By Lloyd G. Carter
Loathe to propose new taxes, school districts around California, including the Clovis Unified School District (CSUD), are using bond measures to raise capital, triggering criticism that the school districts are not fully disclosing the “pay to play” profiteers—financial institutions, developers and construction companies—who finance school elections and then are rewarded with fat contracts or profits from school construction, bond underwriting and sales.
Former Assembly Member Chris Norby of Fullerton says it is not technically illegal for school districts or contributors to engage in such activities, but they are clearly a conflict of interest. The Republican assembly member tried to push a bill through the Assembly last year banning financial professionals from waging bond campaigns, but it was defeated.
“A bond election should reflect the wishes of the local community and taxpayers who are going to be backing up the bond. It shouldn’t be financed by those whose sole motivation is making money off the bond,” Norby told the Bond Buyer Web site (www.bondbuyer.com).
Douglas Baron, director of public finance for the Los Angeles County Treasurer and Tax Collector’s Office, adds, “School finance is rampant with pay-to-play in one form or another.” Baron told the Bond Buyer Web site that finance professionals should not contract for actual financing work until after a bond election.
Experts say recent passage of a federal law, the Dodd/Frank Wall Street Reform and Consumer Protection Act, specifically requires financial advisers to put clients’ economic interests ahead of their own.
A good local example of this is the $298 million bond measure, Measure A, approved by voters within CUSD in June by a 65% to 35% margin, revealing CUSD taxpayers’ longtime commitment to quality education. During the campaign, district officials said the purpose of Measure A was to refurbish older schools, purchase land for future schools and “retain/attract quality teachers.” District officials proudly stated that the district’s voters had approved bonds totaling $453 million during the past 25 years.
However, CUSD residents were not provided the full story on how the bond campaign was conducted or how the bonds will be marketed. For example, the bond underwriter, Stone & Youngberg (a division of Stifel, Nicholaus & Co.), contributed $25,000 to the Measure A campaign after the June primary election, apparently promising in advance to make the contribution if Measure A passed. Stone & Youngberg thus expects to make millions if all the Measure A bonds are sold. Under current practice, the bond financial team is not paid until the bonds are sold.
CUSD, in August 2011, approved Stone & Youngberg as the underwriter on the bond. A staff memo noted the district had employed Stone & Youngberg since 1997 and that the fee schedule negotiated was “very competitive and reflects current market conditions.”
Profits off bond measures, bond advice, and bond marketing can be substantial. A recent $18 million CUSD bond sale cost the district at least $221,000 in costs. In theory, issuance of all $298 million in bonds from Measure A could result in millions of dollars going to the bond financial team, including underwriting, advisers, and counsel.
Bond counsel for the CUSD 2012 ballot measure was the Jones Hall law firm of San Francisco, which donated $2,500 to the Measure A campaign.
But the most interesting contributors are those closest to home. According to public records, Terry Bradley, a former superintendent of CUSD who retired with a $217,000 annual pension, was assistant treasurer and co-chair of the Measure A campaign, which raised $294,000. Bradley has his own company, School Business Consulting, Inc., which has the same address as Harris Construction. Harris has built Clovis school facilities in the past and donated $20,000 (which included a $5,000 loan) to the Measure A campaign. Bradley personally donated $2,206.
Fresno businessperson Richard Spencer owns Spencer Enterprises and is owner and CEO of Harris Construction. He personally donated $10,000 to the Measure A campaign. He also funded a YouTube video supporting Measure A, which included a testimonial by Bradley and Walt Byrd, a former assistant superintendent of CUSD, who now works for HMC Architects as a project manager. Byrd already receives more than $118,000 a year from his school district pension.
Keygent, the El Segundo–based bond adviser, donated $10,000. Three architectural firms, HMC Architects, Darden and S.I.M., each donated $10,000.
According to a district audit at the end of 2011, outstanding bond debt in the district was $225 million and outstanding long-term debt was $389 million.
Clovis school officials have every right to pursue excellence in the school district, but the next time there is a bond election they need to put all their cards on the table so the voting public knows who profits and who pays.
Lloyd G. Carter has been writing about California water issues for 40 years. His Web site is www.lloydgcarter.com.