October 31, 2012

What Were They Thinking?

The election is just a week away. There are 2 seats on PUSD board up for grabs and 2 seats on the Poway Council. I thought the biggest issue this election season, especially for council candidates, would have been, "How will the end of redevelopment affect our budget?" A little less than a year ago, the California Supreme Court decided that Governor Brown and the legislature can dissolve redevelopment agencies and end that state program. The City of Poway had been diverting $40 million in property taxes from local schools, the county and our own general fund, to subsidize developers to clean up blight  and now they won't be able to do that anymore. Unfortunately, the full $40 million/yr in diverted property taxes won't be available for distribution for many years, as Poway's Redevelopment Agency has a large bonded indebtedness and other obligations that must be paid off first. So, the schools won't be made whole right away. And neither will the county or Poway's own general fund.

The council candidates haven't talked too much about how they would deal with the budget shortfall. Mostly, they seem to collectively shake their fists at Sacramento and whine. Two council candidates, Steve Vaus and Jeff Mangum were on the City's Citizen Budget Review Committee. That committee didn't even consider the impact the California Supreme Court's decision could have on Poway's budget during their budget review meetings. I guess they were afraid to plan for all possibilities. After the court decision was made public, the Budget Committee returned to make some adjustments and to add a little "We hate you, Sacramento" to their report.

I've heard very little budget on the campaign trail. This year's buzz is all about the "Billion Dollar" PUSD bonds. That may be due to political opportunism more than anything else. Jim Cunningham will likely be re-elected. Merrilee Boyack is not running again. There are 3 other candidates hoping to grab her seat: Steve Vaus, Jeff Mangum and Gary Vineyard. The school bond has become the "hot" issue between Steve Vaus and former school board member Jeff Mangum. Vaus contends that Mangum is responsible for the bond debacle and Mangum says he isn't because he wasn't on the PUSD board when the last issuance of Prop C bonds were approved.

Personally, I think Mangum should have stood with his fellow PUSD Board members and owned his role in the bonds. Yeah, yeah, I know...he left the board in 2010 and did not vote to issue the last Prop C bonds, but Mangum was very much a part of the whole sequence of events that led up to the bond issuance in 2011 for $105 million in bonds that would cost taxpayers a billion dollars to pay back over the next 40 yrs.

For both Prop U and Prop C bonds, the district first issued "bridge loans" and got started right away on the building projects. When the bridge loans came due, the district needed to issue Prop U or Prop C bonds to pay them back. The plan worked well for Prop U. The complication for issuing Prop C bonds was that the taxpayers were still paying off the Prop U bonds when the Prop C bonds would be issued. In order to keep the tax rate below the promised $55/$100,000AV, PUSD decided to use higher risk CAB(capital appreciation bonds) that wouldn't have to be paid off for 20 yrs or so, although they accrued interest during that time period.

When Prop C's bridge loan came due in 2011, PUSD had to pay them off. PUSD had planned for a best case scenario, with the real estate bubble growing for at least 7 more years. Unfortunately, the housing market collapsed and the bond market tightened up when the loan came due.  I don't know what Mangum could have done differently if he had still been on the board when the bridge loans became due. There were not a lot of choices. Bridge loans are a gamble, if conditions are not too good when they come due, the district still must issue bonds to pay them off.

There is some irony in that Steve Vaus is the most vocal critic of Mangum's role with regard to the bonds. Vaus's supporters have repeatedly said online comments, media interviews and at a school board meeting,  that Mangum should sit out the election for his role in the bonds. Yet, several of Vaus's supporters played key roles in getting Prop C passed. Sabrina Butler, who endorsed Vaus, ran the "Yes on C" campaign. Laura Tyne, was another "core" volunteer. She now says she was "fooled" by the board and that they withheld "details"about the bond, in particular, how much the bond would cost. In my opinion, that is a pretty lame whine because nobody knows what the interest rates will be for a  bond until they are issued. If Laura read Prop C before she tried to get everyone to vote for it, she might have noticed that we voted for bonds that could take up to 40 yrs. to repay after the last bond was issued at up to 12 % interest. PUSD didn't have to issue the bonds for many years, at least not until the bridge loans came due, and even then they could have (and did) stagger the issuance of the bonds for several years. If you repay back a loan over a 50 yr period, it will cost a lot in interest. Those terms were in Prop C and not hidden from the voters. What wasn't revealed was that PUSD planned to use CAB bonds, which accrue interest for many years before payments are made. But without using CAB bonds, there was no way PUSD could have issued the Prop C bonds and still have kept rates below $55/$100,000AV. That is why I questioned what the Yes on C committee was telling the voters in 2008. It certainly did not seem mathematically reasonable, and it wasn't.

