California Attorney General Opinion Says Frequently-Used School and Community College Bond Deals Are Illegal

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On January 26, 2016, the California Attorney General issued an opinion on a practice regarding bond measures that has long been questionable but continues to be rampant at California school and college districts: contracting with a firm to provide both pre-election bond measure “financial planning services” and post-election bond measure “financial advisory services.” That firm then typically makes a major contribution to the campaign to pass the bond measure.

The practice is described in Chapter 7 of the July 2015 California Policy Center report For the Kids: California Voters Must Become Wary of Borrowing Billions More from Wealthy Investors for Educational Construction.

Not surprisingly, the practice was determined to be illegal under most circumstances. The Howard Jarvis Taxpayers Association called it “good news” for taxpayers and a “long-overdue slap-down” of “the incestuous behavior of school districts with political consultants and bond salesmen.” See Attorney General Reins In Shady Bond Practices – January 31, 2016.

California Attorney General Opinion

OPINION of  KAMALA D. HARRIS, Attorney General – MANUEL M. MEDEIROS, Deputy Attorney General – No. 13-304 – January 26, 2016 (see the five questions and answers, below)

School and community college districts throughout the state have adopted such contracts. Often these items are listed on board agendas with vague language, probably to disguise the purpose from the public.

Some Examples

Martinez Unified School District approved this contract on September 29, 2015: http://laborissuessolutions.com/wp-content/uploads/2015/09/2015-09-29-Isom-Advisors-AKA-Urban-Futures-Contract-with-Martinez-USD-for-Bond-Measure-Services.pdf

Pay to Play San Rafael City Schools Connect the DotsSan Rafael City Schools gave a financial service firms a no-bid contract in June 2015 for $15,000 in pre-election and $65,000 in post-election advisory services for two bond measures. The firm contributed $9500 to the campaign to pass the bond measures.

Solano Community College District: Critic Questions Actions of Measure Q Bond Underwriters – Fairfield Daily Republic – September 13, 2015

News Coverage

California School Bonds Can Be Source of Scandal – commentary by Dan Walters – Sacramento Bee – February 8, 2016

Many other districts have used the same loophole to avoid competitive bidding on contracts and also solicited bond issue campaign funds from financial houses.

State Treasurer Bill Lockyer, and later successor John Chiang, were concerned about the practice, and asked Attorney General Kamala Harris whether it’s legal for those in the bond financing business to get involved in the campaigns. Harris, in an opinion issued last month, declared that it is illegal for firms to provide “pre-election services” in return for a promise to get the underwriting business should the bond measure pass.

…if school districts are cut free from the state’s underwriting of school construction, they need some new ethics standards.

California AG’s Opinion Targets School Bond Practices by Kyle Glazier – The Bond Buyer – January 28, 2016

School and community college districts violate California law if they hire outside firms to campaign for bond ballot measures or purposely incentivize municipal finance professionals to advocate for passage of a bond measure, the state’s attorney general said in a formal legal opinion…

A previous Bond Buyer investigation found a nearly perfect correlation between broker-dealer contributions to California school bond efforts in 2010 and their underwriting of subsequent bond sales, and financial advisors have similarly been accused of using “pay-to-play” tactics. Former California Treasurer Bill Lockyer questioned the legality of the practices…

California Muni Dealers Can’t Fund Bond Campaigns to Get Hired by Darrell Preston – Bloomberg – January 28, 2016

Former Treasurer Bill Lockyer, who sought the opinion in 2013, praised the ruling, and said it could open up school districts and vendors to prosecution.

“It makes it clear that prior practices of this sort are illegal,” Lockyer said in a telephone interview Thursday.

Lockyer sought the opinion after finding school districts in the state entered agreements with underwriting firms in which the districts award the dealers the right to sell the bonds in return for providing services to pass an initiative.

He said at the time the agreements raise “substantive questions” about whether school officials broke the law by using public money to advocate passage.


THE HONORABLE JOHN CHIANG, CALIFORNIA STATE TREASURER, has requested an opinion on the following questions:

1. Does a school or community college district violate California constitutional and statutory prohibitions against using public funds to advocate passage of a bond measure by contracting with a person or entity for services related to a bond election campaign?

