Tag Archive for California State Treasurer

Revised: A Timeline of Activity Concerning What Will Be $9.95 Billion Borrowed through Proposition 1A Bond Sales for California High-Speed Rail

UPDATE – April 13, 2014: I’ve added information at the bottom of the chart below based on two additional Official Statements issued by the State of California since I wrote the original article.

“Long-Term Bonds Outstanding” for California High-Speed Rail Prop 1A remained at $703,530,000 as of September 1, 2013 but dropped (for the first time) to $623,705,000 as of February 1, 2014.

I presume some of the money borrowed by the State of California through these bond issues is being used to fund the “connectivity projects” authorized for $950 million in a part of Proposition 1A (now California Streets and Highways Code Section 2704.095):

2704.095. (a) (1) Net proceeds received from the sale of nine hundred fifty
million dollars ($950,000,000) principal amount of bonds authorized by this
chapter shall be allocated to eligible recipients for capital improvements to
intercity and commuter rail lines and urban rail systems that provide direct
connectivity to the high-speed train system and its facilities, or that are part of
the construction of the high-speed train system as that system is described in
subdivision (b) of Section 2704.04, or that provide capacity enhancements and
safety improvements. Funds under this section shall be available upon
appropriation by the Legislature in the annual Budget Act for the eligible
purposes described in subdivision (d).

SB 1029 (enacted in July 2012) appropriated $819,333,000 for state, regional, and local agencies other than the California High-Speed Rail Authority to help fund connectivity projects. (Note: this does not include the $1,100,000,000 appropriated for “bookend” projects, which includes $600,000 to electrify and update the Caltrain rail system and $500,000 to upgrade unspecified rail systems under a Southern California Memorandum of Understanding with the California High-Speed Rail Authority.)

Some questions to which I don’t know the answers:

  1. Why did the amount for “Long-Term Bonds Outstanding” go down between September 1, 2013 and February 1, 2014?
  2. How was the California State Treasurer able to issue bonds under Proposition 1A before the state legislature appropriated money in July 2012?
  3. Have any of the proceeds from Prop 1A bonds been spent on “bookend projects?” What happens if some of the $1.1 billion appropriated for “bookend” projects is spent but doesn’t become part of the California High-Speed Train System in the end? Will that money be transformed into connectivity funding?

Are the $1,274,000,000 in appropriations listed below for “Connectivity?” Or are they for “Bookends?” (Only $950,000,000 Can Be Spent Outside of High-Speed Train Service)

$706,000,000 Peninsula Corridor Joint Powers Board (Caltrain) – Electrification Installation of an electric rail system that phases out diesel trains and blends the Caltrain system with the high-speed rail line. With matching funds, total spending is $1.456 billion.
$42,000,000 Peninsula Corridor Joint Powers Board (Caltrain) – Advanced Signaling System: Communications Based Overlay Signal System (CBOSS) Positive Train Control (PTC) Project Design, installation, testing, training and warranty for an intelligent network of signals, sensors, train tracking technology, computers, etc. on the Caltrain Corridor to meet mandated federal guidelines. With funds from BART and the Santa Clara Valley Transportation Authority, total spending is $231 million. This work began in September 2013.
$26,000,000 Santa Clara Valley Transportation Authority (Caltrain) – Advanced Signaling System: Communications Based Overlay Signal System (CBOSS) Positive Train Control (PTC) Project Design, installation, testing, training and warranty for an intelligent network of signals, sensors, train tracking technology, computers, etc. on the Caltrain Corridor to meet mandated federal guidelines.
$500,000,000 Southern California Memorandum of Understanding Regional rail projects that improve local networks and facilitate high-speed rail travel to Southern California. Projects will be selected by local transit agencies, in conjunction with the High-Speed Rail Authority, and state funding will be matched by additional investments to make the total investment in these projects $1 billion.

Original Post – May 13, 2013: It seems that 99.999% of Californians are unaware of how, when, and how much the State of California has borrowed for California High-Speed Rail by selling bonds to investors. My requests at two board meetings of the California High-Speed Rail Authority to be open and transparent about the details of the bond sales – even to the point of having an agenda item at each meeting dedicated to the topic – have been ignored, of course. Their strategy is to keep the public and the news media uninformed, probably because the details are not comforting.

It appears the California State Treasurer has sold about $700 million worth of Proposition 1A bonds to date. While early bond sales for California High-Speed Rail appear to be segregated from bond sales for other purposes, recent sales suggest that California State Treasurer Bill Lockyer was correct when he said the high-speed rail bonds were “mixed together” with bonds for other purposes. That was his response to my questions at the California League of Bond Oversight Committees annual conference on May 10, 2013. Someone in the bond industry told me this mixing was “unusual,” but perhaps we’re misunderstanding what’s going on.

