The Non-proficient Teachers Unions

California students are not learning and teacher union leaders blame tests.

Every two years selected students across the nation take the National Assessment of Education Progress (NAEP), a test known as the nation’s report card. This year our kids didn’t do well. Actually they never do well, but this year the scores were even worse than two years ago. Just 36 percent of fourth graders are proficient in reading, and 33 percent of eighth graders are proficient in math.

Some blame the new Common Core curriculum for the downturn – and there may be something to this – but even if you add a few sympathy points to the scores, they still stink. And when national news stories started rolling out about our poorly educated students, like night follows day, teacher union honchos put on their Sunday-best spin outfits and trotted out damage control sound bites. American Federation of Teachers president Randi Weingarten stated “slipping NAEP scores are evidence that the nation’s focus on using standardized tests to judge teachers and schools has failed….”

Sure. Let’s see – teachers teach kids. Kids do poorly on tests that are based on what teachers teach. And that’s proof that teachers shouldn’t be judged by how poorly their kids do on tests that measure what they are teaching. Okaaaaaayyyy.

National Education Association president Lily Eskelsen García, also playing defense offered, “The recent release of the NAEP scores once again demonstrates what educators have said all along. The effectiveness of a system cannot be judged by a single test score.” (Trust me, if the scores were good, there’d be none of this “single test score” blather.)

Here in California, our NAEP scores are in the toilet. Average fourth-grade math scores place the state at the bottom of the nation, just one point on above New Mexico, Alabama and Washington, D.C. In fourth-grade reading, only New Mexico and Washington, D.C. fared worse than the Golden State.

For those who think a “single test score” is meaningless, let’s look at another metric. The Early Assessment Program is a collaborative effort of the State Board of Education, California Department of Education and California State University, and measures readiness in college-level English and math for all high school juniors. The 2014 assessment showed that one-half of all students in the state did not demonstrate college readiness in math. In English, more than six out of ten didn’t. And of course some districts don’t live up to the average. In Los Angeles, 70 percent of the juniors are not college ready in English and 64 percent are not ready in math. In Fresno, it’s even worse: more than three out of four do not demonstrate readiness in reading and two out of three in math. (While the tests are given in grade 11, not many appreciably improve in grade 12.)

Last week – one week after the NAEP scores were released – the National Council on Teacher Quality (NCTQ) released a report which reveals that 42 states and the District of Columbia require student growth and achievement be a consideration in teacher evaluations. (Just six years ago only 15 states did so.) Regrettably, California is one of the eight that does not, despite the fact that it has been the law (the Stull Act) to do so since 1971. In 1999, the state legislature amended the ghost law, requiring that the governing board of each school district “shall evaluate and assess certificated employee performance as it reasonably relates to: the progress of pupils toward the standards established pursuant to subdivision (a) and, if applicable, the state adopted academic content standards as measured by state adopted criterion referenced assessments.” In other words, a teacher’s evaluation must be based at least in part on how well her students perform on state tests. But school districts still turned a blind eye to the law.

Then in 2012, per a suit brought by Sacramento-based nonprofit EdVoice, a judge ordered the inclusion of test scores to be part of a teacher’s evaluation. However, in a report released earlier this year that sampled 26 districts’ compliance with the decision, EdVoice found that half of them were ignoring that court-ordered requirement to use the test scores. (Yet another lawsuit has been filed against the 13 districts not following the law.) And until districts start to live up to the law, California will continue to flail away, having no objective method of measuring teacher effectiveness and therefore no accountability.

Pointing to the importance of evaluating teachers on student performance, Sandi Jacobs, NCTQ Senior Vice-President of state and district policy, put it very succinctly. “The bottom line of teaching is whether or not students are learning. If you stand up in front of a classroom every day and deliver great lesson after great lesson but no one in the class is gaining anything, then something is off.”

AFT’s Weingarten, pulling the misdirect string, retorted, “Rather than test-and-punish systems, we need teacher evaluations that will help support and improve teaching and learning.” Of course teachers need support, and it’s important to note that no state relies solely on student test scores, but rather uses test results along with a variety of other metrics to assess a teacher’s effectiveness in the classroom.

So as most of the country moves on, California wallows in low test scores and unaccountable teachers. And then there is Fresno, the city in the Central Valley where a great majority of kids are way behind in reading and math. The Fresno Teachers Association has refused a 7 percent salary increase and is threatening to strike. This past Friday, the union issued a statement suggesting that the school districts refusal to continue negotiations “indicates students and educators in this district are not the priority.”

I am speechless.

Larry Sand, a former classroom teacher, is the president of the non-profit California Teachers Empowerment Network – a non-partisan, non-political group dedicated to providing teachers and the general public with reliable and balanced information about professional affiliations and positions on educational issues. The views presented here are strictly his own.

CalPERS "Myths vs. Facts" Propaganda Will Not Change Reality

California’s largest state/local government employee pension system, CalPERS, has posted a page on their website called “Myths vs. Facts.” Included among their many rather debatable “facts” is the following assertion, “Pension costs represent about 3.4 percent of total state spending.”

This depends, of course, on what year you’re considering, and what you consider to be direct cost overhead for the state as opposed to pass-throughs from the state to cities and counties. But CalPERS overlooks the fact that most of California’s government workers who collect pensions do not work for the state, they work for cities and counties and school districts. As can be seen on the “view CalPERS employers” page on Transparent California, there are 3,329 distinct employer retirement pension plans administered by CalPERS, and the vast majority of these are not state agencies paid from the state budget, but local agencies.

In a study earlier this year, “California City Pension Burdens,” the California Policy Center calculated 2015 employer pension contributions as a percent of total revenue for California’s cities to be 6.85%, more than double the amount CalPERS implies is the average pension burden. But this hardly tells the whole story, because CalPERS is systematically increasing the amounts that their clients will have to contribute as a percent of payroll, and hence, as a percent of total revenue.

UnionWatch has obtained budget documents from Costa Mesa showing how the pension contributions as a percent of payroll will grow between their 2014/15 fiscal year and 2020/21. Over the next six years, as the chart below shows, Costa Mesa’s total payroll is projected to grow from $50.1 million to $54.6 million. Their pension contribution, on the other hand, will grow from $23.2 million to $33.0 million. That is, their pension contribution as a percent of total payroll will increase from 46.3% of payroll today, to 60.4% of payroll in 2020.

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Costa Mesa’s pension burden as a percent of payroll is a bit higher than average, but not much. And in terms of the percentage increases to pension contributions announced by CalPERS, they are typical. California’s cities, based on CalPERS announced pension increases, can expect to add another 15% of payroll to whatever amount they are already sending to CalPERS each year.

For every dollar they pay their employees in salary, should California’s cities be sending, year after year, $.50 cents or more to CalPERS? That’s the best case. It assumes that CalPERS will continue to be able to realize annual returns on investment of 7.5%, on average over the next several decades. It also assumes they’ve got the demographic projections correct this time, and won’t have to contend with the otherwise happy eventuality of people living longer than their current projection of approximately 80 years. These are big assumptions.

And how much of this fifty cents (or more) on the dollar do the employees themselves pay as a percent of withholding? In many cases, up until recently, they paid nothing. Or if they did pay via withholding, at the same time as they became subject to that requirement, they received a raise to their overall salary of an equivalent amount. But under California’s 2012 Public Employee Pension Reform Act, employees will gradually be required to pay more for their pensions – with a ceiling of 8% for regular employees, and 12% for public safety employees.

If they paid the maximum via withholding, for a miscellaneous employee in Costa Mesa, that 8% equates to a 4-to-1 employer match today, rising to a 5-to-1 matching in 2020. Similar employer matching ratios will apply for public safety employees. How many companies, anywhere, provide 1-to-1 matching, much less 2-to-1, or more? 5-to-1 matching? It is unheard of. For good reason – it is absolutely impossible for a private company to afford this in a competitive economy.

Returning to the Myths vs. Facts page posted by CalPERS, they also assert that “The average CalPERS pension is about $31,500 per year.” This is profoundly misleading. It is based on the assumption that every CalPERS retiree worked a full career in government. Returning to the CalPERS Employers page on Transparent California, one can see a more accurate estimate of the “average pension,” because it is limited to the average for retirees who put in at least 30 years of work. Take a look. For Costa Mesa, the average 2014 pension for a full career retiree was $91,805.

If our cities could afford this, nobody would care, but they cannot. If Social Security, which withholds benefits until a participant, typically, has worked 45 years, could afford to be equally generous, nobody would care. But the average Social Security benefit is around $15,000 per year and even at that pittance, without major restructuring it will go broke.

One can debate forever regarding how much of a premium public employees should receive over private sector workers because they’re, on average, more educated, or take more risks in their jobs. But as it is, taxes are going up to pay pensions and benefits to government workers that are by any objective standard many times greater than what private citizens can ever hope to achieve. No premium, however much deserved on principle, should be this big.

The insatiable demand by CalPERS and other government pension systems for more money to keep these pensions intact does more than create financial stress to our cities and counties. It exempts public employees from the economic challenges that face everyone else. It takes away the sense of shared fate between private citizens and public servants. It undermines the social contract. It exposes a self-dealing, hidden agenda behind all new regulations. It erodes the credibility of laws, ordinances, codes, because perhaps they are merely there to generate revenue.

CalPERS and California’s other government pension systems have the financial wherewithal to lobby and run PR campaigns that dwarf that of reformers. But myths and facts are not defined in press releases. They are defined by reality. The reality is that California’s pension funds have increased their required contributions as a percent of municipal budgets by an order of magnitude in just the last 15-20 years, and there is no end in sight. If and when they can no longer seize public assets to force payment, bully compliant judges to overturn reforms, or find enough money from new taxes to save their financially shattered systems, they are going to have a lot of explaining to do – not only to the beleaguered taxpayers, but to their own members.

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

Teachers Unions Spend $700 Million per Year Explicitly on Political Advocacy

As readers know by now, Dropout Nation determined in research released last October that National Education Association and American Federation of Teachers spend roughly $700 million per year on advocacy. This report undermined the unions’ preferred narrative that they are scrappy underdogs fighting for public schools. As you would expect, especially on Twitter, NEA’s and AFT’s highly-paid spokespeople were none too happy about this inconvenient fact. One such executive, AFT’s Kombiz Lavasany, asserted that the report was “sadly dishonest [because the] vast majority of union dues support things universally supported,” such as “work to represent and work for better pay, work conditions, professionalism.”

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NEA President Randi Weingarten, who is paid over $500,000 per year and wields
an annual advocacy budget of over $500 million, is looking out for working families.

Since these claims were repeated and rebroadcast by other union officials and their allies, they deserve a brief fact-based review. Unfortunately, they fail to hold up under even light quantitative scrutiny.

Yes, the teachers’ unions’ really spend $2.2 billion per year overall: Some critics looked at the revenues of the main unions’ national operations, and saw budgets in the hundreds of millions (not billions). NEA, for example, only reported revenue of $385 million to the U.S. Department of Labor; since the NEA represents two thirds of the nation’s teachers, looking only at national IRS filings would imply a revenue total of less than $600 million.

This math, however, excludes most of the unions’ budgets, which formally stay at the level of states and localities. A teacher in Chicago, for instance, pays dues averaging $1,000 per year, but 60 percent of those dues go to the local Chicago Teachers Union. The remaining 40 percent is split between the national AFT and the statewide Illinois Federation of Teachers. These local dues to CTU give it a formally independent budget of roughly $30 million. New York is another example; the UFT spends $100 million per year.

Any national analysis of union financial clout must therefore consider the dues collected by state and local affiliates and the filings they make with the Department of Labor and the Internal Revenue Service. Altogether, this adds up to $2.2 billion.

This number seems shockingly high. But you must look at this in context. The $2.2 billion number implies that the national unions represent about 30 percent of the total unions’ revenues. This makes sense given that the national unions play a quarterbacking role for organizations primarily working at the state and local levels. The number also suggests that annual dues amount to roughly $660 per teacher, which is just around one percent of the U.S. average teacher salary of $56,000.

As with other matters when it comes to the Big Two, the $2.2 billion union budget is only surprising for those who have not yet reviewed the basic math of American public education.

Yes, the unions really spend a third of their resources on advocacy: Lavasany and other union spokespeople argue that unions spend less than $700 million in advocacy because “most” of their money is spent in member services. Unpacking this claim requires a detour into union dues, how they are collected, and how they are classified.

The starting point is 1977, when the U.S. Supreme Court ruled in Abood v. Detroit Board of Education that union officials could compel all teachers to pay union dues as a condition of employment. The Court held that such “compulsory dues” harm teachers’ First Amendment rights, as they compel teachers to pay for political speech. So long as the compulsory dues are used only for advocacy related to collective bargaining, however, the Court held them to be permissible.

As an outgrowth of the Abood decision, most teachers around the country have union dues deducted automatically from their paychecks. Union officials calculate which portion of those dues are related to collective bargaining (so-called “chargeable” expenses), and which dues are unrelated (so-called “non-chargeable” expenses which teachers may opt out of paying).

As the Supreme Court itself noted last year — and as Dropout Nation has noted — the decades since 1977 have revealed two practical problems with the Abood framework. First, the question of chargeable vs. non-chargeable is notoriously thorny, and remains the subject of ongoing litigation to this day. Many kinds of laws can be called related to teachers’ collective bargaining, including parent choice rules, teacher evaluation frameworks, and even a state’s overall levels of taxation and spending.

Second, the classification system is rife with conflicts of interest. The union officials who benefit directly from these revenue allocations have day-to-day responsibility for deciding which expenses are chargeable vs. non-chargeable. Every year, union staffers and their paid accountants make thousands of individual determinations about how to classify their time and expenses. From these classifications, the unions can essentially create as much revenue as they think they need. Even if every union staffer is a saint, their belief in their cause gives them a constant incentive to err on the side of higher compulsory dues.

This framework allows the accounting results to exactly match the public relations claims. Consider the response to last year’s Dropout Nation report from the AFT spokesman Lavasany that “vast majority of that money is spent on supporting members, not on politics.” Sure enough, this matches up with the 2013 audit report signed by the AFT’s accountants, which duly allocated 71.5 percent of the AFT’s revenues to “chargeable” expenses related to collective bargaining. Those overseeing the audit included AFT’s Secretary-Treasurer Loretta Johnson, a longtime AFT negotiator and officer, and Calibre, a certified public accountancy that specializes in serving the interests of labor unions.

A 2014 audit report AFT filed in California, writing to reflect an arbitrator’s decision between objecting teachers and the union’s United Teachers Los Angeles unit, made a slightly more conservative estimate of 66 percent of the revenues going toward “chargeable” expenses. Either way, the unions admit that between 25 percent and 33 percent of dues are allocated to political activities unrelated to collective bargaining and workplace issues.

Here’s the funny thing: Even if you take the union officials’ numbers at face value, the result actually confirms the thrust of Dropout Nation’s analysis. The pro bono consultants who went through the unions’ published national, state, and local tax returns estimated based on their research, interviews, and sampling that roughly one third of the unions’ efforts went toward political advocacy. This is what drove the $700 million estimate: one third of $2.2 billion is slightly more than $700 million. If the 2014 auditor’s report is correct, and that result applies to union spending allocations across the country, then it serves as independent confirmation, rather than rebuttal, of what Dropout Nation turned up.

Indeed, if even the unions’ auditing numbers say that one third of their expenses are not chargeable, the reality is probably a much higher number. This has been borne out by Dropout Nation in five years of reports on NEA and AFT spending: Often times, the two unions and their affiliates list what often turns out to be political spending under the category of “representational activities”. If anything, the $700 million estimate probably underestimates the amount of money NEA and AFT and their units spend on politics.

 

About the Author:  RiShawn Biddle is Editor and Publisher of Dropout Nation — the leading commentary Web site on education reform — a columnist for Rare and The American Spectator, award-winning editorialist, speechwriter, communications consultant and education policy advisor. More importantly, he is a tireless advocate for improving the quality of K-12 education for every child. The co-author of A Byte at the Apple: Rethinking Education Data for the Post-NCLB Era, Biddle combines journalism, research and advocacy to bring insight on the nation’s education crisis and rally families and others to reform American public education. This article originally appeared in Dropout Nation and is republished here with permission from the author.

Government Union's New Taxes on Working Californians Stopped in Legislature – For Now

It’s been a long year in the Capitol for those of us who advocate against higher taxes, crushing regulations and wasteful government spending. The good news is that California taxpayers have prevailed in virtually all the major tax fights this year. The bad news is that, because the legislature convenes for two-year sessions, this is only halftime. On January 4, 2016 – less than 4 months from now – the same cast of characters will reconvene and we will have to fight many of the same battles yet again. Still, it is helpful to assess how homeowners and working Californians fared in the legislative process this year.

For Howard Jarvis Taxpayers Association, there is no higher priority than defending Proposition 13 against attacks. As a constitutional amendment, Prop 13 cannot be amended by the Legislature directly. But that doesn’t mean the politicians can’t inflict harm. Indeed, with a two-thirds vote of each house, the California Legislature can place proposed constitutional amendments on the ballot. And if an anti-Prop 13 measure is sufficiently enticing or deceptive, voters might unwittingly take away some of their own rights as taxpayers.

This past year, there were three such proposals. Two were efforts to lower the two-thirds vote requirement at the local level as a condition for higher taxes. This is an important part of Prop 13 because the higher vote threshold was put in place to prevent local governments from taking away the benefits of Prop 13’s reduced property tax burden by simply imposing new or higher levels of other local taxes. The third attack on Prop 13 was an effort to take away the provision that limits annual increases in the taxable value of property to two percent. Although not affecting all property owners, this dangerous bill was simply “Step 1” for the complete repeal of Prop 13.

As noted above, the good news is that all three proposals were vigorously opposed by HJTA and each was stopped. But the bad news is that these proposals to repeal or weaken Prop 13 will be back come January.

Over and above our Prop 13 victories, taxpayers also stopped a myriad of other taxes including one proposal that would have slammed every California family that relies on their car for work, errands or pleasure. That proposal would have imposed big increases in the gas tax, the cost of getting a license and the annual vehicle registration fee. Stopping that awful tax hike was a very high priority for the more than 200,000 members of HJTA.

An equally dreadful proposal to extend the sales tax to services – a bill which would slam taxpayers with over $100 billion in higher consumer costs every year – was also derailed, at least for now.

Wars are not fought alone and taxpayers should be very grateful to those legislators who stood on the right side. Because taxes imposed by the Legislature require a two-thirds vote, our allies had the votes to stop the attacks even though a large majority in both the Assembly and Senate never met a tax they didn’t like.

A huge vote of thanks is due to the Republicans and their leaders who stood united against the assault. But we should also note that several moderate Democrats withstood the withering criticism of their colleagues and the left-leaning media to actually represent the interests of their taxpaying constituents. That sort of courage is a rare thing in politics.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

San Jose City Council Capitulates to Police Union Power

“He told the class to take advantage of the academy, and then find jobs elsewhere. The police union tries to get us to leave the department.”
–  Anonymous source to NBC Bay Area, television report “Another San Jose Police Recruit Says Union Tried to Get Cadets to ‘Find Jobs Elsewhere’,” Oct. 28, 2014 (excerpt begins at 1:38 in report).

A precedent setting new development in San Jose last week provides abundant evidence of just how powerful local government unions really are in California. As reported today in San Jose Inside and elsewhere, an embattled city council has tentatively approved a new contract with San Jose’s police union that awards them “a 5 percent ‘retention’ bonus and an 8 percent raise over the next 16 months. In addition, former officers who return to the force in the next year can claim a 5 percent signing bonus.”

More significantly, at the same time, the San Jose City Council has tentatively agreed to drop their appeal of a court ruling that overturned a key part of a San Jose pension reform, a reexamination of the so-called “California Rule.” As pension expert Ed Mendel reported yesterday in PublicCEO, “The “California rule” is a series of state court decisions widely believed to mean that the pension offered on the date of hire becomes a vested right, protected by contract law, that can only be cut if offset by a new benefit of comparable value.

In practical terms, this means that pension benefit formulas, according to the California Rule, cannot even be trimmed for future work performed by existing employees. San Jose’s pension reform Measure B, passed by 70% of voters in 2012, presented city employees with a choice – they could either contribute an additional 16% towards their pension benefits via payroll withholding, or they could accept lower pension benefit accruals from then on. Nothing they had earned to-date would have been taken away from them.

Despite legal opinions that claim the California Rule is not well established law, and despite that the California Rule is contrary to the law governing public sector pensions in most states, and contrary to all law governing private sector pensions everywhere, San Jose’s local elected officials have capitulated.

THE INHERENT HYPOCRISY OF THE ‘CALIFORNIA RULE’

It is difficult to overstate just how hypocritical the union’s position is on the issue of modifying pension benefit formulas. Because the problems with pensions began back in 1999, when SB 400 raised pension benefit accruals per year for the California Highway Patrol. Within a few years, most every agency in California followed suit. And these pension benefit enhancements were applied retroactively to the date of the employees’ hire.

That is, starting in 1999, agencies changed the pension benefit formula so that, for example, police and fire pension accruals were not just increasing from 2% to 3% per year from then on, but retroactively to the day each employee was hired. So someone who would have earned a pension equivalent to 2% of their final salary times the years they worked would now earn a pension equivalent to 3% of their salary times the years they worked, even if they were going to retire within the next year or two.

What San Jose Measure B tried to do was not roll back pension benefits from 3% per year to 2% per year for years already worked. It only tried to reduce the benefit accrual, prospectively, for years still to be worked. And even that was too much for these unions.

THE DEVASTATING COSTS OF SAN JOSE’S POLICE/FIRE RETIREMENT BENEFITS

If taxpayers could afford to pay these pension benefits, there might be a stronger argument to preserve them. But San Jose’s independent Police and Fire Department Retirement Plan, according to their most recent financial report, is not in great shape financially. Keeping it afloat requires staggering sums of money from taxpayers that are only going to increase each year. Here are highlights:

(1) The plan as of 6-30-2014 (most recent data available) was 77.5% funded (page 114). This means that instead of earning their officially projected annual return on investment of 7.125% per year, just to avoid becoming more underfunded, they will have to earn 9.2% per year. Just to stay even. That is their so-called “risk free” rate of return.

(2) The fund truly is “risk free” to participants, because the taxpayers pay most of the expense and cover the losses when the market fails. In FYE 6-30-2014, police and fire employees contributed $21.1 million into their retirement fund, and taxpayers (the City of San Jose) contributed $123.6 million (page 69), nearly six times as much. How many “six to one” matching contributions are out there for corporate 401K plans?

(3) The unfunded liability for the SJ Police and Fire Retirement Plan was $806 million (page 114) as of 6-30-2013 (most recent actuarial data), equal to 436% of payroll. Or looking at this another way, the city’s pension contribution was $123.6 million, whereas their “covered payroll” was $184.6 million. That is, for every dollar San Jose pays to put police and firefighters on the street, they have to pay 67 cents to the pension fund.

(4) It’s not just pensions. The SJ Police and Fire Retirement Plan includes city funded retirement health insurance benefits. How’s that fund doing? As of 6-30-2013 (most recent data), that plan was 11% (eleven percent) funded, with an unfunded liability of $625.5 million (page 65).

(5) If you consolidate the financial data for San Jose’s Police and Fire Retirement Plan’s pension and healthcare (OPEB) plans, the most recent statements indicate they are 67% funded, with a total unfunded liability of $1.4 billion. If San Jose were to responsibly reduce their total unfunded liability for public safety retirement benefits, they would be paying far more than 67 cents for every dollar of payroll.