2. Does a school or community college district violate California prohibitions against using public funds to advocate passage of a bond measure if the district enters into an agreement with a municipal finance firm under which the district obtains pre- bond-election services in return for guaranteeing the firm an exclusive contract to provide bond-sale services if the election is successful?

3. In the case of an agreement as described in Question 2, does a school or community college district violate California law concerning the use of bond proceeds if the district reimburses the municipal finance firm for the cost of providing the pre- election services from the proceeds raised from the bond sale?

4. In the scenario described in Question 3, does a school or community college district violate California law concerning the use of bond proceeds, even where the reimbursement is not an itemized component of the fees the district pays to the firm in connection with the bond sale?

5. Does an entity providing campaign services to a bond measure campaign in exchange for an exclusive agreement with the district to sell the bonds incur an obligation to report the cost of such services as a contribution to the bond measure campaign in accordance with state law?

CONCLUSIONS

1. A school or community college district violates California constitutional and statutory prohibitions against using public funds to advocate passage of a bond measure by contracting with a person or entity for services related to a bond election campaign if the pre-election services may be fairly characterized as campaign activity.

2. A school or community college district violates prohibitions against using public funds to advocate passage of a bond measure if the district enters into an agreement with a municipal finance firm under which the district obtains pre-election services (of any sort) in return for guaranteeing the firm an exclusive contract to provide bond-sale services if the election is successful, under circumstances where (a) the district enters into the agreement for the purpose (sole or partial) of inducing the firm to support the contemplated bond-election campaign or (b) the firm’s fee for the bond-sale services is inflated to account for the firm’s campaign contributions and the district fails to take reasonable steps to ensure the fee was not inflated.

3. In the case of an agreement as described in Question 2, a school or community college district violates California law concerning the use of bond proceeds if the district reimburses the municipal finance firm for the cost of providing pre-election services from the proceeds raised from the bond sale.

4. In the scenario described in Question 3, a school or community college district violates California law concerning the use of bond proceeds if the district reimburses the municipal finance firm for the cost of providing pre-election services from the fees the district pays to the firm in connection with the bond sale, whether or not the reimbursement is evident as a component of the fees the district pays to the firm in connection with the bond sale made on an itemized service-by-service basis.

5. Where an entity provides campaign services to a bond-measure committee in exchange for an exclusive agreement with the district to sell the bonds, the entity has an obligation to report the value of its services as a contribution to the bond-measure campaign in accordance with state law.

Citizens Bond Oversight Committees Make Recommendations on Project Labor Agreements

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My November 5, 2015 article published at www.UnionWatch.org entitled Will Citizens’ Bond Oversight Committees Crumble Against Union Power? outlines the history of Citizens’ Bond Oversight Committees in reviewing and making recommendations on proposed Project Labor Agreements at California school and community college districts.

What’s the latest addition to this history? On November 12, 2015, the Citizens’ Bond Oversight Committee for the Grossmont-Cuyamaca Community College District voted 7-1 to recommend against a proposed Project Labor Agreement for a $398 million bond measure. Here is the text of the resolution:


The Citizens Bond Oversight Committee for the Grossmont-Cuyamaca Community College District approved the following recommendation at a special meeting on Thursday, November 12, 2015 by a vote of 7 in favor of the motion, one opposed to motion, and one recused as follows:

Recommendation:

The CBOC has reviewed the concept of a Project Labor Agreement (PLA) and recognizes why some responsible and fully capable companies may choose not to bid certain projects if a PLA is required as part of the GCCCD construction contract. We believe that a PLA, if implemented with Proposition V, would discourage competitive bidding and may increase costs, impact how the bond money is used, and undermine the District’s efforts to maximize bond revenues and achieve cost savings. Also, it is apparent that under a PLA, local non-union workers (especially apprentices) will not be treated equally in comparison with union workers which would constitute a violation of the Board’s prior Bond resolution. Furthermore, evidence was presented to the CBOC indicating that without the use of a PLA, no significant problems occurred on the previous Proposition R bond projects and none are expected to occur on the Proposition V projects. Therefore, there is no substantial taxpayer interest that could reasonably require the District to establish a PLA for all of the Proposition V projects.