People have asked me how the state was able to sell California High-Speed Rail bonds before the legislature and governor first authorized the sale of bonds in July 2012. I do not know.

I have not been able to figure out how much in interest has been paid so far, where the money was obtained to pay the interest so far (perhaps appropriations for the California High-Speed Rail Authority from the General Fund?), and the current debt service on the bonds.

Basically, we’re all ignorant peons left in the dark by the forces that control everything.

Here’s a preliminary timeline of activity concerning bond sales for California High-Speed Rail, with links to source documents. It’s nothing great, but it’s a step in the right direction for people to fill in the blanks and try to figure out what’s going on. If you see a mistake or know something to be added to it, please let me know.

Amount Borrowed Through Bond Sales (Principal, Does Not Include Interest) Date and Action Link to Source Documents
$0 August 26, 2008 – Governor Schwarzenegger signs into law Assembly Bill 3034, which puts the “Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century” (Proposition 1A) on the November 4, 2008 California ballot. According to the bill, the state would borrow $9.95 billion through bond sales in order to “encourage the federal government and the private sector to make a significant contribution toward the construction of the high-speed train system.” Borrowed money would be available for the California High-Speed Rail Authority to spend under specified conditions and criteria for planning, land acquisition, design, engineering, and construction. The California High-Speed Rail Authority would be required to pursue and obtain other private and public funds, including, but not limited to, federal funds, funds from revenue bonds, and local funds. The California State Treasurer would sell the bonds as authorized by an appointed California High-Speed Passenger Train Finance Committee under terms and conditions specified in committee resolutions. Bonds could have a maturity period as long as 40 years. The committee would consider program funding needs, revenue projections, financial market conditions, and other necessary factors in determining the term for the bonds to be issued. Each year, the state would collect taxes and fees for the General Fund that would pay principal and interest to bond investors. In addition, the board of the California High-Speed Rail Authority could request a loan from the Pooled Money Investment Board to make a loan against the amount of authorized but unsold bonds. Assembly Bill 3034 – Proposition 1A
$0 November 4, 2008 – 52.7% of California voters (including 78.4% of San Francisco voters) approve Proposition 1A. November 2008 Election Results
$0 January 16, 2009 – the High-Speed Passenger Train Finance Committee approves Resolution I under the Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century, authorizing the issuance of State of California High-Speed Passenger Train Bonds or Commercial Paper Notes in the principal amount not to exceed $32,010,000. The committee also approved Resolution II under the Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century, authorizing the issuance of State of California High-Speed Passenger Train Refunding Bonds in the aggregate principal amount outstanding not to exceed $32,010,000. January 16, 2009 Minutes – Resolution I – Resolution II
$0 February 1, 2009 – Long Term Bonds Outstanding State Public Works 2009
$0 April 6, 2009 – “The High Speed Rail Authority had been financed via a commercial paper issue.” April 6, 2009 Minutes
>$0< April 15, 2009 – the High-Speed Passenger Train Finance Committee approves Resolution III under the Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century, (i) amending the provisions of Resolution I authorizing the issuance of State of California High-Speed Passenger Train Bonds or Commercial Paper Notes in the principal amount not to exceed $32,010,000, and (ii) authorizing the issuance of State of California High-Speed Passenger Train Bonds or Commercial Paper Notes in the principal amount not to exceed (a) the principal amount unissued under Resolution I of $32,010,000 and (b) an additional principal amount not to exceed $448,790,000, for a total principal amount not to exceed $480,800,000. The Committee also approves Resolution IV under the Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century, authorizing the issuance of State of California High-Speed Passenger Train Refunding Bonds in the aggregate principal amount outstanding not to exceed $480,800,000. April 15, 2009 Minutes – Resolution III – Resolution IV
$90,045,000 April 22, 2009 – the California State Treasurer sells $90,045,000 of Safe Reliable High Speed Passenger Train 21st Century Series A Build America Bonds, Federally Taxable.CDIAC Number: 2009-0940 Standard & Poor’s Rating: A Moody’s Rating: A2 Fitch Rating: A –Term: 30 years Rate: VAR%

At the August 6, 2009 board meeting, the Authority executive director noted that this money was a piece of a $4-5 billion state bond sale and would be used by the Authority in FY 2009-10.