THE MISLEADING EMPHASIS ON AN EXODUS OF OFFICERS

Throughout this battle between fiscal realists and the police union in San Jose, the police have maintained that officers were leaving the city to work elsewhere or to retire. There’s no question that their ranks have thinned, perhaps alarmingly. According to SJ Inside, “the agency [currently has] 943 sworn officers out of a budgeted 1,109 positions.” And historically San Jose’s police department has had as many as 1,400 officers. But is the union thwarting efforts to fill the ranks?

Several news reports suggest that could be the case – starting with the local NBC television affiliate’s report quoted earlier. That anonymous source corroborated what another person stated publicly. According to the San Jose Mercury guest column entitled “San Jose police recruit: Union told class to quit right away for good of the department,” former police academy cadet Elyse Rivas writes:

“On the first day of the academy, our orientation included the opportunity to meet Jim Unland, the Police Officers Association’s president. In no uncertain terms, he blamed Measure B for the departure of hundreds of officers — and he told us that it would be better for the department and for us if we would just quit, right then and there. He said that our employment with the department did not help the POA’s cause in proving Measure B was killing the department’s recruitment capabilities. He urged us to find jobs elsewhere.”

Reached for comment earlier today regarding developments in San Jose, former Mayor Chuck Reed agreed with the substance of these allegations. Not only did he confirm reports of union representatives discouraging academy recruits from taking jobs with the department, but he also described other ways they thwarted recruitment:

There were reports of recruiting events held in the San Jose police union offices where they invited police recruiters in from other cities to encourage active San Jose police officers to take these jobs in other cities.

Reed also said “when we were trying to hire officers, we wanted to bring in retired police officers in to do the background checks so we could keep our active officers on the beat – but the union urged retirees to refuse to accept the work.”

In any case, Reed pointed out that the city had determined to reduce the size of the police force back in 2010, well before voters approved Measure B, saying “the police department headcount went down from 1,400 to 1,100 before there was any pension reform.” Reed believes that an ideal headcount for the San Jose police department would not require returning to 1,400, and that getting to the budgeted 1,109 positions would be a good first step.

SO HOW MUCH DO SAN JOSE’S ‘UNDERPAID’ POLICE OFFICERS MAKE?

Getting timely and accurate information on public pay is difficult because financial reports from public entities take a long time to produce and often omit important data. The most recent payroll records publicly available for the city of San Jose are for 2013. According to a search on Transparent California of San Jose city employees with “Police” in their job title, in 2013 there were 260 of them who made over $250,000 in pay and benefits, and an astonishing 806 who made over $200,000 in pay and benefits. Here’s the link:  San Jose city employees, 2013, with “Police” in their job title.

Pension information for San Jose’s retired police officers is complicated by the fact that the data includes firefighters along with police officers. Moreover, the average full-career pension estimates are understated because a significant percentage of the current participants retired before pension benefits were enhanced in San Jose – a process of “continual enhancement” that continued up until 2008. Using 2014 data acquired by Transparent California, the estimated average full career pension for a San Jose police/fire retiree is $99,116 – with guaranteed 3% per year cost-of-living increases. The number for recent, post-2008, full-career retirees is undoubtedly much higher. Here is a 2014 roster of all of San Jose’s police/fire retirees – note that individual retirement health benefits (unfunded liability of $625 million) were not provided – certainly adding a value of at least another $10,000 per year.

Are San Jose’s police officers underpaid? The average veteran officer makes pay and benefits worth well over $200,000 per year. Add to that the likely 5% “retention bonus, and the 8% raise over the next sixteen months per the tentative new agreement. You decide.

The personal attacks and confrontational tactics employed by the San Jose police officers union against their political opponents do not reflect well on the fine men and women who staff that department, who perform work of vital importance to society. Whether or not they intentionally urged officers to quit (or never join) the San Jose police force is almost irrelevant, despite abundant evidence that suggests they did. Because their real transgression against the people of San Jose, the taxpayers, the elected officials, and public safety itself, is to insist on levels of pay and benefits for their officers that are far more than the city can afford.

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

RELATED POSTS

Why Pension Reform is Inevitable, and How Reforms Can Benefit the Economy, July 21, 2015

Retiree with $183,690 Annual Pension Attacks Pension Critics, June 9, 2015

Pension Reform is Bad for Wall Street, and Good for California, April 14, 2015

Is Deficient Recruiting the Real Reason for Police Understaffing in San Diego?, January 20, 2015

Conservatives, Police Unions, and the Future of Law Enforcement, January 6, 2015

Police Unions in America, December 9, 2014

Government Employee Unions – The Root Cause of California’s Challenges, June 3, 2014

Conservative Politicians and Public Safety Unions, May 13, 2014

How Much Does Professionalism Cost?, March 11, 2014  (The Kelly Thomas Story)

How Public Sector Unions Skew America’s Public Safety and National Security Agenda, June 18, 2013

CALIFORNIA POLICY CENTER PENSION STUDIES

California City Pension Burdens, February 2015

Estimating America’s Total Unfunded State and Local Government Pension Liability, September 2014

Evaluating Total Unfunded Public Employee Retirement Liabilities in 20 California Counties, May 2014

Evaluating Public Safety Pensions in California, April 25, 2014

How Much Do CalSTRS Retirees Really Make?, March 2014

Comparing CalSTRS Pensions to Social Security Retirement Benefits, February 27, 2014

How Much Do CalPERS Retirees Really Make?, February 2014

Sonoma County’s Pension Crisis – Analysis and Recommendations, January 2014

Are Annual Contributions Into CalSTRS Adequate?, November 2013

Are Annual Contributions Into Orange County’s Employee Pension Plan Adequate?, August 2013

A Method to Estimate the Pension Contribution and Pension Liability for Your City or County, July 2013

Moody’s Final Adopted Adjustments of Government Pension Data, June 2013

How Lower Earnings Will Impact California’s Total Unfunded Pension Liability, February 2013

The Impact of Moody’s Proposed Changes in Analyzing Government Pension Data, January 2013

A Pension Analysis Tool for Everyone, April 2012

 

 

 

California's Official Antipathy to Educational Innovation and Accountability

“With a hearing now scheduled for Aug. 21, LA Unified’s teachers union, UTLA, will have the chance to argue before a neutral party that Alliance College-Ready Public Charter Schools, violated state education law by blocking the union’s efforts to bring Alliance teachers into its membership.”
– Mike Szymanski, “UTLA outlines accusations against Alliance for anti-union efforts,” LA School Report, August 6, 2015

The “neutral party” to which Szymanski refers is California’s Public Employee Relations Board (PERB), “a quasi-judicial administrative agency charged with administering the eight collective bargaining statutes covering employees of California’s public schools, colleges, and universities, employees of the State of California, employees of California local public agencies,” etc.

“Neutral.” Really?

A quick look at the directors of PERB provides yet another example of just how stacked the deck has gotten in favor of public employee unions. Following their names are excerpts from their official biographies:

  • Anita I. Martinez, Chair, “has been employed with PERB since 1976 and was recently appointed Member and Chair. Prior to that she has served as the PERB San Francisco Regional Director since 1982.”
  • A. Eugene Huguenin, “Before relocating to Sacramento in 2000, Huguenin practiced labor and education law in Los Angeles and Burlingame for more than 20 years, advising and representing the California Teachers Association and it’s locals throughout the state.”
  • Priscilla Winslow‘s “career in public sector labor law spans over 30 years, during which time she served for 15 years as Assistant Chief Counsel for the California Teachers Association where she litigated and advised on a variety of labor, education, and constitutional law issues.”
  • Eric Banks, “served in multiple positions at the Service Employees International Union, Local 221 from 2001 to 2013, including Advisor to the President, President, and Director of Government and Community Relations.”
  • Mark C. Gregersen‘s. career in public sector labor relations spans over 35 years. Prior to his appointment to the California Public Employment Relations Board, he has served as director of labor and work force strategy for the City of Sacramento and director of human resources for a number of California cities and counties.

Just a quick scan of these biographical excerpts suggests that government unions have at least three advocates – Huguenin and Winslow, who were long-time CTA professionals, and Banks, who worked for over a decade for the SEIU. What about the chairperson, Martinez? Here’s an excerpt from Gov. Brown’s announcement of her appointment – Martinez is a long-time Democrat public employee who has spent her entire career in labor bureaucracies:

“She has worked for the Board since 1976, where she currently serves as a regional director. Previously, Martinez was a board agent for the Agricultural Labor Relations Board from 1975 to 1976. She was an intern at the National Labor Relations Board from 1973 to 1976. Martinez is a Democrat.”

What about Gregersen? Do reformers have one voice out of five on PERB? Maybe, maybe not. Here’s are excerpts from Gov. Brown’s 2015 announcement of Gregerson’s appointment to PERB – Gregersen is a long-time Democrat public employee who, among other things, presided as city manager for Vallejo throughout the 1990’s:

“He served as director of labor and workforce strategy for the City of Sacramento from 2011 to 2012 and was director of human resources for Napa County from 2005 to 2009, for El Dorado County from 2004 to 2005 and for the City of Sunnyvale from 2001 to 2004. Gregersen was  director of human resources for the City of Vallejo from 1990 to 1999. Gregersen is a Democrat.”

Not convinced yet? On another hot-button topic for government unions, pension reform, read the ultra-liberal San Jose Mercury’s take on PERB, in an article entitled “State employee panel seems stacked against San Jose pension reformers.” The title says it all.

“Neutral.” Really?

The stakes couldn’t be higher.

The fight to unionize the Alliance charter school network, the largest charter school operator within Los Angeles Unified School District and one of the largest in California, comes at a time when the growth of charter schools is reaching critical mass and constitutes a material threat to union power. As reported today in the Los Angeles Times “Major charter school expansion in the works for L.A. Unified students,” billionaire Democrat and education reformer Eli Broad is behind an effort to greatly increase the charter school enrollment in LAUSD, currently at 16% of all students.” As reported in the Times, “there was discussion of an option that involved enrolling 50% of students currently at schools with low test scores. A source said the cost was estimated to be $450 million; another said hundreds of millions of dollars are needed.”

Most charter schools are not unionized. In non union schools, the process of innovation is unhindered by union work rules, and principals and teachers alike are held accountable for the academic performance of their students. A recent “Urban Charter School Study” published by Stanford University’s nonpartisan Center for Research on Education Outcomes (CREDO) “shows that many urban charter schools are providing superior academic learning for their students, in many cases quite dramatically better.”

These findings are corroborated by a recent California Policy Center study on charter school performance, far more limited in scope, that focused on the non-union Alliance charter schools within LAUSD, comparing the performance of their students to those in traditional LAUSD high-schools in the same neighborhoods. Here is a summary of the findings:

“Comparing LAUSD Alliance charter high schools to LAUSD traditional high schools located in the same communities, we found the Alliance schools to have decisively higher API scores, 762 vs. 701, and measurably higher graduation rates, 91.5% vs. 84.1%. With respect to SAT scores, when we normalized the comparison between the LAUSD Alliance and LAUSD traditional schools under consideration to equalize the rate of participation, we found that the LAUSD Alliance students outperformed the LAUSD traditional students with average scores of 1417 vs. 1299.”

Both CREDO and the CPC found unambiguous evidence that urban charter schools academically outperform traditional public schools. The CPC study also estimated per pupil costs for Alliance charter high school students to be $10,649 per year, compared to $15,372 per year for students at traditional public high schools within LAUSD.

Facing a growing bipartisan consensus that charter schools are working and should be expanded, California’s teachers unions are fighting to unionize them. Alliance management is in for a hard fight. They face not only the might of California’s teachers unions, who collect and spend dues totaling well over $300 million every year, but the power of the state itself, in the form of a Public Employee Relations Board whose management is “stacked” overwhelmingly with pro-union directors.

*   *   *

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

Social Justice Warriors at Work

With the election season in full swing, expect a tide of union-led anti-reform, anti-choice and anti-Republican politicking in our kids’ classrooms.

I watched the GOP presidential debate because my students are counting on me” is the title of a piece posted on the National Education Association website by “guest writer” Tom McLaughlin, a high school drama teacher from Council Bluffs, IA. He claims that “…in addition to this debate, I had an obligation to watch future debates, take notes, and share the truth. I have a responsibility to do that for my students.” (Hmm – just why is a drama teacher delving into politics with his students? Brought back memories of a Che Guevara poster prominently displayed in the music teacher’s class at my former middle school.)

So in any event, I’m thinking this will be a commentary about Common Core, since it garnered the only discussion of education at the first Republican debate in Cleveland last Thursday. In reality, that issue provoked a brief back-and-forth between Jeb Bush and Marco Rubio which really didn’t shed much light on the subject. But the words “Common Core” never appear in the piece by McLaughlin. Instead, the drama teacher’s “truth sharing” includes comments like,

Many of the candidates on last night’s stage have clear records of draining critical funding away from public schools to give to private schools, supporting charter schools that are unaccountable to students, parents, and taxpayers, and slashing education funding and those programs that serve students and help them in the classroom.

As educators and trusted messengers in our communities, we must make sure the public is informed and not fooled by presidential candidates who say they believe in a world-class education system but have a history of starving our public schools of critical funding and supporting flawed so-called reforms that don’t work.

Obviously McLaughlin never intended to report on the debate, but rather to deliver a diatribe infused with standard teacher union talking points against any and all who favor reform and dare have an “R” after their names. (Curiously, Chris Christie, Scott Walker and Jeb Bush all took shots at the teachers unions during the debate and there was no mention of them in McLaughlin’s critique.)

Over at the “NEA Votes” Facebook page, the union faithful were having a field day with McLaughlin’s post and the debate. With one or two exceptions, the comments were posted by pro-union mouthpieces using the same tired talking points that the union elite use. Perhaps the loopiest of all was a post that equated conservatism with Fascism:

The scary part of all this is that these teachers, who don’t seem to have an objective bone in their collective bodies – and are proud of it – have a captive audience of children, many of whom will be the recipients of their teachers’ anti-reform, anti-school choice and anti-Republican rhetoric leading up to the presidential election in 2016.

If you are a Republican parent (or just a fair-minded one of any political persuasion), please be ready for the political onslaught supporting the Big Government-Big Union complex (aka the Blob) your kids may be in for. When the indoctrination starts, don’t be shy about speaking up. Please mention to anyone who is spouting the union party line (and your kids) that in Jeb Bush’s Florida, there are more than 40,000 teachers who do not work for school districts and 14,000 of them have chosen to work in charter schools. They’ve made these choices for the same reason parents do – because charters offer a better fit for their individual needs.

Tell them that despite McLaughlin’s absurd comment, charter and private schools are indeed accountable…to parents. If parents aren’t happy with those schools, they close, unlike traditional public schools which are accountable to no one and typically get more money thrown their way if they are failing.

Tell them that we have tripled our public education funding nationally – in constant dollars – over the last 40 years and have nothing to show for it.

Tell them that Wisconsin’s test scores have risen since the teachers unions’ favorite Republican punching bag Scott Walker has been governor.

Tell them that homeschooling is advancing across the country – especially in big cities – because parents of all political stripes are tired of a one-size-fits-all Blob education.

Tell them that in California, the Blob is under attack and that the effort is bipartisan. The Stull, Reed and Vergara lawsuits, all of which have successfully challenged Blob work rules like tenure and seniority and fought to get a realistic teacher evaluation system in place, have seen Republicans and Democrats working together to undo the mess that McLaughlin and his ilk have helped to create.

Perhaps most importantly explain that when it comes to education policy reform, the battle is not typically between Democrats and Republicans or liberals and conservatives, but rather between those who defend the status quo and those who are demanding reasonable reforms to an outsized, outdated, outmoded and out-of-touch educational system.

When I was growing up, I never had a clue what my teachers’ politics were. They understood they were not there to indoctrinate me. Accordingly, I followed suit when I taught public school for 28 years. But there are many now who have decided not to check their politics at the classroom door, instead bringing it to their students with a religious zeal that makes Elmer Gantry look like a wallflower. Many teachers now take their cue from the likes of National Education Association Executive Director John Stocks who, at the recent NEA convention, told his flock that teachers need to become “social justice warriors.”

Silly me, all along I thought teachers were there to teach.

Larry Sand, a former classroom teacher, is the president of the non-profit California Teachers Empowerment Network – a non-partisan, non-political group dedicated to providing teachers and the general public with reliable and balanced information about professional affiliations and positions on educational issues. The views presented here are strictly his own.

Another Consequence of Unionized Education: Diversity Politics Supplants Academics

Social justice, climate change, racial inequality, immigration and world hunger have replaced the classics as the focus of the curriculum in America’s schools and colleges. The goal of public education has shifted from academics to cultural indoctrination. The problem, which has come to Orange County’s Foothill High School, one of the state’s most elite high schools, deserves public scrutiny.

Foothill High School’s 2,494 students represent a cross-section of America. 49% of student enrollment is non-White, with students bussed from distant minority neighborhoods to accommodate the federally-mandated diversity. A percentage of White and Asian students come from middle- and upper-middle class families. The school ranks 66th in the state, has an 878 Academic Performance Index, 77% proficiency in reading, 76% proficiency in math and 3.30-3.85 GPA. Merit scholars number among its graduates.

What sounds like an enviable institution has been charged as having a “racist, classist history” in an online blogpost following an incident at a basketball game. The incident in January involved Tustin High School, Foothill’s blue-collar crosstown rival. What should have been ignored or treated as a minor incident escalated into an ugly example of political correctness run amok.

One of the Foothill Students held up a sign with a word that could have been construed as a racial slur. The word was #CHUNTI, slang for chuntaro which is the Spanish equivalent of redneck or White trash. The incident triggered a scathing post in a weekly online magazine that led to a written public letter of apology by the school’s principal, a hasty meeting of the Diversity Committee and the school wide assignment of Enrique’s Journey by Sonia Nazario.

The young adult version of the book is written for 7th graders and “reluctant” high school readers, not the demographic at Foothill. Enrique’s Journey describes the experiences of an adolescent illegal migrant, abandoned by his mother when he was 4 years old, who makes the long trek across Mexico on the infamous Train of Death from his home in Honduras to find his mother. She lives with her boyfriend and a new daughter North Carolina. The narrative details the violence and depravity he encounters.

Man’s inhumanity to man is described in brutal and graphic terms. Neither the story nor the writing is scholarly or ennobling as this sample illustrates:

One afternoon migra agents come to the camp. They ask Enrique where he is from [and tell him he] can’t fish here [and has to] leave. “Get out of here.” He leaves, only to be arrested in town- twice, both times for loitering… They call him a street bum and lock him up with three drunks who are singing. The toilet is running over. The drunks have smeared some of the contents on the wall and the stench is overpowering. Both times Enrique wins his release by sweeping and mopping. [1]

Among the thousands of other migrants who make the illegal journey into the United States, only one woman pauses to reflect on the morality of her actions. She struggles with her conscience and acknowledges what they are all doing is very wrong. They are breaking the law. Enrique never confronts his conscience, nor do Nazario’s young readers.

The declared purpose of the assignment was to foster greater empathy in the Foothill student body. It should be noted adolescents developmentally have a limited capacity for empathy, a finding that was corroborated in a recent study by Sara Konrath (Changes in Dispositional Empathy in American College Students) that documents a progressive decline of empathy among young adults over the past five decades. [2]

If fostering empathy was the actual goal, a far better choice would have To Kill a Mockingbird by Harper Lee, Grapes of Wrath by John Steinbeck or any of the hundreds of titles among the great classics.

The actual purpose of the Foothill assignment was cultural remediation. This is the latest example of the coercive practice known as political indoctrination. This practice is typically called brainwashing. It belongs in Nazi Germany or Communist China and Russia, not Southern California or the USA.

The ramifications of the mandatory reading assignment extend far beyond the classroom walls at Foothill. It is symptomatic of a dangerous psychology that threatens the survival of our free and democratic Republic. The need to reverse the trend needs to start at the Foothill schoolhouse door. NOW!

Foothill’s students are not a group of spoiled, rich White kids as the OC Weekly blog charges. They are hard-working, serious youngsters who are dedicated to getting good grades, graduating from college and making something of themselves. They are to be applauded, not humiliated and shamed as Gustavo Arrellano has done.

That their parents are not up in arms with visceral outrage at the assignment of Enrique’s Journey is deeply troubling to this psychiatrist. Their silent, passive acceptance bespeaks an attitude of cowed defeatism, indifference or hopelessness that mirrors the lack of response by the citizenry to President Obama’s strident attacks against the so-called “1%” for their allegedly undeserved wealth. Foothill parents should by saying “No mas! Education, not political indoctrination.”

If Dr. Stephany, Foothill’s principal, wants to give the sign-carrying student 15 hours of community service, we think that might be appropriate. His knee-jerk, anguished over-reaction is unwarranted and ill-advised. There was no need to have done anything.

The parents should demand the mandatory assignment, which was supposed to be read in every class including AP calculus and Phys Ed, be rescinded immediately. A list of alternate titles can be found in the library stacks under Great Works of Western Literature.

If all else fails, a school wide sick out and a visit to the local library would be therapeutically-indicated and educational. Feel free to contact me for a prescription.

About the Author: R. Claire Friend, MD, is the Assistant Professor, Department of Psychiatry and Human Behavior, UC Irvine Medical Center, and the editor of the UC Irvine Quarterly Journal of Psychiatry. She is a retired psychiatrist and frequent commentator on the psychological dimensions of education and social welfare policies.

FOOTNOTES

(1)  Sonia Nazario, Enrique’s Journey: The Story of a Boy’s Dangerous Odyssey to Reunite with his Mother (New York: Random House, 2006), 153.

(2)  http://faculty.chicagobooth.edu/eob/edobrien_empathyPSPR.pdf

OTHER NOTES

The article by university president John Agresto is an excellent discussion of the destruction of liberal education by progressivism.
http://www.wsj.com/articles/the-suicide-of-the-liberal-arts-1438987258

The students at Arnold Beckman High School in Irvine chose David and Goliath by Malcolm Gladwell as their summer reading assignment. The author examines the biblical parable to illustrate how much of what is beautiful and important in the world arises from appears to be suffering and adversity. Viewing adversity through a different prism, he offers a new interpretation on the meaning of the struggle of the underdog.

