Cashing in on Education 

California’s school bond system is dominated by well-funded private interests and plagued by a lack of oversight.

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click to enlarge PHOTO BY BRIAN KRANS
  • Photo by Brian Krans

Along with Brown, State Treasurer John Chiang and a coalition of county treasurers and tax collectors — fueled by a legal opinion by then-State Attorney General Kamala Harris — warned of a “pay-to-play” system at work in California’s school bond industry. Their joint statement called out “unscrupulous Wall Street firms offering to fund local bond campaigns in exchange for lucrative contracts.”

In essence, they alleged that those firms would contribute to the bond campaign, get hired to manage the bond, and charge higher fees to recoup their expenses. “Not only are these pay-to-play arrangements unlawful, they rip-off taxpayers and endanger the integrity of school bonds, which are vital tools for building classrooms and meeting the educational needs of our communities,” Chiang said at the time.

But the concerns from Brown and other public officials were drowned out by the numerous ads on TV and radio, in print, and on social media telling voters to vote yes on Prop. 51 for the good of California’s children.
All told, the political action committee in favor of Prop. 51 raised more than $12 million. Its largest single sponsor with $3.2 million was CASH, which has backed every state bond since 1982, according to state disclosure records. Its second largest contributor was the California Building Industry Association, and more than 700 of its 919 contributors were developers or companies who may profit from the bond money and “who regularly have business before school districts and their elected officials,” according to a 2016 report from the University of the Pacific, McGeorge School of Law.

CASH has been around since 1978, but its day-to-day operations stem from a Sacramento law firm — Murdoch, Walrath & Holmes — that is registered with the state as a lobbying firm. Representatives of the firm declined to make anyone available for an interview for this report.
While experts and academics say schools around the state need repairs and improvements, too often money isn’t spent on what voters approve. With a dramatic increase in school bonds passing in California — thanks to CASH — state and local officials are falling behind on keeping tabs on where that money is spent.

CASH also sponsored Prop. 39, a constitutional amendment in 2000 that lowered the threshold of passing a school bond from two-thirds to 55 percent. The measure included mandates for bond oversight committees.

Since then, school bonds at the state and local level have passed with a 90-percent success rate. But while the promise of vigorous oversight was key to the passage of bonds passed under the new lower threshold, like other parts of laws dictating California school construction law, it has often been ignored — with few consequences.

Jungherr contends that CASH has “a lot” of influence over the state’s school bonds because it’s the state’s biggest fundraiser of both state and local bond political action committees, or PACs, in favor of passing them. “If you have CASH, who has all these various groups who are interested in getting this passed, they make donations to the political PAC to fund the campaign, so that’s the clout they have,” he said. “Basically, it’s an interest, a lobbying group, and their interest is to get more bond money with fewer restrictions so they can get more business.”

This June, 30 school districts passed local school bonds, according to the state treasurer’s office. In November, there are more than 100 school construction bonds on local ballots, totaling more than $12 billion.

Throughout California, there are many schools that could use the $9 billion from Prop. 51: for example, those built more than a half century or more ago with asbestos in their walls covered by layers of lead paint.
But the state doesn’t distribute bond money based on need. Instead, it’s first come, first served, a system that creates a feeding frenzy favoring bigger school districts that have staff dedicated to securing funding for their facilities.

The State Allocation Board, the entity that distributes statewide school bond money, noted in a June 2018 report that California’s manner of handing out school bond money leads to severe inequities. Nearly 60 percent of California’s 1,024 school districts are considered small, or have fewer than 2,500 students, but less than 10 percent of Prop. 51 funds have been apportioned to those small school districts and only 5 percent of school districts under financial hardship were awarded money for their projects, the report stated.

Bay Area and other school districts are also fuming that, as of early October, Gov. Brown had authorized the sale of only 20 percent of Prop. 51’s funds. Brown’s reluctance to greenlight more school bond money has frustrated education leaders who are depending on the state’s matching grants to make improvements, as first reported by the San Francisco Chronicle.

According to state records, in Alameda and Contra Costa counties alone, there are 22 modernization and 15 new construction and charter school facilities projects currently in the state school bond backlog. As of early October, the state had more than $4.1 billion worth of projects requesting state school bond money. Brown authorized the sale of an additional $400 million of Prop. 51 bonds, starting Oct. 17.

So why has Brown — Oakland’s former mayor and twice California’s governor who started his political career on a community college board — been so stingy with selling the bonds the voters approved almost two years ago?


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