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"For the Kids" – Comprehensive Review of California School Bonds, Executive Summary (Section 1 of 9)

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:
You are Here: 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)
Guide to all Tables and Appendices – Comprehensive Reference for Researchers


Executive Summary 

Few Californians realize how much debt they’ve imposed on future generations with their votes for bond measures meant to fund the construction of new and modernized school facilities.

From 2001 to 2014, California voters considered 1147 ballot measures proposed by K-12 school districts and community college districts to borrow money for construction via bond sales. Voters approved 911 of these bond measures, giving 642 school and college districts authority to borrow a total of $110.4 billion.

California voters also approved three statewide ballot measures during that time to authorize the state to borrow $35.8 billion. That money has supplemented local borrowing for construction projects at school and college districts, and the state has spent all but $195 million of it.

That’s a total of $146.1 billion authorized during the last 14 years for state and local educational districts to obtain and spend on construction projects. All of it has been borrowed or will be borrowed from wealthy investors, who buy state and local government bonds as a relatively safe investment that generates tax-exempt income through interest payments.

Current and future generations of Californians are already committed to paying these investors about $200 billion in principal and interest — a number that will grow as school and college districts continue to borrow by selling bonds already authorized by voters but not yet sold.

And more borrowing is coming.

In 2016 California voters may be asked to authorize the state to borrow as much as $9 billion for school construction. More than 100 school and college districts may ask voters to approve borrowing a total of several billion more dollars. Officials at the country’s second largest school district, the Los Angeles Unified School District, claim they need more than $40 billion for additional construction and plan to ask voters to approve borrowing several billion in 2016.

It is time to be wary. The California Policy Center believes that most Californians are unaware and uninformed about this relentless borrowing and the amount of debt already accumulated to pay for school construction. Most voters cannot explain how a bond measure works and do not get enough information to make an educated decision about the wisdom of a bond measure.

California voters who want to learn more before voting will have difficulty finding relevant information. Where does an ordinary Californian find out how much money a school or college district has already been authorized to borrow from past bond measures, or the principal and interest owed from past bond sales that still needs to be repaid, or the projected changes in assessed property valuation and how they affect tax and debt limits, or the past and projected student enrollment? The state does not offer a clearinghouse of information for the public to research and compare data about bond measures and bond debt for educational districts. Much of the information available about debt finance for educational districts is oriented toward interests of bond investors rather than people who pay the debt.

Californians who recognize a need for their own local educational districts to refrain from accumulating additional debt have significant obstacles to overcome. State law gives supporters of bond measures a systematic strategic advantage when local districts develop bond measures and put them before voters for approval. Campaigns to support bond measures are funded and even managed by financial and construction industry interests that will profit after passage. And after voters approve a bond measure, educational districts are tempted to take advantage of ambiguities in state law and use bond proceeds for items and activities not typically regarded by the public as construction.

To help to fix these deficiencies, this report encourages the California legislature and the executive branch to adopt five sets of recommendations:

Five Categories of Recommendations
1Provide Adequate and Effective Oversight and Accountability for Bond Measures
2Enable Voters to Make a Reasonably Informed Decision on Bond Measures
3Eliminate or Mitigate Conflicts of Interest in Contracting Related to Bond Measures
4Reduce Inappropriate, Excessive, or Unnecessary Spending of Bond Proceeds
5Improve Understanding of Bond Measures Through Public Education Campaigns

At a time of low interest rates, California school and community college districts may benefit in some circumstances from borrowing money to fund school construction, just like households benefit from home mortgages and car loans. But California voters — and their elected representatives — need to become much more informed about the debt legacy they are leaving to their children and grandchildren.

Emotional sentiment, lobbying pressure from interest groups, and eagerness to circumvent frustrating tax and debt limits in state law can overwhelm a prudent sense of caution. Irrational decisions that burden future generations cannot necessarily be fixed after the public finds out about them.


Section Summaries

Section 2. Why This Report Matters: More Borrowing in 2016

Californians will be asked in 2016 to continue taking on debt for construction of educational facilities, but one elected official is leery. Governor Jerry Brown wants to change the funding system for school construction. He is concerned about debt that Californians have accumulated from years of allowing the state and local educational districts to relentlessly borrow.

That money borrowed through bond sales will have to be paid back — with interest — to the investors who bought them. Voters have limited understanding of bonds and how bonds provide funds for construction, and elections focus on what voters will get rather than how they will pay for it. To the detriment of future generations, few Californians realize the huge amount educational districts have been authorized to borrow and the huge amount of debt accumulated.