Unions in the News – Weekly Highlights

Union bills proliferate in California Capitol
By Dan Walters, July 21, 2015, Sacramento Bee
Only a sixth of California’s wage earners are members of labor unions, but they carry a very big stick in politics. Unions are the largest single source of legislative campaign funds, a recent Sacramento Bee compilation revealed, and among Democrats, their hegemony is even more pronounced. Not surprisingly, therefore, a Legislature dominated by labor-backed Democrats sees a large number of union-sponsored bills. This year is no exception, and when legislators return to Sacramento in August for the final month of their 2015 session, they will find dozens of union bills awaiting disposition. A small sample: Assembly Bill 219, by Assemblyman Tom Daly, D-Anaheim, would redefine public works projects to include delivery of ready-mixed concrete by outside suppliers. Thus, it would require payment of “prevailing wages” – essentially union scale – to delivery truck drivers. (read article)

Teachable moment on union politics
Editorial, July 20, 2015, San Bernardino Press-Enterprise
A petition on Change.org urges the American Federation of Teachers to withdraw its recent endorsement of Hillary Clinton for the Democratic presidential nomination. The online petition recently boasted more than 4,500 signatures; most by members of the teachers’ union who complain they had no say in the matter. AFT President Randi Weingarten said she was shocked, shocked by the blowback the union’s Clinton endorsement elicited from the rank and file. There was nothing undemocratic about the decision of AFT’s executive council, she argued. It simply was the culmination of a process that included multiple surveys, several telephone town halls and AFT’s “You Decide” website. Well, we might just be willing to give Ms. Weingarten the benefit of the doubt if she hadn’t a dog in the fight. But it’s no secret that she’s a longtime crony of Mrs. Clinton. Indeed, our friends at Politico reported that the president of the 1.6-million-member AFT has donated to the independent super PAC Ready for Clinton and is a board member for the pro-Clinton super PAC Priorities USA Action. Ms. Weingarten also has given money to Mrs. Clinton’s previous political campaigns. And, on her watch, AFT has been a Clinton Foundation donor. (read article)

Immigrants Help Lead a New Silicon Valley Labor Movement
By Beth Willon, July 21, 2015, KQED San Francisco
Jesus Solorio’s stubbornness serves him well. Instead of winding up a victim of the surging income inequality in Silicon Valley, he has become a tireless labor activist, refusing to let go of the American Dream. “I like being a champion of raising the minimum wage,” said Solorio in Spanish. “I like being around other people, helping them so they can have better salaries and live a better life.” Solorio, 30, is a janitor at San Jose-based eBay. He left Mexico when he was a teenager and he’s now a single father, raising his 7-year-old daughter in a hard-scrabble neighborhood 13 miles from the sparkling eBay campus. (read article)

It’s Time To Rethink Our Labor Laws
By John C. Goodman, July 21, 2015, Forbes
Jeb Bush is a fan. Ditto for Rand Paul and Marco Rubio. Hillary Clinton isn’t so sure. Martin O’Malley says it exposes the need to update our labor laws. Everyone is talking about Uber these days. The topic has even become part of the presidential election. Full disclosure: I’m also a fan. I travel a lot. When I am away from home I typically use Uber cars if they are available. When I do, I often ask the drivers how they like working with Uber. I have never had one complain. The most common comment from Uber drivers: they like the flexibility of the arrangement. They can work whenever they want to work. They can work as many hours as they want to work. If they need more income, they can work more. If they don’t, they are free to work less. What’s not to like? (read article)

Rules govern union access to farms for ‘heat sweeps’
By Bryan Little and Carl Borden, July 21, 2015, AgAlert for CA Agriculture
The United Farm Workers labor union has recently engaged in a flurry of activity. UFW public communications call these actions “heat sweeps during harvest,” meaning they may continue throughout the summer and fall. Key to this activity is taking access to California farms. How, you may wonder, can UFW gain access to farms? It can do so under a regulation adopted by the state Agricultural Labor Relations Board promptly after its creation in 1975. The California Supreme Court upheld the access regulation in 1976. Under the regulation, UFW is allowed worksite access to farm employees by providing their employer with a copy of a Notice of Intent to Take Access, or an NA form, and then filing with the ALRB two copies of the NA, along with proof that the copy was provided to the employer. The access regulation was created on the premise that it would protect the organizational rights of employees and labor unions, but the regulation does not limit its application to situations where a union’s purpose is to try to organize employees or otherwise seek their support. Its operative language merely says, in effect, that a union may take access to “meet and talk with employees.” Indeed, the ALRB NA form does not require a union to declare any purpose for seeking access. (read article)

Bills would hike school-construction tab
By Steven Greenhut, July 20, 2015, San Diego Union-Tribune
Many far-reaching bills proposed in the state Capitol grab headline coverage, such as ones involving global-warming, physician-assisted suicide and immigration. It’s hard for Californians to miss those high-profile debates. But many significant legislative changes take place under the radar, with little public discussion or debate. One of those issues involves the construction of school facilities and other public-works projects. Through a variety of bills — most of which are still alive, and one which has made its way to the governor — the state’s construction unions are trying to prod local agencies to use what are known as project labor agreements, or PLAs. These are union-only agreements. If, say, a school district enters into one of them for the construction of a new high school, the bid-winning contractor must hire most of his or her labor in the union hiring hall, pay into the union health and retirement system (even if he already pays benefits for his workers), pay union dues and train workers in apprenticeship programs. Most studies suggest these agreements hike constructions costs by as much as 25 percent because they reduce the number of contractors — and especially lower-cost nonunion contractors — who bid for these projects. (read article)

Ironworkers union leader, 73, gets 19 years in prison
By Jeremy Roebuck, July 20, 2015, Philadelphia Inquirer
Joseph Dougherty, the one-time head of Philadelphia’s largest ironworkers union, was sentenced to 19 years and 2 months in federal prison Monday for overseeing a years-long campaign of sabotage and intimidation of nonunion contractors. U.S. District Judge Michael Baylson said he had considered the 73-year-old Dougherty’s advanced age but insisted he had to impose a sentence that matched the seriousness of the crimes committed by members of Dougherty’s union, Ironworker’s Local 401. “His leadership led to a lot of damage. It led to a lot of crimes and it continued the bad reputation Philadelphia has for tolerating union violence,” Baylson said. Dougherty declined to address the judge during his hearing. A number of supporters rallied outside the courthouse before Dougherty learned his fate. The sentence imposed, which also included an order that he pay more than a half-million dollars in restitution, was just more than four years over the 15-year mandatory minimum sentence the union leader aced in the case. Prosecutors had pushed for a sentence of just under 23 years. In all, 12 members of Ironworkers Local 401 were convicted of using sabotage, arson, threats and intimidation – including the 2012 torching of a Quaker Meetinghouse in Chesnut Hill – to coerce contractors into hiring union labor. (read article)

Cynical labor bill seeks to keep public in dark about negotiations
By Dan Borenstein, July 17, 2015, Contra Costa Times
Organized labor has lined up behind legislation purporting to promote government contract transparency. It’s a sham. The bill actually aims to keep the public in the dark about public-employee negotiations, ensuring taxpayers never learn the costs of collective bargaining agreements until they’re done deals. Deceptively labeled the “Civic Reporting Openness in Negotiations Efficiency Act,” SB 331, by state Sen. Tony Mendoza, D-Artesia, would also penalize cities, counties and special districts that require responsible analysis of their salary and benefit expenses. “To punish local government for disclosing labor costs is an amazingly cynical statement on the role of the people in democracy,” said attorney Jon Holtzman, an employment law and labor relations expert who represents cities. “Does labor really believe the only way to address the dramatic increase in the cost of benefits is to hide them?” (read article)

Union fight shifts from campaign trail to high court
By Dan Morain, July 19, 2015, Bayou Buzz
For decades, organized labor, particularly the union that represents public school teachers, has been checking off boxes in California. Pass an initiative guaranteeing school funding? Yes. Kill an initiative to allow tax-funded vouchers for private schools? Easy. Crush ballot measures to bar public employee unions from using dues for political campaigns? Check, check and recheck. The union and its allies eviscerated that notion on three different ballots. Labor dominates politics in California, helping to elect this governor and other Democratic statewide officeholders and a majority of the legislators. But 2016 could be very different. (read article)

How workers are winning in Scott Walker’s Wisconsin
By Deroy Murdock, July 17, 2015, New York Post
Hillary Rodham Clinton shed her usual sunny demeanor on Monday and snarled at Republicans in general and one presidential candidate in particular. “Republican governors like Scott Walker have made their names stomping on workers’ rights, and practically all Republican candidates would do the same as president,” Clinton growled at Manhattan’s New School. “I will fight back against these mean-spirited, misguided attacks. Evidence shows that the decline of unions may be responsible for a third of the increase of inequality among men. So, if we want to get serious about raising income, we have to get serious about supporting union workers.” Later that day, AFL-CIO president Richard Trumka snapped, “Scott Walker is a national disgrace.” Liberals like Clinton and Trumka have it all wrong. Workers have been waxing, not waning, under Walker. And they can thank his free-market reforms for improving their lives. If there’s one thing workers value, it’s work. And on this score, Wisconsin’s Republican governor has delivered. The Badger State’s seasonally adjusted unemployment rate fell from 7.4 percent in January 2011 (the month of Walker’s inauguration) to 4.6 percent in May 2015 (the latest available figure). US joblessness dropped from 9.0 percent to 5.5 percent over that period. Wisconsin’s unemployment, thus, stands well below America’s. (read article)

Oakland’s largest city union asking members for strike authorization
By Mike Blasky, July 16, 2015, Contra Costa Times
The city’s largest municipal employees union is asking members to authorize a strike as contract negotiations drag on, but that doesn’t mean a work stoppage is imminent or even likely. Powerful union SEIU Local 1021, which represents about 2,500 full-time and part-time city workers, asked members to vote to authorize a strike on Tuesday and Wednesday. “We are calling for this vote now because the City has failed to bargain meaningfully over many issues,” a handout distributed to workers said. “We must be prepared to take action if the City refuses to bargain in good faith.” But that hasn’t happened — yet. City Hall sources said the package being offered to workers is generous, and doubts the unions would actually strike after members analyze the city’s offer. And even union sources downplayed the likelihood of a strike. The two sides continued to bargain — on Wednesday negotiators were holed up at the Oakland Marriott after working until midnight on Tuesday — and were set to continue talks next week. A strike authorization is a useful bargaining chip to put pressure on the city’s administration, and it allows the union the flexibility to act quickly if talks stall. (read article)

Labor Department Joins War Against The Sharing Economy
By Connor D. Wolf, June 16, 2015, Daily Caller
The U.S. Department of Labor joined opponents of the “sharing economy” Wednesday in condemning the new use of contracting as a way to avoid paying employee benefits. “Misclassification of employees as independent contractors is found in an increasing number of workplaces,” the agency claimed in a report. “When employers improperly classify employees as independent contractors, the employees may not receive important workplace protections.” Advances in digital technologies have allowed companies like Lyft, Uber, FedEx and Airbnb to use contracting in unique ways. Known as the sharing economy, companies make digital platforms in which individuals can create their own business ventures. Opponents, however, argue these individuals should be classified as employees of the company instead of contractors. (read article)

Unions seethe over early Clinton endorsement
By Annie Karni, July 16, 2015, Politico
There was never any question that the powerful American Federation of Teachers — a union representing 1.6 million educators across the country — would endorse Hillary Clinton for president. But on Saturday, when the AFT became the first international labor union to make an endorsement in the contest by announcing its support of Clinton, it drew sharp criticism from teachers as well as other labor leaders, who questioned the timing amid Vermont Sen. Bernie Sanders’ surge in popularity. Labor leaders said there was a clear understanding that before July 30 — when all of the Democratic candidates have an hourlong interview at AFL-CIO headquarters and could be grilled on their positions on controversial issues like trade — no national unions (the AFT is one of the 56 national and international unions that make up the AFL-CIO) would make an endorsement. In 2007, the AFT didn’t endorse Clinton until October. “A request was made, and there was an expectation that people were going to at least allow the AFL-CIO process to proceed,” said one labor operative. “When the AFL-CIO was asking people not to make endorsements, why did they feel the need to do it in such a hurried fashion?” Other labor leaders described the move as “an insult” to endorse now, when so many labor leaders harbor lingering concerns over trade and plan to press their issues in two weeks. (read article)

Hillary Clinton Faces Unrest Among Organized Labor
By Sam Frizell, July 16, 2015, Time
Hillary Clinton had good reason to celebrate Saturday. The American Federation of Teachers, a 1.6-million strong union of teachers, nurses and higher education faculty endorsed her, adding a key working-class voice to a campaign that has so far lacked much overt support from organized labor. “I’m honored to have the support of AFT’s members and leaders, and proud to stand with them to unleash the potential of every American,” Clinton said in response. “Their voices and the voices of all workers are essential to this country.” But almost immediately, there was a backlash among teachers in far-flung locals across the states. The AFT’s Facebook page lit up with angry comments from those who favored Vermont Sen. Bernie Sanders instead. Teachers took to Twitter to condemn the endorsement and at least two petitions were circulated online in opposition. Widely read teachers’ blogs published screeds against the decision, calling it rigged in favor of Clinton, a longtime friend of AFT president Randi Weingarten. (read article)

Labor unions employing politics of envy
By Scott Reeder, July 16, 2015, Journal-Standard
Occasionally, when I was growing up, my brother and I were allowed to split a bottle of pop. I’d pour the soda into identical glasses while peering intently at each glass to make sure that they were exactly at the same level. I couldn’t bear the thought that my brother, Danny, might get an ounce more than me. It was silly, childish behavior.
Unfortunately, I see a lot of adults behaving that way too. At age, 24, I took a job at another newspaper. No sooner had I sat down at my desk on my first day on the job when another reporter sidled up to me and wanted to know how much an hour I was earning. It wasn’t much, so I told him. He huffed and puffed and stormed into the editor’s office. It turns out I was making $60 more per week than he was. Later, I was chewed out by the city editor for stirring up trouble. It wasn’t exactly an auspicious way to start a new job. In the workplace, the only paycheck I’ve ever concerned myself with is the one with my name on it. If you are happy with what you’re paid, why worry whether someone else is earning more? And if you are unhappy with your pay, ask your boss what you can do to better your situation. If satisfaction isn’t reached, it’s time for you to look elsewhere. (read article)

Table A-3 Details of Bond Indebtedness Waiver Requests from California School Districts to State Board of Education 2002 through March 2015

See the complete California Policy Center report For the Kids: California Voters Must Become Wary of Borrowing Billions More from Wealthy Investors for Educational Construction (complete, printable PDF Version, 4 MB, 361 pages)

Links to all sections of this study readable online:
Executive Summary: “For the Kids” – Comprehensive Review of California School Bonds (1 of 9)
More Borrowing for California Educational Construction in 2016 (2 of 9)
Quantifying and Explaining California’s Educational Construction Debt (3 of 9)
How California School and College Districts Acquire and Manage Debt (4 of 9)
Capital Appreciation Bonds: Disturbing Repayment Terms (5 of 9)
Tricks of the Trade: Questionable Behavior with Bonds (6 of 9)
The System Is Skewed to Pass Bond Measures (7 of 9)
More Trouble with Bond Finance for Educational Construction (8 of 9)
Improving Oversight, Accountability, and Fiscal Responsibility (9 of 9)
You are in this section: Guide to all Tables and Appendices – Comprehensive Reference for Researchers


