Tag Archive for Pay-to-Play California school district bond measures

$348 Million Measure Q for Solano Community College: Yes on Q Campaign Fails to Submit Latest Legally-Required Campaign Finance Report

UPDATE: The Yes on Q campaign for Solano Community College District submitted its overdue Form 460 today (Monday, October 29, 2012). Better late than never.

As of October 20, 2012, the campaign has raised over $200,000. Big contributions between October 1 and October 20 include $15,000 from Swinerton (a construction management firm) and $10,000 from MuniBond Solar, run by someone named Steve Nielsen, which has collaborated with companies such as SunPower Corp to secure “Qualified Energy Conservation Bonds” (QECBs) for several California educational districts. (An executive with SunPower Corp also contributed $1000.) As shown in this May 2, 2012 Solano Community College Financial and Budget Planning Advisory Council meeting, MuniBond Solar wants a relationship with Solano Community College District.

Other contributors include the usual suspects: architects, construction trade unions, and unionized construction associations that look forward to a Project Labor Agreement.

Yesterday (October 26, 2012) I went to the Solano County Registrar of Voters office to obtain the paper copies of the Form 460 reports that the “Yes on Q – Solano College” campaign must legally submit to the county. These reports are meant to inform the public about campaign receipts and expenditures. The staff there was quite professional and helpful, but I left knowing that the Yes on Q campaign was breaking the law and getting away with it.

Measure Q asks Solano County voters to let the Solano Community College District Governing Board borrow $348 million for construction by selling bonds to institutional investors. Solano County taxpayers must pay this money back to the investors – with interest! It will cost at least $500 million – perhaps more if the district is lured into selling Capital Appreciation Bonds.

The Solano Community College District Governing Board wants to borrow $346 million by selling bonds

The Solano Community College District Governing Board wants to borrow $348 million by selling bonds.

The Solano College governing board voted 6-1 in 2003 and 2004 to require its construction contractors to sign Project Labor Agreements with unions as a condition of working on projects funded by bonds authorized by the $124.5 million Measure G, barely approved by 55.6% of Solano County voters in November 2002. A majority of governing board members are likely to again make a deal to give unions control of additional projects funded by Measure Q. Project Labor Agreements raise costs and cut competition, as shown by the failure of the Project Labor Agreement pilot project at Solano Community College in 2005. (No one on the board cared at the time.)

The Yes on Q campaign finance report for the period from October 1 to October 20 was due by October 25, but it was not at the Solano County Registrar of Voters on October 26. After further inquiry, I learned this afternoon that an official of the Solano County Registrar of Voters had contacted the treasurer of the “Yes on Q – Solano College” campaign to check on the status and was told the report would not be turned in until Monday or Tuesday of next week.

So much for openness and transparency for citizens as they fill out their absentee ballots this weekend. I guess the local newspapers won’t be informing the voters in their Sunday editions who is giving to the Yes on Q campaign and who is getting from the Yes on Q campaign. Does anyone care?

I did get a copy of the campaign finance report of the “Yes on Q Solano College” for the period from July 1, 2012 to September 30, 2012. Here are a few items of interest:

1. This Campaign Is a Sitting Duck for Accusations of “Pay-to-Play”

Here’s a list of all of the campaign contributors through September 30, 2012, with links to the company web sites, the amounts contributed, and the business interest of the contributor.

Piper Jaffray Investment Bank/Bond Broker $25,000
Kitchell Construction Construction Manager for Solano College Measure G $25,000
RBC Capital Markets Investment Bank/Bond Broker $18,000
Steinberg Architects Architect $10,000
VBN Architects Architect $10,000
[Sheet Metal Workers Local Union No. 104] Bay Area Industry Promotion Fund Construction trade union-affiliated Labor-Management Cooperation Committee $5,000
Stradling, Yocca, Carlson and Rauth Bond counsel – worked before with Solano College on bond sales $3,500
Keenan and Associates Insurance broker for school districts $2,500
B&L Properties Property holding company in Fairfield $2,500
Dannis Woliver Kelley Law firm for school & college districts $2,500
The Lew Edwards Group Political consulting firm in Oakland, works to pass bond measures $1,000
LPAS Architect $1,000
Roy Stutzman Consulting Financial consulting for school & college districts $1,000
Student Insurance Insurance company for school districts $1,000
Fairbank, Maslin, Maullin Metz & Associates Polling firm for political campaigns $500
Bricklayers and Allied Craftsworkers Local Union No. 3 Construction trade union $200
Sarah Chapman Solano College Board Member $100
Rosemary Thurston Solano College Board Member $100
Anne Marie Young Solano College Board Member $100
James Dekloe Solano College Faculty Member $100
TOTAL $109,100