Section 3. Quantifying and Explaining California’s Educational Construction Debt

Whatever voters are asked to approve in 2016 will not launch a new program to fix long-neglected schools to serve a rapidly expanding state population while providing smaller class sizes. That thinking is a legacy of the 1990s that seems to endure today despite 14 years of most bond measures passing at a 55 percent threshold for voter approval. Arguments for another state bond measure in 2016 ignore or downplay how local school and college districts and the state obtained authority in the past 14 years to borrow $146.1 billion for educational construction.

If voters are not told or reminded of recent borrowing patterns, how can they make an informed decision on future borrowing? To rectify the lack of availability of statistics on total bond debt in California for educational facility construction, the California Policy Center collected, synthesized, and analyzed data regarding California educational construction finance. The California Policy Center believes it is the first and only entity to painstakingly research and present an accurate and comprehensive record of all state and local educational construction bond measures considered by voters from 2001 through 2014.

Section 4. How Educational Districts Acquire and Manage Debt

It’s likely that most California voters have limited familiarity with the organization and governance of their local school and community college districts. When voters authorize their local educational districts to borrow money for construction by selling bonds, presumably they trust that the local school or college district will exercise prudence in managing the process. Sometimes their trust is betrayed.

To discourage abuse of the school construction finance system, voters need to be aware of how their local government is organized and managed. They also need to realize that state law does not explicitly give Independent Citizens’ Bond Oversight Committees broad authority to review construction programs funded by bond measures.

How can voters become informed about bonds and the process of borrowing money for educational construction through bond sales? Is there a way to explain in clear plain language what actually happens after voters approve a bond measure and authorize a school or college district to borrow money via bond sales?

Section 5. Capital Appreciation Bonds: Disturbing Repayment Terms

In 1993, California law was changed so that school and college districts could use an innovative form of debt finance called zero-coupon bonds, also known as Capital Appreciation Bonds. These bonds allow school and college districts to borrow now for construction and pay it back — with compounded interest — many years later. The borrowing strategy has been a tempting and dangerous lure for elected school and college boards.

Some people think Capital Appreciation Bonds are a “ticking time bomb” or the “creation of a toxic waste dump.” Others regard critics as uninformed and contend that these debt finance instruments are beneficial for school and college districts. Since the people who will be paying off many of these Capital Appreciation Bonds are now children or not even born yet, there isn’t much incentive to stop the flow of borrowed money that doesn’t need to be paid back for a generation or two.

Section 6. Tricks of the Trade: Questionable Behavior with Bonds

Californians who want more spending on educational construction often express their resentment of a 2000 law limiting taxes and debt resulting from bond sales. It was passed in order to strengthen campaign arguments to voters in support of Proposition 39, which lowered the approval threshold for local bond measures from two-thirds to 55%. School districts have adopted several strategies to get around these limits in state law. One of them is very obscure but 100% successful: obtaining waivers from the State Board of Education.

Meanwhile, some districts are stretching legal definitions to use proceeds from bond sales to pay for items that resemble instructional material more than construction. One example is personal portable electronics such as iPads. Some of the state’s largest districts are purchasing this kind of technology while giving little assurance to the public that long term bonds aren’t the source of the money. This equipment may be obsolete well before the bonds mature, meaning that future generations will pay for these devices long after they are outdated and discarded.

Section 7. The System Is Skewed to Pass Bond Measures

Considering the advantages that supporters have in preparing and campaigning for a bond measure, perhaps it’s noteworthy that voters reject about 20% of local bond measures for educational construction. At every stage of the process, interests that will benefit from bond sales can take advantage of a system that favors passage of a bond measure. Some issues of concern include use of public funds to develop campaigns to pass bond measures, significant political contributions to campaigns from interests likely to benefit from construction, involvement of college foundations as intermediaries for campaign contributions, and conflicts of interest and alleged pay-to-play contracts.

Section 8. More Trouble with Bond Finance for Educational Construction

While compiling the comprehensive information provided in this study, California Policy Center researchers identified numerous other troubling aspects of bond finance. School and college districts are evading compliance with the law and making irresponsible decisions. Ordinary voters lack enough data to make an informed vote. Community activists who seek deeper understanding find themselves stymied.