 School DistrictLegal LimitRequestRate Recommended by Department of EducationConditions Recommended by Department of EducationFinal ActionDate ApprovedAgenda Item with Links to Staff ReportsWaiver ID
-Stockton Unified School District2.50%Board approved unanimously March 24, 2015 for General Obligation Bonds. Submitted March 2015.PendingN/A
-Stockton Unified School District2.50%Board approved unanimously March 24, 2015 for E-Tech Bonds. Submitted March 2015.PendingN/A
-Robla School District1.25%Board hearing February 26, 2015.Not yet submittedN/A
-Oak Grove School District1.25%Discussion item on February 12, 2015 board agenda: “State of California Bonding Capacity Waiver - Debt Waiver Process.”No action yet taken by boardN/A
-Greenfield Union School District1.25%Submitted February 2015.PendingN/A
-El Monte City School District1.25%Submitted January 2015.PendingN/A
-Wiseburn Unified School District2.50%Submitted January 2015.WithdrawnN/A
1Planada Elementary School District1.25%2.25%1.96% then 2.01%That the bonded indebtedness limits be waived with the following conditions: (1) the period of request does not exceed the recommended period on Attachment 1, (2) the total bonded indebtedness limit does not exceed the recommended new maximum shown on Attachment 1, (3) the district does not exceed the statutory tax rate, (4) the waiver is limited to the sale of bonds approved by the voters on the measure, (5) the citizens’ oversight committee is established and supports the waiver and intended expenditures prior to the sale of the bonds, and (6) the district complies with the statutory requirements of Assembly Bill 182 related to school bonds which became effective January 1, 2014.Approved by Consent2014-11-13Item W-14
and
Item W-14 Addendum
5-9-2014
2Larkspur-Corte Madera School District1.25%1.50%1.50%That the bonded indebtedness limits be waived with the following conditions: (1) the period of request does not exceed the recommended period on Attachment 1, (2) the total bonded indebtedness limit does not exceed the recommended new maximum shown on Attachment 1, (3) the district does not exceed the statutory tax rate, (4) the waiver is limited to the sale of bonds approved by the voters on the measure, and (5) the district complies with the statutory requirements of Assembly Bill 182 related to school bonds which became effective January 1, 2014.Approved by Consent2014-09-03Item W-0925-6-2014
3Dehesa School District1.25%1.58%1.58%That the bonded indebtedness limits be waived with the following conditions: (1) the period of request does not exceed the recommended period on Attachment 1, (2) the total bonded indebtedness limit does not exceed the recommended new maximum shown on Attachment 1, (3) the district does not exceed the statutory tax rate, (4) the waiver is limited to the sale of bonds approved by the voters on the measure, and (5) the district complies with the statutory requirements of Assembly Bill 182 related to school bonds which became effective January 1, 2014.Approved by Consent2014-05-07Item W-0984-2-2014
4Alvord Unified School District2.50%3.67%3.67%That the bonded indebtedness limits be waived with the following conditions: (1) the period of request does not exceed the recommended period on Attachment 1, (2) the total bonded indebtedness limit does not exceed the recommended new maximum shown on Attachment 1, (3) the district does not exceed the statutory tax rate, and (4) the waiver is limited to the sale of bonds approved by the voters on the measure noted on Attachment 1.Approved by Consent2013-11-06Item W-082-8-2013
5Weaver Union School District1.25%2.26%2.26%That the bonded indebtedness limits be waived with the following conditions: (1) the period of request does not exceed the recommended period on Attachment 1, (2) the total bonded indebtedness limit does not exceed the recommended new maximum shown on Attachment 1, (3) the district does not exceed the statutory tax rate, (4) the waiver is limited to the sale of bonds approved by the voters on the measure noted on Attachment 1, (5) the district obtain approval from the Citizens’ Oversight Committee before issuing any bonds, and (6) Capital Appreciation Bonds (CABs) are not issued subsequent to approval of the waiver if the debt ratio goes above the statutory tax rate limit.Approved by 9-0 vote2013-09-04Item W-0923-5-2013
6Centinela Valley Union High School District1.25%1.65%1.55%That the total bonded indebtedness limits be waived for each district with the following conditions: (1) the period of request does not exceed the recommended period shown on Attachment 1, (2) the total bonded indebtedness limit does not exceed the recommended new maximum shown on Attachment 1, (3) the district does not exceed the statutory tax rate limits, (4) the waiver is limited to the sale of bonds approved by the voters on the measure shown on Attachment 1, and (5) Capital Appreciation Bonds (CABs) are not issued subsequent to approval of these waivers if the debt ratio goes above the statutory tax rate limit.Approved by 9-0 vote after amendment to strike condition (5) of staff recommendation2013-05-08Item W-2927-1-2013
7Jefferson Elementary School District1.25%2.25%1.92%That the bonded indebtedness limits be waived with the following conditions: (1) the period of request does not exceed the recommended period on Attachment 1, (2) the total bonded indebtedness limit does not exceed the recommended new maximum shown on Attachment 1, (3) the district does not exceed the statutory tax rate, (4) the waiver is limited to the sale of bonds approved by the voters on the measure noted on Attachment 1, and (5) Capital Appreciation Bonds (CABs) are not issued subsequent to approval of this waiver if the debt ratio goes above 1.25 percent.Approved by 9-0 vote after amendment to strike condition (5) of staff recommendation2013-05-08 (Held over from 2013-03-13)Item W-3056-10-2012
8Lindsay Unified School District2.50%3.50%3.50%That the total bonded indebtedness limits be waived for each district with the following conditions: (1) the period of request does not exceed the recommended period shown on Attachment 1, (2) the total bonded indebtedness limit does not exceed the recommended new maximum shown on Attachment 1, (3) the district does not exceed the statutory tax rate limits, (4) the waiver is limited to the sale of bonds approved by the voters on the measure shown on Attachment 1, and (5) Capital Appreciation Bonds (CABs) are not issued subsequent to approval of these waivers if the debt ratio goes above the statutory tax rate limit.Approved by 9-0 vote after amendment to strike condition (5) of staff recommendation2013-05-08Item W-2938-2-2013
9Oxnard School District1.25%1.50%1.50%That the total bonded indebtedness limits be waived for each district with the following conditions: (1) the period of request does not exceed the recommended period shown on Attachment 1, (2) the total bonded indebtedness limit does not exceed the recommended new maximum shown on Attachment 1, (3) the district does not exceed the statutory tax rate limits, (4) the waiver is limited to the sale of bonds approved by the voters on the measure shown on Attachment 1, and (5) Capital Appreciation Bonds (CABs) are not issued subsequent to approval of these waivers if the debt ratio goes above the statutory tax rate limit.Approved by 9-0 vote after amendment to strike condition (5) of staff recommendation2013-05-08Item W-2951-1-2013
10Stockton Unified School District2.50%4.23%4.23%That the total bonded indebtedness limits be waived for each district with the following conditions: (1) the period of request does not exceed the recommended period shown on Attachment 1, (2) the total bonded indebtedness limit does not exceed the recommended new maximum shown on Attachment 1, (3) the district does not exceed the statutory tax rate limits, (4) the waiver is limited to the sale of bonds approved by the voters on the measure shown on Attachment 1, and (5) Capital Appreciation Bonds (CABs) are not issued subsequent to approval of these waivers if the debt ratio goes above the statutory tax rate limit.Approved by 9-0 vote after amendment to strike condition (5) of staff recommendation2013-05-08Item W-292-3-13
11West Contra Costa Unified School District2.50%5.00%5.00%That the total bonded indebtedness limits be waived for each district with the following conditions: (1) the period of request does not exceed the recommended period shown on Attachment 1, (2) the total bonded indebtedness limit does not exceed the recommended new maximum shown on Attachment 1, (3) the district does not exceed the statutory tax rate limits, (4) the waiver is limited to the sale of bonds approved by the voters on the measure shown on Attachment 1, and (5) Capital Appreciation Bonds (CABs) are not issued subsequent to approval of these waivers if the debt ratio goes above the statutory tax rate limit.Approved by 9-0 vote after amendment to strike condition (5) of staff recommendation2013-05-08Item W-2957-1-2013
12Westside Union School District1.25%1.33%1.33%The California Department of Education (CDE) recommends that the total bonded indebtedness limits be waived for each district with the following conditions: (1) the period of request does not exceed the recommended period shown on Attachment 1, (2) the total bonded indebtedness limit does not exceed the recommended new maximum shown on Attachment 1, (3) the district does not exceed the statutory tax rate limits, (4) the waiver is limited to the sale of bonds approved by the voters on the measure shown on Attachment 1, and (5) Capital Appreciation Bonds (CABs) are not issued subsequent to approval of these waivers if the debt ratio goes above the statutory tax rate limit.Approved by 9-0 vote after amendment to strike condition (5) of staff recommendation2013-05-08Item W-2935-2-2013
13Alum Rock Union Elementary School District1.25%1.95%1.75%That the bonded indebtedness limits be waived with the following conditions:1) the district’s total bonded indebtedness, as a percent of assessed valuation, does not exceed 1.75 percent, 2) the waiver is limited to the sale of bonds approved by the voters in the November 2012 election, 3) the tax rate levied at the time of bond issuance does not exceed the amount authorized by the voters to secure the bonds, 4) the waiver is limited to two years less one day, and 5) Capital Appreciation Bonds (CABs) are not issued subsequent to approval of this waiver if the debt ratio goes above 1.25 percent. Approved by 9-0 vote after amendment to strike condition (5) of staff recommendation2013-03-13Item W-0763-10-2012
14Pittsburg Unified School District3.58% (based on previous waiver)5.00%5.00%The bonded indebtedness limits be waived with the condition that each district’s total bonded indebtedness as a percent of assessed valuation, does not exceed the percent shown on Attachment 1 and that the tax rate levied at the time of bond issuance does not exceed the amount shown on Attachment 1. Approved by Consent2012-07-18Item W-14168-2-2012
15Savanna Elementary School District1.25%2.50%2.50%That the bonded indebtedness limits be waived with the condition that each district’s total bonded indebtedness as a percent of assessed valuation, does not exceed the percent shown on Attachment 1 and that the tax rate levied at the time of bond issuance does not exceed the amount shown on Attachment 1. Approved by Consent2012-07-18Item W-14132-2-2012
-Folsom-Cordova Unified School District (Measure M)2.50%10.20%10.20%That the bonded indebtedness limits be waived with the condition that each district’s total bonded indebtedness as a percent of assessed valuation, does not exceed the percent shown on Attachment 1 and that the tax rate levied at the time of bond issuance does not exceed the amount shown on Attachment 1.Withdrawn2012-03-07Item W-14 and
Item W-14 Attachment 1 and
Item W-14 Attachment 3
79-12-2011
16Folsom-Cordova Unified School District (Measure N)2.50%3.40%3.40%That the bonded indebtedness limits be waived with the condition that each district’s total bonded indebtedness as a percent of assessed valuation, does not exceed the percent shown on Attachment 1 and that the tax rate levied at the time of bond issuance does not exceed the amount shown on Attachment 1. Approved by Consent2012-03-07Item W-14 and
Item W-14 Attachment 1 and Item W-14 Attachment 4
80-12-2011
17Hawthorne Elementary School District1.25%1.55%1.55%The California Department of Education recommends that the bonded indebtedness limits be waived with the condition that each district’s total bonded indebtedness as a percent of assessed valuation, does not exceed the percent shown on Attachment 1 and that the tax rate levied at the time of bond issuance does not exceed the amount shown on Attachment 1. Approved by Consent2012-03-07Item W-14 and
Item W-14 Attachment 1
and Item W-14 Attachment 2
29-10-2011
18San Ysidro School District1.25%3.00%3.00%That the bonded indebtedness limits be waived with the condition that each district’s total bonded indebtedness as a percent of assessed valuation, does not exceed the percent shown on Attachment 1 and that the tax rate levied at the time of bond issuance does not exceed the amount shown on Attachment 1. Approved by Consent2012-03-07Item W-14 and
Item W-14 Attachment 1 and Item W-14 Attachment 5
62-12-2012
19Twin Rivers Unified School District1.25%2.50%2.50%That the board approve the district’s request with the following conditions: The waiver is limited to the sale of bonds approved by the voters in the June 2006 election and the bonded indebtedness will not exceed 2.5 percent of assessed valuation. In addition, at no time before issuance of any additional authorized bonds will the tax levy exceed $30 per $100,000 of taxable property. Approved by Consent2011-11-09Item W-11 and
Item W-11 Attachment 1
14-5-2011
20Moreland School District1.25%1.57%1.57%That the board approve the district’s request with the following conditions: The waiver is limited to the sale of bonds approved by the voters in the November 2010 election and the bonded indebtedness will not exceed 1.57 percent of assessed valuation. In addition, at no time before issuance of any additional authorized bonds will the tax levy exceed the $30 per $100,000 of taxable property authorized by the voters to secure the bonds.Approved by Consent2011-07-13Item WC-8 General and
Item WC-8 Attachment 1
5-4-2011
21El Monte Union High School District1.25%2.00%2.00%That the bonded indebtedness limit of El Monte Union High School District (UHSD) be waived provided it does not exceed 2.0 percent of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of bonds approved by the voters in the November 2008 election. In addition, at no time is the tax levy to exceed the $30 per $100,000 of taxable property estimated by the voters to secure the bonds.Approved by Consent2011-03-09Item W-5 General and
Item W-5 Attachment 1
174-12-2012
22West Contra Costa Unified School District2.50%5.00%5.00%That the bonded indebtedness limit of West Contra Costa Unified School District be waived provided it does not exceed 5.0 percent of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of bonds approved by the voters in the June 2010 election. In addition, at no time is the tax levy to exceed the $60 per $100,000 of taxable property authorized by the voters to secure the bonds. Approved by Consent2011-03-09Item W-6 General and
Item W-6 Attachment 1
200-12-2010
23Wiseburn Unified School District1.25%2.20%2.20%That the bonded indebtedness limit of Wiseburn Elementary School District be waived provided it does not exceed 2.20 percent of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of bonds approved by the voters in the November 2010 election. In addition, at no time is the tax levy to exceed the amount authorized by the voters to secure the bonds.Approved by Consent2011-03-09Item WC-4 General and
Item WC-4 Attachment 1
46-12-2010
24Alvord Unified School District2.50%2.60%2.60%That the bonded indebtedness limit of Alvord Unified School District be waived provided it does not exceed 2.6 percent of the assessed valuation of taxable property of the district, and that the waiver is limited to the sale of bonds approved by the voters in the November 2007 election. In addition, at no time is the tax levy to exceed the amount authorized by the voters to secure the bonds.Approved by Consent2011-01-12Item W-12 General and
Item W-12 Attachment 1
67-10-2010
25Pittsburg Unified School District2.50%3.58%3.58%That the bonded indebtedness limit of Pittsburg Unified School District be waived provided it does not exceed 3.58 percent of the assessed valuation of taxable property of the district, and that the waiver is limited to the sale of bonds approved by the voters in the November 2006 and November 2010 elections. In addition, at no time is the tax levy to exceed the amount authorized by the voters to secure the bonds.Approved by Consent2011-01-12Item W-13 General and
Item W-13 Attachment 1
48-10-2010
26Stockton Unified School District2.50%3.28%3.28%That the bonded indebtedness limit of Stockton Unified School District be waived provided it does not exceed 3.28 percent of the assessed valuation of taxable property of the district, and that the waiver is limited to the sale of bonds approved by the voters in the February 2008 election. In addition, at no time is the tax levy to exceed the amount authorized by the voters to secure the bonds.Approved by Consent2011-01-12Item W-14 General and
Item W-14 Attachment 1
69-10-2010
27Piedmont Unified School District2.50%2.80%2.79%That the bonded indebtedness limit of Piedmont Unified School District be waived provided it does not exceed 2.79 percent of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of bonds approved by the voters in the March 2006 election. In addition, at no time is the tax levy to exceed the amount authorized by the voters to secure the bonds.Approved by Consent2010-05-05Item WC-17 and
Item WC-17 Attachment 1
21-3-2010
28Delano Joint Union High School District1.25%2.91%2.25%That the bonded indebtedness of Delano Joint Union High School District not exceed 2.25 percent of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of bonds approved by the voters in the November 2005 election. In addition, at no time is the tax levy to exceed the amount authorized by the voters to secure the bonds.Approved by Consent2009-09-16Item W-6 and
W-6 Attachment 1
1-9-2009
29Richland School District1.25%1.90%1.90%That the bonded indebtedness of Richland Union Elementary School District (UESD) not exceed 1.90 percent of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of bonds approved by the voters in the November 2008 election. In addition, at no time is the tax levy to exceed the amount authorized by the voters to secure the bonds.Approved by Consent2009-07-08Item W-9
and Item W-9 Attachment 1
39-5-2009
30El Monte City School District1.25%1.72%1.73%That the bonded indebtedness of El Monte City Elementary School District not exceed 1.73 percent of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of bonds approved by the voters in the November 2008 election. In addition, at no time is the tax levy to exceed the amount authorized by the voters to secure the bonds. Approved by Consent2009-05-06Item W-38 and
Item W-38 Attachment 1
9-5-2009
31Ross School District1.25%1.43%1.43%That the district’s bonded indebtedness does not exceed 1.43 percent of the assessed value of the district’s taxable property, the waiver is limited to the sale of bonds approved by the voters in the June 2008 election, and the tax levy does not exceed the amount authorized by the voters.Approved by Consent2009-05-06Item WC-78-3-2009
32West Contra Costa Unified School District2.50%3.50%3.13%That the district’s bonded indebtedness does not exceed 3.13 percent of the assessed valuation of taxable property of the district, the waiver is limited to the sale of bonds approved by the voters in the November 2005 election, and the tax levy does not exceed the amount authorized by the voters. Approved by 8-0 vote2009-03-11Item W-1577-2-2009
33Planada Elementary School District1.25%1.55%2.55%That the bonded indebtedness of Planada Elementary School District not exceed 2.55 percent of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of bonds approved by the voters in the November 2008 election.Approved by Consent2008-11-05Item W-1441-12-2008
34Alisal Union School District1.25%1.68%1.68%That the bonded indebtedness of Alisal Union Elementary School District not exceed 1.68 percent of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of bonds approved by the voters in the November 2006 election. In addition, at no time is the tax levy to exceed the amount authorized by the voters to secure the bonds.Approved by 8-0 vote.2008-11-05Item W-128-8-2008
35Lindsay Unified School District2.50%2.81%2.81%That the bonded indebtedness of Lindsay Unified School District not exceed 2.81 percent of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of bonds approved by the voters in the February 2008 election. In addition, at no time is the tax levy to exceed the amount authorized by the voters to secure the bonds. Approved by 8-0 vote.2008-09-10Item W-139-8-2008
36El Monte City School District1.25%1.43%1.43%That the bonded indebtedness of El Monte City Elementary School District not exceed 1.43 percent of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of bonds approved by the voters in the November 2004 election. In addition, at no time is the tax levy to exceed the amount authorized by the voters to secure the bonds.Approved by Consent2008-07-09Item W-1817-6-2008
37Edison School District1.25%1.50%1.50%That the bonded indebtedness of Edison Elementary School District not exceed 1.50 percent of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of bonds approved by the voters in the May 2004 election.Approved by Consent2008-01-09Item W-235-4-2008
38Garvey Elementary School District1.25%1.46%1.46%That the bonded indebtedness of Garvey Elementary School District not exceed 1.46 percent of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of bonds approved by the voters in the November 2004 election.Approved by Consent2007-07-11Item W-313-10-2007
39Bassett Unified School District2.50%2.84%2.84%That the bonded indebtedness of Bassett Unified School District not exceed 2.84 percent of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of the bonds approved by the voters in the November 2006 election, the waiver is effective until July 2012.Approved by Consent2007-03-07Item W-448-4-2007
40Los Gatos Union School District1.25%1.26%1.26%Approve with the condition that the bonded indebtedness of Los Gatos School District not exceed 1.26 percent of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of the bonds approved by the voters in the June 2001 election.Approved by Consent2007-01-10Item W-217-1-2007
41Golden Valley Unified School District2.50%4.71%4.71%Approve with the conditions that the: (1) bonded indebtedness of Golden Valley Unified School District not exceed 4.71 percent of the assessed valuation of taxable property of the district; (2) waiver is limited to the sale of the bonds approved by the voters in the June 1999 and 2006 elections; (3) bond repayment from property taxes not exceed the tax rate promised to the voters for the June 1999 and 2006 elections ($100 per $100,000 of assessed value and $60 per $100,000 of assessed value, respectively); and (4) waiver is effective until August 1, 2014.Approved by Consent2006-01-12Item W-24-9-2006
42Alisal Union School District1.25%1.40%1.40%That the condition that the bonded indebtedness of Alisal Union School District not exceed 1.40 percent of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of the bonds approved by the voters in the November 1999 election.Approved by Consent2005-01-13Item W-11-11-2005
43Greenfield Union School District1.25%1.31%1.31%On the condition that the bonded indebtedness of Greenfield Union School District not exceed 1.31 percent of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of the bonds approved by the voters in the March 1999 election.Approved by 10-0 vote2004-09-09Item W-32-11-2004
44Moreland School District1.25%1.76%1.76%On the condition that the bonded indebtedness of Moreland Elementary School District not exceed 1.76% of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of the bonds approved by the voters in the March 2002 election.Approved by 9-0 vote2004-09-09Item W-212-7-2004
45San Ysidro School District1.25%2.15%2.15%On the condition that the bonded indebtedness of San Ysidro School District not exceed 2.15% of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of the bonds approved by the voters in the March 1997 election.Approved by 10-0 vote2002-11-13Item W-319-7-2004
46West Contra Costa Unified School District2.50%3.00%3.00%On the condition that the bonded indebtedness of West Contra Costa Unified School District not exceed 3.0% of the assessed valuation of taxable property of the district and that the waiver is limited to the sale of the bonds approved by the voters in the June 1998, November 2000, and March 2002 elections.Approved unanimously.2009-09-16Item W-37-0-2002
47Union Elementary School District1.25%1.69%1.69%For sale of the bonds approved by the voters in the June 1999 election.Approved2001-11-07Item W-19-9-2001
48San Ysidro School District1.25%1.56%1.56%For sale of the bonds approved by the voters in the March 1997 election.Approved2001-03-07Item W-1019-1-2001
-Oxnard School District1.25%1.59%N/AN/AWithdrawnN/A
-Reef-Sunset Unified School District2.50%2.75%N/AN/AWithdrawnN/A

Table A-4 California School Construction & Finance History

See the complete California Policy Center report For the Kids: California Voters Must Become Wary of Borrowing Billions More from Wealthy Investors for Educational Construction (complete, printable PDF Version, 4 MB, 361 pages)

Links to all sections of this study readable online:
Executive Summary: “For the Kids” – Comprehensive Review of California School Bonds (1 of 9)
More Borrowing for California Educational Construction in 2016 (2 of 9)
Quantifying and Explaining California’s Educational Construction Debt (3 of 9)
How California School and College Districts Acquire and Manage Debt (4 of 9)
Capital Appreciation Bonds: Disturbing Repayment Terms (5 of 9)
Tricks of the Trade: Questionable Behavior with Bonds (6 of 9)
The System Is Skewed to Pass Bond Measures (7 of 9)
More Trouble with Bond Finance for Educational Construction (8 of 9)
Improving Oversight, Accountability, and Fiscal Responsibility (9 of 9)
You are in this section: Guide to all Tables and Appendices – Comprehensive Reference for Researchers


YearEvent
1879The California Constitution allows school districts to issue general obligation bonds subject to the approval of two–thirds of local voters.
1947The State Allocation Board (SAB) is created to provide loans for school facilities paid for by proceeds from state bond measures.
1978Proposition 13 embeds tax limitation language and a two-thirds voter threshold for tax increases in Article XIII of the California Constitution. It states that “the maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of such property” unless approved “by a two-thirds vote of the qualified electors of such district.” (Ad valorem means “according to value” in Latin and indicates a tax is imposed on the value of property - in other words, a property tax.) It also prohibits local governments from issuing General Obligation bonds. The state helps to fund school construction through grants.
1980California voters reject Proposition 4, which would have restored the authority of local governments to issue bonds if two-thirds of voters authorize it.
1982E.F. Hutton begins underwriting municipal Capital Appreciation Bonds, a year after the first corporate Capital Appreciation Bonds were issued.
1986In the first of two statewide ballot measures to whittle away at Proposition 13, Proposition 46 amends Proposition 13 and allows school and college districts (and other local governments) to issue general obligation bonds if approved by a two-thirds vote. Community colleges and K-12 school districts have to consider the challenging but not impossible hurdle of winning two-thirds voter approval to obtain authorization to borrow money for construction.
1993Senate Bill 872 gives K-12 school and community college districts authority to sell bonds at a public sale at face value, above face value (at a premium), or below face value (at a discount). It authorizes local governments to adopt "modern" additional and alternative methods to issue (sell) and refund (refinance) general obligation bonds secured by a general levy of ad valorem taxes, in particular zero-coupon bonds (Capital Appreciation Bonds). Supporters of the bill contend it would “let cities and counties stabilize their debt and get the best interest rates” and “likely result in improved debt structuring with correspondingly reduced costs to property taxpayers.” It would also allow local agencies to “access a wider pool of investors who are interested in a broader array of financing instruments, terms of maturity, and tender options.” No individual or organization opposes SB 872 or expresses formal concerns about it. It passes the State Senate 38-0 and passed the State Assembly 76-0, with the Senate then agreeing to minor amendments on a 37-0 vote. In 1994, school districts begin selling Capital Appreciation Bonds.
1996The California legislature and Governor Pete Wilson establish a “Class Size Reduction Program” to reduce the number of students per certificated teacher in various grades. School districts claim they lacked sufficient facilities to implement the requirement, and they blame Proposition 13 for the deficiency. In addition, some school districts “perceived sort of ad-hoc discretionary nature of decisions by the Board” in which certain school districts used connections and relationships with board members to gain an advantage in the disbursement process. Various interest groups began exploring ways to get more money for school construction.
1998The California legislature passed and Governor Pete Wilson signs Senate Bill 50, the Leroy F. Greene School Facilities Act of 1998. It establishes the current funding structure for school construction in California by incorporating both state and local funding sources for school construction. The state pays 50 percent of the cost of new school construction and 60 percent of the cost for school modernization, generally on the condition that local school districts provide matching funds. The State Allocation Board oversees and directs the Office of Public School Construction - a successor agency to the Office of Local Assistance - in the California Department of General Services to manage the grant program. The post-1998 State Allocation Board has been described as a “quasi-legislative, sometimes quasi-judicial body” with state legislators comprising a majority of the board but acting as an agency of the executive branch, as permitted in a special provision in the California Constitution.
1998Voters approve Proposition 1A, which authorizes the state to borrow $9.2 billion to support matching grants for school and college construction projects.
1999Senate Bill 1118, sponsored by the Office of the California State Treasurer, is enacted to “streamline the complex procedures governing school bond elections and issuance.” It establishes the current system for how bond measures are brought before voters and how bond proceeds are managed after approval. It outlines the purposes for which a school or college district can use bond proceeds. It authorizes the creation of various accounts to hold money for various purposes related to bond finance and construction. The legislative record does not indicate that any individual or organization opposed SB 1118 or expressed concerns about it. It passes the State Senate 40-0 but was opposed by some Republicans in the State Assembly, where it passed 50-20 with 10 members of the Assembly (including some Democrats) not voting. Bill analyses for committees about SB 1118 provided almost no context and incompletely listed the many new provisions that the bill would add to state law.
2000In March, 51% of California voters reject Proposition 26, which would have reduced the voter threshold for approval of General Obligation bond measures from two-thirds to a simple majority.
2000In November, 53% of California voters approve Proposition 39, which creates an exception to Proposition 13 by allowing school and college districts an option of proposing General Obligation bond measures that win approval with a 55% voter threshold instead of two-thirds.

In addition, the passage of Proposition 39 triggers enactment of Assembly Bill 1908, which imposes requirements on school and college districts that win approval to issue bonds under the criteria of Proposition 39:

Debt obligations resulting from the bond measure cannot exceed 2.5% of assessed value for unified districts and 1.25% for elementary and high school districts.
Tax levies resulting from the bond measure cannot exceed $60 per $100,000 of assessed value for unified districts and $30 per $100,000 of assessed value for elementary and high school districts.
An independent citizens bond oversight committee with appointed representatives from specific constituencies must be established to ensure proceeds of bond sales authorized by the bond measure are only spent on projects identified in the ballot statement provided to voters.
2002Voters approve Proposition 47, which authorizes the state to borrow $13.05 billion to support matching grants for school and college construction projects.
2004Voters approve Proposition 55, which authorizes the state to borrow $12.3 billion to support matching grants for school and college construction projects.
2006Voters approve Proposition 1D, which authorizes the state to borrow $10.4 billion to support matching grants for school and college construction projects.
2006Assembly Bill 1482 brings a bit more transparency to the process of bond sales by requiring public notice of the method of sale and other pertinent information when a district intends to issue bonds. It was introduced by Assemblyman Joe Canciamilla, and signed into law by Governor Arnold Schwarzenegger in 2006. It passed the State Senate 28-4 with eight members not voting and passed the State Assembly 68-5 with six members not voting. The revised version of the bill was supported by the California Association of County Treasurers and Tax Collectors.

As introduced, this bill required that all sales of bonds by school districts occur through a competitive bid process, with specific exceptions granted in limited circumstances that would allow for a negotiated sale, if approved by the county treasurer or the State Treasurer. Opposition was strong from groups heavily involved in promoting bond measures for school construction, including California’s Coalition for Adequate School Housing (C.A.S.H.), the California Public Securities Association, the Association of California School Administrators, the California Association of School Business Officials, and the Small School Districts' Association. The two largest school districts in the state - Los Angeles Unified School District and San Diego Unified School District - also opposed it.

The Assembly Education Committee heard the bill but did not take action. Assemblyman Canciamilla then submitted a request to the Joint Legislative Audit Committee asking for an audit to determine to what extent true cost of issuance differed between comparable school district general obligation bond issues sold through a competitive bid process versus negotiated sale. The Audit Committee did not approve the request.Ultimately, the bill directed the state to collect additional information to get better insight on whether competitive bidding (as opposed to negotiated sales) provides lower costs to the bond issuer.
2007Housing prices in some areas of the state begin a dramatic four-year drop, in some regions declining 50% from their zenith, thus reducing assessed property valuation and the tax and debt limits based on it.
2009Assembly Bill 1388 gives local governments such as counties and cities the same authority as school districts and college districts to sell bonds at a negotiated sale for a price at, above, or below par value, under criteria already in place for educational districts. It was amended in the Senate to repeal a provision from SB 872 (1993) that prohibited a bond issue from being structured so that the maximum annual debt service payment of principal and interest to amortize the bonds never exceeds the minimum annual debt service payment by more than 10 percent.

No elaboration or explanation was provided in bill analyses regarding the amendment to AB 1388. The bill text itself simply said "Section 53508.5 of the Government Code is repealed." Obviously someone knew that this restriction was hindering bond sales – especially those involving Capital Appreciation Bonds.

School and college districts were selling Capital Appreciation Bonds shortly after the passage of SB 872 in 1993, but AB 1388 apparently encouraged their use at a time when educational districts found themselves unable to sell bonds for construction projects. The bill was sponsored by the California Public Securities Association and supported by the California State Association of Counties and League of California Cities. The legislative record does not indicate that any individual or organization opposed the bill or expressed concerns about it. It passed the State Senate 39-0 and passed the State Assembly 77-0.
2010The California Association of County Treasurers and Tax Collectors supports Senate Bill 623, which would have prohibited a local agency from using a bond underwriter that also provides campaign services to pass a bond measure, and Senate Bill 1461, which would have prohibited a local agency from using a bond underwriter or a financial advisor or a legal advisor that also provides campaign services to pass a bond measure or conducts feasibility studies and polling for a potential campaign. Both of these bills failed to pass the California legislature after resistance from school and college districts and parties involved in bond finance and in campaigns to pass bond measures.
2010Momentum starts in the California legislature and grows in the next six years to place another statewide bond measure on the ballot to fund school and community college construction.
2012California political leaders find out that the Poway Unified School District sold about $100 million in non-redeemable Capital Appreciation Bonds in 2011 that will impose almost $1 billion in debt service over 40 years. Other educational districts that sold Capital Appreciation Bonds with unusually high ratios of debt service to principal are subsequently exposed.
2013Assembly Bill 182 attempts to reign in the worst excesses of Capital Appreciation Bonds while still allowing school and college districts to use them as a debt finance tool. Assemblywoman Joan Buchanan - chairwoman of the Assembly Education Committee - introduces the bill, and it was signed into law in whittled-down form by Governor Jerry Brown in 2013.

