Tag Archive for Lease-Leaseback

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.

Board of Emeryville Unified School District Approves Union-Only Community Benefit Agreement for Idealistic Center for Community Life

Construction trade unions are getting a monopoly on building a multi-government collaborative San Francisco Bay Area project tangled up in trendy “progressive” concepts about how government should require private companies to create and operate their businesses.

As an item on the consent calendar of its “special meeting” agenda on December 17, 2012, the board of trustees of the Emeryville Unified School District approved a “Community Benefit Agreement” to be incorporated in a lease-leaseback contract signed by the prime contractor for the construction of the Emeryville Center for Community Life. This project is coordinated by the City of Emeryville and the Emeryville Unified School District and “touted as a model for the 21st century urban environment.”

Unions and other activist organizations routinely pressure local governments in urban areas of California to require developers to sign a “Community Benefit Agreement” as a condition of providing a permit or financial assistance for a project. Not surprisingly, these Community Benefit Agreements usually include a requirement for developers or contractors to sign a Project Labor Agreement with construction unions or adopt some other program (often a “First Source Hiring” program) that gives construction unions control of the work.

California has been on the cutting edge of local governments forcing developers to support union political agendas; in fact, four California regional think tanks backed by labor unions and other interests came together as the “California Partnership for Working Families” to develop a guidebook on using Community Benefit Agreements. These policy organizations are the East Bay Alliance for a Sustainable Economy (San Francisco Bay Area), Working Partnerships USA (San Jose), Los Angeles Alliance for a New Economy (aka LAANE), and the Center on Policy Initiatives (San Diego). The work of these groups to make “economic development subsidies more accountable and effective” generally goes unchallenged, as California is devoid of free market-oriented policy institutes that study state and local union interference with commerce.

The Community Benefit Agreement for the Emeryville Center for Community Life was developed by a consulting firm called A Squared Ventures, which worked with community “stakeholders” including the Residents United for a Livable Community (RULE), a group “concerned that the City has handed out tens of millions of public dollars to large developers without asking for many benefits for the community in return.” This same group has worked with the East Bay Alliance for a Sustainable Economy and UNITE-HERE Union Local No. 2850 to seek a Community Benefit Agreement for Phase II of the Bay Street project in Emeryville.

This Community Benefit Agreement for Emeryville’s Center for Community Life does not include a Project Labor Agreement, nor does the Community Benefit Agreement contain provisions that resemble provisions in a traditional pre-hire labor agreement. Instead, this Community Benefit Agreement sets employment goals for the project and simply requires the prime contractor and its subcontractors to obtain their workers through the union hiring hall dispatching process. For example, it requires contractors to “utilize name call procedures with the representative union hiring halls” to obtain workers classified as journeymen. Although it does not specifically indicate that contractors must request or obtain apprentices from union-affiliated Joint Apprenticeship Training Programs, this is apparently assumed in the additional provision that requires the prime contractor to “work with the construction trade unions to identify and implement local apprentice worker rotation opportunities” on a quarterly basis.

In addition to requiring contractors to obtain trade workers from unions, the Community Benefits Agreement requires the prime contractor to encourage Emeryville Unified School District students and their parents to attend recruitment events and meetings for a 16-week pre-apprenticeship program run by the Cypress Mandela Training Program, an organization with close ties to construction trade unions.

All of these requirements are intended to find jobs for people who live in certain zip codes in Emeryville, Berkeley, and Oakland, or within a wider “East Bay Green Corridor.”

But that’s not all. The prime contractor will be required to set up a “Learning Lab” on the job site to show students how the project achieves “environmental sustainability.” The Community Benefits Agreement requires contractors to pay the state-mandated prevailing wage to their trade workers (but that was required by state law anyway). There is a “living wage” requirement for workers not in the construction trades, based on the City of Emeryville’s living wage ordinance. The prime contractor will commit to using subcontractors and other construction-related contractors that are local small businesses.

