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Reining in school bond sleaze

A bill that would prohibit districts from doing business with companies that have spent money campaigning for their construction bonds deserves passage.

June 07, 2013|By The Times editorial board
  • Newport Harbor High School is part of the Newport Mesa School District, which has issued tens of millions of dollars in long-term notes. Though that district says it is confident it can repay the loans, others in California have borrowed billions of dollars using a risky form of financing.
Newport Harbor High School is part of the Newport Mesa School District,… (Los Angeles Times )

Many Californians have helped their schools in recent years by voting for bonds to build and refurbish campuses. For the most part, the investment in schools has been necessary and right, but that doesn't mean voters always got their full money's worth.

As Times staff writer Dan Weikel reported this week, many school districts have gotten around the state's prohibitions on spending public money for bond campaigns by forging relationships with companies that stand to benefit when the bond is issued — underwriters or building contractors. The firms pay for and in some cases run the bond campaigns themselves. Although there is no official quid pro quo, which would be illegal, the districts' construction and underwriting work all too often ends up going to those very companies after the bond passes. Many school districts actively encourage the spending by the companies and sometimes make deals to hire them before the vote on the bond has even taken place.

The result is that the districts' business goes to companies that often are not the best or most cost-effective. It's a sleazy way of doing business, and Assemblyman Donald P. Wagner (R-Irvine) is rightly determined to stop it. He has introduced AB 621, a bill that would prohibit school districts from doing business with companies that have spent money campaigning for their bonds.

Wagner is on the right track. But a better way to stop the unseemly practice — less restrictive but just as effective — would be to ban districts from soliciting campaign expenditures and from making any deals related to the work to be done with bond money before the vote has occurred, and then to require competitive bidding on all contracts related to the bond. Researchers have found that underwriters do not donate to bond campaigns when competitive bidding will be involved.

Another problematic bond maneuver involves fewer school districts but carries bigger consequences. Like home buyers who took out subprime loans to purchase houses too pricey for their budgets, some districts have financed construction with long-term capital appreciation bonds, for which they put off payments for decades while the amount they owe racks up. Some of these deals have been ruinous, with districts committing themselves to paying 10 to 20 times the amount spent on construction. According to a report this year in the Orange County Register, in order to get $22 million in construction money, the Placentia-Linda Unified School District will pay $280 million at the end of 38 years. AB 182 by Assemblywoman Joan Buchanan (D-Alamo) would sharply curtail the use of capital appreciation bonds by limiting school districts to 25-year bonds that cost no more than four times the amount they raise for construction. The Legislature should pass it.

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