Table A-5 Arguments for Capital Appreciation Bonds

See the complete California Policy Center report For the Kids: California Voters Must Become Wary of Borrowing Billions More from Wealthy Investors for Educational Construction (complete, printable PDF Version, 4 MB, 361 pages)

See the complete California Policy Center report For the Kids: California Voters Must Become Wary of Borrowing Billions More from Wealthy Investors for Educational Construction (complete, printable PDF Version, 4 MB, 361 pages)

Links to all sections of this study readable online:
Executive Summary: “For the Kids” – Comprehensive Review of California School Bonds (1 of 9)
More Borrowing for California Educational Construction in 2016 (2 of 9)
Quantifying and Explaining California’s Educational Construction Debt (3 of 9)
How California School and College Districts Acquire and Manage Debt (4 of 9)
Capital Appreciation Bonds: Disturbing Repayment Terms (5 of 9)
Tricks of the Trade: Questionable Behavior with Bonds (6 of 9)
The System Is Skewed to Pass Bond Measures (7 of 9)
More Trouble with Bond Finance for Educational Construction (8 of 9)
Improving Oversight, Accountability, and Fiscal Responsibility (9 of 9)
You are in this section: Guide to all Tables and Appendices – Comprehensive Reference for Researchers


Table A-5 is meant to provide a resource for policymakers and the public to organize arguments about Capital Appreciation Bonds for issue briefs, letters, speeches, public comments, etc

Table A-5
Arguments for Capital Appreciation Bonds
ArgumentRebuttal
URGENCY
School facilities are desperately needed now: schools are overcrowded, deteriorating, outdated, and unsafe. These claims are rarely quantified. There needs to be an objective way to determine that need overwhelms the risk of massive tax and debt burdens for future generations.
Despite 14 years of Proposition 39, educational districts continue to increase the number of bond measures on the ballot and the total amount authorized to borrow. It seems that spending between $100-$200 billion on construction since 2000 has only increased the need for more.
It’s possible that educational districts are preparing for a population boom that may never occur. Average Daily Attendance for California K-12 school districts has dropped from 5,927,951 in 2003-04 to 5,631,709 in 2008-09 to 5,501,603 in 2013-14. Actual California population growth is lagging behind projections made in the 1990s.
When the bond measure was before voters for consideration, the educational district made promises to residents about what was going to be built and what the tax rate would be. Those promises must be fulfilled. Voters want the projects now.Anecdotally, it appears that voters aren’t necessarily keen on immediately proceeding with construction projects listed in bond measure ballot statements if it requires borrowing money under outlandish terms via sales of Capital Appreciation Bonds or other unconventional methods of debt finance. Taxpayers would rather give their money to their local educational district than to bond investors.
Who actually applies the most pressure on the educational district to proceed with borrowing money? Are educational districts selling Capital Appreciation Bonds or other unconventional methods of debt finance because parents and teachers are demanding it? Or is the political pressure coming from the various interests that contributed to the bond measure campaign and now want to reap the rewards of contracts for this construction program?
Interest rates are low. This is a good time to borrow money, perhaps with a mix of Current Interest Bonds and Capital Appreciation Bonds. Rates may not be so favorable when assessed valuation of property in the district goes up.Interest rates are low and provide an advantage for educational districts issuing Current Interest Bonds, but the outrageous nature of Capital Appreciation Bond negates the benefit of lower rates. The ratio of debt service to principal should not exceed 3 or 4 (at the most) for an individual bond issue.
Educational districts will jeopardize the quality of education for students if they don’t get funding for construction now.Is it true that new and modernized facilities significantly improve academic performance and life preparation for students? Is the impact of bond measures on test scores proportionate to the amount of tax revenue spent on debt service for those bond measures? Or are bond measures simply an easy method to get more money flowing into the district?
Ongoing construction programs would have to stop if funding isn’t obtained now, causing inconvenience, stopping momentum, and risking a higher cost of construction in the future.A realistic projection for assessed valuation of property would allow for better planning of construction-related contracts. Future generations should not have to pay for the risky borrowing practices of this generation’s leaders.
STINGY STATE LAWS COMPEL USE
Educational districts have to sell Capital Appreciation Bonds or other unconventional methods of debt finance because of unreasonably low tax and debt limits established in state law.The California legislature established these limits in state law in 2000 as part of a strategy to boost voter support for Proposition 39, a statewide measure on the November 2000 ballot to modify Proposition 46 enacted in 1986 - an initiative that modified the high-profile Proposition 13 enacted in 1978. Without limits and other additional taxpayer protections, Proposition 39 might have failed, as Proposition 26 failed in March 2000.
Educational districts have to sell Capital Appreciation Bonds or other unconventional methods of debt finance because assessed valuation of property in the districts unexpectedly declined, thus forcing districts to confront tax and debt limits.It’s important to obtain an independent projection of assessed property valuation that does not extend a current exceptional rate of growth for 40 years.
THESE BOND FINANCE DEALS ARE MISUNDERSTOOD
It’s wrong to consider Capital Appreciation Bonds in isolation. They are usually just a piece of a package of bond issues. When considered in conjunction with other bond issues, the debt to principal ratio is usually reasonable.This doesn’t eliminate the reality that bonds are issued that will need to be paid back decades later with compounded interest. Why include them at all?
Focusing on long-term debt service is misleading. Just because there is a high number for aggregate accreted interest in 40 years doesn’t necessary mean that amount will ever be paid. Many Capital Appreciation Bonds are “callable” and can be redeemed (and are being redeemed) with a new issue of refunding bonds that have lower rates and can be issued as traditional Current Interest Bonds. Because of the consistent increasing value of property in California over several generations, an amount that seems high to taxpayers now will not be so daunting decades from now. Routine inflation will reduce the “real” cost of paying back Capital Appreciation Bonds decades from now. This is public money. The decision to borrow money via Capital Appreciation Bonds assumes that assessed valuation of property and the rate of inflation will increase substantially over decades. And some districts (such as Poway Unified School District) have sold Capital Appreciation Bonds that are not callable.
Contrary to claims made after the fact, plenty of information is provided to educational district administrators and elected board members about bond sales. There isn’t an excuse for not understanding the proposal.Information is not presented in a standardized way that is easy to understand. Most school board members do not have a background in accounting, finance, or bonds. In addition, school board members may be hesitant to publicly acknowledge their lack of understanding, especially if everyone else in the room is nodding heads during the bond consultant presentation.
Critics have self-interested motivations to criticize. Traditional and consistent ideological detractors of government schools want to take advantage of yet another opportunity to undermine the system. Cynical politicians want to exploit bad news in order to build a reputation. News media wants to improve reader and viewer ratings through sensational and misleading coverage.Most people would acknowledge that criticism of at least a few bond issues by California educational districts has merit. In addition, there are self-interested motivations for people denying that Capital Appreciation Bonds and other unconventional bond financing are unusual or unwise. Community college and K-12 school district elected officials wanted to stay in office. District administrators wanted to keep their jobs. And of course professionals in the financial industry wanted to continue making a living from the transaction fees generated by bond sales.
Assembly Bill 182 (2013) wasn’t really needed, but it is now law and there are no valid arguments to impose more restrictions on this valuable tool for educational districts.Educational districts are still selling Capital Appreciation Bonds (and also Bond Anticipation Notes) under the assumption that assessed valuation will continue to rise for decades. The bond financing industry will continue to use these schemes to bloat borrowing and collect more transaction fees.
Table A-5
Arguments for Capital Appreciation Bonds
ArgumentRebuttal
URGENCY
School facilities are desperately needed now: schools are overcrowded, deteriorating, outdated, and unsafe. These claims are rarely quantified. There needs to be an objective way to determine that need overwhelms the risk of massive tax and debt burdens for future generations.
Despite 14 years of Proposition 39, educational districts continue to increase the number of bond measures on the ballot and the total amount authorized to borrow. It seems that spending between $100-$200 billion on construction since 2000 has only increased the need for more.
It’s possible that educational districts are preparing for a population boom that may never occur. Average Daily Attendance for California K-12 school districts has dropped from 5,927,951 in 2003-04 to 5,631,709 in 2008-09 to 5,501,603 in 2013-14. Actual California population growth is lagging behind projections made in the 1990s.
When the bond measure was before voters for consideration, the educational district made promises to residents about what was going to be built and what the tax rate would be. Those promises must be fulfilled. Voters want the projects now.Anecdotally, it appears that voters aren’t necessarily keen on immediately proceeding with construction projects listed in bond measure ballot statements if it requires borrowing money under outlandish terms via sales of Capital Appreciation Bonds or other unconventional methods of debt finance. Taxpayers would rather give their money to their local educational district than to bond investors.
Who actually applies the most pressure on the educational district to proceed with borrowing money? Are educational districts selling Capital Appreciation Bonds or other unconventional methods of debt finance because parents and teachers are demanding it? Or is the political pressure coming from the various interests that contributed to the bond measure campaign and now want to reap the rewards of contracts for this construction program?
Interest rates are low. This is a good time to borrow money, perhaps with a mix of Current Interest Bonds and Capital Appreciation Bonds. Rates may not be so favorable when assessed valuation of property in the district goes up.Interest rates are low and provide an advantage for educational districts issuing Current Interest Bonds, but the outrageous nature of Capital Appreciation Bond negates the benefit of lower rates. The ratio of debt service to principal should not exceed 3 or 4 (at the most) for an individual bond issue.
Educational districts will jeopardize the quality of education for students if they don’t get funding for construction now.Is it true that new and modernized facilities significantly improve academic performance and life preparation for students? Is the impact of bond measures on test scores proportionate to the amount of tax revenue spent on debt service for those bond measures? Or are bond measures simply an easy method to get more money flowing into the district?
Ongoing construction programs would have to stop if funding isn’t obtained now, causing inconvenience, stopping momentum, and risking a higher cost of construction in the future.A realistic projection for assessed valuation of property would allow for better planning of construction-related contracts. Future generations should not have to pay for the risky borrowing practices of this generation’s leaders.
STINGY STATE LAWS COMPEL USE
Educational districts have to sell Capital Appreciation Bonds or other unconventional methods of debt finance because of unreasonably low tax and debt limits established in state law.The California legislature established these limits in state law in 2000 as part of a strategy to boost voter support for Proposition 39, a statewide measure on the November 2000 ballot to modify Proposition 46 enacted in 1986 - an initiative that modified the high-profile Proposition 13 enacted in 1978. Without limits and other additional taxpayer protections, Proposition 39 might have failed, as Proposition 26 failed in March 2000.
Educational districts have to sell Capital Appreciation Bonds or other unconventional methods of debt finance because assessed valuation of property in the districts unexpectedly declined, thus forcing districts to confront tax and debt limits.It’s important to obtain an independent projection of assessed property valuation that does not extend a current exceptional rate of growth for 40 years.
THESE BOND FINANCE DEALS ARE MISUNDERSTOOD
It’s wrong to consider Capital Appreciation Bonds in isolation. They are usually just a piece of a package of bond issues. When considered in conjunction with other bond issues, the debt to principal ratio is usually reasonable.This doesn’t eliminate the reality that bonds are issued that will need to be paid back decades later with compounded interest. Why include them at all?
Focusing on long-term debt service is misleading. Just because there is a high number for aggregate accreted interest in 40 years doesn’t necessary mean that amount will ever be paid. Many Capital Appreciation Bonds are “callable” and can be redeemed (and are being redeemed) with a new issue of refunding bonds that have lower rates and can be issued as traditional Current Interest Bonds. Because of the consistent increasing value of property in California over several generations, an amount that seems high to taxpayers now will not be so daunting decades from now. Routine inflation will reduce the “real” cost of paying back Capital Appreciation Bonds decades from now. This is public money. The decision to borrow money via Capital Appreciation Bonds assumes that assessed valuation of property and the rate of inflation will increase substantially over decades. And some districts (such as Poway Unified School District) have sold Capital Appreciation Bonds that are not callable.
Contrary to claims made after the fact, plenty of information is provided to educational district administrators and elected board members about bond sales. There isn’t an excuse for not understanding the proposal.Information is not presented in a standardized way that is easy to understand. Most school board members do not have a background in accounting, finance, or bonds. In addition, school board members may be hesitant to publicly acknowledge their lack of understanding, especially if everyone else in the room is nodding heads during the bond consultant presentation.
Critics have self-interested motivations to criticize. Traditional and consistent ideological detractors of government schools want to take advantage of yet another opportunity to undermine the system. Cynical politicians want to exploit bad news in order to build a reputation. News media wants to improve reader and viewer ratings through sensational and misleading coverage.Most people would acknowledge that criticism of at least a few bond issues by California educational districts has merit. In addition, there are self-interested motivations for people denying that Capital Appreciation Bonds and other unconventional bond financing are unusual or unwise. Community college and K-12 school district elected officials wanted to stay in office. District administrators wanted to keep their jobs. And of course professionals in the financial industry wanted to continue making a living from the transaction fees generated by bond sales.
Assembly Bill 182 (2013) wasn’t really needed, but it is now law and there are no valid arguments to impose more restrictions on this valuable tool for educational districts.Educational districts are still selling Capital Appreciation Bonds (and also Bond Anticipation Notes) under the assumption that assessed valuation will continue to rise for decades. The bond financing industry will continue to use these schemes to bloat borrowing and collect more transaction fees.

Table A-6 Arguments Against Capital Appreciation Bonds

See the complete California Policy Center report For the Kids: California Voters Must Become Wary of Borrowing Billions More from Wealthy Investors for Educational Construction (complete, printable PDF Version, 4 MB, 361 pages)

Links to all sections of this study readable online:
Executive Summary: “For the Kids” – Comprehensive Review of California School Bonds (1 of 9)
More Borrowing for California Educational Construction in 2016 (2 of 9)
Quantifying and Explaining California’s Educational Construction Debt (3 of 9)
How California School and College Districts Acquire and Manage Debt (4 of 9)
Capital Appreciation Bonds: Disturbing Repayment Terms (5 of 9)
Tricks of the Trade: Questionable Behavior with Bonds (6 of 9)
The System Is Skewed to Pass Bond Measures (7 of 9)
More Trouble with Bond Finance for Educational Construction (8 of 9)
Improving Oversight, Accountability, and Fiscal Responsibility (9 of 9)
You are in this section: Guide to all Tables and Appendices – Comprehensive Reference for Researchers


Table A-6 is meant to provide a resource for policymakers and the public to organize arguments about Capital Appreciation Bonds for issue briefs, letters, speeches, public comments, etc.

Table A-6
Arguments Against Capital Appreciation Bonds
ArgumentRebuttal
THE BOND FINANCE INDUSTRY IS NOT TRUSTWORTHY
Promoters of bond deals are motivated by transaction fees and tend to advance funding proposals in their own interest but harmful to the public interest.Borrowing money for long-term investment is a well-accepted practice in the United States and a fundamental part of our economic system.
Most people involved with bond finance are ethical and enjoy being in a professional financial vocation that helps students and society.
The few bond finance professionals who are alleged to advise decisions not in the interest of their clients earn a bad reputation and can’t stay in the business.
Companies and individuals who work in the business of assisting with capital transfer and earn fees on those transactions are an easy target to malign, but they are essential to a prosperous economy.
Proving their lack of responsibility to the public, the California Public Securities Association in 2009 sponsored Assembly Bill 1388, a self-interested bill that repealed a law requiring that the maximum annual payment of principal and interest on a bond issue cannot exceed the minimum annual payment of principal and interest by more than 10 percent.Actually, this bill helped educational districts by allowing them greater opportunity to borrow money despite reaching state tax and debt limits or despite reaching tax and debt limits indicated in the bond measure.
Excessive competition in the market to win contracts from educational districts for bond finance services has compelled some companies to overstate benefits and understate risks of unconventional bond finance.Increased competition in municipal bond finance gives educational districts the opportunity to compare numerous potential contractors and chose the one that best suits its needs. Districts concerned about debt accumulated through Capital Appreciation Bonds can award contracts to professional service firms that adopt a conservative approach to bond finance.
Increased competition in municipal bond finance has encouraged the development and promotion of more creative and effective options to help educational districts in bond finance, such as Reauthorization Bonds and Ed-Tech Bonds.
Corruption is rampant in the municipal bond finance business, as proven by apparent “pay to play” practices between educational districts and bond underwriters.Many parties in the bond financial industry resent how their reputation is tainted by a few companies that make substantial contributions to bond measure campaigns and/or consult for those campaigns and then obtain no-bid contracts and/or higher transaction fees. They have asked the Municipal Securities Rulemaking Board (MSRB) to restrict parties in the financial services industry from contributing to bond campaigns. They have also collectively adopted a voluntary internal moratorium on the practice.
Some county treasurers, for example in Los Angeles County, have ended business with securities brokers that contribute to campaigns for bond measures. The problem is being addressed.
The Municipal Securities Rulemaking Board already has a regulation requiring brokers, dealers, and municipal securities deals to disclose their campaign contributions to allow public scrutiny of such political activity.
Political campaigns are expensive. Parents and students are unlikely to be major sources of contributions to a campaign to pass a bond measure. There is nothing wrong with companies contributing to a campaign and expressing their First Amendment constitutional right to free speech.
No one has ever proven this practice actually happens.
Claims about this practice come from firms that want to stifle competition from other firms that work harder for educational districts.
Educational districts are no different than victims of loan sharks, payday lenders, mortgage scammers, and other unsavory usurers.Comparisons of professional, certified financial service providers to criminals is unjust. Boards elected by the people consider and vote on proposals for bond issues at public meetings regulated by open meetings laws. The process is highly regulated by the US Securities and Exchange Commission and the Municipal Securities Rulemaking Board. The news media has the opportunity to follow and report on the issue to the public.
LACK OF PUBLIC KNOWLEDGE COMPROMISES ACCOUNTABILITY AND ALLOWS TAXPAYERS TO BE EXPLOITED
Few Californians have ever heard of Capital Appreciation Bonds. An even tinier percentage of Californians could adequately explain them. As a result, the public is currently incapable of evaluating this method of bond finance and petitioning their school or college board members about it.Government does many things that the general public does not know about or understand. Accountability is inherent in the regular elections for governing boards. Candidates run for and get elected to public office based on their individual expertise and experience. Voters can subsequently choose to end the public service of those individuals based on their performance.
Educational districts have professional in-house superintendents and often have other administrators overseeing bond deals, including business officers assigned to work on bond finance.
Educational districts hire outside experts to maximize the effectiveness of their bond measures and best serve the public. Contracts for these experts include terms and conditions that provide protection for the district and accountability to the consultant.
State and county elected and appointed officials and their agencies serve as checks and balances for educational district decisions. In particular, county treasurers can and do play a role in evaluating questionable bond financing.
In the few cases in which excessive or inappropriate bond deals may have occurred, (for example, the 2011 bond issue at the Poway USD), elected county treasurers and the news media did identify the failure and publicized it. Assembly Bill 182 (now in law) is the product of research and reporting by elected government officials and the news media. The system of checks and balances worked.
Voters are not informed in election ballot material that some of the money they authorize to borrow via “general obligation bonds” ends up borrowed via Capital Appreciation Bonds and other unconventional borrowing practices.Actually, some ballot statements are now indicating that “no capital appreciation bonds shall be issued.” Inclusion of language specifying the type of General Obligation bonds to be sold should be a decision of the district board and not mandated by the state.
It’s unfair for educational districts to be forced to speculate to voters on how it might borrow money. Financing decisions are made by elected board members based on economic conditions that cannot be known at the time the bond measure is considered.
State law already imposes numerous burdensome and costly requirements on educational districts to ensure voters have a reasonable degree of information for consideration of a bond measure.
Ballot statements already are so long that few people would see any authorizations for the district to Capital Appreciation Bonds and other unconventional borrowing practices if they were included.
COST, TAXES, AND DEBT ARE FOOLHARDY
It’s foolish to borrow money and then wait for decades to start paying off the principal and accreted interest.What’s foolish are the tax and debt limitations established by state voters as Proposition 13 in 1978 and state laws (Assembly Bill 1908) enacted in conjunction with putting Proposition 39 on the statewide ballot in 2000. If those limits were set at a higher threshold or eliminated altogether, Capital Appreciation Bonds and other unconventional financing schemes would become rare.
Property taxes may increase substantially many years in the future when the district begins paying off the debt.It’s unlikely the taxes will end up being particularly noteworthy or burdensome after decades of increased property value and inflation.
The amount to be paid back under Capital Appreciation Bonds is too high.Just because there is a high number for aggregate accreted interest in 40 years doesn’t necessary mean that amount will ever be paid. Many Capital Appreciation Bonds are “callable” and can be redeemed (and are being redeemed) with a new issue of refunding bonds that have lower rates and can be issued as traditional Current Interest Bonds.
Because of the consistent increasing value of property in California over several generations, an amount that seems high to taxpayers now will not be so daunting decades from now.
Routine inflation will reduce the “real” cost of paying back Capital Appreciation Bonds decades from now.
Focusing on the amount of debt service generated by Capital Appreciation Bonds ignores the intangible benefits of high-quality schools with environments conducive to teaching and learning
Capital Appreciation Bonds are used too often.For most educational districts, Capital Appreciation Bonds comprise a small percentage of the total amount of bonds issued. Capital Appreciation Bonds are a legitimate and beneficial option for educational districts that want to obtain a bit more of the money that voters authorized to borrow for needed school construction.
Capital Appreciation Bonds allow educational districts to fund contracts with local contractors and vendors, thus encouraging economic growth and job creation in the community. Capital Appreciation Bonds pay for themselves by generating increased economic activity.
There are no legal or commonly accepted definitions of “too often.” The authority to issue Capital Appreciation Bonds is granted to the educational district’s board of trustees, who are elected by the people. Each educational district has its own comfort for Capital Appreciation Bonds, and this comfort usually reflected in the decision of the board. Trust our representative democracy.
Capital Appreciation Bonds assume an ability to pay based on projections of increased value of taxable property that may extend as many as 40 years into the future.Granted, no one can perfectly predict the future. But California remains a desirable place to live because of its climate, natural beauty, economic prosperity, and culture. It’s reasonable to assume that people with ability and ambition will always come to California, a beacon for the world, and thus increase demand for housing.
The best way to ensure increased property values in the future is to build a foundation of high-quality schools with environments conducive to teaching and learning. Funding for new construction - sometimes obtained through Capital Appreciation Bonds - allow these schools to be provided and fulfills the expectation for increased property values.
Without any sort of representation, future generations of taxpayers (children and grandchildren) are bound to repaying debts accumulated by unconventional borrowing practices of current generations.Schools built using Capital Appreciation Bonds are for the benefit of our children and grandchildren. Shouldn’t they contribute to paying for the system that helped to make them successful?
This is an unfortunate distortion of the concept of “taxation without representation” that applies to people who are deprived of their right for full participation in their current governance. Many of the important and transformational social programs in the United States and in California were adopted before the people now benefiting and paying for them were even born. Generations work together cooperatively to advance progress.

Tables and Appendices of "For the Kids: California Voters Must Become Wary…"

See the complete California Policy Center report For the Kids: California Voters Must Become Wary of Borrowing Billions More from Wealthy Investors for Educational Construction (complete, printable PDF Version, 4 MB, 361 pages)

Links to all sections of this study readable online:
Executive Summary: “For the Kids” – Comprehensive Review of California School Bonds (1 of 9)
More Borrowing for California Educational Construction in 2016 (2 of 9)
Quantifying and Explaining California’s Educational Construction Debt (3 of 9)
How California School and College Districts Acquire and Manage Debt (4 of 9)
Capital Appreciation Bonds: Disturbing Repayment Terms (5 of 9)
Tricks of the Trade: Questionable Behavior with Bonds (6 of 9)
The System Is Skewed to Pass Bond Measures (7 of 9)
More Trouble with Bond Finance for Educational Construction (8 of 9)
Improving Oversight, Accountability, and Fiscal Responsibility (9 of 9)
You are in this section: Guide to all Tables and Appendices – Comprehensive Reference for Researchers


Tables A1 to A6

Links to Tables A-1 to A-6

Appendices A to L

Background

The Public Policy Institute of California report Fiscal Effects of Voter Approval Requirements on Local Governments pointed out in 2003 that “Although ballot measures are playing a growing role in the functioning of local governments in California, there is no single, comprehensive source of information on them.” Researchers for that report obtained their data from the California Association of Realtors, the California Debt and Investment Advisory Commission, California’s Coalition for Adequate School Housing (C.A.S.H.), local newspaper stories and websites, and county elections offices.

