Dan Walters

California faces conflicts over billions in school bonds

The seemingly mundane matter of issuing bonds to build and fix schools has suddenly morphed into a bubbling stew of highly contentious politics.

The reason: School bonds and the projects they finance are a multibillion-dollar industry, and high-dollar issues often spawn conflicts.

The most obvious example is a ballot measure that would authorize $9 billion in state bonds to help school districts finance construction.

Over the last four decades, ever since Jerry Brown’s first stint as governor, the state has issued about $45 billion in school bonds, and Brown, now in his second stint, says enough is enough.

The state is paying about $2 billion a year to service past school bond issues, Brown points out, and the process for allocating the money is inefficient and unfair. The $9 billion bond proposal “makes no changes … and it would add an additional $500 million a year” to the state’s obligations.

However, a potent coalition of school contractors, housing developers and education groups is forging ahead. One factor is that the existing pool of school bond money is virtually exhausted, and when it’s gone, local governments would be free to sharply increase development fees to finance school construction.

Meanwhile, there’s a squabble over how local districts have spent previous bonds. The state Supreme Court has upheld a lower court decision saying Fresno Unified School District’s use of no-bid contracts for bond-financed construction, using a loophole designed for long-term “lease-leaseback” projects, is illegal.

Lawyers who won that case contend that billions of dollars in no-bid contracts in Fresno and other districts should be returned by contractors under state “disgorgement” laws.

Contractors are pushing a bill that would give them partial protection from repayment, and also would require future “lease-leaseback” contracts to be issued on a “best value” basis that falls short of competitive bidding. Assembly Bill 2316 cleared the Assembly Thursday on a 66-4 vote.

Assemblyman Patrick O’Donnell, D-Long Beach, who chairs the Assembly Education Committee and is carrying AB 2316, says it would “tame the Wild West.” But the winning attorney in Fresno, Kevin Carlin, calls it “a fox in sheep’s clothing” that would still favor insiders, and will urge the Senate to reject it.

Another pending bill would prohibit local school and community college districts from investing unspent bond funds themselves, rather than using the county treasurer’s office, stemming from a conflict in San Mateo County.

Backed by county treasurers, it’s being closely watched by school officials, investment advisers and other school bond industry stakeholders.

Finally, East Bay Times columnist Daniel Borenstein has detailed how one Contra Costa County school district’s bond issue, which will go before voters in June, is distorting its underlying economics in a way that makes its impact on property tax bills seem far less than it almost certainly will be.

Bottom line: School bonds are big business and we shouldn’t assume that they are merely benign acts of governance.