There’s very little financial participation in this campaign from anyone in Solano County, but there is much interest from various professional service firms that do business with Solano Community College District and/or want business if voters approve Measure Q and let the Governing Board sell $348 million in bonds. I guess that’s how the world works, but taxpayers will pay the bill.

2. Underwriters Among Top Contributors – These Firms Get Fees When Selling Bonds

After the investment bank/bond underwriter Piper Jaffray got smacked around along with other financial service firms earlier this year about contributing to campaigns for bond measures for which it subsequently became the underwriter for those bonds, I figured that firm would back off from the practice. I was wrong.

Piper Jaffray $25,000 campaign contribution to Yes on Measure Q Solano College November 2012

Piper Jaffray $25,000 campaign contribution to Yes on Measure Q – Solano College (November 2012)

Piper Jaffray is tied with Kitchell Construction – the construction management firm for Solano Community College’s Measure G (2002) program – for making the largest contribution to the Yes on Q campaign.

3. Another Labor-Management Cooperation Committee Contributes to a Campaign.

Bay Area Industry Promotion Fund - $5000 Contribution to the Yes on Measure Q Solano College

Bay Area Industry Promotion Fund – $5000 Contribution to Yes on Measure Q Solano College

I snickered when I saw this one: how many people in Solano County know about the Bay Area Industry Promotion Fund? There’s only one place on the web where you’ll read about labor-management cooperative trusts, and you’re reading it now. These trusts are arcane entities authorized by the obscure Labor-Management Cooperation Act of 1978, a law signed by President Jimmy Carter and implemented by the Federal Mediation and Conciliation Service. There are no federal or state regulations specifically addressed toward these trusts, and these trusts do not have any reporting requirements to the U.S. Department of Labor’s Office of Labor-Management Standards.

This committee receives employer payments as indicated in the Master Labor Agreement negotiated between the Sheet Metal and Air Conditioning Contractors’ National Association (SMACNA) and the Sheet Metal Workers International Association Local Union No. 104. Here are references to the Bay Area Industry Promotion Fund in their Master Labor Agreement. It says the fund pays to replace stolen tools, but says nothing about political contributions, of course. Note also that employer payments to the Bay Area Industry Promotion Fund are incorporated as part of “Other” into the State of California’s government-mandated construction wage rates (so-called “prevailing wages”).

4. If Yes on Q Raised $109,100 by September 30, 2012, How Was It Spent?

Solano County newspapers have noted the lack of visible campaign activity in support of Measure Q. In fact, this situation apparently deprived Yes on Q of an endorsement from the Vacaville Reporter newspaper:

The Reporter Editorial Board likes the vision and very much wants to support it. But board members have qualms about this bond. The impact of the state’s fiscal mess has meant the college can’t afford to operate the programs it has now. Is it wise to add new programs before the state’s budget is under control?

There are also qualms about the way the bond campaign has been mishandled. In July, when the Editorial Board supported trustees’ decision to put the bond on the ballot, it was with the caveat that an aggressive campaign be mounted to educate the community about its need.

Instead, the campaign has been lackluster and late, not ratcheting up until after mail-in ballots were already out. Where are the trustees, who can speak as individuals in support of the measure and who should have lined up supporters to drive it? Where are the other public agencies and private businesses that stand to benefit from these plans? Where is the faculty, whose union put on a get-out-the-vote drive for Propositions 30 and 32 without even mentioning Measure Q in its publicity? Does the lack of organization in the campaign reflect a lack of organization and follow-through by campus leaders?

I drove on the major thoroughfares of Vacaville, Fairfield, and Vallejo on October 26. I only saw THREE signs supporting Measure Q – all close to the entrance to the main Solano Campus campus in Fairfield.

An elusive Yes on Q campaign sign in Solano County.

