San Diego voters are being asked to authorize $2.8 million in bonds for school repair and construction in this fall’s election via Proposition Z. This initiative should be a straight up or down deal; whether or not to raise property taxes to support this vital part of our infrastructure.
Instead, a coterie of right wing groups with a barely disguised extremist agenda have turned the discussion on Proposition Z into a battlefield, mined with half-truths, pock marked by a barrage of lies and overrun by waves of tea party types convinced that they are stopping an assault on common sense itself.
For those of you interested in what Proposition Z actually proposes to do, go visit this link. I think it’s important in this article to simply focus on exposing the opposition and their campaign of misdirection and deceit.
First, a listing of the players in the No on Z campaign:
The Lincoln Club of San Diego: What used to be a fairly conservative downtown gentlemen’s club has morphed into a right wing powerhouse in the wake of federal Judge Irma Gonzalez suspension of the city’s campaign finance laws back in 2010, following the Supreme Court’sCitizens United decision. Now, the members of the Lincoln Club of San Diego have the power to raise and spend as much as they’d like. And they can do it behind their organization’s banner.
San Diego County Taxpayer’s Association (SDCTA): Grover Norquist’s legacy on our political landscape (as opposed to the financial side of things) is the “Taxpayer’s Association”. Just about every city, county and state now has one. By and large they are nothing more than front groups for the Republican Party, valuable because their image allows conservative analytics to be used by the mainstream media. Rarely (and never in San Diego) is their take on issues portrayed as partisan posturing. In the wake of Citizens United the SDCTA has also become a vessel for campaign dollars unfettered by any substantive oversight.
CA/National Realtors Groups: It’s pretty much a given that any measure that increases property taxes will be opposed by Realtors groups. This is a business decision.
R.B. ‘Buzz’ Wooley, Jr.: Retired venture capital investor, major funder of the Voice of San Diego.
The source of the misinformation being used in the No on Z campaign is SDCTA. Mostly what happens here is that a kernel of truth gets taken out of context and spun into an outrageous misrepresentation of the reality.
Let’s tackle the most egregious of these misrepresentations (which we’ll call spin), taken directly from the SDCTA official summary on Prop Z:
It’s hard to know where to start with this one; either the folks at the Taxpayers Assn. don’t know how school bonds work or they’re flat-out lying. You decide.
Here’s Lani Lutar, CEO of SDCTA, spinning this yarn in a VOSD opinion piece:
The fact is that the school district still has $1.7 billion remaining from Prop. S, approved by voters just four short years ago. The fact is that the district doesn’t have its fiscal house in order.
This assertion makes it sound as if there’s $1.7 billion dollars lying around out there waiting to be spent, and it’s been repeated often enough so that it’s gospel, even with the news media. Here’s the Voice of San Diego’s non-explanation of this claim:
“For some pretty complicated reasons (primarily connected to the dismal real estate market over the last few years) the district admits it has only been able to tap a small fraction of the funds it may eventually borrow under Prop. S.”
Since I don’t think it’s all that complicated, here’s what happened:
Proposition S, drawn up back in 2007 and put before the voters in 2008, was a “no new taxes” bond measure, blessed by the taxpayers association. A “No New Taxes” bond typically continues an existing tax rate. Prop S continued the tax rate left over from Prop MM, an earlier bond measure.
This type of financing is dependent on assessed property values rising. Should property values fail to rise no funding for bonds is available.
Taxes are not based on market value. Under Prop 13, assessed value is set at the purchase price and can only rise 2%/yr; until sold and then it re-sets. So a home bought in the early 1990’s, for instance, is assessed at less than half what it is “worth” today, even in a depressed market.
In the latter part of 2008, the financial house of cards in the US economy, which had been largely driven by increasing real estate values, crashed.
Ego, there was no money available. And the $1.7 billion dollars sitting around unspent story is ‘pants on fire’ false.
It’s going to be five or more years before property values climb back up to where they were in 2007. Add to this the couple of years needed to actually issue and sell the bonds, and San Diego is looking at 2020 or so before any more funding becomes available under Proposition S.
SPIN #2. The District (SDUSD) recently issued a $164 million 40-year maturity Capital Appreciation Bond (CAB). The total (principal and interest) cost to taxpayers for this issuance alone will be over $1 billion, which will not be paid off until 2051. Nothing in Prop Z prevents the school board from taking on additional high interest debt which would triple Proposition Z’s costs for taxpayers.
Sounds horrible, huh? This one is a little complicated. So I’ll just lay out as many facts as I’ve been able to ascertain.
