Attorney General Harris Reins in Shady Bond Practices

Tuesday, February 2, 2016

Page 9

IN MY OPINION (Column)

Attorney General Harris Reins in Shady Bond Practices

By JON COUPAL

It’s not often that taxpayers get good news, especially in tax-happy California. Even more surprising is when the good news is an official opinion from the state’s Attorney General, someone not normally associated with friendly treatment to taxpayers.

Last November, this column noted that local governments, especially school districts, were prone to engage in questionable campaign activity to secure an unfair advantage in bond elections. Although it is illegal for officials to use public resources (including public funds) to urge a vote for or against a political issue, consultants frequently advise tax proponents to wage one sided “informational” campaigns. This includes sending out material stating all the good things a bond or tax measure will do, but usually they stop just short of violating the law by telling people how to vote. (Howard Jarvis Taxpayers Association has had multiple successes in obtaining court injunctions against school districts that cross the line into advocacy, but by the time the court rules, the political damage has already been done.) And to top it all off, the “consultants” compensated with taxpayer dollars are frequently given financial incentives if they win.

Fortunately, the incestuous behavior of school districts with political consultants and bond salesmen received a long overdue slap down last week. The opinion, in response to several questions proffered by California’s Controller John Chiang, covers many activities taxpayers have been complaining about for years. As noted in the opinion, “Bond elections typically involve a range of pre-election activities, which can include: conducting opinion surveys to evaluate voters’ attitudes toward a bond issue; developing a financial plan; determining appropriate bond issuance size and tax rates; drafting documents needed to place a bond measure on the ballot; conducting a public-information program; training staff to inform the community about funding needs and bond financing; preparing a tax-rate statement for the voter pamphlet; providing information to the election campaign; conducting informational workshops; and preparing the ballot question itself. Although district staff may be able to provide some or all of these functions, it is common for districts to contract with private vendors to perform or support them [and a] practice has developed within the municipal financing industry whereby investment bankers, financial consultants, and bond attorneys (collectively referred to here as “municipal finance firms” or “firms”) offer to contract with a school district to provide the pre-election services that the district seeks. Under such an arrangement, the firm agrees to provide the pre-election services at no, or reduced, charge to the district in exchange for the district’s promise to select the firm as its contractor to provide post-election bond services, if the bonds are approved by the voters.”

The Attorney General first concluded what should already be obvious: “A school or community college district violates California constitutional and statutory prohibitions against using public funds to advocate passage of a bond measure by contracting with a person or entity for services related to a bond election campaign if the pre-election services may be fairly characterized as campaign activity.”

But the A.G. went on to conclude more specifically that “a school or community college district violates prohibitions against using public funds to advocate passage of a bond measure if the district enters into an agreement with a municipal finance firm under which the district obtains pre-election services (of any sort) in return for guaranteeing the firm an exclusive contract to provide bond-sale services if the election is successful, under circumstances where (a) the district enters into the agreement for the purpose (sole or partial) of inducing the firm to support the contemplated bond-election campaign or (b) the firm’s fee for the bond-sale services is inflated to account for the firm’s campaign contributions and the district fails to take reasonable steps to ensure the fee was not inflated.”

Admittedly, there’s a lot to unwrap here. But the upshot is that taxpayers should not be forced to finance a political campaign to raise taxes.

Obviously, there are times when the legitimate capital needs of a school district justify a request to voters to assume debt in the form of a school bond. But the process should be driven by actual educational needs, not the desire of consultants and the bond industry to make a fast buck.