For these reasons and in order to maintain voter confidence of the District, the CBOC recommends that the Board of Trustees does not continue with its plan to require construction companies to sign a PLA or negotiate a PLA for Proposition V projects. Furthermore, we recommend that the District be open and transparent on future bond measures and tell the voters if a PLA is being considered at some point prior to the ballot going before the voters. We believe it irresponsible to implement a PLA based on the language in the current Bond.

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Nine Fall 2015 Commentaries on California School and College Bond Measures

Noir Photos of Junipero Serra Monuments and Imagery – You May Copy and Alter for Your Use

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You have permission to use the photos below for your writing or social media communications about Junipero Serra.

UPDATE: The 124-year-old Junipero Serra statue in Monterey was decapitated on October 14 or 15, 2015.

Junipero Serra Statue Beheaded 4

Junipero Serra Statue Beheaded 3


Junipero Serra Monument at Presidio of Monterey

Junipero Serra monument located at the Presidio of Monterey and dedicated in 1891. The dead “Tree of Gondor” was removed in September 2015.

Junipero Serra Statue - Jane Stanford commission - Presidio of Monterey

Junipero Serra monument located at the Presidio of Monterey and dedicated in 1891.

Junipero Serra Celtic Cross Monument in Monterey

Junipero Serra Celtic Cross monument located at his presumed landing site in Monterey and dedicated in 1905.

Carmel Mission Monument

Carmel Mission Monument

Palou's Life of Fray Junipero Serra

Palou’s Life of Fray Junipero Serra

San Joaquin-Delta Community College District on Verge of Violating Proposition 39 Requirements for Bond Measures

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I sent this email (below) on September 14, 2015 to the elected board of trustees, the top administrators, and the independent citizens bond oversight committee for the San Joaquin-Delta Community College District, based in Stockton.

The district wants to use $500,000 to develop a “facilities master plan” as a first step required by state law to ask voters to approve borrowing money via bond sales for facilities construction. That $500,000 would come from proceeds of bond sales authorized by voters in March 2004 as Measure L. Voters would consider the bond measure in 2018 or later.

A board vote on the proposal is scheduled for September 15, 2015. See the staff report: Request to Authorize the Creation and Funding of a “Facilities Master Planning Project” and to Authorize Contract Negotiations for Architectural Services to Develop the Campus & Facilities Master Planning Services

While this scheme sounds like an easy way to get money to hire an architectural firm to develop a plan for future bond measures, it appears to violate 15-year-old state laws (Proposition 39 and Assembly Bill 1908) that impose extra protections on bond measures that win voter approval at a 55 percent threshold.

Considering that the California State Controller and multiple county grand juries have criticized the district for inappropriate or questionable expenditures of bond proceeds authorized by Measure L, the district’s continued practice of using funds for expenditures that are ambiguously legal (at best) may compromise the willingness of voters to approve another bond measure for the district. Has the district taken into consideration the risk of negative public response to this proposed bond expenditure?

In 2016, California voters are likely to decide on a $9 billion statewide school construction bond measure and perhaps 150 or more local school and college construction bond measures. Would this expenditure add to the growing list of abuses of California school construction bond measures and thus contribute to jeopardizing passage of additional bond measures in 2016?


From: Kevin Dayton
Subject: To trustees, administrators, bond oversight committee for San Joaquin-Delta Community College District: Item 9J on 9/15 board meeting agenda may not be legal
Date: September 14, 2015 at 1:41:43 PM PDT
To: xxxx
Cc: xxx

Dear Board of Trustees, administrators, and Measure L Citizens Bond Oversight Committee for the San Joaquin-Delta Community College District:

At its September 15, 2015 meeting, the board will consider Item #9J, a proposal to spend $500,000 of bond proceeds from Measure L (approved by voters on March 2, 2004) for a newly-created “project” to develop a Facilities Master Plan. This plan will prepare the district for a bond measure to bring before voters in 2018 or later. Here is the item:

A. Authorize the creation of a new bond project entitled “Facilities Master Planning (FMP) Project” using Measure L Bond funds with an initial budget of $500,000 from bond program contingency.
B. Authorize negotiations with the top-ranked qualified architectural firm Gensler/LDA to provide the services to develop the campus and facilities master planning and possibly other capital planning and design services, per the Request for Qualification (RFQ) LA-RFQ-51.
C. Authorize the Superintendent/President or authorized designee to execute the final agreement following successful negotiations.
D. Qualify the other two (2) firms that were interviewed to provide services for the District for projects as needed.