The availability of data has improved somewhat, but it still remains a time-consuming challenge to collect and synthesize it, identify and correct inconsistencies in the data, and present it in a useful format. There doesn’t seem to be any evidence that compilation of debt service data for California local school and college districts had ever been done, so that information had to be collected and compiled from Official Statements for bond issues posted on EMMA.

Sources for Data in the Appendices: Name of School District, Election Date, Amount Authorized, Letter Designation on Ballot, Percentage Threshold for Approval, Number of Yes Votes, Number of Total Votes

To ascertain data in these seven categories, the following sources were converted into spreadsheets, data was cross-referenced, and discrepancies were reconciled. Close results were cross-referenced with Election Results pages of county election office websites.

California Secretary of State – County, City, School District & Ballot Measure Election Results at http://www.sos.ca.gov/elections/county-city-school-district-ballot-measure-election-results/

California Debt and Investment Advisory Commission (CDIAC), affiliated with the California State Treasurer – State and Local Bond and Tax Ballot Measures at http://www.treasurer.ca.gov/cdiac/publications/alphabetical.asp#s

California’s Coalition for Adequate School Housing (C.A.S.H) – School District Bond Elections – Local GO Bond Election Summary (1986-2014) at http://www.cashnet.org/resource-material/bondelec.html

California Local Government Finance Almanac, produced by Michael Coleman – Summary Reports and Analyses of Elections – California Local Ballot Measures at http://www.californiacityfinance.com

Ballotpedia, an Interactive Almanac of American Politics – School Bond Elections in California at http://ballotpedia.org/School_bond_elections_in_California

Sources for Data in the Appendices: Amount of Debt Service

Official Statements posted on the Electronic Municipal Market Access (EMMA)® database of the Municipal Securities Rulemaking Board (MSRB), a self-regulatory organization overseen by the U.S. Securities and Exchange Commission, at http://emma.msrb.org

Links to Appendices A Through L

Appendix A – All California Educational Bond Measures Pass and Fail – 2001-2014 Ranked by Percentage of Voter Approval

Appendix B – All California Educational Bond Measures Approved by Voters – 2001-2014 Ranked by Amount Authorized to Borrow

Appendix C – All California Educational Bond Measures Rejected 2001-2014 – Ranked by Amount NOT Authorized to Borrow

Appendix D – All California Educational Bond Measures Approved With a Two-Thirds Threshold Since November 2000 Enactment of Proposition 39 – Listed By Election Year

Appendix E – All California Educational Bond Measures 55 Percent – 2001-2014

Appendix F – All California Educational Bond Measures Repurposed or Reauthorized Since November 2000 Enactment of Proposition 39 – Listed by Election Year

Appendix G – All California Educational Bond Measures Approved by Voters with 55 Percent Threshold Since November 2000 – Results if Prop 39 Had Not Been Law

Appendix H – All California Educational Bond Measures Approved by Voters Under 55 Percent Threshold Since November 2000 Enactment of Proposition 39 – Failures Under 2:3 Threshold

Appendix I – All California Educational Bond Measures Approved by Voters – 2001-2014 Ranked by Amount of Debt Service

Appendix J – All Educational Districts in Which Voters Authorized Borrowing Via Bond Sales Since Proposition 39 – Ratio of Current Debt Service to Amount Authorized

Appendix K – All Educational Districts in Which Voters Authorized Borrowing Via Bond Sales Since November 2000 Enactment of Prop 39 – Ratio of Current Debt Service to Total Yes Votes

Appendix L – All Educational Districts in Which Voters Authorized Borrowing Via Bond Sales Since November 2000 Enactment of Prop 39 – Ranked by Amount Authorized Per Yes Vote

###

California's Government Union Quandary – Support More Taxes Yet Claim Budget "Surpluses"

Californians know them well. They are the Proposition 13 “blamers.” They blame Proposition 13 for everything they see or even imagine as negative in the state of California.

Some years ago, a newspaper editorial asked if Proposition 13 was responsible for a measles epidemic saying it may have limited the availability of vaccine. A national publication suggested that O.J. Simpson’s acquittal of murder charges was due to the tax limiting measure because prosecuting attorneys may not have been paid enough.

Most recently, a column by a West Coast writer published in the New York Times claimed that one of the reasons that Los Angeles is becoming a “third world” city is reduced funding for education caused by the tax revolt that passed Proposition 13. As is typical, the writer ignores the fact that California now spends 30 percent more per pupil, in inflation adjusted dollars, than the amount spent just prior to the passage of Proposition 13 — a time when both liberals and conservatives agree that California schools were among the best in the nation.

Most Californians know they are overtaxed and that’s bad news for the blamers. And the latest news about California tax revenue is even worse for 13’s detractors. According to a review by the California Taxpayers Association of counties that have so far released their assessment rolls — showing the value of property as of January 1, 2015 — there is dramatic increase in values and that’s driving property tax revenue up rapidly. For example, Santa Clara County has seen an increase of 8.67 percent over the previous year.

Rapidly rising property tax revenue is not only making the Prop 13 blamers look foolish, it is adding compelling evidence to the argument that California should be considering tax reductions, not increases. News reports abound in the Golden State about the California economic recovery and a $6 billion dollar budget surplus. The two big sources for state revenue — sales taxes and income taxes — have preceded property taxes in seeing big increases. The latest news from county assessors simply completes the tax revenue trifecta.

Here’s the rub. Interests groups that want tax hikes — mostly public sector labor organizations — are running out of time to make a decision on which tax hikes to pursue for the November 2016 ballot. (To qualify an initiative takes about a year of lead time). We at HJTA hear that there are disagreements within those interests as to which tax hikes to pursue. Californians will almost certainly see a tobacco tax increase on the ballot as well as a possible tax on oil production. But what about extending the Proposition 30 tax hikes on sales and income? The flush status of the state budget renders those proposals questionable.

More importantly, the significant increase in property tax revenues raises serious questions about the viability of a so-called “split roll” proposal which would deprive business property of Prop 13 protections. Split roll proposals have been defeated before in California and, of all the tax hikes being considered by the tax-and-spend lobby, hitting commercial property with a $9 billion tax hike is going to be next to impossible to justify to California voters.

The next few months will be very revealing as to the tax raisers strategies. But whatever tax or taxes they decide to target, those paying the bill should be prepared to push back with the argument that California does not need any more tax hikes at all. And we should push back very hard.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Successful Charter School Denied Renewal Petition

Albert Einstein Academy for Letters, Arts and Science, Huntington Beach (AEALAS) opened its doors In August, 2014 to 164 K-5 students. [1] The current enrollment is 264. For reasons of expediency, its founding charter was authorized by the Agua Dulce Unified School District, where several other schools are located.

Since its first days, the small elementary school has proven its mettle. The young scholars have already demonstrated impressive academic excellence. The projected enrollment for the 2015/2016 academic year is 375 students with more than 214 students on the wait list. An Honors Program, already in place, will be expanded to include 3rd-6th grade students in the fall.

The original charter was granted for one year. When the school submitted a new petition with local authorization to the Huntington Beach School District, it was denied. The Board felt the petitioners presented an “unsound educational program” and were “demonstrably unlikely to successfully implement the program”.

The AEALAS network operates 4 elementary and secondary schools and 2 learning centers. A seventh campus in Beverly Hills is scheduled to open in August. Each institution has implemented substantively the same program. Each school has a proven track record of success.

The founding campus, AEALAS Santa Clarita is in its fifth year of operation. The school was recently ranked Number 2 by Newsweek among the top high schools in the nation. [2] The school also garnered a Bronze rating from US News and World Report. It has a 908 API and 665 names on its 2015-2016 waiting list.

The AEALAS elementary school in Santa Clarita reported 2013-2014 CST science test scores for the 5th grade that were the highest in the Santa Clarita Valley, among the top scoring school districts in the state. The school’s math team was awarded a Bronze Medal in statewide math competition in its first year of participation.

95% of the students in the Westlake (Ohio) school passed on statewide testing in social studies, math and reading and 90% in science. The school was the first in Ohio to offer Portuguese as a world language course. [3] Apparently, however, reality never matters in politics, and certainly not to unions. Power and control do.

Union influence was undoubtedly a factor in the denial of the petition by the HBCSD. Four of the five Board members are teachers, professors or school administrators. Such a group would be expected to share a certain bias, one that is unfavorable of a petition to operate a charter school in its bailiwick.

The school attempted to address the concerns that the Board raised. This was dismissed without explanation. A revised petition has been prepared and submitted to the Orange County Board of Education, to be considered at their June meeting. We can only hope this more objective Board will give the petition a vote of approval. Stay tuned for the next installment.

*   *   *

About the Author: R. Claire Friend, MD, is the Assistant Professor, Department of Psychiatry and Human Behavior, UC Irvine Medical Center, and the editor of the UC Irvine Quarterly Journal of Psychiatry. She is a retired psychiatrist and frequent commentator on the psychological dimensions of education and social welfare policies.

 

FOOTNOTES

1.  http://ealas.org/ehb/

2.  https://charterschoolcapital.org/albert-einstein-academy-makes-top-10-high-schools-list/

3.  Other languages offered by AEALAS include Spanish, Hebrew, Arabic, Mandarin, American Sign Language and Latin.

A Challenge to Moorlach and Glazer – Build A Radical Center

On March 22, 2015, John Moorlach was officially sworn in as state senator for California’s 37th District. On May 28, 2015, Steve Glazer took the oath of office as state senator for the 7th District. Moorlach is a Republican serving mostly conservative constituents in Orange County. Steve Glazer is a Democrat serving mostly liberal constituents in Contra Costa County.

Different parties. Different constituents. You wouldn’t think these two men had much in common. But you’d be wrong.

John Moorlach and Steve Glazer have both distinguished themselves as politicians and candidates by doing something that transcends their political party identity or conventional ideologies. They challenged the agenda of government unions. As a consequence, both of them faced opponents who were members of their own party who accepted money and endorsements from government unions.

It wasn’t easy to challenge government unions. Using taxpayers money that is automatically deducted from government employee paychecks, government unions in California collect and spend over $1.0 billion per year. These unions spent heavily to attack Moorlach and Glazer, accusing – among other things – Moorlach of being soft on child molesters, and accusing – among other things – Glazer of being a puppet of “big tobacco.”

This time, however, the lavishly funded torrent of union slime didn’t stick. Voters are waking up to the fact that the agenda of government unions is inherently in conflict with the public interest. Can Moorlach and Glazer transform this rising awareness into momentum for reform in California’s state legislature?

Despite sharing in common the courage to confront California’s most powerful and most unchecked special interest, Moorlach and Glazer belong to opposing parties whose mutual enmity is only matched by their fear of these unions. With rare exceptions, California’s Democratic politicians are owned by government unions. Fewer of California’s Republican politicians are under their absolute control, but fewer still wish to stick their necks out and be especially targeted by them.

The good news is that bipartisan, centrist reform is something whose time has come. Democrats and Republicans alike have realized that California’s system of public education cannot improve until they stand up to the teachers unions. Similarly, with the financial demands of California’s government pension systems just one more market downturn away from completely crippling local governments, bipartisan support for dramatic pension reform is inevitable.

There are other issues where voters and politicians alike realize current policy solutions are inadequate at best, but consensus solutions require intense dialog and good faith negotiations. An obvious example of this is water policy, where the current political consensus is to decrease demand through misanthropic, punitive rationing, when multiple solutions make better financial and humanitarian sense. Supply oriented solutions include upgrading sewage treatment plants to reuse wastewater, building desalination plants, building more dams, increasing cloud seeding efforts, and allowing some farmers to sell their allocations to urban areas.

Imagine a centrist coalition of politicians, led by reformers such as Moorlach and Glazer, implementing policies that are decisive departures from the tepid incrementalism and creeping authoritarianism that has defined California’s politics ever since the government unions took control. How radical would that be?

Ultimately, forming a radical center in California requires more than the gathering urgency for reforms in the areas of education, government compensation and pensions, and, hopefully, infrastructure investment. Beyond recognizing the inevitable crises that will result from inaction, and beyond finding the courage to stand up to government unions, Moorlach and Glazer, and those who join them, will have to manifest and pass on to their colleagues an empathy for the beliefs and ideologies of their opponents.

Ideological polarities – environmentalism vs. pro-development, social liberal vs. social conservative, libertarian vs. progressive – generate animosity that emotionalizes and trivializes debate on unrelated topics where action might otherwise be possible. The only solution is empathy. The extremes of libertarian philosophy are as absurd as those of the progressives. The extremes of social liberalism can be as oppressive as an authoritarian theocracy. Economic development without reasonable environmentalist checks is as undesirable as the stagnant plutocracy that is the unwitting consequence of extreme environmentalism. And while government unions should be outlawed, well regulated private sector unions play a vital role in an era of automation, globalization, and financial corruption.

Despite being inundated with a torrent of slime by their opponents, John Moorlach and Steve Glazer took the high road in their campaigns. They are worthy candidates to nurture the guttering remnants of empathy that flicker yet in Sacramento, and turn them into a roaring, radical centrist fire.

*   *   *

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

Union Offensive Against Prop. 13 Gains Momentum

There’s a joke about public sector union bosses making the rounds in Sacramento lately:  What happens when the California Legislature hands over a blank check to the California Teachers Association (CTA)?  It’s returned the next day marked “insufficient.”

No matter that spending on schools is up 36 percent over the last four years, the state budget has increased 25 percent over the last three and the state is running a surplus of nearly $7 billion, it is never enough.  The government employee unions are continuing to press for higher taxes and more spending from which they benefit both in terms of money and political power.

Since California already imposes the highest taxes in all 50 states in almost every category except taxes on property – where we rank 19th highest – the obvious target is Proposition 13 which limits annual increases in property taxes.  To take on Proposition 13, public unions, including the two major teachers unions and the Service Employees International Union, have joined with some rag-tag groups of Bay Area radicals to create a front group, calling itself “Make It Fair.” The stated goal is to strip Proposition 13 protections away from businesses, including small mom-and-pop stores and residential rentals, thereby creating a “split roll” in order to seize another $9 billion in tax revenue annually.

To undermine support for Proposition 13 — which remains overwhelmingly popular in public opinion polls – Make It Fair attempts to make homeowners feel unjustly burdened. Backers of higher property taxes on business say that Proposition 13 provides commercial property special advantages, but it does not. California has always taxed all real property at the same rate whether residential or business.

The facts are unimportant to the government employee unions. They accuse owners of commercial property of not paying their fair share in property taxes. This ignores studies that show that business property is actually paying a higher percentage of the total property tax than when Proposition 13 passed and that business property is generally assessed at closer to market value than is residential property. This is due to the frequent improvements businesses make to property to remain competitive and these improvements are taxed at current market value.

But if the government employee unions are really only going after owners of commercial property, why should the average homeowner be concerned?

First, those who delude themselves into believing that the appetite of unions for tax dollars will be satiated if we just give in to their demands, should know that California state and local government employees are the highest paid in the nation. They did not become this way because the union leadership were shrinking violets. Once business property is taxed at a higher rate, there is no question that residential property – homeowners – will be the next target. Already union-backed legislation has been introduced in Sacramento to make it easier to increase taxes on homeowners.

Secondly, most homeowners rely on jobs in order to pay their mortgages.  If taxes on commercial property, including those on small businesses and residential rental property, are jacked up,  so prices and rents will go up as well. Business that can’t increase their prices because of competition from firms located in other states and countries are likely to join the exodus of companies that have already left California.  And they will take those jobs with them.

A recent front page story in the Torrance Daily Breeze, “Tractor Firm Kubota Exits Torrance for Texas,” illustrates the point.  The report says the firm, a 43-year resident of the community, will be departing along with 180 jobs, and reminds readers that Toyota made a similar announcement last year.  This hemorrhaging of jobs is a direct consequence of California’s hostile business climate, and this is before any increase in the property tax.

It would be a mistake to underestimate the negative impact that changes to Proposition 13 would have on the California economy. A study from the Pepperdine University School for Public Policy reveals that a “split roll” would result in the loss of nearly 400,000 jobs and $72 billion in economic activity over five years.

If front groups were required to adhere to truth in labeling standards, the group “Make It Fair” would be compelled to call itself either “Take Our Jobs, Please” or “Make Us Poor.”

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

CalPERS and Unions Win Again – Taxpayers and Bondholders Lose

In bankruptcy, the federal courts have ruled that cities can reduce pension obligations. They can, but they don’t have to. In Detroit, bondholders were sacrificed to maintain police and fire pensions with minimal haircuts.

On Monday, U.S. Bankruptcy Judge Meredith Jury ruled against bondholders in favor of Calpers in the San Bernardino bankruptcy. She acknowledged that her decision is likely to be seen as unfair to the municipal bond market and might even discourage investors from buying pension obligation bonds in the future.

Please consider Calpers’ Pension Hammer Forces ‘Unfair’ Bond Ruling by Judge.

California’s public retirement fund holds so much power over local officials that pension-bond investors can’t expect equal treatment when a city goes bankrupt, a judge said in a ruling that she acknowledged seems “unfair.”

“What I see as unfair, and might seem unfair to the outside world, does not matter under law,” Jury said, referring in part to the powerful remedies Calpers can seek if the city doesn’t honor its contract.

Monday’s ruling sticks with a pattern seen in the bankruptcies of Stockton, California, and Detroit, said Marilyn Cohen, president of Envision Capital Management in El Segundo, California.

Up to Cities

Federal bankruptcy courts have many times ruled that cities can cut pension obligation, but nothing forces them to.

For example, in the Stockton California bankruptcy, a federal judge ruled that Stockton could have tried to reduce its obligation to Calpers. However, Stockton chose not to do so, arguing that fighting Calpers would take too long and could endanger employee pensions.

Conflict of Interest

I believe Stockton’s rationale is nonsense. Instead, I propose Stockton city officials had a conflict of interest.

City officials wanted to preserve their own pensions.

Chicago Connection

So what does this have to do with Chicago and the state of Illinois in general?

Lots, so let’s tie it all together.

As a result Tuesday’s Illinois Supreme Court Ruling that the 2013 Pension Reform Law Is Unconstitutional Moody’s cut Chicago’s bond rating two notches to junk. Moody’s specifically cited Chicago’s pension crisis.

I discussed this yesterday in Chicago Bond Rating Cut to Junk; City Faces $2.2 Billion in Various Termination Fees; Irresponsible to Tell the Truth.

In light of the San Bernardino ruling today, cities that have huge pension issues will see bond yields soar.

The Chicago Board of education is already paying 285 basis points more than other cities because of pensions. If bondholders keep getting hammered, those yields will rise further.

Pass a Bankruptcy Law, Give Taxpayers a Chance

A Chicago Tribune editorial by Henry J. Feinberg, says Pass a Bankruptcy Law, Give Taxpayers a Chance.

Under federal law, state governments can’t file for bankruptcy. Local governments can do so if their states give them permission. A bill now before the Illinois legislature would extend that permission to Illinois municipalities, most of which now can’t seek protection under bankruptcy law.

The right way is to amend House Bill 298 so people who hold Illinois bonds have a “secured first lien,” the fancy words needed in the law to make sure bondholders are first in line to get their money back. Passing this amended bill would do three things that the state’s local governments have not been able to accomplish for decades.

Three Reasons to Amend Bill 298

Feinberg cites three reasons to amend the pending bankruptcy bill.

  • First, it would bring opposing sides to the table to have meaningful discussions about how to save the borrower, in this case the local government, from financial ruin.
  • Second, the government could ask the bankruptcy court to modify labor contracts and order the parties to renegotiate the terms of collective bargaining agreements.
  • Finally, a law that puts bondholders first in line to get repaid would be a stroke of fairness that would help Illinois cities, school districts and other local governments avert a short-term solution like Detroit’s. There, some people who had lent money to the city by buying its bonds lost two-thirds of their investment. Meanwhile, members of the politically powerful police and firefighter unions took no cuts to their pensions (their cost-of-living adjustment was reduced). Other workers took a 4.5 percent base cut in pensions and the elimination of an annual cost-of-living increase, The Detroit News reported.

I agree with Feinberg on all three points. Bankruptcy is the only real solution for many of these plans and many cities as well.

Beware the Tax Man

Tax hikes cannot possibly address the shortfall. As discussed on May 4, in Beware, the Tax Man Has Eyes on You, the potential hike for Illinoisans is staggering.

Nuveen estimated 50% property tax hikes would be necessary. Those hikes were just for Chicago. They did not include money to bail out other Illinois pension plans. Nor did it address the $9 billion budget deficit for the state.

Finally, Nuveen’s estimate assumed pension plans would make their plan assumption of 7% returns or higher.

Stock Market Bubble Will Hit Pensions

I believe another serious decline in the stock market is likely. So do some of the biggest fund managers in the world.

Please check out Seven Year Negative Returns in Stocks and Bonds; Fraudulent Promises.

Pension promises were not made in good faith.

Rather, pension promises were the direct result of coercion by public unions on legislators, mayors, and other officials willing to accept bribes because they shared in the ill-gotten gains of backroom deals at taxpayer expense.

About the Author:  Mike Shedlock is the editor of the top-rated global economics blog Mish’s Global Economic Trend Analysis, offering insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education, and a senior fellow with the Illinois Policy Institute.

How California's State and Local Governments Can Save $50 Billion Per Year

Back in the early 2000’s, in the aftermath of the internet bubble’s collapse, California’s state and local governments endured a period of austerity that resulted in “furloughs,” where, typically, employees would take Friday’s off in exchange for a 20% cut in their pay. That is, they worked 20% less, and made 20% less in pay – but their rate of pay was not cut.

This display of “sacrifice” was an eye opener for private sector workers, especially salaried employees of small businesses, who endured cuts to their rates of pay at the same time as their hours of work increased. Most people in the private sector back in the early 2000’s felt lucky to have a job, even if it meant working harder and making less.

There’s a lesson to be learned from the period of state and local government “furloughs” in California:  California’s government functioned just fine with 20% fewer hours spent at the job, overall, and California’s government workers got by, overall, making 20% less money. So since we know these cuts are feasible, it is interesting to estimate just how much money Californians would save, if there were a 20% reduction to California’s state and local government workforce, and then there were a 20% reduction to the pay and benefits collected by those state and local government workers who remained employed.

Getting information on just how much California’s state and local workers make is notoriously difficult. California’s state controller’s Public Pay database collects the data, but presents “averages” that include part-time employees in the denominator, and do not consolidate the data. Transparent California, a public information project jointly produced by the California Policy Center and the Nevada Policy Research Institute, provides very good information on individual pay and benefits, but also does not consolidate the information.

A California Policy Center study, “How Much Do California’s State, City and County Workers Really Make?,” uses 2012 raw data from the state controller that screens out part-time workers to develop averages for city, county and state workers.

