billion dollar bill, the vast majority of which is interest.

Oversight and education is needed.The study offers solutions for reform, including increasing oversight and accountability of bond measures, reducing the conflicts of interest that keep bond measures passing, and informing voters of the true extent of bond financing. State taxpayers need a clearinghouse where they can find out the current obligations of school districts to better inform their vote. This study is a long overdue first step in that direction.

To read the full report, click here.

Ed Ring, executive director of California Policy Center and co-author of the report, released the following statement:

With each successive bond passage, California’s fiscal situation worsens. Propped up by dark money, complexity, and a political-industrial-financial complex, these bonds are passed off as free money “for the kids.” But they are little more than massive fiscal obligations, meaning the only thing “for the kids” is the massive tax bill that awaits.

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For more information, visit californiapolicycenter.org. To schedule an interview, contact Lee Schalk at 916-258-2396 or lee@calpolicycenter.org.

The California Policy Center is a non-partisan public policy think tank that aspires to provide information that will elevate and enlighten the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at www.CaliforniaPolicyCenter.org.