Note that Article 13A, Section 1 of the California Constitution restricts how a community college district can spend borrowed money obtained through bond sales authorized through ballot measures approved by 55% of the voters under the criteria of Proposition 39 (2000). Bond proceeds can be used for “construction, reconstruction, rehabilitation, or replacement of school facilities, including the furnishing and equipping of school facilities, or the acquisition or lease of real property for school facilities.” And voters must be provided with a list of the specific school facilities projects to be funded by the bond measure.

Some questions you need to consider before approving the $500,000 in Measure L funds to be spent on creating a Facilities Master Plan for a future bond measure:

1. A list of specific intended projects to be funded by Measure L was provided to voters in the ballot information for the March 2, 2004 election. In this list of Measure L projects, which project describes the development of a Facilities Master Plan for another bond measure?

2. Is development of a Facilities Master Plan a legitimate “project” that can be funded by bond proceeds authorized by voters under the criteria of Proposition 39?

3. Is it reasonable to assume that voters who approved Measure L expected that the bond proceeds would be used to develop a Facilities Master Plan for another bond measure?

4. Is it fiscally responsible to borrow money from investors and pay them back over many years – with interest – to pay for development of a Facilities Master Plan for another bond measure?

5. Does the use of Measure L funds to develop a Facilities Master Plan for a future bond measure remain justified even if voters end up rejecting the bond measure(s) meant to fund the projects in that Facilities Master Plan?

6. What are the terms of maturity and interest rates for all of the bonds that provide the $500,000 in funding for this contract?

7. What is the total cost of developing the Facilities Master Plan if the district includes the interest that must be paid on the $500,000 in bond proceeds?

8. Has the district consulted with its Citizens Bond Oversight Committee for an assessment of whether this proposed specific expenditure of Measure L bonds complies with Proposition 39 and complies with what was presented to voters as Measure L in 2004?

Regardless of whether the San Joaquin-Delta Community College District is justified in seeking voter approval to borrow more money for construction, the district needs to follow the law when it spends borrowed money authorized by a previous bond measure. This proposal on the board’s September 15, 2015 meeting agenda is possibly illegal and needs thoughtful consideration.

Kevin Dayton
President and CEO
Labor Issues Solutions, LLC

Abuse of the California Environmental Quality Act (CEQA): 25 Fake Groups

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My July 31, 2015 article in www.UnionWatch.org lists 25 alleged community-based grassroots environmental organizations that in actuality are front groups for labor unions. There are surely more fake groups not yet identified.

These organizations object to environmental reviews of proposed projects until the project owners agree to sign a Project Labor Agreement (PLA) with unions to bind all construction contractors and their building trades employees. This abuse of environmental laws is called “greenmail” and has been going on in California since the late 1980s.

Labor unions are a prominent opponent of legislative proposals to change the California Environmental Quality Act (CEQA) to end exploitation of this law to achieve economic objectives unrelated to environmental protection. CEQA is a labor law, used to organize workers into union representation when the National Labor Relations Act (NLRA) doesn’t provide enough firepower.

Read the article California Unions Masquerade as Community-Based Environmental Groups – www.UnionWatch.org – July 31, 2015

 

News Coverage: California Voters Must Be Wary of More Borrowing Via Bond Sales for School and Community College Construction

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In July 2015, the California Policy Center released a 361-page report For the Kids: California Voters Must Become Wary of Borrowing Billions More from Wealthy Investors for Educational Construction. (Links to individual sections are below.)