California’s State and Local Government Employees
Average Compensation by Entity – 2012

20140131_CA-Gov-Pay_Table2-b

A recent UnionWatch analysis of Los Angeles Unified School District provided a baseline estimate for total teacher compensation – although in variance to the table, please note the same analysis adds an estimated value of $4,033 per teacher to take into account the state’s direct contribution to CalSTRS. As a representative example of total teacher pay, LAUSD is pretty good; the California Dept. of Education reports the Statewide Average Teacher base salary averaged $69,324 during 2014, nearly identical to the LAUSD analysis.

Los Angeles Unified School District
Average Compensation by Job Class – 2013

20150303-UW_Ring-LAUSD-Actual

Armed with this information, and cross-referencing with the U.S. Census Bureau’s estimate of current numbers of full time state and local government employees in California (ref. Government Employment & Payroll, and select “state” and “local,” in each case selecting “California”), we can make a reasonable estimate of how much our full time state/local workforce is currently costing taxpayers. We can also estimate how much a 20% reduction in workforce combined with a 20% reduction in total compensation would save taxpayers each year:

California State and Local Government Employees, Est. Total Cost per Year
Projected Annual Savings via 20% Reduction to Headcount and to Compensation

20150512-UW_20percent-solution

While this thought exercise may seem to be an exercise in futility, the fact is, we’ve tried it once already, and it worked. That is, during the furloughs of the early 2000’s, California’s state and local government workers got by just fine with a 20% reduction in pay, and California’s state and local government services functioned adequately even though 20% of the workforce was absent (i.e., they were all taking Friday’s off).

It is fair to ask why the focus must always be on austerity. Why not pay everyone more in the private sector? That’s a good question and the answer is simple: It’s impossible. The average total compensation in California’s private sector is roughly half what public employees make. There isn’t enough money in the world to pay everyone this much money, and it is grossly unfair to taxpayers and private workers to treat public sector workers as a privileged class, exempt from the economic challenges facing everyone else.

The problem is even deeper than just one of inequity and insolvency. The problem with creating a privileged class of government workers is that they no longer make common cause with the people they serve. This consequence should trouble social liberals at least as much as it troubles fiscal conservatives, because the most powerful bloc of voters in California, unionized, politically active government workers, are putting their personal financial interests ahead of other worthy government projects. Imagine what $52.7 billion could buy.

The solution is to combine cutbacks in government employee compensation with investments in infrastructure and reductions in regulatory hurdles in order to reduce prices for goods and services. Government created artificial scarcity has raised the price of housing, energy, water and transportation to levels that only the elite can easily afford. If government workers were compelled to make common cause with other workers, instead of this elite, maybe they would finally support reforms to lower the cost of living.

*   *   *

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

Glazer vs. Bonilla 7th Senate District Battle Reflects New Political Split in California

California’s politics remain polarized, but not just via the traditional division of Republicans vs. Democrats. As reported here two months ago in the post “Issue of Government Unions Divide Candidates More Than Party Affiliation,” there were two California State Senate contests that remained unresolved after the November 2014 election. One of them, pitting Republican John Moorlach against Republican Don Wagner for the 37th Senate District, was settled on March 17th. Moorlach, who has fought to restore financial sustainability to public employee pension systems, was opposed by government unions. Wagner, also a conservative, but less outspoken than Moorlach on the issue of pension reform, was endorsed by government unions. Moorlach won.

The other race, originally pitting three Democrats against each other for the 7th Senate District, has narrowed to a contest between two candidates that will be settled on May 19th, Democrat Steve Glazer vs. Democrat Susan Bonilla.

It will be interesting to see how voters in a largely Democratic district respond in a race that is not between candidates from opposing parties. Glazer is a fiscal conservative who is progressive on virtually all of the issues important to Democrats. Bonilla offers up many similar positions, with one important exception: Glazer has stood up to government unions on critical issues, to the point where government unions do not consider him reliable. As a result, Bonilla is receiving cash and endorsements from the unions representing our public servants, all of it, of course, money that originated from taxpayers.

Here’s a list of some of Bonilla’s government union endorsements:

California Association of Highway Patrolmen
California Professional Firefighters
California State Sheriffs’ Association
California State Coalition of Probation Organizations
CALFIRE Local 2881
Peace Officers Research Association of California
Deputy Sheriffs Association of Alameda County
Antioch Police Officer’s Association
Concord Police Officer’s Association
Contra Costa County Deputy Sheriffs Association
Contra Costa County Deputy District Attorney’s Association
Brentwood Police Officers Association
Livermore-Pleasanton Firefighters, Local 1974
Livermore Police Officer’s Association
Pittsburg Police Officers Association
Pleasanton Police Officers Association
Probation Peace Officers Association of Contra Costa County
San Ramon Valley Firefighters Association, Local 3546
United Professional Firefighters of Contra Costa County, Local 1230

One has to ask why so many public safety officials are endorsing Bonilla rather than Glazer, and it is fair to wonder if their endorsement has anything to do with the positions of these candidates on issues and policies relating to public safety. Take a look at this flyer from the Bonilla campaign:

20150417-UW_Bonilla

As can be seen, Contra Costa County District Attorney Mark Peterson and Alameda County Sheriff Greg Ahern, both apparently Republicans, are touting the pro public safety record of Susan Bonilla. But would they have made these statements if Susan Bonilla was challenging their unions on fiscal issues relating to pensions and compensation?

From that perspective, candidate Steven Glazer is a threat to government unions. For ten years starting in 2004, Glazer was a councilmember, then mayor, in Orinda, one of the most fiscally responsible cities in the state. In a California Policy Center study released late last year entitled “California’s Most Financially Stressed Cities and Counties,” every city and county in California was ranked in order of its risk of insolvency. Orinda was ranked 369 out of 491, putting it in the top 25% in terms of financial health. More significantly, in a subsequent California Policy Center study entitled “California City Pension Burdens,” every city in the state was ranked according to how much pension contributions strain their budgets. Orinda wasn’t even on this list, because they are among only nine cities in California who don’t have a defined benefit plan for their employees. They use a defined contribution plan instead.

Hopefully the reader will forgive this prurient dive into personal financial data, but when public employees endorse political candidates, how much they make is relevant. Contra Costa County District Attorney Mark Peterson made $322,180 in 2013, an amount that included $111,897 in employer paid benefits. Alameda County Sheriff Greg Ahern made $556,268 in 2013; an astonishing $266,130 of that in the form of employer paid benefits. The vast majority of these benefit payments were to cover the required employer pension contributions. These men would have to be saints to have an objective perspective on an election that could result in a fiscal conservative holding office who is conversant in pension finance and formerly presided over a town that offers defined contribution plans to their employees instead of defined benefit pensions.

To drive the point home, take a look at the salaries and benefits for Alameda County workers, the pensions for Alameda County retirees, the salaries for Contra Costa County workers, and the pensions for Contra Costa County retirees. No conflict of interest there.

In the race for California’s 7th Senate District, Government unions have already spent over $2.0 million to support Susan Bonilla and oppose Steve Glazer. Download this spreadsheet to view the latest contributions through 4-20-2015, or click on the following four links to follow the money pouring in to make sure a fiscal conservative Senator does not head to Sacramento on May 19th:

Bonilla for Senate 2015, Putting the East Bay First
Bonilla for Senate 2015
Bonilla for Senate 2016
Working Families Opposing Glazer for Senate 2015

California’s Republican leadership, to the extent they tepidly claim to support pension reform while taking money from public sector unions and doing nothing, should understand as clearly as the Democratic leadership who avoid the issue entirely: It doesn’t matter what else you believe, or what you stand for, or what’s in your platform. Government unions support candidates who fight to preserve and increase the pay and benefits of unionized government employees, at the same time as they fight to minimize the accountability of unionized government employees. Across California, their demands, almost invariably fulfilled by politicians they control, have taken money away from other services, including infrastructure investment, and nearly destroyed California’s system of public education.

This is having a polarizing impact in both parties, and rendering the distinction between Democrat and Republican less important than whether or not they are willing to stand up to government unions.

*   *   *

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

Pension Reform is BAD for Wall Street, and GOOD for California

“His idea [Mayor Chuck Reed’s] of pension reform is, you sign up for one pension system, we’re going to change it now in mid career, and now you’re going to get something different.”
Lou Paulson, President, California Professional Firefighters (ref. CPF Video,  April 1, 2015)

The biggest problem with Mr. Paulson’s comment is the double standard he applies. Changing pension systems “mid-career” are just fine when they improve the benefit to Mr. Paulson’s unionized government workforce, but when it comes time to roll back these financially unsustainable changes, he cries foul.

The most obvious, indeed egregious example of a “mid-career” change to pension systems that improved pension benefits began during the internet bubble year 1999, when SB 400 was passed by the California State Legislature. SB 400 changed the pension benefit formula for California’s Highway Patrol officers from “2% at 50” to “3% at 50,” a 50% increase to their benefit. But that’s not all…

SB 400 made this increase retroactive to the date of hire for all participants. That is, if you had worked for 30 years for the California Highway Patrol and were going to retire in another year or two, instead of calculating your pension benefit based on 2% times the number of years you worked, 30 years, you would calculate your pension benefit based on 3% times the number of years you worked. Suddenly your pension benefit went from 60% of final salary to 90% of final salary – a 50% increase. Retroactively.

Mr. Paulson, does SB 400 qualify as “you sign up for one pension system, we’re going to change it now in mid career, and now you’re going to get something different?”

Once SB 400 enhanced pension benefits for California’s Highway Patrol officers along with workers in some other state agencies, laws and MOUs governing the rest of California’s state/local workforce followed suit. By 2005, most public safety employee in California were on a “3% at 50” pension. And in virtually all cases, these benefits were enhanced, by 50%, retroactively.

Last week, on April 10, the Reason Foundation hosted what has become an annual conference for citizens and policymakers involved in pension reform. As reported in the Sacramento Bee and elsewhere, the conference was disrupted by protesters, many of them off-duty firefighters, who carried signs saying things like “Reed and DeMaio Plan – Good for Wall Street, Bad for Rest of Us.”

20150414-UW_Promises

 

The problem with the notion that pension reform is “good for Wall Street,” of course, is that pension reform is bad for Wall Street. The biggest shareholders in the world are public employee pension funds. This began back in 1984, when the California state legislature placed a citizen’s initiative onto the ballot, Prop. 21, that “deleted constitutional restrictions and limitations on the purchase of corporate stock by public retirement systems.” Scarcely understood and narrowly passed, Prop. 21 turned California’s government pension funds into the biggest gamblers on Wall Street.

Before Prop. 21, just for example, pension funds might have purchased bonds to finance revenue generating projects such as dams, power stations and desalination plants, which yield decent annual returns to investors and greatly benefit ordinary Californians. Now, thanks to Prop. 21, California’s 81 independent state/local government employee pension systems, controlling over $722 billion in assets, invest 90% of it out-of-state, chasing 7.5% returns by gambling on volatile stocks, private equity funds, and even hedge funds. Private financial firms rake in billions every year in commissions and fees, while directly managing tens, if not hundreds of billions on behalf of California’s state/local government employee pension funds.

And when those investment banks and private equity firms and hedge funds make bad bets on behalf of public employee pension systems, the taxpayers bail them out.

In Sacramento Bee columnist Jon Ortiz’s report on the protest outside the April 10th pension reform conference, in what is perhaps the understatement of the century, Manhattan Institute researcher Stephen Eide said “The organizational advantages of the other side are significant.”

You can say that again, Stephen. Firefighters, along with other public employee groups, organized by unions who goad them into thinking they’re the victims of “Wall Street,” and “haters,” pack every city council meeting, every county supervisor meeting, every legislative hearing, and every event they can find where the interests of their unions may be threatened. They stare down council members, county supervisors, and legislators, making sure they know that if their interests aren’t favored, they will destroy them politically. And the taxpayers are paying for every cent of this. No businessperson even slightly dependent on an at least neutral local government is going to cross the government unions, because the government unions run the government.

Take a look at this “call to action” created by the Sacramento Area Firefighters to recruit protesters to show up on April 10th:

20150414-UW_Action

As can be seen, the firefighter union contact for this “action” is Bobby Weist, a firefighter for the City of Davis. According to Transparent California, Mr. Weiss made $162,259 last year. As for the rest of the firefighters in Davis, take a look: City of Davis Firefighter Salaries and Benefits. Of the 13 people listed (searching City of Davis employees with “Fire” in the job title), Bobby Weist was the lowest paid. Twelve other firefighters in this small department made more than him. Their salaries and benefits ranged from Weist’s $162,259 to $235,375. Six of them made over $200,000. For those readers who still think employer paid benefits don’t count as compensation, please join around 50 million other Americans and start working as an independent contractor. Every dime you save for retirement has to come out of whatever it is you get paid. Of course it counts.

A firefighter in an affluent California city like Davis works one 24 hour shift every three days. In practical terms however, taking into account paid vacation and holiday benefits, veteran firefighters actually work two 24 hour shifts every week (ref. Davis firefighter MOU), with anything beyond that paid overtime. If a veteran firefighter works 3.3 24 hour shifts per week, they double their regular pay. And the reason cities pay so much overtime? Because they can’t afford to pay the pension benefits for additional firefighters. A doctor working at Kaiser makes $251,000 per year, which is “46% above the national average.” Get that? California’s veteran firefighters, whose total compensation averages over $200,000 per year, make as much as the average medical doctor in the U.S.

Firefighter unions have managed to con many of their members into thinking that any effort to reform pension benefits is unreasonable. They are wrong. If firefighters, and by extension all public servants, really cared about the people they serve, they would (1) repeal Prop. 21, and start pouring pension assets into financing new California infrastructure projects that would benefit all Californians and still yield a solid 5% annual return, and (2) repeal SB 400 and all of its copycat measures, and accept pension benefit formulas as they were up until 1999 – still generous, but at least within the bounds of financial sustainability.

*   *   *

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

How Unions and Bankers Hide Chicago's Poor Financial Health

Editor’s Note:  Nearly everything described in this lengthy expose on the perilous financial condition of the City of Chicago, and the ways it has been obscured for so long, also neatly applies in many if not most of California’s large cities. Also directly applicable to California’s cities are the author’s descriptions of how the unions representing local government workers and the bankers who get rich coming up with creative financing schemes are working together. This is counter-intuitive and contrary to the union rhetoric, but it is absolutely true. Unions run most of America’s large cities. Only in recent years, as Democratic politicians face the reality of crippling service cuts so they can fulfill union demands, has this begun to change. Government unions and crony capitalists – in this case bond and pension bankers – work together. The people, especially private sector workers and small business entrepreneurs, are the losers.

Chicago finances are even worse than I thought which is saying quite a bit because I have written about the sorry state of Chicago finances on numerous occasions.

Kristi Culpepper, a bond guru, has gone over Chicago’s annual financial report, bond documents, investor presentations, and CAFRs.  She has uncovered things the City of Chicago does not want anyone to understand.

For example, Culpepper reports Chicago general obligation bond deals have been used by the city as a means to avoid servicing short-term debt. Says Culpepper, “These bonds have received extraordinarily aggressive tax opinions . If the Internal Revenue Service ever gets around to scrutinizing them, your bonds probably won’t be tax exempt for long. Many of these uses of bond proceeds are not eligible for tax-exempt financing under the federal tax code.”

That is just the tip of the iceberg as to what Culpepper has discovered.

Who Is Kristi Culpepper?

Intrigued? You should be.

First let’s go over Culpepper’s background. Kristi Culpepper is a state government official with the Commonwealth of Kentucky. Among other things, she handles the structuring and sale of bonds for schools across the state. Previously, she worked for the Kentucky General Assembly analyzing state and local government bond issues and tracking the state’s capital construction programs. She has also worked at Merrill Lynch.

“Bond Girl”

Culpepper built up a huge following as “Bond Girl”. Bloomberg explains Twitter’s ‘Bond Girl’ Outs Herself as Kentucky Official.

Bond Girl, using the Twitter handle @munilass, had been posting commentary about state and city borrowing and issues beyond public finance since April 2011. Her sometimes-pointed posts attracted the attention of municipal-bond investors, bankers and analysts. Using her nom de Twitter, Culpepper sparred with other users, criticized public officials and vented about her life.

Culpepper “is regarded as an authority on capital projects and debt by the Legislative body,” according to a Kentucky Education Department website posted in November that announced her appointment. “She has worked with legislators, lobbyists, and attorneys to draft legislation and effect policy changes related to the state’s bonded indebtedness.”

Buyers and traders in the $3.7 trillion muni market had puzzled at the true identity of Bond Girl, Hector Negroni, co-founder of New York-based investing firm Fundamental Credit Opportunities, said in a telephone interview.

For any bond geek like myself, she’s fascinating, well-informed and entertaining,” Negroni said.

On Oct. 28, as Bond Girl, she wrote a 1,650-word blog post for the Financial Times’ Alphaville on a proposed debtor-in-possession financing for bankrupt Detroit.

Guest Post

I mention the above to prove Culpepper is highly regarded in the industry. She knows what she is talking about.

The following guest post by Culpepper first appeared on Tumblr as How Chicago has used financial engineering to paper over its massive budget gap.

For those who want to follow Culpepper, her Twitter handle is @munilass.
I dispense with my usual blockquotes for ease in reading. What follows is a guest post by Kristi Culpepper.

Emphasis in Italics is Mine – My Comments and Recommendations follow Culpepper.

How Chicago Used Financial Engineering to Paper Over its Massive Budget Gap

Chicago made headlines at the end of February after Moody’s downgraded the city’s general obligation bond rating to Baa2. Moody’s has cut Chicago’s rating five notches in less than two years. This downgrade, however, placed the city’s credit below the termination triggers on some of its outstanding interest rate swaps. The city has been working to renegotiate the terms of those contracts with its counterparties.

If Chicago’s general obligation rating falls below investment grade, the city’s credit deterioration will become a self-fulfilling prophesy. The city risks nearly $400 million of swap termination payments and the acceleration of its $294 million of outstanding short-term debt.

Unsurprisingly, some of Chicago’s bonds are already trading at junk levels. Chicago CUSIPs are listed here.

That said, the rating agencies and most other market participants still appear to be light years away from understanding the true scope of Chicago’s financial problems. The city has a very — well, let’s just call it unconventional — approach to borrowing money and probably should not be considered investment grade.

Some Budget History

In order for you to follow my discussion of Chicago’s borrowing shenanigans, it is necessary to understand the fiscal machinery behind its bond issues. Please be patient with me here. This story will blow your mind shortly.

Chicago’s budget is divided into seven different fund classifications, but only three funds are relevant to our narrative: the Corporate Fund, Property Tax Fund, and Reserve Funds.

The Corporate Fund is Chicago’s general operating fund. This fund is used to pay for essential government services and activities (e.g. public safety and trash collection). Corporate Fund revenues are derived from a wide variety of sources, including: (1) local tax revenue from utility, transaction, transportation, recreation, and business taxes; (2) intergovernmental tax revenue, which represents the city’s share of the state’s sales and use taxes, income tax, and personal property replacement tax; and (3) non-tax revenue from fees, fines, asset sales, and leases.

Chicago’s property tax revenues do not go into its general operating fund. These revenues go into a Property Tax Fund, which is used to make debt service payments on the city’s general obligation bonds; make required employee pension contributions; and (to a minor extent) fund the library system. The fund also includes tax increment financing revenues that flow to projects in designated TIF districts.

The city used some of the proceeds from long-term leases of city assets to establish Reserve Funds. The Chicago Skyway reserve funds were established in 2005 in the amount of $975 million. The Metered Parking System reserve funds were established in 2009 in the amount of $1.15 billion. Of these funds, $475 million of the Skyway reserves were designated for budgetary uses. What remained was $500 million for the Skyway; $400 million for the Metered Parking System; and $326 million for a budget stabilization fund.

There has been a structural gap in Chicago’s Corporate Fund budget since at least 2003. Although most governments are required to balance their budgets on a cash flow basis each fiscal year, a structural budget gap can arise when recurring expenditures are greater than recurring revenues. Some of the city’s offering documents suggest that this gap is a legacy of the last economic downturn, but in reality the gap pre-dates the economic downturn by several years. The impact of economic downturns on tax collections tends to have a considerable lag anyway.

So, Chicago’s structural budget gap is a political, not economic, creature. Rather than cut expenditures to a level that could be supported by recurring revenues, the city mostly used non-recurring resources to fill the gap from one fiscal year to the next. This is not surprising. Most of Chicago’s Corporate Fund budget goes to salaries and benefits for its employees, and 90% of the city’s employees belong to around 40 different unions. Attempts to adjust expenditures tend to have well organized opposition.

Between fund transfers and drawing down its reserves, the city blew through its financial cushioning quickly. The $326 million budget stabilization fund was exhausted by 2010. From 2009 to 2011, the city used $320 million from the Metered Parking Reserves. The city’s budget gap was at its widest in the wake of the last economic downturn, at over $600 million.

Chicago’s Dysfunctional Debt Program

Now things start to get interesting. Transfers from reserves and other funds have not been the only means Chicago officials (across administrations) have devised to subsidize the city’s Corporate Fund. The city has effectively been using its general obligation bond offerings and interest rate derivatives to accomplish the same thing.

State and local governments typically use the proceeds from their bond offerings to construct or renovate public buildings and infrastructure. These are projects that have long useful lives and will benefit residents for generations.

Dating back to at least 2003, however, Chicago has been issuing long-term tax-exempt and taxable bonds to:

(1) Roll over short-term debt used as working capital;

(2) Pay for maintenance activities that would otherwise be paid from the Corporate Fund;

(3) Pay for judgments and settlements that would otherwise be paid from the Corporate Fund, including wage increases and retroactive pension contributions for its employees; and

(4) Provide discretionary funds to each of the city’s 50 aldermen to pay for activities in their own districts.

The magnitude of tax-exempt bond proceeds used for judgments and settlements over this period is staggering. The Chicago Tribune estimated it at approximately $400 million:

In 2002, for example, the city used tax-exempt bonds to pay an arbitration award involving the Fraternal Order of Police. Rank-and-file officers rejected a city contract offer in 2001, but an arbitrator ruled in favor of the city’s wage proposal a year later.

The deal included raises of 2 to 4 percent a year, to be applied retroactively. In bond documents, city officials deemed the back pay the city owed an extraordinary expense and paid $164 million of it with tax-exempt bonds.

The city ultimately will need to pay bondholders $280 million to cover the loan …

Bonds also ended up covering the $28 million a jury awarded to Joseph Regaldo in 1999. The jury found that, years earlier, a Chicago police officer had beaten him in the back of the head and neck with a blunt object, which ripped apart an artery and cut off the blood supply to his brain. The injuries left Regaldo unable to walk, talk or care for himself.

The judgment won’t be paid off until 2019 at the earliest; by then, the total cost will have grown to $53 million.

City officials eventually switched to paying judgments with taxable bonds, which are even more costly in the long run.

That is, until 2012:

About $54 million from a tax-exempt bond helped cover a legal judgment awarded to African-Americans who were denied a chance to become firefighters by a 1990s entrance exam that favored white applicants. An additional $8 million in tax-exempt bond money went to pay legal fees related to the case, records show.

By using bond money, the city created an irony for many of those awarded damages, as their future property taxes will help pay interest on the debt. In 2033, when the city starts paying down the $54 million, interest will have more than doubled the total cost.

Stop and let that sink in for a moment. That police brutality case? Wage increases negotiated with labor unions? Not just financed, but financed with long-term debt.