2009 Annual Report
$90,045,000 July 1, 2009 – Long Term Bonds Outstanding 2009 Treasurer Publication
$90,045,000 August 1, 2009 – Long Term Bonds Outstanding Official Statement
$90,045,000 October 1, 2009 – Long Term Bonds Outstanding Official Statement
$258,395,000 October 8, 2009 – the California State Treasurer sells $168,350,000 of Safe Reliable High Speed Passenger Train 21st Century Series B Build America Bonds, Federally Taxable. CDIAC Number: 2009-1481 Standard & Poor’s Rating: A Moody’s Rating: Baa1 Fitch Rating: BBB Term: 30 years Rate: 6.933% 2009 Annual Report
$258,395,000 January 20, 2010 – the High-Speed Passenger Train Finance Committee amends Resolution III with resolution V and Resolution IV with Resolution VI. These two resolutions reflect changes to the General Obligation Bond Law that became effective January 1, 2010, and other technical amendments. January 20, 2010 Minutes – Resolution V – Resolution VI
$258,395,000 February 1, 2010 – Long Term Bonds Outstanding Official Statement
$258,395,000 June 30, 2010 – Long Term Bonds Outstanding Official Statement
$258,395,000 October 1, 2010 – Long Term Bonds Outstanding >Official Statement
$309,060,000 November 19, 2010 – the California State Treasurer sells $50,665,000 of Safe Reliable High Speed Passenger Train 21st Century Series C, Federally Taxable.CDIAC Number: 2010-1714Standard & Poor’s Rating: A-Moody’s Rating: A1Fitch Rating: A –Term: 30 yearsRate: 7.438% 2010 Annual Report
$410,050,000 November 22, 2010 – the California State Treasurer sells $100,990,000 of Safe Reliable High Speed Passenger Train 21st Century Series D. CDIAC Number: 2009-1695Standard & Poor’s Rating: A-Moody’s Rating: A1Fitch Rating: A-Term: 30 yearsRate: 5.133% Official Statement – see earlier Official Statement
$410,050,000 June 30, 2011 – Long Term Bonds Outstanding 2011 Annual Report
$410,050,000 September 21, 2011 – High-Speed Passenger Train Finance Committee approves Resolution VII, which amends Resolution III authorizing the issuance of State of California High-Speed Passenger Train Bonds or Commercial Paper Notes in the principal amount not to exceed $480,800,000, and (ii) authorizing the issuance of State of California High-Speed Passenger Train Bonds or Commercial Paper Notes in the principal amount not to exceed (a) the principal amount unissued under Resolution III of $70,750,000 and (b) an additional principal amount not to exceed $59,250,000, for a total principal amount not to exceed $130,000,000. The Committee also approves Resolution VIII under the Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century, authorizing the issuance of State of California High-Speed Passenger Train Refunding Bonds in the aggregate principal amount outstanding not to exceed $540,050,000. September 21, 2011 Minutes – Resolution VII – Resolution VIII
$410,050,000 August 1, 2011 – Long Term Bonds Outstanding Official Statement
$499,285,000 October 25, 2011 – the California State Treasurer to sell $91,225,000 of Safe Reliable High Speed Passenger Train 21st Century bonds as Series E. Official Statement
$499,285,000 November 1, 2011 – Treasurer Lockyer Comments on Revised High-Speed Rail Business Plan. November 1, 2011 Press Release
$499,285,000 January 1, 2012 – Long Term Bonds Outstanding Official Statement
$499,285,000 February 1, 2012 – Long Term Bonds Outstanding Official Statement
$499,285,000 June 30, 2012 – Long Term Bonds Outstanding 2012 Annual Report
$499,285,000 July 18, 2013 – As required under Proposition 1A, Governor Jerry Brown signs into law Senate Bill 1029, which appropriates $2,609,076,000 in Proposition 1A funds plus $3,240,676,000 in federal funds for the first operating segment of the High-Speed Rail between Madera and Bakersfield, $1,100,000,000 for “Bookend” funding, $106,000,000 to CalTrans for capital improvement projects to intercity and commuter rail lines and urban rail systems that provide direct connectivity, and an appropriation of $713,333,000 for “Connectivity” funding. Senate Bill 1029 (2012)
$499,285,000 February 1, 2013 – Long Term Bonds Outstanding Official Statement
$499,285,000 March 18, 2013 – California High-Speed Rail Authority approves Resolutions #13-03 and #13-04 requesting the California High-Speed Passenger Train Finance Committee to authorize the sale of $8,599,715,000 in bonds. Resolution #13-03 – Resolution #13-04
$499,285,000 March 18, 2013 – the High-Speed Passenger Train Finance Committee approves Resolution IX and Resolution X to authorize sale of $8,599,715,000 in bonds. Resolution X
$499,285,000 March 29, 2013 – the High-Speed Passenger Train Finance Committee previously adopted Resolution III authorizing the issuance of State of California High-Speed Passenger Train Bonds or Commercial Paper Notes in the Principal Amount Not to Exceed $480,800,000 (“Resolution III”) and Resolution VII authorizing the issuance of State of California High-Speed Passenger Train Bonds or Commercial Paper Notes in the Principal Amount Not to Exceed $130,000,000 (“Resolution VII”). As of March 29, 2013, the State had issued $100,990,000 State of California High-Speed Passenger Train Bonds, Series D, currently outstanding in the principal amount of $99,000,000 (the “Resolution III Bonds”) pursuant to Resolution III. $38,775,000 remains in principal amount of bonds or commercial paper notes under Resolution VII, and the Committee now desires to authorize the issuance of bonds to refund any bonds issued from time to time under Resolution VII (the “Resolution VII Bonds”). Resolution XI
$538,060,000 April 11, 2013 – the California State Treasurer to sell $38,775,000 of Safe Reliable High Speed Passenger Train 21st Century bonds as Series F. Official Statement
$703,530,000 April 11, 2013 – the California State Treasurer to sell $165,470,000 of Safe Reliable High Speed Passenger Train 21st Century bonds as Series G. Official Statement
$703,530,000 September 1, 2013 – Long Term Bonds Outstanding Official Statement
$623,705,000 February 1, 2014 – Long Term Bonds Outstanding Official Statement