An elusive Yes on Q campaign sign in Solano County.

Not that I put much value on campaign signs stuck in public areas, but I would have expected more for a campaign that already had over $100,000 by the end of September. This lack of visibility is so pitiful that it was tied with the three No on Q signs I saw in Solano County. That campaign is a small, committed group of informed local taxpayer activists with very little money to spend.

Say "No" to $348 Million Bond - No on Q - Taxed Enough Already!

Say “No” to $348 Million Bond – No on Q – Taxed Enough Already!

The September 30 campaign report for Yes on Q shows about $25,000 spent on consultants, slate mailers, some apparent development of signs and mailers, and people at phone banks. It will be interesting to see how the remaining money was spent, provided the Yes on Q campaign ever submits its campaign finance reports.

An Overlooked Feature of Bond Measures for School Districts: Fees to Underwriters and Financial Service Firms

Under contract to Fair and Open Competition – Sacramento, I’ve developed a modest web site presenting an argument against Measures Q and R, two proposed bond measures at the Sacramento City Unified School District. It’s not a pretty web site, but it’s packed with information obtained from primary source material – information not available anywhere else. See Vote No on Sacramento’s Measures Q and R.

If voters in the school district approve these ballot measures at the November 6, 2012 election, the school board of Sac City Unified will have authority to borrow up to $414 million for construction by selling bonds to investors. Property holders in the district will pay that back – with interest – through taxes. Current debt for the school district’s two previous bond measures totals $522 million. Basically, these proposed new bond measures will create a billion-dollar debt for this school district.

During my research, I decided to investigate how much the district has paid in fees to underwriters (bond brokers) and other financial service firms that assess fees when bonds are prepared and sold. The total comes to almost $6 million.

Bond Issue Financial Transaction Fees
Official Statement – Sacramento City Unified School District – $50,000,000 – General Obligation Bonds, Election of 1999, Series A 2000 $404,375.42
Official Statement – Sacramento City Unified School District – $52,310,000 – General Obligation Refunding Bonds 2001 $592,524.77
Official Statement – Sacramento City Unified School District – $45,000,000 – General Obligation Bonds, Election of 1999, Series B 2001 $394,463.50
Official Statement – Sacramento City Unified School District – $45,000,000 – General Obligation Bonds, Election of 1999, Series C 2002 $486,543.56
Official Statement – Sacramento City Unified School District – $80,000,000 – General Obligation Bonds, Election of 2002, Series A 2003 $483,000.00
Official Statement – Sacramento City Unified School District – $64,997,966.35 – General Obligation Bonds, Election of 1999, Series D 2004 $615,158.17
Official Statement – Sacramento City Unified School District – $80,000,000.00 – General Obligation Bonds, Election of 2002, Series 2005 $737,700.00
Official Statement – Sacramento City Unified School District – $64,997,966.35 – General Obligation Bonds, Election of 2002, Series 2007 $757,134.42
Official Statement – Sacramento City Unified School District – $79,585,000 – General Obligation Refunding Bonds 2011 $522,897.60
Official Statement – Sacramento City Unified School District – $113,245,000 – General Obligation Refunding Bonds 2012 $849,939.95
Total Fees $5,843,737.39

Supporters of Measures Q and R might defend these fees by pointing out they only comprise 1.4 percent of the total amount of $420 million borrowed under the authority of Measures E (1999) and Measures I (2002), and the fees paid for the sale of the three refunding bond series were offset by the resulting reduced cost of interest payments. Fair enough, but don’t claim in your ballot arguments for Measures Q and R that “Every penny from Measures Q and R will stay in our community” and “ALL of the money raised by these measures will stay in our community.” That’s just not true. Set aside the issue of interest payments to wealthy individuals and institutional investors in New York City and other financial centers – the $5.8 million in transaction fees is proof that some of the money did NOT stay in the community.

I suspect such statements from proponents reflect a lack of understanding of municipal bonds or a cynical recognition that ordinary voters don’t understand municipal bonds.

One thing I did not research was whether or not the underwriters who assessed these fees were donors to the campaigns to pass Measure E (1999) and Measure I (2002). Here is another excerpt from the Vote No on Sacramento’s Measures Q and R web site:

Learn How Bond Brokers, Bond Dealers, Bond Underwriters Spend a Little Money to Make a LOT of Money Selling Bonds for California School Districts.