Section 9. Improving Oversight, Accountability, and Fiscal Responsibility

This report encourages the California legislature and the executive branch to adopt five sets of recommendations that will help to fix these deficiencies.

Five Categories of Recommendations
1Provide Adequate and Effective Oversight and Accountability for Bond Measures
2Enable Voters to Make a Reasonably Informed Decision on Bond Measures
3Eliminate or Mitigate Conflicts of Interest in Contracting Related to Bond Measures
4Reduce Inappropriate, Excessive, or Unnecessary Spending of Bond Proceeds
5Improve Understanding of Bond Measures Through Public Education Campaigns

The California Policy Center rejects the idea that additional oversight and accountability isn’t needed or desirable. Some legislative reforms and education programs (both public and private) can overcome voter cynicism, frustration, apathy, and ignorance.

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

Tables A1 to A6

Table A-1 California K-12 School Districts 2013-2014 – Ranked by Enrollment

Table A-2 California Community College District Enrollment Fall 2014 Ranked by Number of Students

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

Table A-4 California School Construction & Finance History

Table A-5 Arguments for Capital Appreciation Bonds

Table A-6 Arguments Against Capital Appreciation Bonds

Appendices A to 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

###

Construction Unions Could Grab Billions Through Education Bonds

Among the many Californians who only occasionally vote in elections, how many understand what they’re doing when they vote for a “bond measure” for a K-12 school district or community college district? They know it’s “for the kids,” but do they know that when they authorize a school district to sell bonds to fund construction, it is borrowing money from institutional investors and wealthy individuals? Do they consider the cost implications, such as how this borrowed money must be paid back – with interest – directly through the taxes of property owners and indirectly through rent and lease payments to landlords?

Presidential elections attract the highest voter turnouts, and as a greater number of people vote, a higher proportion of them are a little fuzzy on some of the policy details. They tend to vote on emotional impulses and are more likely to respond favorably to simple arguments such as “it’s for the kids.” It’s conventional wisdom among California political consultants that voters in Presidential general elections tend to be more likely than voters in primary or off-year elections to approve ballot measures that authorize bond sales.

Perhaps that explains why the November 6, 2012 election includes the highest number of ballot measures ever recorded authorizing California’s K-12 and community college districts to borrow money for construction by selling bonds. As reported by School Services of California and reprinted on September 26, 2012 by the Coalition for Adequate School Housing (CASH) as “K-14 School Facility Bonds Dominate the Ballot,” it’s going to be an election that brings huge new debt burdens to the people of California through authorized bond sales:

School agencies have qualified 106 school facilities ballot measures worth a total of $11.6 billion for the November election. This eclipses the previous high number of measures, 96, which occurred in November 2008. Included within that total are two traditional general obligation (GO) bonds requiring a two-thirds majority vote for passage and 104 Proposition 39 measures requiring a 55% majority approval. The measures are broad-based, including eight community college elections and four school facility improvement district (SFID) elections. They also extend to every corner of the state.

The article also makes some election predictions:

If past trends hold true, more than 70% of the school agency measures on the ballot will pass. But every election is different, and in this one, voters are faced with a hotly contested presidential election, two major school funding measures, a number of high-profile, very controversial measures, and we are still caught in the throes of economic malaise. Our prediction, therefore, is that voters will go to the polls and support passage of these measures and that the results will be even better than recent history would suggest. Our experience is that when times get tough, voters are much more likely to take matters in their own hands and turn to the local ballot box, not the state, for support for their children.

Obviously, $11.6 billion in taxpayer money (not including state matching grants) attracts special interests looking to get themselves a guaranteed piece of the action. These interests, of course, include construction trade unions.

So which of California’s K-12 school districts and community college districts with bond measures for construction on the November 2012 ballot have a history of requiring their construction contractors to sign Project Labor Agreements (PLAs) with trade unions as a condition of working on projects funded by bond measures? Quite a few:

San Diego Unified School District $2.8 billion
Oakland Unified School District $475 million
Sacramento City Unified School District $346 million +$68 million =$414 million
West Contra Costa Unified School District $360 million
Solano Community College District (Solano County) $348 million
Rancho Santiago Community College District (Orange County) $198 million
Alum Rock Union School District (San Jose) $125 million
East Side Union High School District (San Jose) $120 million

Also, some of the projects to be funded by the San Ramon Valley Unified School District’s $260 million proposed bond measure were at one time covered under a developer-negotiated Project Labor Agreement for electrical and plumbing work. That agreement reportedly contained a successor clause to continue coverage after the project was transferred from the developer to the school district.