Five Winning Issues for a Republican Candidate for California State Treasurer – My Article in www.FlashReport.org

San Francisco Chronicle columnist Debra Saunders began her January 15, 2014 column “Who Wants to Lose to Gov. Jerry Brown?” with the following observation:

How near death is the California Republican Party? It’s this bad. Democrats hold every statewide office. Term limits have opened up a few offices; still, no serious Republican plans to run for attorney general, lieutenant governor, treasurer or controller this year. If the lead Democrat for any of those offices dies in September, there will be no Republican in the race to win in November.

Saunders identified two Republicans “fighting over the honor of losing to Gov. Jerry Brown,” (Tim Donnelly and Abel Maldonado, who dropped out two days later), a state senator running for Insurance Commissioner (Ted Gaines), and a public policy institute director running for Secretary of State (Pete Peterson). She also pointed out the lack of Republican candidates to challenge the weak Democrat incumbents for Lieutenant Governor and Attorney General and to run for the open seats for Controller and Treasurer.

This column inspired me to write a commentary posted on www.FlashReport.org today (January 20, 2014): “It’s Winnable! Conditions Are Ripe for a Republican to Get Elected in 2014 as California State Treasurer.” I provide five issues “for a libertarian populist-style Republican who can credibly argue to The People against crony capitalism and build a majority coalition of support from voters on the Left and Right.”

Are you such a potential candidate?

My Public Comments on Bond Finance for California High-Speed Rail Entered into Record for Pivotal Bond Validation Lawsuit

My March 15, 2013 written comments to the California High-Speed Passenger Train Finance Committee outlining several concerns about its plans for bond financing were the ONLY written comments submitted to the committee before its March 18, 2013 meeting, at which it authorized borrowing more than $8 billion for California High-Speed Rail through bond sales (a requirement under Proposition 1A).

In addition, I was one of four people to speak in person at the March 18, 2013 California High-Speed Passenger Train Finance Committee meeting at which committee members voted to authorize the bond sales.

My written and oral comments to the California High-Speed Passenger Train Finance Committee have been entered into the record for the validation lawsuit (High Speed Rail Authority et al. v. All Persons Interested et al. – Case No. 2013-00140689) filed on March 19, 2013 in Sacramento County Superior Court concerning the legal validity of the bond sales. My comments help to boost the case of the respondents (“All Persons Interested”) that the California High-Speed Passenger Train Finance Committee failed to fulfill its legal responsibilities under Proposition 1A before it authorized the bond sales.

My written comments are submitted to the court as Exhibit G (public comment letter to the HSPT Finance Board by Kevin Dayton, March 15 , 2013) in the August 19, 2013 declaration of Rita Wespi of Californians Advocating Responsible Rail Design (CARRD) based in Palo Alto. Her declaration states that “Based on a series of Public Records Act requests I submitted to the High-Speed Rail Authority and the High-Speed Passenger Train Finance Committee, it is my opinion that the Finance Committee voted to approve over eight billion dollars of state bonds with little more information than a resolution from the High Speed Rail Authority.”

The declaration goes on to state the following:

On March 25, 2013, I made a similar request of the HSPT Finance Committee for “copies of all reports, analyses and recommendations provided to the HSPT Finance Committee members.”

Mr. Mark Paxson, General Counsel for the Treasurer’s Office, replied that “other than the agendas, resolutions and minutes from the prior meeting that are due for approval, there are typically no other documents provided to Finance Committee members prior to their meetings.”

In his response, Mr. Paxson stated that, for the March 18 committee meeting, the HSPT Finance Committee received in total one public comment letter and a briefing memo from the Public Finance Division’s staff. The staff briefing memo simply reiterated the agenda.

