First Swipe at San Diego Unified School District’s Proposed $2.8 Billion Bond Measure Under a Project Labor Agreement: San Diego Union-Tribune Opinion Piece – A Bond Is Not Free Money

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Today’s San Diego Union-Tribune (August 3, 2012) includes a sharp opinion piece from Eric Christen, executive director of the Coalition for Fair Employment in Construction, entitled “School District’s Bond Measure Not ‘Free Money’.'”

He uses two arguments as a basis to oppose the proposed $2.8 billion bond measure for school construction that the San Diego Unified School District’s Board of Education placed on the November 6, 2012 ballot with a resolution at its July 24, 2012 meeting.

1. Bonds Are Not Free Money; They Are Borrowed Money. Property Owners Large and Small Pay Taxes So Investors Get Back the Principal Plus Interest and Transaction Fees.

Eric points out to uninformed and confused readers that voting for school bonds does NOT mean getting free money from the government. This is actually money obtained through arrangements with brokerage firms, borrowed from investment banks and insurance companies, and paid back through taxes assessed on property owners in the school district. People will pay back these bonds, along with the interest and transaction fees, when they pay their property tax bills to San Diego County.

Eric also points out that the dastardly “One Percent” invests in these bonds, and they want their money back, with interest and fees. They don’t do it for the children, either. They do it to get rich and stay rich.

How does this work in practice? As one example, the San Diego County Counsel’s Impartial Analysis of the $2.1 billion bond measure approved by voters as Proposition S in November 2008 for the San Diego Unified School District indicated that the interest rate for any bond authorized by Proposition S could be as high as 12 percent. In addition, the maturity period for any bond authorized by Proposition S could range from 25 years to 40 years.

In a future post, I will analyze the specific bond sales to date authorized by Proposition S.

Another interesting angle with the new proposed $2.8 billion bond is the possibility that the San Diego Unified School District may choose to sell Capital Appreciation Bonds (CABs), in which the investors get the principal plus compound interest in one lump sum at the end of the maturity period, rather than getting a regular interest payment. Meanwhile, the tax burden with these bonds is often backloaded to the end of the maturity period.

In other words, babies born in 2012 could be socked with huge property taxes if they own a house in San Diego from 2050 to 2060. (The current school board will probably be deceased and not accountable to the voters at that time for their decision in 2012.) I write about the growing, dangerous popularity of Capital Appreciation Bonds among California school districts in some of my earlier posts (here and here).

Unions Will Control the Construction with a Project Labor Agreement

While it’s future generations that may end up paying the bulk of this proposed new $2.8 billion school bond (costing perhaps $5 billion total, including the interest and transaction fees), the current generation of parents and students will see their construction program compromised by a government-mandated Project Labor Agreement that cuts bid competition and increases costs for the benefit of construction unions.

The Board of Education has already passed a resolution (also on July 24, 2012) indicating that contractors working on projects over $1 million under the proposed new bond will indeed be required by the school district to sign a Project Labor Agreement with unions as a condition of work. It is titled “Resolution Regarding Project Stabilization Agreement (PSA) for Future Local Bonds’ School Construction, Repairs, and Renovation and Addendum Three to PSA to Extend the PSA to Future Local Bonds.”

That can mean four schools for the price of five. For more information about measuring the cost of Project Labor Agreements, see the July 2011 study by the the National University System Institute for Policy Research about the costs of California school construction under Project Labor Agreements. By far the most comprehensive analysis of the cost of Project Labor Agreements on taxpayer-funded construction, the study had this conclusion:

Our research shows that PLAs are associated with higher construction costs. We found that costs are 13 to 15 percent higher when school districts construct a school under a PLA. In inflation-adjusted dollars, we found that the presence of a PLA is associated with costs that are $28.90 to $32.49 per square foot higher.

Will San Diego residents coming out to vote for President Barack Obama in the November election simply vote for another property tax increase for union-controlled construction at the San Diego Unified School District? The Board of Education is guessing they will.

2 comments

  1. amanaplanacanalpanama says:

    A notable portion of your presentation is where you indicate that it is PROPERTY OWNERS that pay the interest and principle on these long-term bonds. That would lead someone to think that folks benefiting from the bond money but that do not own property are getting a free ride. Can you clarify that?

    • Kevin Dayton says:

      There will be not be a free ride for Californians who don’t own property until the state passes a law that prohibits landlords from raising rents to pay for higher property taxes and prohibits stores from raising prices to pay for higher property taxes. Note that this idea is not that outlandish, as Assembly Bill 1326 (introduced in 2011) proposed the assessment of an oil severance tax but included this provision:

      §42013. (a) The tax imposed by this part shall not be passed through to consumers by way of higher prices for oil, natural gas, gasoline, diesel, or other oil or gas consumable byproducts, such as propane and heating oil. The board shall monitor and, if necessary, investigate any instance where producers or purchasers of the oil or gas have attempted to gouge consumers by using the tax as a pretext to materially raise the price of oil, natural gas, gasoline, diesel, or other oil or gas consumable byproducts, such as propane and heating oil.

      As I remarked in my article on http://www.FlashReport.org entitled Culture Clash: The “Bakersfield Oil Field to Berkeley Sports Field Tax”, can you imagine a gaggle of student activists and union officials coming together under the auspices of the state government to determine if an oil producer is trying to “gouge consumers” through higher prices? This board is likely to issue regular public announcements that “greedy oil companies” are trying to pass the costs of the tax increase to their customers.

      But note that there is a supermajority of 55 percent approval required to pass certain school bond measures. Proposition 13 had set that threshold at two-thirds, but voters approved Proposition 39 in 2000 to reduce that threshold to 55% if certain conditions are met. The Howard Jarvis Taxpayers Association explains the rationale for the supermajority on its web site here:

      Q. What’s the link between Proposition 13 and the “two-thirds vote protection”?

      A. Proposition 13 protects homeowners — and all taxpayers — by requiring a two-thirds vote to pass certain tax increases, including the state sales and income tax. The intention of the supermajority requirement is to have a system whereby taxes cannot be raised too easily, or too often.

      The two-thirds vote protection is particularly critical when it comes to property taxes. Since local taxes are approved by local voters, it’s obviously unfair if a tax can be passed by people who don’t have to pay that tax. Yet that intense unfairness is becoming possible as a pro tax coalition makes inroads into the two-thirds vote protection.

      In 2000, Proposition 39 was narrowly approved after a massively expensive campaign put on largely by a handful of Silicon Valley billionaires who might well have been trying to get homeowners to pick up the slack for their own high-tech corporate tax breaks.

      Proposition 39 changed the two-thirds vote for certain bonds to 55% — making it far too easy to pass these bonds, since they are paid back only through increased property taxes. And they impose a long-term debt, up to 30 years, that’s essentially the same as a second mortgage on a home.

      Without the two-thirds vote requirement, one of these second-mortgage bonds can now be passed by people who won’t pay the tax and in fact are getting more from the government than they pay in taxes.

      After Proposition 39 took away the two-thirds vote protection for these bonds, localities quickly passed almost $30 billion in such bonds — debt that homeowners will be burdened with long after they’ve paid off their homes.

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