California law allows school districts to choose “lease-leaseback” contractors using somewhat subjective “best value” criteria, rather than awarding the contract to the lowest responsible bidder. Surely the school district will chose its prime contractor based on its proposal to fulfill the requirement of the Community Benefits Agreement. A Project Labor Agreement is likely to be part of any proposals for the lease-leaseback contract.

Which developers and contractors will agree to meet these government-mandated conditions (or at least make it look like they’re going to meet these conditions)? I’m guessing a lot of the activists behind the Community Benefit Agreements expect these businesses to reduce their profit margin (and not increase the price) to fulfill these conditions for the good of the People, just like contractors allegedly have reduced their profit margins for the honor of working under the union Project Labor Agreement for the San Diego Unified School District. It will be interesting to see how the cost of the Emeryville Center of Community Life compares to other similar projects in the San Francisco Bay Area.

You are invited to go to the web site “dedicated to sharing information and encouraging an open conversation about the Emeryville Center of Community Life.” As it says, “From here you can participate in the emerging community dialog and gain access to current and background information that will help inform the exchange of ideas and allow for an authentic community engagement process.” You can share conversation and dialogue about fiscal responsibility, capitalism, free markets, profit, private property, etc.

Editorial Comments

1. I was surprised to see the provision in the Community Benefit Agreement requiring the prime contractor and the unions to rotate apprentices among various tasks, because union leaders like to claim that their apprenticeship programs provide comprehensive training for many tasks to their indentured apprentices, while non-union unilateral apprenticeship training programs exploit their apprentices by making them do the same task over and over again, in violation of their own program standards. Inclusion of this requirement suggests to me there is a problem with the scope of on-the-job training for union apprenticeship programs, at least in Alameda County.

2. Wouldn’t it be better to eliminate economic development subsidies altogether? Ask defeated California Assemblyman Chris Norby, author of Redevelopment: The Unknown Government, who was not rewarded for being alone in this position at the California state legislature. As government power has grown at the state and local levels in California, one of the easiest ways for corporations to make big money in this state is to avoid competing in the messy, insecure free market and instead feed off the compulsory tax payments of ordinary citizens and small businesses. In response, unions and other leftist groups pressure government officials to impose costly and burdensome requirements on these corporations, who in turn pass these costs along to consumers, and the cycle of crony capitalism continues at the expense of the fleeing middle class.

The Superintendent of the Emeryville Unified School District reported on April 10, 2012 that “because rent in the Bay Area is expensive and unemployment remains high, approximately 30 families in EUSD have been so impacted by the recession that they have opted to relocate to other cities.” It’s not a friendly place for ordinary families.

3. Which investors plan to buy the $95 million in bonds that 1,982 Emeryville voters authorized in November 2010 to be sold through Measure J in order to borrow money to pay for projects such as the Emeryville Center for Community Life? Interest and transaction fees for Measure J bond sales seem to be a loophole that allows the One Percent to make money off of this project. Or maybe the People’s Republic of China will buy the bonds.

A Compilation of Construction Trade Union Project Labor Agreements for K-12 School and Community College Districts: Construction Manager-at-Risk, Lease-Leaseback, and Developer-Built Schools

The following set of Project Labor Agreements on California K-12 school district and community college district construction projects have unusual elements.

First, these Project Labor Agreements apply to public school and community college construction projects, but private parties negotiated them.

In the case of Hartnell Community College District, a construction manager-at-risk negotiated the Project Labor Agreement without authorization from the elected board of trustees. The board nullified the agreement after the company had applied the agreement to three small projects funded by Measure H.

In the case of Delano Union School District, the district arranged a lease-leaseback agreement with a private company, which proceeded to negotiate a Project Labor Agreement.

The remaining Project Labor Agreements were negotiated by private developers for school construction projects built privately by those developers. After the developers completed these projects, they transferred ownership to educational districts. Starting in the late 1990s, developers of proposed large residential housing projects in California began making agreements with K-12 school and community college districts to build their own schools and then transfer ownership to the districts. (See Builders Pick Up Tab for Schools – Los Angeles Times – July 7, 2002.)