The March 15, 2013 public comment letter requested the Finance Committee to add language to Resolutions IX and X which would a) prohibit 40-year terms of maturity, and b) prohibit the use of Capital Appreciation Bonds. The letter argued that without this language, the bond sales and resulting repayment schedule would deviate from what was described in the 2008 voter guide for Proposition 1A. To the best of my knowledge, this letter was not acknowledged or discussed by the Finance Committee.

The declaration is correct: the only indications that my public comment was received was a subsequent email dated March 20, 2013 from Timothy Aguirre in the State Treasurer’s office informing me that “The State Treasurer’s Office will be holding the High-Speed Passenger Train Finance Committee meeting on Friday, March 29, 2013 at 2:00 pm at STO Room 587. Please see the attached meeting agenda” and a March 25, 2013 email from a general mailbox for the State Treasurer’s Office stating “You have indicated you would like to be contacted on items relating to the High Speed Passenger Train Finance Committee. The resolutions to be taken up during the March 29th meeting have been posted to the State Treasurer’s website.  You can find the resolutions by following the web link provided below. http://www.treasurer.ca.gov/financial/meeting.asp.”

My comments in person at the California High-Speed Passenger Train Finance Committee meeting on March 18, 2013 were submitted as Exhibit A (transcript of the meeting) as part of an August 19, 2013 declaration of Kathy Hamilton of Menlo Park, who writes articles about California High-Speed Rail for the Examiner web site.

Kevin Dayton: Note: Tape was turned on a little late, missing his intro. Kevin is CEO of
Labor Issues Solutions.

“Will the bonds be sold separately or at the same time for state bonds for other purposes? What rate do you expect to sell them at? I heard the chairman say 6.25% but I’m going to guess that was probably made that number up out of his head. The bonds selling last week were between 3.5 and 3.8%, something like that. I’d like to hear more about what you think you will get out of this. How will the bonds be structured? Will we be selling capital appreciation bonds at all for this? If the lawsuit that is coming up in Kings County is lost by the High-Speed Rail Authority and you’ve sold bonds, what happens to the money? These are questions I think that regular Californian who voted for this want to know. [They want to know] a lot more about this. We need to know a lot more about this [because] it’s a lot of money for us especially when you consider the interest etc will be about $20 billion [interest on bond funds] total for the whole thing. Thank you.”

Carol Ferris breaks in: “I’d like to thank you for your comments. I would also like to say that the purpose of this is to hear public comment and certainly the committee members can then take your comment into consideration. It’s not a question and answer session at this time.”

As noted in Kathy Hamilton’s declaration about the California High-Speed Passenger Train Finance Committee, “There was no evidence presented, questions asked or witnesses called. There were no discussions that the approval of the High-Speed Rail resolution was necessary or desirable. There were no discussions at all…none of the appointed committee members were in attendance, and all were substitute representatives.”

In other words, it was a farce. My article California High-Speed Rail: One-Way Ticket to Debt in www.FlashReport.org on March 25, 2013 described my experience speaking at the March 18, 2013 meetings of the California High-Speed Rail Authority and the California High-Speed Passenger Train Finance Committee. Also related to this meeting are my March 15, 2013 post Message to California High-Speed Rail Authority and California High-Speed Passenger Train Finance Committee: No 40-Year Bonds, No Capital Appreciation Bonds, What If You Lose Lawsuit? and my March 30, 2013 post Reality of Crushing Public Debt from Bond Sales Eclipses the Fantasy Vision of California High-Speed Rail.

Additional Background on Bond Validation Lawsuits

Documents filed in California High-Speed Rail Bond Validation Lawsuit – on the web site of Transportation Solutions Defense and Education Fund (TRANSDEF)

Sacramento Judge Has a Full Plate of Rail LawsuitsFresno Bee – September 9, 2013

Legal Challenges Plague the California Rail Projectwww.Examiner.com, by Kathy Hamilton – September 8, 2013

Bullet Project Attempts Legal Maneuver to Limit Damage by Lawsuits – www.Examiner.com, by Kathy Hamilton – April 2, 2013

California’s High-Speed Rail Authority Sues Everybody, Invites You to Argue Case in CourtSan Jose Mercury-News – March 28, 2013

2013 Annual Conference of California League of Bond Oversight Committees Highlights Current Controversies on Municipal Bond Sales for Schools (and High-Speed Rail)

I’m on the Advisory Board of the California League of Bond Oversight Committees (CalBOC), which held its annual conference today (May 10, 2013) in Sacramento. To improve public accountability for California K-12 and community college construction programs funded by money borrowed through bond sales, this non-partisan organization improves the training and resources available to bond oversight committees; educates the state legislature, local school boards, and the public about the oversight and reporting authority of bond oversight committees; and advocates on a state level, where appropriate, on issues of common concern to bond oversight committees.