Not all bond brokers improperly influence school boards. In fact, some have high integrity and are speaking out against the inappropriate conduct of some underwriters in their industry.

But clearly things have gotten out of control since California voters narrowly approved Proposition 39 in November 2000. Borrowed money began gushing into California school districts, and everyone wanted a piece of the action.

In fact, a September 13, 2012 letter to the Municipal Securities Rulemaking Board from the California Association of County Treasurers and Tax Collectors urged the Board to consider a complete prohibition on brokers, dealers, and other municipal finance professionals from making political contributions to campaigns of local governments (such as the Sacramento City Unified School District) to get voter approval to borrow money from investors by selling bonds. The letter identifies the origin of the problem as Proposition 39.

The issue of bond brokers being major donors to campaigns to pass bond measures has not gained much attention, but it should. A specialty publication –The Bond Buyer – and a news service – California Watch – have been the leaders on investigating this obscure but significant scheme. Here are some articles that reveal the problem:

Brokers’ Gifts That Keep Giving – The Bond Buyer – January 13, 2012

When broker-dealers give money to California school bond campaigns, it appears to be money well spent. A review of campaign finance records by The Bond Buyer found a nearly perfect correlation between broker-dealer contributions to California school bond efforts in 2010 and their underwriting subsequent bond sales…

With Campaign Donations, Bond Underwriters Also Secure Contracts –California Watch – May 3, 2012

Leading financial firms over the past five years donated $1.8 million to successful school bond measures in California, and in almost every instance, school district officials hired those same underwriters to sell the bonds for a profit, a California Watch review has found…

Critics Struggle to End ‘Pay to Play’ in School Bonds – California Watch – May 14, 2012

Critics of the practice in which financial firms help pass school bonds that they profit from are continuing to push for reforms, but so far have faced resistance and failure. In California, underwriting companies hired by school districts to sell bonds often make campaign contributions to help convince voters to pass the bond measures…

Some California FAs [Financial Advisors] Use Pay-to-Play Tactics, Critics Say –The Bond Buyer – May 24, 2012

Firms that work as financial advisors helping California school districts issue bonds after serving as campaign consultants on the preceding bond measure have a conflict of interest and are engaged in a form of “pay-to-play,” critics say. Such firms, a small subset of the financial advisor sector in California, walk the school districts through the bond election process, then help the them select and negotiate prices with underwriters and bond counsel for the subsequent sale. In many cases, they are paid both by the political action committee formed to pass the bond measure, which receives contributions from underwriters and the bond counsel, and then by the district…

Underwriters Paying to Pass Bond Issues Face Scrutiny – Business Week – May 24, 2012

Over the past five years, underwriters gave $1.8 million to successful school-bond campaigns in California and got almost all the work selling the approved bonds, California Watch reported earlier this month.

Underwriter Bought Meals For Poway Board – San Diego Union-Tribune – September 1, 2012

The underwriter of Poway Unified’s controversial $105 million bond deal hosted $2,200 in dinners for the school district’s officials in recent years — most of which they accepted and initially failed to report on state-mandated disclosure forms. In March, the officials belatedly disclosed the meals dating back several years, as the District Attorney’s Office prosecution of South Bay school board members for failing to report such meals made the news…

Muni Groups Urge More Action on Bond Ballot Campaigns – The Bond Buyer – September 18, 2012

Municipal analysts and other muni market participants are urging the Municipal Securities Rulemaking Board to strengthen a proposal to tighten bond-ballot campaign contribution reporting requirements for dealers. In comment letters filed in recent days, several participants urged the board to do more to attack corruption and protect the voting public, with some suggesting there should be an outright ban on such contributions rather than disclosure requirements.

California Capital Appreciation Bonds Have Unintended Consequences – The Bond Buyer – September 20, 2012

The recent controversy over the way some California school districts use capital appreciation bonds may reflect the law of unintended consequences…

Feds Urged to Crack Down on Donations to Bond Measures – California Watch – September 21, 2012

Critics of political donations to school bond campaigns from companies that profit from the bonds are urging federal regulators to take bolder steps against what they call a “pay to play” practice.