Assessed values in the District had been growing 5% annually for 25 yrs. But in 2010, they flat-lined (and even dropped 1/2 of 1% one year).
At that point, the options available to the school board were:
A) Stop Prop S. Wait until assessed value growth resumes. Stop the Tech program. Stop the construction program.
B) Slow down, but continue Prop S. (Using CABs). Take advantage of historically low interest rates, inflation and construction costs.
Some notes here: It is expensive to stop-and-start a billion dollar plus construction program. By some estimates (putting aside the CAB interest costs), the District “saved” $70 million by not stopping Prop S. Savings came from a combination of cheaper constructions costs (assuming inflation in those costs of 2%/yr) and not having to stop, lay off people, and gear up again in somewhere down the road.
So, SD Unified opted for CABs. (Not as expensive as Poway’s; but CABs nevertheless.) Poway’s “coverage” is about 9-1. SD Unified’s is closer to 6 1/2- 1 (or so).
There was A LOT of very public debate — at the SDUSD Board and on the Independent Citizens Oversight Committee. Eventually the consensus was that CABs were a better option than stopping.
All this discussion was out in the open, and the Taxpayers Association had people in attendance at many if not all of the meetings. So it’s not like any of this is any big secret.
Since Capital Appreciation Bonds have become the new bogeymen in the local media, let me share a few bits of information that seem to have gotten lost in the coverage.
Since 2000, California school districts have issued $19.73 billion of capital appreciation bonds, according to State Treasurer Bill Lockyer.
Here’s how they work:
1. No payments for 20 years. Interest accrues.
2. In year 21, begin p-and-i (principal and interest) payments for the next 20 years, until the bond is paid off.
3. So, you get money today — and pay it off, starting in 20 years, with dollars that are worth much less.
4. Thirty five years ago, it cost about $3-4 million to build an Elementary School. Today, the cost is about $35 million. A house bought in 1978 cost $60,000; today, it’s “worth” more than $450,000. Using the lower of the two appreciations in value here, $60,000 paid back at 7x its face value would still net a $30,000 ‘profit’ over three plus decades.
In sum, the SDUSD many well come out ahead of the deal at 6.5 to 1. Tomorrow’s dollars are “cheaper” and construction costs are more “expensive”.
Here’s the NY Times conclusion on CABs, presented so you can see something else other than the hysteria promoted on the local media:
This kind of borrowing has been going on for years, particularly in California, where the tax revolt that began with Proposition 13 in 1978 has made it harder and harder to finance education or other local government services. Assorted propositions approved by voters have made it very difficult to raise taxes at all.
Should districts issue such bonds? It is not an easy question to answer. Much of this expensive borrowing is a result of local officials searching for a way to meet their responsibilities at a time when opposition to taxes has become a mantra. This generation will not pay for what it needs, so some of its leaders have decided to saddle future generations with the bills.
Oh, and by the way, the need for Capital Appreciation Bonds under Prop Z doesn’t really exist. It’s paid for with a tax increase. No need to borrow money while waiting for property values to increase. Just to make everybody who doesn’t understand how these things work, happy the SDUSD Board passed a resolution prohibiting any CABs under Prop Z.
Spin # 3: The District is proposing to use expensive, long-term financing to pay for technology like iPads and routers that have a useful life of only 7 years. Financing this equipment over 30 or more years is bad fiscal policy.
This program is precisely the kind of effort the voters had in mind in 2000 when, with support from the SD Taxpayers Assn. among many others, California passed Proposition 39 which explicitly provided authorization for school districts to use bond funds for classroom technology.
Classroom level technology was a selling point for Proposition S, and beyond whiteboards, routers and computers, there isn’t very much else that you can actually do when it comes to bringing high tech to the classroom. The Taxpayers’ Assn. also supported Proposition S.
The Prop. S Technology Program was always planned to expire in 2014. The thought (back in 07) was that the District’s General Fund could then pick up the ongoing costs (about $15 Million/yr). But that was before the District’s operations budget was whacked to death by Sacramento budget cuts. So, yes, Prop. Z continues the District’s nationally recognized Tech Program, which would otherwise run out of funds in 2014.
Remember, we live in a Post Proposition 13 era, where breaks on property taxes for corporations replaced funding for education and technology. So, this ‘bad fiscal policy’ wasn’t so bad four years ago. Sounds like a case of ‘you smelled it, you dealt it’ to me.
The kernel of truth here, that paying long term for hardware that that rapidly ages is not a great idea, needs to be placed into context: it was the most direct route towards getting 21st century educational tools into the classroom.
Spin #4: The District has not done adequate planning to ensure that Prop Z projects can be delivered on time and within budget.