California League of Bond Oversight Committees Logo 2013

Citizens’ Bond Oversight Committees were established through a section of Proposition 39 in 2000 that became California Education Code Sections 15278-15282Michael Day, president and co-founder of the California League of Bond Oversight Committees, said that attendees should “go with the knowledge that you’re doing good things” as ordinary California citizens. Day kicked off the 2013 conference by asserting that “spending wisely shouldn’t be a partisan issue.” (I would have added that spending foolishly doesn’t seem to be a partisan issue.)

Presenting first at the conference were two finance and business administrators from the Santa Ana Unified School District, which is getting criticized for borrowing $35 million in 2009 by selling Capital Appreciation Bonds at an almost 10:1 debt-service-to-principal ratio. In addition to suggesting that Capital Appreciation Bond sales can be a valid business decision under certain conditions, they insinuated that school districts know best how to sell their bonds, and perhaps the state legislature is needlessly interfering in their own local affairs. To boost their case, they asked two rhetorical questions to show the arbitrary nature of the provisions in Assembly Bill 182 that would restrict school district sales of Capital Appreciation Bonds:

1. What’s the proper maximum maturity period for school bonds?

(AB 182 proposes 25 years)

2. What’s the proper maximum ratio of debt-service-to-principal on school bonds?

(AB 182 proposes 4:1)

Following their presentation was Assemblywoman Joan Buchanan (D-San Ramon), who introduced Assembly Bill 182 to restrict the sale of Capital Appreciation Bonds. (The bill passed the Assembly on April 8, 2013 with a 75-0 vote.) Catching my attention during her speech was her assertion that the legislature should expand state-mandated performance reviews for school bond measures to include such items as an examination of the school district’s labor compliance program. Knowing how the old labor compliance program laws and regulations had changed starting in 2009, I asked what she meant. Assemblywoman Buchanan said that the State Allocation Board had discovered that some school districts had applied for and received state reimbursement for labor compliance program expenses but weren’t actually following the state requirements and didn’t deserve the reimbursement.

California State Treasurer Bill Lockyer Speaks at 2013 California League of Bond Oversight Committees Conference

California State Treasurer Bill Lockyer speaks at the 2013 California League of Bond Oversight Committees annual conference.

California State Treasurer Bill Lockyer was the keynote speaker. He declared that the Poway Unified School District officials who engineered its notorious 2009 Capital Appreciation Bond sales were “stupid” and should be fired or recalled. Many people in the meeting room clapped in response, although I don’t know what the representatives from the Poway Unified School District did.

Lockyer sees “a whole industry that lives off of this” scheme for Capital Appreciation Bonds and detects “an odor” of underwriters and other financial management firms engaged in “corrupt practices” and taking advantage of school districts through bond sales. He said he heard a story about how an underwriting firm turned down a school district’s request for handling a ill-advised, foolish Capital Appreciation Bond sale, and then the school district asked another firm with fewer scruples, which was pleased to do it for a fee.

Lockyer noted that the 4:1 debt service to principal ratio for school bonds indicated in Assembly Bill 182 was a political compromise among various parties, including some special interests that demanded either absurd ratios (such as 9:1) or no ratio at all. He actually supports an outright ban on Capital Appreciation Bond sales by school districts. (Michigan enacted such a ban in 1994.)

At the March 18, 2013 meeting of the board of the California High-Speed Rail Authority, chairman Dan Richard told me to ask the State Treasurer about the details of the bond sales for the California High-Speed Passenger Train for the 21st Century. So I was ready with the first question for Bill Lockyer: when will the authorized High-Speed Rail bonds be sold, what will be the rate, will they be 35-year bonds as authorized, and will some of them be sold as Capital Appreciation Bonds?

Lockyer answered by revealing that California High-Speed Rail bonds will not be issued separately but will be “mixed in” with general state bond sales (such as the state bond sales in mid-April 2013). Then to my surprise, he said that a small amount of the high-speed rail bonds had already been sold! I sent out a tweet that’s now getting some attention:

California Treasurer Bill Lockyer says small amount of bonds for California High-Speed Rail have been sold already. Did anyone know this?

He also told me that the market sets the rates – a clever answer from an experienced politician who knows how to evade the tough questions.

Regarding state K-12 school bonds, Lockyer said about $2 billion was left from the state school bond measures approved in the 2000s and that it was likely that the state legislature would put another school construction bond measure on the November 2014 ballot. (Three school bond measures approved by California voters in 2002, 2004, and 2006 authorized the state to borrow $35.8 billion by selling bonds. The State Allocation Board disperses the grants.)

Finally, in response to an excellent question from Kern County Taxpayers Association executive director Mike Turnipseed, Lockyer said that perhaps some of very old voter authorizations for bond sales that never happened in the end could be “erased” or cancelled, thus eliminating the state’s liability for repaying the principal on those bonds.