So why haven’t the city’s 50 aldermen protested the use of bond proceeds for these purposes? It probably has something to do with the “Aldermen’s Menu,” which allows the aldermen to use a portion of the proceeds from the city’s general obligation bond issues to pay for whatever they want for their district.

It is unclear (to me) whether the city tracks how the funds from the “Aldermen’s Menu” are spent, but in the aggregate they are not a negligible amount. From 2003 to 2012, these projects have ranged from $54.2 million to $102 million.

The use of bond proceeds to provide slush funds for policymakers has a historic analog in the revenue bonds Harrisburg issued for its incineratorproject as the city was on its path to insolvency. Pennsylvania law limits the amount of debt local governments can issue to finance projects that are not self-supporting. Substantially all of the bonds tied to the incinerator project were issued to provide working capital, although city officials were able to locate financial advisory firms that were willing to certify the opposite to state regulators.

In order to win authorization for bond issues that outright defied state law, Harrisburg’s later bond issues included a “Special Projects Fund” for city officials to play with. They bought things like artifacts for a Wild West Museum. In Pennsylvania. Don’t think too hard, there is no why.

See? Reading the Sources and Uses provisions in official statements can be fun. I know, this makes you want to invite me to your next dinner party.

Our story gets even more interesting when you look at how Chicago’s past general obligation bond offerings have been structured.

First, the city has undertaken several large, non-traditional refundings to push the maturities on debt that is coming due out into later years.

A traditional refunding is akin to how a homeowner refinances a mortgage loan. A new loan is used to prepay an old loan to achieve an interest cost savings. A “scoop and toss” refunding, which is what Chicago has done, involves additional interest cost — even in a ridiculously low interest rate environment — because the debt remains outstanding for a longer period of time.

The objective of these deals was to provide budget relief for the city’s general operating fund in the short term, even if the structure means escalating debt service payments in the long term. These restructurings artificially inflated the city’s debt capacity, so the city could continue to use property tax-supported bonds to take out the city’s working capital credit facilities, which allowed the city to avoid balancing its Corporate Fund budget.

Chicago is far from the only government to restructure debt for budget relief. Quite a few state and local governments engaged in similar transactions following the last recession. What makes Chicago unique is, again, the magnitude of this activity. According to the Chicago Tribune, “since 2000, the city has used $3.6 billion in bond money to refund old debt as principal payments came due. Of that amount, half will end up costing taxpayers in the long run.” For the sake of comparison, Chicago has around $7.2 billion of general obligation bonds outstanding.

Second, Chicago’s past few general obligation bond offerings have involved considerable amounts of capitalized interest.

Capitalized interest is typically associated with project finance, not general obligation bond issues. Project finance is a sector where loans finance revenue-producing facilities and infrastructure. The debt is supported by those revenues, not taxes as with general obligation bonds.

With capitalized interest, a bond issuer borrows more money than a project requires for construction in order to pay the interest on the bonds while the project is being built. The idea here is that the project will eventually generate revenues that can support debt service payments and the cost added by capitalizing interest.

From 2010 to 2014, Chicago’s general obligation bond deals included over $235 million of capitalized interest, simply as a means for the city to avoid servicing its debt in the short term.

If you are a bondholder, there are two things you should take away from this segment of our narrative.

First, if you hold the tax-exempt portion of these deals and the Internal Revenue Service ever gets around to scrutinizing them, your bonds probably won’t be tax exempt for long. Many of these uses of bond proceeds are not eligible for tax-exempt financing under the federal tax code. These bonds have received extraordinarily aggressive tax opinions — including, incidentally, from the same law firm that drafted Illinois’s swap legislation, which I will get to momentarily.

Second, Chicago taxpayers are on the hook for billions of dollars of long-term debt and have little of tangible value to show for it. There is a good chance that residents do not understand the nature of their government’s borrowing activities, since these were complex offerings. (Well, unless they read what I have written here…) As debt service payments increasingly compete with other political priorities for funding, this revelation might eventually erode the city’s willingness to pay.

These transactions should never have happened.

Chicago’s Interest Rate Derivatives Portfolio

Perhaps a third thing a bondholder should take away from our narrative is that to the extent Chicago is slapped with future termination payments on its interest rate derivatives, the security for your investment will be diluted. Since Chicago’s property tax revenues are also applied to pension contributions and the debt/derivatives of several other overlapping taxing districts, this is not an insignificant factor.

The State of Illinois authorized local governments to use interest rate derivatives in 2003. Here is a link to the legislation. The bill restricts the notional amount of a municipality’s interest rate derivatives to the outstanding debt the contracts will ostensibly hedge. Since the notional amount of a swap, etc. says nothing about an issuer’s risk exposure, this provision is pretty much worthless. And since the legislation was drafted by the financial industry, that probably wasn’t an accident.

The legislation allows the municipality to make payments due under the swap contract (which would include termination payments) from any source of revenue it has, including property taxes. This probably wasn’t an accident either.

Chicago used interest rate swaps on its 2003, 2005, 2007, and 2009 bond deals, apparently as part of a synthetic fixed rate strategy. (I explain the mechanics of synthetic fixed rate deals in this essay.) The city also recreationally experimented with more exotic contracts — swaptions and the like.

The associated bond offerings were multimodal. Multimodal bonds are bonds that can be converted to any of a number of interest rate modes at the option of the issuer. Bond documents allow the bonds to be remarketed daily, weekly, or monthly as variable rate tender option bonds, or in term or fixed rate modes. Like capitalized interest, this structure is typically used only in project finance. The multimodal structure allows long-term debt to function as both interim and permanent financing to accommodate the life cycle of a revenue-producing project.

Because the underlying debt is multimodal, Chicago never required interest rate derivatives to hedge its interest rate exposure. The city could have virtually any interest rate exposure it wanted as the bonds were remarketed. Why don’t all government issuers use this structure, you ask? Because most governments value predictable payments over trying to handicap interest rate trends and basis risk. That’s a function of being tethered to a budget.

As I noted at the beginning of this essay, Chicago is now almost $400 million out-of-the-money on its outstanding swaps. This only matters to the extent that the city’s credit ratings continue to sink toward termination triggers. Only one rating agency has to break these thresholds — so, even though S&P and Fitch still somehow believe Chicago is an A+/A- credit, Moody’s is the only rating agency that matters. If the city doesn’t get cut to junk and interest rates normalize, Chicago’s interest rate swap situation will eventually repair itself. The tipping point here either way is probably the outcome of the state/city’s pension litigation.

Chicago Public Schools — which already takes more property tax revenues from Cook County than the City of Chicago — has a swap/pension nightmare of its own to muddle through. Between the city and school system, area residents are at risk of making/financing $660 million of termination payments. The payments would compete with $28.3 billion of city and overlapping debt and billions of dollars of escalating pension contributions for funding. Basically, if you are in Chicago, your property is about to become more expensive.

From the outside, it looks like Chicago also used its interest rate swaps as a means of drumming up non-recurring resources to fill its budget gap in 2010 and 2011. If so, this is another example of the city’s willingness to trade long-term costs for avoiding politically inconvenient spending decisions.

The city made amendments to outstanding swap contracts by layering on forward-starting basis swaps. (This is something else Chicago has in common with Harrisburg.) These transactions changed the city’s net interest rate exposure on those deals from fixed to variable and introduced basis risk to the portfolio after they became effective in 2014. There was not an event that prompted these amendments and the city remains underwater on the deals. The city did receive a series of up-front payments, however. Judging from the swap confirmations from Deutsche Bank, PNC, and Wells Fargo, these payments amounted to around $25 million.

Could Chicago File for Chapter 9 Bankruptcy?

No. At least not right now. To be eligible to file for bankruptcy under Chapter 9, there must be a state law that specifically authorizes a municipality to do so. Illinois law does not currently permit municipalities to do so, except under a provision that relates to units of governments with populations under 25,000. Of course, Chicago would also have to meet the other eligibility criteria. The city does have a relatively large tax base.

That said, if state lawmakers wanted to give Chicago the ability to adjust its pension liabilities — its pensions have an aggregate funded ratio of 37% — amending a statute is a lot easier than amending the state constitution. Article 8, Section 5, of the Illinois Constitution says: “Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

Multiple federal bankruptcy judges have ruled that the federal bankruptcy code supersedes state constitutions, which theoretically provides a path for municipalities to adjust their pension commitments. The rulings have not been challenged in an appellate court, however, so there isn’t a bona fide legal precedent yet.

Illinois’s Constitution describes pension commitments as contractual in nature. For an obligation to be considered secured in bankruptcy, there has to be a property interest.

This logic also applies to the city’s general obligation debt though. For most of the city’s outstanding general obligation bonds, the city has pledged a specific property tax levy. Illinois is not one of the handful of states that provides general obligation debt a statutory lien. So it would seem, in my very non-legal opinion, that the bonds would be considered unsecured debt.

As I noted earlier, the city’s general obligation bond offerings have provided little of tangible value to taxpayers. If the city were authorized to file for bankruptcy and actually did so, there could potentially be political pressure to adjust general obligation debt before depriving pension beneficiaries their incomes.

It seems unlikely that the state or federal government would “Lehman” Chicago. It is the third largest city in the United States and a vital transportation hub. It seems reckless, however, to dismiss this possibility in its entirety over the medium term.

When you tally up the ways bond proceeds have been used to offset operating expenses, scoop and toss restructurings, capitalized interest, and swap modifications, the city’s cumulative Corporate Fund budget gap is much, much larger than the city’s disclosures imply. At some point, this manner of doing business will collapse.

A Lot to Digest

There is much above to digest. Anyone investing in Chicago “Tax Exempt” bonds need beware.

Meanwhile, and in regards to Culpepper’s article, Yahoo! Fiance reports “The City of Chicago Mayor’s office did not respond to multiple calls and emails seeking comment on the matter.”

Politically and Financially Bankrupt

I have stated many times, my belief that Chicago is bankrupt; it’s just not officially recognized. Actually, Chicago is both politically and financially bankrupt.

The analysis from Culpepper confirms my belief. Her report provides many more details of what’s really behind Moody’s downgrade.

I wrote about the downgrade in Chicago’s Fiscal Freefall: Moody’s Cuts Chicago Credit Rating to Two Steps Above Junk; Snake Oil and Swaps; It’s All Junk Now.

When will Fitch and the S&P catch up? Perhaps after they see this article.

Chapter 9 Bankruptcy Test

My personal viewpoint on bankruptcy aside, it’s important to point out that Chapter 9 has a different insolvency test than corporate bankruptcy.

It is not a balance sheet test, but a cash flow test. Municipality has to be in a position where it cannot make near-term payments on obligations as they come due (like within six months). This is one of several eligibility criteria. So Chicago is not bankrupt by definition (yet) and has a huge tax base. The biggest risk to residents (now) is that they are in for an absolutely massive property tax hike to pay for debt and pensions,” says Culpepper.

Pension Liabilities

On March 2, I wrote Illinois Pension Plans 39% Funded; Taxpayers On the Hook for $105 Billion in Liabilities; It Will Get Worse!

That was my second article for the Illinois Policy Institute where I am now a senior fellow. Please give it a look as it contains a detailed look at horribly funded Illinois Pension Plans state-wide, not just Chicago.

World of Hurt Coming Up

When the equity and junk bond bubbles break (and they will – big time), Illinois and numerous cities in the state will be in a world of hurt.

It is imperative the Illinois legislature start addressing these issues right now. Of course, California and numerous other states will be affected as well.

Needed Legislation

I mentioned three things Illinois needs to do in my first post for the Illinois Policy Institute: Right-to-Work Sweeps Midwest, Heads for Passage in Wisconsin.

(1)  Eliminate collective bargaining of public unions.

(2)  Pass Right-to-Work legislation.

(3)  Scrap prevailing-wage legislation

Cities, municipalities, and the state itself massively overpay for services because of the influence of public unions and onerous prevailing wages laws.  This needs to stop now.

Raising Taxes Not the Answer

Raising taxes is not the answer. Illinois taxpayer pockets are nowhere deep enough to fix massive budget and pension undefundings.

Unfortunately, the Illinois legislature does not see it that way. Check out the massive Proposed Tax Hikes.

The array of six tax hikes proposed by Illinois lawmakers this legislative session adds up to more than $100 billion over the next five years. That’s more than the state’s total projected general-fund spending in fiscal years 2016, 2017 and 2018 – combined.

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And the tax-hike proposals don’t stop there.

Additional tax-hike proposals are being thrown around without any idea of how much they might raise. State Rep. Rita Mayfield, D-Waukegan, proposed a 3.75% tax on guns and gun parts. When asked how much revenue it would raise, she said she didn’t know but thought “if we can get a good million or so, I’ll take it.”

Never-Ending Tax Hikes

The big problem with raising taxes is it will never stop.

Progressives will ask for more and more and more, driving businesses and mobile individuals out of the state. Moreover, tax hikes forestall the ability of municipalities to declare chapter 9.

Bankruptcy Law and Pension Reform

Rather than burden taxpayers (and tax hikes will ultimately not work any better in Illinois than they did in Detroit), Illinois desperately needs legislation to …

(1)  End defined benefit pension plans

(2)  Allow municipalities to set their own benefits (benefits are now set at the state level as if the state knows what’s best for every municipality)

(3)  Allow cities and municipalities to declare bankruptcy

Frank Discussion Needed

As I wrote on March 3, Chicago’s Only Possible Salvation is Bankruptcy – a Name That Cannot be Spoken.

The Illinois legislature and the city of Chicago both need to admit the sorry state of affairs instead of opting for can-kicking exercises that make the inevitable day of reckoning worse.

So, instead of playing shell games with derivatives, general obligation bonds and interest rate swaps, and instead of using long-term financing to fund ongoing needs, how about a frank discussion of everything discussed above?

The legislature and the City of Chicago owe taxpayers an honest assessment. It’s a sad state of affairs that we have to get that assessment from a bond guru in Kentucky.

Unsurprisingly, Chicago city officials would not comment.

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About the Author:  Mike Shedlock is the editor of the top-rated global economics blog Mish’s Global Economic Trend Analysis, offering insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education, and a senior fellow with the Illinois Policy Institute.

California Democrat Goes Rogue, Incurs Government Union Wrath

It didn’t take long for “the brotherhood” of status quo politics to pile on. Within hours of former Assembly member Joan Buchanan having lost her election bid for Northern California’s 7th Senate District seat in last week’s special election to fill the vacancy, she endorsed labor-embraced and fellow Democratic Assemblywoman Susan Bonilla, D-Concord. Together, they joined the panoply of monied special interests led by public sector unions that are largely funding the Democratic Party, to defeat a third Democrat – independent Steve Glazer.

Glazer describes himself as “fiscally conservative, socially progressive.” He is the mayor of Orinda and former political aide to Gov. Jerry Brown. Glazer brandishes “blue” credentials in California, having worked for decades to support Democratic candidates and causes.

But a funny thing happened on the way to governing California: Glazer ran afoul of the Democratic Party establishment when he started challenging the power of public sector unions on municipal and state government. Glazer supported banning strikes by public transit workers, embraced pension reforms and campaigned to elect more business friendly Democrats.

Millions of dollars were spent to try to bury Glazer on Election Day, prompting questions on whether there is a zero tolerance policy in the Democratic party against independent-minded Democrats.

Yet, on Election Night, Glazer not only survived, but emerged as the top vote-getter. A May runoff is scheduled.

Glazer stands out because it is rare for Democrats to “go rogue” and support labor-opposed changes to teacher tenure or curbing government pensions. Despite the “big tent” image, discourse and dissent is disallowed, despite growing public support for these reforms. Party-supported candidates are reminded that the hand that feeds them comes with a demand of loyalty.

If not, as was done to Glazer, they become labeled with the equivalent of a political red-letter A: abandonment of the Democratic Party for not remaining subservient to the interests of those who fund them. Forget 50 shades – can Democrats even be allowed to display more than one shade of blue? Yet, the dirty laundry of adherence to blind allegiance has erupted into public view in recent election cycles.

Indeed, in 2008, then-candidate Barack Obama lost favor with the National Education Association for his support of holding teachers and schools accountable and linking student outcome data to teacher evaluations. Since then, he and his Education secretary have largely earned the wrath of national teachers unions.

In the most-recent Los Angeles mayoral election, Eric Garcetti defeated a fellow Democrat largely by portraying his opponent as blindly subservient to the city unions that had endorsed her. Today, Democratic Chicago Mayor Rahm Emanuel faces a re-election runoff due to his willingness to battle Chicago’s powerful teachers unions.

Meanwhile, in Orange County’s special election to fill another vacant state Senate seat, two Republicans battled each other. Former county Supervisor John Moorlach – the candidate who refused to accept campaign contributions from labor unions – claimed outright victory in that Republican stronghold district. His opponent, Assemblyman Don Wagner, R-Tustin, was financed by labor unions who perceived him to be more allegiant to the state’s public sector unions.

The outcomes of both elections – one in a Democratic and one in a Republican stronghold district – send strong signals that voters desire to reclaim their party, and not allow candidates to be constricted to only one shade of red or blue. The challenge now is to seek independence in California’s remaining 38 Senate districts, 80 Assembly districts and every statewide and constitutional office.

About the Author:  Gloria Romero, a Los Angeles resident, served in the California Legislature from 1998 to 2008, the last seven years as Senate majority leader. Romero is the director of education reform for the California Policy Center. This article originally appeared in the Orange County Register and is republished here with permission from the author.

Unions Continue Their Long March into the Classroom

Labor union indoctrination is seeping into our schools before our very eyes.

Teacher union intrusion into the lives of children is not new. Via anti-child work rules like tenure and seniority, unions have been making their influence felt for years. Additionally, as labor expert Kevin Dayton points out, they have been angling to promote their cause via the curriculum nationally since 1981. Here in California, union propaganda got a big push in 2002 when California governor Gray Davis signed Assembly Bill 1900 into law. As Dayton wrote at the time,

Sponsored by the California Federation of Teachers, this bill recognized the first week of April as ‘Labor History Week’ and authorized public school districts to ‘commemorate that week with appropriate educational exercises that make pupils aware of the role that the labor movement has played in shaping California and the United States.’

At the end of 2012, labor’s “week” morphed into “Labor History Month” (or as I referred to it at the time, “The Not So Merry Month of May”). I pointed out that the lessons suggested by the unions were not simply a celebration of organized workers but a toxic, one-sided, politicized bundle of indoctrination aimed at your kids. A few examples:

  • California Federation of Teachers – many “children’s stories,” including one which features a mean farmer and the hens that organize against him.
  • California Teachers Association – a bevy of “lessons” which can be readily summed up as “Workers are poor; CEOs are rich.” In other words, Class Warfare 101.
  • University of California Miguel Contreras Labor Program – lots of fun stuff for the little ones including an anthology of stories promoting the IWW, a radical union noted for its ties to socialism and anarchism, and a sanitized biography of singing Stalinist Pete Seeger.

The end of 2014 saw the unions on the move again. Every ten years or so, the California Department of Education tinkers with the state’s curriculum, and in Sept. 2014 the review process was initiated for the history framework. The state solicits suggestions from anyone who wants to weigh in and in November, the California Federation of Teachers sent a proposal to California’s Instructional Quality Commission – an advisory body to the California State Board of Education on matters concerning curriculum, instructional materials, and content standards. The missive, unearthed by Dayton, is a doozie. A few highlights:

  • CFT wonders why the Second Great Awakening earns a prominent place in the framework. This religious revival, which took place in the late 18th Century, moved beyond the educated elite of New England to those who were less wealthy and less educated, hastening in the temperance, abolition, and women’s rights movements. Instead, CFT wants to minimize the importance of Christianity and, at the same time, include teaching about anti-Muslim discrimination after 9–11. (While there was an uptick in anti-Muslim “hate crimes,” immediately following 9-11, it was short-lived. In fact, Jews today are targeted for their faith six times more frequently Muslims.)
  • The union wants the U.S. described as an “empire” not a “world power,” so as to let our kids know that we have regularly has been “dominating other civilizations.” When I read things like this, I can’t help but think about WWII. Germany and Japan – our sworn enemies at the time – were not raped and plundered by us after defeat, but instead assisted by us, rebuilt to become economically sound, independent world powers.)
  • Additionally, there’s a plea for a “Labor Studies” elective and in fact, that’s where we are heading. A proposed part of the revamped standards reads, “Students can participate in a collective bargaining simulation to examine the struggles of workers to be paid for the value of their labor and to work under safe conditions. They can examine legislation that gave workers the right to organize into unions, to improve working conditions, and to prohibit discrimination.”

The massive irony here is that the unions are railing against what they perceive to be a sanitized version of U.S. history, but nothing could be further from the truth. As an American history teacher for much of the aughts, I (and every other history teacher I knew) taught extensively about slavery and other injustices of our collective past. We didn’t browbeat the kids, however, into believing that American history was riddled with treachery and malevolence.

And given the opportunity, will the unions tell the full truth about their own history? Of course not. The CFT labor curriculum would be completely sanitized. The teachers unions alone leave us with a toxic waste dump worth of sludge to clean up. For example:

  • In 2000, the California Teachers Association spent over $26 million to defeat Prop. 38 – a voucher bill that would have enabled some kids to escape their failing schools.
  • Former CFT president Marty Hittleman, referred to the Parent Trigger Law – by which primarily black and Hispanic parents can force a governance change at their children’s defective public school – as a “lynch mob provision.”
  • In 2009, National Education Association president Dennis Van Roekel wrote a threatening letter to every Democratic member of Congress, demanding that they vote against the Washington D.C. Opportunity Scholarship Program (a voucher program that helps poor kids) … or else. (They dutifully complied en masse.)
  • Despite a massive amount of forced dues collected by the teachers unions every year, they (and in fact all unions) don’t pay a penny in tax. As 501(c)(5)’s they have a special exemption from the IRS.
  • Union leaders are always railing against the rich and palavering over CEO and worker pay disparity. However, while the average U.S. public school teacher salary for 2013-14 was $56,610, American Federation of Teachers president Randi Weingarten’s income is $543,679 – almost ten times that of the average teacher, while corporate CEOs average $178,400 yearly, just five times that of the average worker.
  • In 2012, the California Teachers Association’s bought-and-paid-for state legislators robotically fell into line and killed SB 1530, which would have simplified the process of getting rid of pedophile teachers. (This really shouldn’t have come as a surprise. At its 2004 convention the NEA, CTA’s parent organization, gave its prestigious Human Rights Award to Kevin Jennings, founder of the Gay, Lesbian, Straight Education Network. GLSEN is the group that presided over the infamous “Fistgate” conference held at Tufts University in Massachusetts in March 2000, where state employees gave explicit instructions about “fisting” and other forms of gay sexual activity to children as young as 12.)
  • On CFT’s Facebook page it often reminds people that the 5-day 40-hour work week comes to us courtesy of the unions. Wrong. Thinking it was a good business move, noted capitalist Henry Ford instituted that change in the 1920s. (The United Auto Workers, didn’t come into being until 1935.)

Will the unions insist that we include any of the above in their proposed “Labor Studies” elective? Of course not.

The unions have big plans for your children. If parents (and all citizens) don’t get involved and protest, these unions will add a load of America-trashing and distorted history to the curriculum, and at the same time indoctrinate your kids in the glories of collective bargaining. If this does not sound like something you want, please contact Kenneth McDonald (KMcDonal@cde.ca.gov) at the State Board of Education and express your thoughts.

Larry Sand, a former classroom teacher, is the president of the non-profit California Teachers Empowerment Network – a non-partisan, non-political group dedicated to providing teachers and the general public with reliable and balanced information about professional affiliations and positions on educational issues. The views presented here are strictly his own.