Government agencies did NOT mandate that contractors sign these agreements, except in cases when a private Project Labor Agreement contained a successor clause that continued to apply the agreement to follow-up construction contracts, even after the ownership of the building transferred to the educational district.

In some cases, local governments provided some public funding for specific components of these developer-built projects. As a result, some taxpayer money was spent on contracts for which construction companies had to sign a Project Labor Agreement. For example, in 2002 the Roseville City School District made an agreement for Westpark Associates to fund five new schools in the West Roseville Specific Plan. Two have been completed: Junction Elementary School and Chilton Elementary School. Chilton Elementary School cost $50.6 million: the developer paid $33.7 million, the state provided $16.9 million, and the City of Roseville paid for construction of a gymnasium that the city uses for adult recreational activies outside of school hours.

Unlike government-mandated Project Labor Agreements, some of these private agreements only cover a few unions (typically, unions that engage in “greenmail” by submitting or threatening to submit legal objections under the California Environmental Quality Act – CEQA – concerning the proposed residential developments).

Project Labor Agreements negotiated by private developers are not a matter of public record, and the list below is surely not complete.

Monterey County – Construction Manager-at-Risk Project Labor Agreement

Hartnell Community College District Project Labor Agreement – Measure H – 2004 – Negotiated by DPR Construction and Employers’ Advocate – Nullified After Three Small Projects

Kern County – Lease-Leaseback Project Labor Agreement

Westside Educational Complex for Delano Union School District Project Labor Agreement 2011 between Grapevine Advisors LLC and the Kern, Inyo, Mono Building and Construction Trades Council 

Contra Costa County – Developer Project Labor Agreements Applying to Schools

San Ramon Valley Center Campus of Contra Costa Community College District Project Labor Agreement between Windemere-Brookfield-Centex and UA Plumbers and Steamfitters Union Local 159

Almond Grove Elementary School of Oakley Union Elementary School District Project Labor Agreement 2004 between Pulte Homes and UA Plumbers and Steamfitters Union Local 159, International Brotherhood of Electrical Workers Union Local 302, and Sheet Metal Workers Union Local 104

Seven Schools (Including Creekside Elementary School) of San Ramon Valley Unified School District Project Labor Agreement between Shapell Industries and Windemere and UA Plumbers and Steamfitters Union Local 159 and International Brotherhood of Electrical Workers Union Local 302*

Placer County  – Developer Project Labor Agreements Applying to Schools

Junction Elementary School, Barbara Chilton Middle School, and Three Other Schools of Roseville City School District 2005 between Westpark Associates and Signature Properties and UA Plumbers and Steamfitters Union Local 447, International Brotherhood of Electrical Workers Union Local 340, and Sheet Metal Workers Union Local 162

Ventura County – Developer Project Labor Agreements Applying to Schools

Rio Del Mar Elementary School, Rio Vista Middle School, and Another Elementary School of the Rio School District in the RiverPark Development 2004 between RiverPark Development, LLC and Shea Homes with the Ventura County Building and Construction Trades Council

Rio Del Mar Elementary School, Rio Vista Middle School, and Another Elementary School of the Rio School District in the RiverPark Development 2007 between RiverPark Development, LLC and Shea Homes with the Ventura County Building and Construction Trades Council – Amendment

* I do not have a copy of this Project Labor Agreement, but an Invitation to Bid notice (bid deadline March 11, 2008) from Roek Construction (based in Stockton) for the $22 million new Creekside Elementary School (in Shapell Industries’ Alamo Creek Development) for the San Ramon Unified School District states that “The owner does have project labor agreements from the plumbing and electrical trades on this project.” A contractor informed me via phone that Shapell Industries and Windemere were signatory to the Project Labor Agreement.