In addition, school boards of three other school districts with bond measures on the November 6, 2012 ballot have been lobbied aggressively in the past by union officials for a Project Labor Agreement. These will certainly remain targets for Project Labor Agreements:

San Jose Unified District (2003) $290 million
San Bernardino City Unified School District (2010) $250 million
Jefferson Union High School District (2007) $41.9 million

Finally, the Stockton Unified School District approved a resolution in 2007 requiring contractors to obtain apprentices from eligible state-approved training programs that have “graduated apprentices annually for at least the past five (5) years.” The policy was aimed at non-union (and union) apprenticeship programs that the state might approve in the future to compete against existing union apprenticeship programs. Apprentices in those new programs would not be allowed to get on-the-job training on Stockton Unified School District construction projects.

Stockton Unified School District $156 million

If predictions are correct about the November 2012 election results for bond measures, construction unions throughout the state will have plenty of work guaranteed through government-mandated Project Labor Agreements and other tricky arrangements to get union monopolies on taxpayer-funded construction. Keep in mind that many of these school districts will also obtain matching grants for these projects from the State Allocation Board – grants funded by bond sales totaling $35.8 billion authorized by three past statewide propositions:

Want more documentation? Below is a list of Project Labor Agreements that contractors have been required or will be required to sign to work on school construction, along with links to the actual agreements.

Government-Mandated Project Labor Agreements for K-12 School and Community College Construction Projects

MARIN COUNTY
College of Marin (Marin Community College District) Project Labor Agreement 2008 Measure C
CITY and COUNTY OF SAN FRANCISCO
City College of San Francisco Project Labor Agreement 2005
 
San Francisco Unified School District Project Labor Agreement 2008 Measure A (2006 Version)
SAN MATEO COUNTY
San Mateo Community College District Project Labor Agreement 2003
 
San Mateo Community College District Project Labor Agreement 2007 Amendment No. 1 
 
San Mateo Union High School District Project Labor Agreement 2002 – San Mateo High School Modernization
 
San Mateo Union High School District Project Labor Agreement 2009 Measure M
 
San Mateo Union High School District Project Labor Agreement 2009 Measure M Solar Work Amendment 2010
 
San Mateo Union High School District Project Labor Agreement 2009 Measure M Additional Work Amendment 2011
 
South San Francisco Unified School District Project Labor Agreement 2011 Measure J
SANTA CLARA COUNTY
Alum Rock Union Elementary School District 2009 Measure G
 
East Side Union High School District Project Labor Agreement 2003 Measure G 2009 Measure E
 
Foothill-DeAnza Community College District Project Labor Agreement 2008 Measure G
 
Foothill-DeAnza Community College District Project Labor Agreement 2011 Measure G Amendment No. 1
 
San Jose-Evergreen Community College District Project Labor Agreement 2006 Measure G 2010 Measure G
 
ALAMEDA COUNTY
Albany Unified School District Project Labor Agreement 2005 Measure A
 
Berkeley Unified School District Project Labor Agreement 2011 Measure I
 
Chabot-Los Positas Community College District Project Labor Agreement 2007 Measure B
 
Chabot-Los Positas Community College District Project Labor Agreement 2010 Measure B Amendment No. 1
 
Fremont Union High School District Project Labor Agreement 2009 All Outdoor Athletic Facilities
 
Hayward Unified School District Project Labor Agreement 2009 Measure I
 
Oakland Unified School District Project Labor Agreement 2003 Measure A (Original)
 
Oakland Unified School District Project Labor Agreement 2005 (Revised) Measure A and Subsequent Measure B
 
Peralta Community College District (Oakland & Berkeley) Project Labor Agreement 2009
San Leandro Unified School District Project Labor Agreement 2007 Measure B
San Leandro Unified School District Project Labor Agreement 2007 Measure B Amendment No. 1 Measure M 2012
CONTRA COSTA COUNTY
San Leandro Unified School District Project Labor Agreement 2007 Measure B Amendment No. 1 Measure M 2012
CONTRA COSTA COUNTY
Contra Costa Community College District Project Labor Agreement 2012 Measure A (2006)
 
John Swett Unified School District Project Labor Agreement 2009 Measure A
 
Mt. Diablo Unified School District Project Labor Agreement 2006 Measure C Pilot Projects
 