For the Kids - California Voters Must Become Wary of Borrowing Billions More from Wealthy Investors for Educational ConstructionAs of August 26, 2015, the report has received the following news media coverage:

Six California School Districts Will Ask Voters on November 3 to Borrow $1.2 Billion From Bond Investors – commentary by Kevin Dayton – Flash Report – August 17, 2015

Unions Seek Control of Recent California School Bond Measures – commentary by Kevin Dayton – Union Watch – August 11, 2015

School Bonds May Equal Taxpayer BondageVictorville Daily Press – August 8, 2015

California Schools Stick Taxpayers with $149 Billion in Bond Debt – Breitbart News – August 5, 2015

California is in Huge Debt Hole Because of School Bonds – KFBK News Radio 1530 AM/93.1 FM in Sacramento – August 4, 2015

“For the Kids” Borrowing Will Saddle Kids with Debt – opinion piece by Gloria Romero in Orange County Register – August 4, 2015

Tough Education Reform, not More Borrowing and Spending, is What Students Need – commentary by Ed Ring – Union Watch – August 4, 2015

Specter of School Bonds Is Haunting Californians – opinion piece by Ed Ring in Sacramento Bee – August 2, 2015

Statewide Report Criticizes Passage of School Bonds – lead story in California League of Bond Oversight Committees Review – July 29, 2015

Doing the Math, Bond Debt for California Schools May Not Pencil OutModesto Bee – July 28, 2015

First look: Poll finds support for testing — Pell grants for prisoners — Washington state chief: Put more dollars into education – Politico (Morning Education) – July 28, 2015

School Bond Proposal Stirs California DebateThe Bond Buyer – July 27, 2015

Report: Voters Better Start Learning How Construction Bonds WorkLA School Report – July 27, 2015

Deceptive Ballot Language for Solano College Bond Measure Not Unusual – opinion piece by Kevin Dayton in Vacaville Reporter – July 25, 2015

Statewide Report Criticizes Passage of School BondsFresno Bee – July 24, 2015 (reprinted as Report Criticizes Passage of School Bonds in California in Education Week – July 27, 2015)

Here are links to each section of the report:

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My Comments Posted on www.DamTrain.com – New California High-Speed Rail Website

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Councilman Brandau: Thank you for your leadership in developing this DamTrain campaign to remind Californians that the $68 billion High-Speed Rail project between San Francisco and Los Angeles (scheduled to be finished in 2029) is a misplaced priority.

You and all of the people who signed the petition need to overcome three major obstacles:

1. Big-Money Interests: The California High-Speed Rail Authority benefits politically from the power and money of major construction and transportation infrastructure corporations and labor unions. See the top-40 donors to Proposition 1A at http://californiahighspeedrailscam.com/top-40-donors-to-main-campaign-committee-to-convince-california-voters-to-borrow-10-billion-to-start-building-high-speed-rail-proposition-1a-november-2008/

2. Ideology/Philosophy/Theology: California High-Speed Rail is a fundamental component of a movement to stop global climate change while moving society away from capitalism and toward social democracy. A significant percentage of Californians are committed to this movement and will never be turned away from their support for this project.

3. Culture Clash: People of the coastal cities and people of the inland rural areas have sharply different views on California High-Speed Rail. (Note that Prop 1A in 2008 won the support of 78% of voters in San Francisco while winning only 53% statewide.) These are two different cultures, and each one has disdain for the other. Supporters of high-speed rail sometimes portray themselves as bringing the gift of civilization and enlightenment to what one commenter on this site rudely describes as “the backwards-thinking Central Valley…” And the people of the Central Valley are aware of this condescending attitude and don’t appreciate outsiders trying to change their “way of life.” Common ground is elusive.

Current strategies challenging the project as it is advancing now: (1) advance credible lawsuits pointing out that the state is not complying with what the voters approved in 2008 as Proposition 1A; (2) limit or prevent federal and state funding for the ongoing operations of the California High-Speed Rail Authority; (3) make California legislative candidates accountable to the voters in 2016 for their support of California High-Speed Rail at the expense of other priorities; (4) identify generous sources of funding to qualify a statewide ballot proposition to amend or repeal Proposition 1A and its authority for the state to borrow $9 billion via bond sales for high-speed rail.

DamTrain makes California voters aware in 2015 that supporting high-speed rail while neglecting water storage and conveyance is a poor policy choice. In the 2016 elections, California voters will learn which candidates support this poor policy choice.

Memorial Day 2015

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American Flag Old Monterey 2015