Kevin Carlin of the Carlin Law Group in San Diego made a presentation about single-source alternative construction procurement methods, including design-build and lease-leaseback. The presentation was routine until he began advancing his view that there’s a “proliferation of illegal lease-leaseback school contracting” in California and cited the Sweetwater Unified School District in Chula Vista as an example. A vocal faction in the audience – primarily school district officials and an attorney for school districts – disputed these claims. During the question-and-answer session, I told Carlin that his only ally in the state legislature was the self-interested Professional Engineers in California Government union and that his best chance for addressing the problem was to add provisions to law that ensure better public access to bidding and contract documents on design-build and lease-leaseback projects. (See California Public Contract Code Section 20133 (g).) Supporters of lease-leaseback complained that I wasn’t asking a question.

Joel Thurtell Speaks on Capital Appreciation Bonds at 2013 California League of Bond Oversight Committees Conference

Joel Thurtell speaks on Capital Appreciation Bonds at the 2013 California League of Bond Oversight Committees annual conference.

Retired Detroit Free Press reporter Joel Thurtell, now a blogger at www.JoelontheRoad.com, was the last speaker at the conference. His investigative report “Michigan Schools Load the Future with Debt” was the headline story in the April 5, 1993 Detroit Free Press, and it led to a 1994 state law banning Michigan school districts from selling Capital Appreciation Bonds.

One of the reasons why the article was effective in changing public policy was the directive of a Detroit Free Press editor to Thurtell to produce a “Big Graphic” showing the extent of Capital Appreciation Bond sales by Michigan school districts. Thurtell had to perform many days of tedious paper-based research at the state treasurer’s office in Lansing, but the result was stunning. (Likewise, I believe that the graphic elements of the www.VoiceofSanDiego.org articles on Capital Appreciation Bond sales by California school districts was a major factor in finally bringing state and national attention to the issue.)

In January 2009, Thurtell posted the text of his old Detroit Free Press articles on his web site. Nothing more happened with them until March 2012, when Alicia Minyen, a member of the Board of Directors of the California League of Bond Oversight Committees (CalBOC), found his articles with a web search using the terms “Capital Appreciation Bonds” and “ban.” At this time the word was beginning to spread about the astonishing 10:1 debt service to principal ratio for bonds sold in 2009 by the Poway Unified School District, and the Los Angeles County Treasurer was publicly warning against Capital Appreciation Bond sales.

Joel Thurtell and Alicia Minyen

Champions of fiscal responsibility: Joel Thurtell from Michigan and Alicia Minyen from California.

Minyen contacted Thurtell and then reported on what she learned at the 2012 California League of Bond Oversight Committees. I heard Minyen’s presentation on Capital Appreciation Bonds and then reported it on my blog on May 11, 2012 as Please Read This, Even If You Think Municipal Bonds Are Really BORING: We’re Setting Up the Next Generation of Californians to Pay Staggering Property Taxes, apparently being the first Californian to post a journalistic report on the web about this practice in California.

Thurtell noted today that the worst abuse of Capital Appreciation Bonds in Michigan was at a school district that even used bond proceeds to buy personal computers. I immediate thought about how California school districts are using bond proceeds to buy electronic tablets, with Los Angeles Unified School District and San Diego Unified School District being two prominent examples.

Reality of Crushing Public Debt from Bond Sales Eclipses the Fantasy Vision of California High-Speed Rail

Originally presented to Californians as a $45 billion statewide high-speed rail system to transport people between major metropolitan areas, the “Safe, Reliable California High-Speed Passenger Train for the 21st Century” has been distorted by the state’s leftist ideologues and corporate and union special interests into the California High Speed Rail Scam.

My article California High-Speed Rail: One-Way Ticket to Debt in www.FlashReport.org on March 25, 2013 described my experience speaking at the March 18, 2013 meetings of the California High-Speed Rail Authority and the California High-Speed Passenger Train Finance Committee. I asked pivotal questions about how the State of California planned to sell the $9.95 billion in bonds authorized by 52.7% of California voters through Proposition 1A in the November 2008 election.

My questions were reported throughout the state in a March 18, 2013 Associated Press article Board Seeks $8.6 Billion in California High-Speed Rail Bonds:

Several speakers challenged the timing of the authorization during the board’s public comment period, asking why the board was acting on the bulk of the bonds approved by voters now when it could be years before the money is needed. Kevin Dayton, a public policy consultant from Roseville, questioned whether the board was rushing to beat the outcome of the lawsuits attempting to block the railroad.

“That’s the obvious question that comes up,” Dayton said. “I think it’s reasonable to assume they’re very worried about it.”