Pittsburg Unified School District Project Labor Agreement 2004 Measure E
 
West Contra Costa Unified School District Project Labor Agreement
SOLANO COUNTY
Vallejo City Unified School District Project Labor Agreement Measure A 2001
 
Solano Community College District Project Labor Agreement Measure G 2004
SACRAMENTO COUNTY
Sacramento City Unified School District Project Labor Agreement Measures E and I 2005
 
Sacramento City Unified School District Project Labor Agreement Measures E and I 2005 Amendment No. 1 2009
LOS ANGELES COUNTY
Centinela Valley Union High School District Project Labor Agreement – Proposition CV and California Emergency Repair Program – 2009
 
Compton Unified School District Project Labor Agreement – Remainder of Measure I – 2005
 
Los Angeles Community College District Project Labor Agreement – Proposition A, Proposition AA, and Measure J – 2001 (Revised through 2011)
 
Los Angeles Unified School District Project Labor Agreement – Proposition BB and Measure K (now also applies to Measure R, Measure Q, future bond measures, and Job Order Contracts) – 2003
 
Los Angeles Unified School District Project Labor Agreement – Proposition BB and Measure K – 2003 – Amendment No. 1
 
Rio Hondo Community College District Project Labor Agreement – Measure A – 2005
 
Pasadena Unified School District Project Labor Agreement (called a “Continuity of Work Agreement) – Measure TT – 2012
 
San Gabriel Unified School District Project Labor Agreement – Measure A – 2010
ORANGE COUNTY
Rancho Santiago Community College District Project Labor Agreement – Measure E – 2003
 
Santa Ana Unified School District Project Labor Agreement – Measure C – 2000
SAN BERNARDINO COUNTY
Rialto Unified School District Project Labor Agreement – Wilmer Amina Carter High School (District High School #3) – 2001
RIVERSIDE COUNTY
Riverside Community College District Project Labor Agreement – Measure C – 2010
SAN DIEGO COUNTY
San Diego Unified School District Project Labor Agreement – Proposition S – 2009

Project Labor Agreements Negotiated by Private Parties for K-12 School and Community College Construction Projects

CONSTRUCTION MANAGER-AT-RISK – MONTEREY COUNTY
Hartnell Community College District Project Labor Agreement – Measure H – 2004 – Negotiated by DPR Construction and Employers’ Advocate – Nullified After Three Small Projects
LEASE-LEASEBACK – KERN COUNTY
Westside Educational Complex for Delano Union School District Project Labor Agreement 2011 between Grapevine Advisors LLC and the Kern, Inyo, Mono Building and Construction Trades Council 
DEVELOPER-BUILT SCHOOLS – CONTRA COSTA COUNTY
San Ramon Valley Center Campus of Contra Costa Community College District Project Labor Agreement between Windemere-Brookfield-Centex and UA Plumbers and Steamfitters Union Local 159
 
Almond Grove Elementary School of Oakley Union Elementary School District Project Labor Agreement 2004 between Pulte Homes and UA Plumbers and Steamfitters Union Local 159, International Brotherhood of Electrical Workers Union Local 302, and Sheet Metal Workers Union Local 104
 
Seven Schools (Including Creekside Elementary School) of San Ramon Valley Unified School District Project Labor Agreement between Shapell Industries and Windemere and UA Plumbers and Steamfitters Union Local 159 and International Brotherhood of Electrical Workers Union Local 302 (copy not in my possession)
DEVELOPER-BUILT SCHOOLS – PLACER COUNTY
Junction Elementary School, Barbara Chilton Middle School, and Three Other Schools of Roseville City School District 2005 between Westpark Associates and Signature Properties and UA Plumbers and Steamfitters Union Local 447, International Brotherhood of Electrical Workers Union Local 340, and Sheet Metal Workers Union Local 162
DEVELOPER-BUILT SCHOOLS – VENTURA COUNTY
Rio Del Mar Elementary School, Rio Vista Middle School, and Another Elementary School of the Rio School District in the RiverPark Development 2004 between RiverPark Development, LLC and Shea Homes with the Ventura County Building and Construction Trades Council
 
Rio Del Mar Elementary School, Rio Vista Middle School, and Another Elementary School of the Rio School District in the RiverPark Development 2007 between RiverPark Development, LLC and Shea Homes with the Ventura County Building and Construction Trades Council – Amendment

Kevin Dayton is the President and CEO of Labor Issues Solutions, and is the author of frequent postings about generally unreported California state and local policy issues at .