Tough Education Reform, not More Borrowing and Spending, is What Students Need

Last week the California Policy Center published a major new study that compiled, in exhaustive detail, both the amount that Californians have borrowed to finance public school construction and upgrades, as well as documented the abuses that have diminished the return on these substantial investments. Californians simply don’t realize how much borrowing is going on.

“For the Kids,” Construction spending of $10 billion per year

for the last 14 years, despite enrollment in slight decline.

In 2001, voters passed Prop 39, which lowered the threshold for passage of a school bond from 66% to 55%. Prior to the passage of Prop. 39, only 42% of school bond proposals would pass – since then, 88% of them pass. The scale of this borrowing is amazing: Since 2001, Californians have approved 911 local school bond measures totaling $110.4 billion. In addition to local bonds, voters approved three state measures which added another $38.8 billion.

If the proceeds of these bonds were being spent efficiently, on worthy projects, under repayment terms that were fair and appropriate, there would not be an issue. But they’re not. Thanks to costly project labor agreements, environmentalist lawsuits, and a shocking lack of public oversight, school construction projects – along with all public infrastructure projects – cost far more than they should.

When considering what projects might be considered worthy, at whatever cost, one of the biggest reasons cited for local bond proposals is to fund “deferred maintenance.” For examples of this, view the summary of the 2014 Local Elections provided by CalTax (scroll down to “Bond, School”), and read the “description” column. “Upgrade and repair,” “modernize and upgrade,” “fix leaky roofs,” “make safety repairs,” “repair outdated heating and ventilation systems,” etc., etc. But why can’t maintenance work come out of existing budgets? For that matter, why wasn’t the work done using funds from earlier rounds of local school bond proceeds, instead of deferred?

This is not a rhetorical question. California’s K-12 student population has been stable for nearly 20 years. At 6.2 million students, it has actually declined slightly. Meanwhile, over the past 14 years, $146 billion has been borrowed and spent to maintain and improve schools for these 6.2 million students.

That’s $10.4 billion in construction spending every year, which based on 30 students per classroom, equates to approximately $50,000 per classroom, per year. Could you maintain one classroom and that classroom’s share of common facilities if you had $50,000 to spend, year after year?

How much is enough? Since 2001, construction bond proceeds have poured $700,000 into every K-12 classroom in California. Why do the roofs still leak?

When it comes to the terms of this debt, the story gets even worse. Because these bonds are complex financial instruments with ample room for “gotchas” that harm taxpayers. One of the worst examples of this are so-called “capital appreciation bonds,” which don’t require any payments for 10-20 years, then demand massive sums of principal and interest payments, long after the original promoters have retired, and often after the improvements and upgrades have worn out again.

It is relevant to discuss California’s $146 billion in school bond debt in the context of all California’s state and local debt. A few years ago the California Policy Center attempted tabulate it, including unfunded liabilities for pensions and retirement health care for state and local government employees. Those findings, using a 5.5% discount rate to estimate pension liabilities, and using our updated amount for school bonds, come in at $976 billion. That’s $76,250 of debt per household. Just interest payments on this debt, at 5% per year, come out to $3,812 per household per year.

The topic of school bond debt is vast and complicated, which is one reason why there is rarely meaningful public debate. The California Policy Center’s complete study on California’s school bond debt, including appendices, came in at 361 pages (view PDF), and took a team of researchers lead by policy analyst Kevin Dayton nearly a year to write. Here are key recommendations from that report:

• Provide adequate and effective oversight and accountability for bond measures.
• Enable voters to make a reasonably informed decision on bond measures.
• Eliminate or mitigate conflicts of interest in contracting related to bond measures.
• Reduce inappropriate, excessive or unnecessary spending of bond proceeds.
• Improve understanding of bond measures through public education campaigns.

And here are a few additional recommendations:

• Make construction bond proposals contingent on enforcing the Vergara ruling – making it possible to fire bad teachers, changing layoff and retention criteria from seniority to merit, and extending the time period required to acquire tenure.
• Hold teachers accountable for the academic progress of their students, and prohibit construction bond proposals for any school districts in violation of the state’s teacher evaluation law, the Stull Act.
• Reduce the number of administrators and support staff, increasing the proportion of public education employees who actually teach in classrooms. This will result in a proportionate reduction in support facilities, at the same time as it frees up budgeted funds to be used to perform deferred maintenance.

The reason Californians have borrowed $146 billion in recent years for school construction is because Californians believe there is nothing more important than educating children. That’s a noble sentiment. It’s why Prop. 39 passed back in 2001, carving out an exception to California’s two-thirds vote requirement for new taxes. And while the process of approving and spending all this money has been riddled with corruption and excess, it would be inaccurate to say all of this money was wasted. But all the money in the world will not improve California’s educational system, if great teachers and principals aren’t given the latitude and incentives to inspire their pupils, and if poor teachers and administrators are not terminated.

Californians should reform their system of K-12 education before borrowing another dime for construction. The return-of-investment is simply far better.

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Ed Ring is the executive director of the California Policy Center.