Except that they have. As much as humanly possible. See this link. It’s true that they haven’t actually solicited bids or hired contractors for the work proposed. But neither have/did any of the host of bond measures that the Taxpayers Assn has supported.
And why hasn’t the District maintained its schools? Since the passage of the landmark, tax-limiting Proposition 13 in 1978, most school districts in developed parts of the state have had to wait until desperate classroom overcrowding or gross deterioration convinced the public to raise taxes to pay for school construction or maintenance. That’s why Proposition Z is on the ballot.
Spin # 6. The District will use a Project Labor Agreement (PLA)for construction projects funded by Prop Z. A recent NationalUniversity study shows the agreements increase construction costs to taxpayers by 13 to 15 percent.
Now, we’re getting down to the real reason SDCTA is opposing Proposition Z. After the fact, the newly elected school board in 2009 made a PLA-type deal part of their planning for Proposition S construction. The use of such agreements in public sector construction has become a lightning rod for right-wing activism and SDUSD’s inclusion of a PLA-type requirement provoked a firestorm of criticism.
Groups like the American Legislative Exchange Council (ALEC) that peddle pre-made legislation and causes for right wing groups have actively pursued eliminating PLAs as a means of undermining trade unions. Here’s Wikipedia on PLAs, which is about the best short-take I could find on this complex issue:
There has been much debate over the government-mandated PLAs, particularly for publicly funded projects. The use of project labor agreements is supported by the construction unions and some political figures, who state that PLAs are needed to ensure that large, complex projects are completed on time and on schedule. According to those who support the use of such agreements, PLAs enable project owners to control costs and ensure that there are no disruptions to the construction schedule, for example from strikes. In particular, proponents of PLAs point to the inclusion of clauses in the agreement that agree to establish labor management problem solving committees that deal with scheduling, quality control, health and safety, and productivity problems during the project. They also state that PLAs ensure that the workforce hired has received training and is of high quality. The use of PLAs in large private construction projects such as the building of the New England Patriots’ Gillette Stadium, are given as examples of how PLAs help project owners meet tight deadlines, according to supporters. In addition to the stated benefits to project owners, supporters of PLAs also say that PLA use has a positive impact on local communities, through set goals for local hiring and provision of education
Groups including the Associated General Contractors of America (AGC), Associated Builders and Contractors (ABC), Construction Industry Roundtable (CIRT), National Federation of Independent Business , the National Black Chamber of Commerce, and the U.S. Chamber of Commerce have actively opposed the use of PLAs, particularly for government projects. These groups have challenged the use of such agreements through litigation, lobbying, public relations campaigns. Opponents of PLAs supported the Bush executive order prohibiting government-mandated PLAs, and have argued that between 2001 and 2008, when the executive order was in place, no federal projects suffered significant labor problems, delays or cost overruns attributable to the absence of PLAs. According to those who oppose PLAs, the agreements place restrictions on the hiring and working practices of contractors, and can lead to increased costs for project owners. One of their objections to PLAs is that the agreements require contractors to pay into union benefit plans and obey union work rules. In addition, they oppose the use of PLAs to restrict hiring on projects to construction workers selected by unions through union hiring halls, stating that this does not increase the quality of worker as all those who are licensed in a craft have at least the same level of education and skill, regardless of whether they belong to a union.
Here in San Diego the opposition to the inclusion of PLAs in Prop S projects was led by the Association of General Contractors, who told the District none of their members would ever bid on projects with a PLA.
Interestingly enough, 75% of Prop S construction projects are being managed by AGC members.
According to the District, under Prop S’s PSA, all projects have come in under cost and, despite the so-called boycott, there have been an abundance of bidders. And, most importantly, a provision in the PSA that requires “local hire” (i.e. use locals to do the work), the statistics on employment from within SD Unified (and especially form within depressed areas) are fantastic. The Prop S bond with the PSA would be the single most successful “Jobs Program” for low income areas in SD in recent history.
One final point here: the National University Study cited by the Taxpayer’s Association that claims costs are higher in PLA projects was funded by…drum roll, please… the Associated Builders and Contractors.
Should you support Proposition Z?
Instead, this measure has been turned into a referendum on the SDUSD School Board. It’s my view that, despite their bumbling, they’ve pretty much played the hand that was dealt them. (Much of that hand was dealt to them by the very same people/groups who are now so critical of the Board’s actions.)
So, while I’m not thrilled with all the financial deals that were made, I fail to see what anybody else in their shoes could have actually done that would have not adversely impacted my child’s education.
Viewed through that prism, the answer has to be vote Yes on Proposition Z.