TV viewers also saw (and read) my comments in Nannette Miranda’s story Board Seeks $8.6 Billion in California High-Speed Rail Bonds for various local news programs of ABC affiliates throughout the state:

“What’s your current estimate of the total amount of debt that will be assessed including the interest on this?” high speed rail opponent Kevin Dayton asked the board.

During media interviews after the board meeting, California High-Speed Rail Authority chairman Dan Richard claimed the cost of interest payments for the entire project could eventually reach $700 million per year. He also claimed that interest on the first $2.61 billion in bond sales authorized by Senate Bill 1029 (2012) would cost $175 million per year over 30 years.

As stated in this article California Bullet Train Clears One Obstacle; Land, Legalities Remain, “It all depends on Wall Street, but for estimation purposes, the state is using a 6.5 percent interest rate for 35 years.” This was the rate cited by Chairman Richard during the media interviews. According to California Municipal Bond Advisor, yields for State of California 30-year general obligation bonds were 4.80% on September 20, 2012 and 5.03% on October 19, 2012.

My Questions Reveal One Surprise: Truckers Will Pay for the Bond Interest

California High-Speed Rail Authority chairman Dan Richard responded to my comments by declaring that my questions should be addressed to the California State Treasurer, Bill Lockyer. But later in the meeting, he said that the state would pay interest on the bonds NOT from the general fund, but from vehicle weight fees paid by truckers.

Fox News 11 in Los Angeles reported on this revelation with its March 28 story Money Shell Game? Potholes or High Speed Rail. I was interviewed for the story, and an excerpt from the interview appears in the segment. I am also quoted in the associated article:

Those are fees paid when trucks are too heavy. And that money is supposed to go to highway construction projects. This is typical of the entire way the rail authority operates. Things change. You don’t know what’s going on, there’s very little transparency and openness. Essentially, all they’re doing is taking the money, transferring it into another fund and pretending the general fund is not paying for it. In reality, California taxpayers are still paying the interest.

Assembly Bill 105 (2011) authorized vehicle weight fees to pay interest on bonds for transportation projects. The March 13, 2013 California Legislative Analyst’s Office Overview of Transportation Funding explains how vehicle weight fees will pay interest in 2013-14 on transportation-related bonds:

In addition to ongoing revenues from fuel taxes, the state has issued general obligation bonds in order to pay for transportation projects. The largest such bond measure was Proposition 1B (2006), which authorized the state to sell $20 billion in bonds to finance transportation projects. The Governor’s budget estimates that the debt-service costs on Proposition 1B and other outstanding transportation bonds will be about $1.1 billion in 2013-14.

Vehicle weight fees are used to pay the debt-service cost on transportation bonds rather than the General Fund. For 2013-14, the Governor’s budget uses all $946 million in weight fees to benefit the General Fund. Of this amount, $907 million is to pay debt service and $39 million is loaned to the General Fund and set aside for future debt service.

In addition, the Governor’s budget proposes to use miscellaneous revenues in the SHA to pay transportation debt service on an ongoing basis.

I asked this question in a tweet during the California High-Speed Rail Authority meeting on March 18 after the Authority chairman talked about paying interest from vehicle weight fees:

Does California Trucking Association @Caltrux know truck weight fees to pay interest Prop 1A bond sales for high-speed rail? $10 billion.

This response came on March 28 after the Fox News 11 story aired:

@DaytonPubPolicy we are well aware that the weight fees we pay to maintain roads now go to non-road projects. Trucks pay their share.

(They certainly do, and more – trucks are a favorite target of the Left in California.)

What Were the 2008 Cost Estimates for Interest Paid on the Bonds?

The official legislative analysis of Proposition 1A provided voters with an estimated cost of selling bonds with a 30-year maturity:

If the bonds are sold at an average interest rate of 5 percent, and assuming a repayment period of 30 years, the General Fund cost would be about $19.4 billion to pay off both principal ($9.95 billion) and interest ($9.5 billion). The average repayment for principal and interest would be about $647 million per year.

A July 7, 2008 Senate Appropriations Committee analysis estimated the cost of selling bonds with a 40-year maturity:

AB 3034 would extend the maximum allowable bond maturity term from 30 years to 40 years. Assuming the same interest and inflation rates, this bill could result in an increase in total General Fund costs of $3.78 billion if the term of the bonds is extended to 40 years (to a total cost of $23.2 billion). Annual debt service payments would be $580 million for 40 years.

According to Section 5.02(b)(vii) of the resolutions passed on March 18, the Treasurer is now authorized to borrow the $8.6 billion by selling bonds with a maturity period of 35 years

So does the Governor’s proposed 2013-14 budget adequately account for interest to be paid after the state borrows money for California High-Speed Rail through bond sales? It depends on how the California State Treasurer intends to structure and market them.