State Treasurer Questions Legality of School Deals with Bond Firms

Wednesday, March 20, 2013


California Treasurer Bill Lockyer has asked Attorney General Kamala Harris to issue a formal opinion on whether school districts are illegally contracting with bond underwriting firms for pre-election campaign services in exchange for exclusive contracts to market the bonds later.

There is no question that deals are being worked out between districts and bond firms. Lockyer just wants to know if they have crossed the legal line that prohibits school officials from using public money to pay political consultants to get bond measures passed.  

“It's troubling,” Lockyer told the Voice of San Diego Tuesday. “I think it may well violate current law that limits quid-pro-quo transactions.”

“Typically under these agreements, the underwriter helps the district conduct community forums and other public meetings about the bond measure,” Lockyer wrote in a letter to Harris. “Under some agreements, the underwriter conducts a voter opinion survey or helps prepare ballot arguments. Other agreements specify the underwriting fees paid in connection with any subsequent bond sale will reimburse the underwriter for pre-election campaign services provided.”

Lockyer asked whether these deals could legally be made in exchange for sole-source contracts to underwrite the bonds later, and whether districts could reimburse the bond firms for their services out of bond proceeds.

And, finally, the treasurer asked whether state and local campaign disclosure laws required either party to report these agreements and transactions.    

School district transactions have come under increased scrutiny of late over questionable sales of unconventional construction bonds that defer payments for years but balloon astronomically decades down the road. Nearly a fifth of the state’s 1,000 districts have  incurred this kind of debt and are on the hook for billions of dollars.

An investigation published last month by Voice of San Diego also found a strong correlation between companies that donated money to San Diego school district bond campaigns and those that win contracts after the elections. For instance, seven of eight companies that donated $5,000 or more to the construction bonds campaign for Poway Unified School District's Proposition C in 2008 landed contracts after it passed, according to Voice of San Diego.

–Ken Broder


To Learn More:

California’s Lockyer Seeks Examination of School Bonds (by Alison Vekshin, Bloomberg)

Lockyer: School Bond Election Deals Appear Illegal (by Melody Petersen, Orange County Register)

Lockyer Seeks Legal Opinion on School Construction Bond Campaigns (by William Nottingham, Los Angeles Times)

On Local School Bonds, Big Donors Often Win Big Contracts (by Will Carless and Wendy Fry, Voice of San Diego)

School District Uses Popular Financial Tool to Turn $105 Million Loan into a $1 Billion Debt (by Ken Broder, AllGov California)

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