Building California schools now big business, big money and big politics

Building and refurbishing the schools that house 6.2 million California kids has become very big business.

Over the last few decades, the state has issued about $45 billion in school bonds, mostly for K-12 schools, some for colleges, and repaying lenders costs the state nearly $3 billion a year. With interest, retiring the bonds will have cost about twice their face value, or some $90 billion.

Local school districts have issued many billions more in voter-approved bonds to match state grants, and property taxes have been hiked to pay for them.

The school construction tab is likely to increase even more because a $9 billion bond issue has been placed on the Nov. 8 ballot by a coalition of school groups, developers and the construction companies that profit from school contracts.

If it passes, the state’s tab for repayment would increase by another half-billion dollars a year, and Gov. Jerry Brown has been highly critical, saying the system for allocating bond money is fatally flawed.

Pointedly, the bond measure, Proposition 51, preserves an arcane formula that protects developers from having to fully pay for school construction serving their residential tracts as long as the state has bond money. In a sense, it preserves a subsidy from taxpayers – or, taking the contrary view, avoids making housing prices even higher than they are.

Another very questionable aspect of Proposition 51 is that bonds repaid over 35 years may be used for reroofing, air conditioning, playground equipment and other maintenance and operational projects that won’t last nearly that long.

There is another aspect to the school construction picture.

Last week, state Treasurer John Chiang and county treasurers jointly declared that if municipal bond houses – the banking firms that underwrite bond issues – provide campaign money or other assistance to local school boards to pass bond issues, they will be barred from doing bond business with the state.

“Not only are these pay-to-play arrangements unlawful, they rip off taxpayers and endanger the integrity of school bonds,” Chiang declared.

Chiang acted after receiving an opinion from the Department of Justice that the arrangements are illegal. If strictly enforced, the policy will partially address the unhealthy relationships that exist between local school officials and those who profit from bond measures – but only partially.

A lawsuit over a Fresno school contract, which has spawned a federal investigation, revealed how some school construction companies also engage in insider dealing. They provide money to persuade voters to approve bonds on private assurances they will get the resulting construction contracts, using a legal loophole to bypass competitive bidding.

A pending bill would narrow, though not fully close, the “lease-leaseback” loophole, as well as protect contractors who’ve profited from being forced to return contract payments.

Superficially, school construction is a positive civic endeavor. But in practice, it should be cleaned up.

This story was originally published August 2, 2016 at 11:58 AM with the headline "Building California schools now big business, big money and big politics."