PUSD did tell the San Diego Taxpayer's Association that they planned to use CAB bonds. And they told them that they expected assessed valuation to grow from 5-8% per year from 2008-2015. They gambled on that real estate bubble growing for 7 more years. I would expect that a group that is so devoted to taxpayer concerns would have questioned those "wildly optimistic" assessed valuation projections, but SDCTA didn't. SDCTA seems to frown upon spending taxpayer money on frivoulous things like teacher salaries or pensions, but they are pretty gung- ho about spending tax dollars on school construction projects. SDCTA gave PUSD an award for using that bridge loans scenario with Prop U. They endorsed Prop C, knowing that PUSD was going to use bridge loans and the riskier CAB bonds. What were they thinking? Perhaps of lining their pockets.

Here is where more irony comes in. Steve Vaus received the endorsement of the Lincoln Club of San Diego County and he got  $500 in cash and $300 in video services from them. They are a very conservative group, nominally non-partisan, and pro-development. There are several key members who are on both the SDCTA and the Lincoln Club. One name in particular pops out. April Boling.  Boling is an accountant who is often the treasurer for Republican campaign candidates and issues. April Boling was Vaus's campaign treasurer for the recall campaign against Betty Rexford. And April Boling was  the "contact person" (treasurer?) for the 527 campaign organizations ("citizen groups") who pushed for passage of both Prop U and Prop C.

So, yeah, Mangum may "lit the fuse" that led to the billion dollar bond deal, but there are quite a few members of Vaus's posse who were instrumental in pushing to get Prop C passed. Prop C was actually the rope to the sticks of billion dollar dynamite. Once that thing was lit, we were stuck.

There is a silver lining to the bond fiasco. PUSD had plans to get us voters to approve a parcel tax. Prop U and Prop C money can only be used for school buildings and some technology improvements. A parcel tax could be used to pay teacher's salaries. I'm not opposed to paying teachers a salary or  pensions. I am opposed to parcel taxes, in particular, to flat parcel taxes that charge each property the same amount. It seems unfairly burdensome that a small house on a tiny lot would pay the same parcel tax as an $8 million estate. Wikipedia has a list of parcel tax measures that have been on the ballot in other California cities.  They vary considerably, but some are for $300/yr and $400/yr per parcel.  They can be for a set number of years or they can continue indefinitely. Some parcel taxes are based on
square footage of the property or lot sizes. That seems much fairer and would be the only parcel tax I would consider voting for.

The billion dollar bond measure put the kabosh on talk about a PUSD parcel tax. But it may be back after things simmer down. I plan to vote for Prop 30, Governor Brown's sales tax + income tax measure to raise funds for schools. That measure is limited to a set number of years, and it is not an excessive amount of money for the purpose. If it doesn't pass, school funding will be cut, and you can bet that somebody will revive talk of a parcel tax. So, even if you are not inclined to vote for tax measures, you might consider this one a preventive measure and vote Yes on Prop 30.

Sometimes I really do not understand the thinking of the PUSD Board members. They don't seem too excited about Prop 30 or the end of redevelopment. I guess they figure the state owes them money and they have no concerns as to how the state is supposed to get that money. The board members seem pretty satisfied with saddling PUSD taxpayers with a billion dollars of debt that won't be paid off for generations, and they would have added a parcel tax on top of that, if they could have. So I found it kind of odd when I saw Brian Maienschein's campaign literature and on the front,  Linda Vanderveen, PUSD board member, claimed that the entire PUSD board "unanimously endorsed Brian." Do they know that Brian Maienschein signed a "no new taxes" pledge? Most of the funding for schools comes from state money.  I realize that Maienschein went to PUSD schools, and he is probably a nice guy and all, but, geez, what kind of message does it send when the Board unanimously endorses someone who signed a "no new taxes" pledge.

The "no new taxes" pledge is part of Grover Norquist's campaign to shrink government spending to the same level it was around the turn of the century (from 19th to 20th). In the early 1900s, most people did not finish grade school, much less graduate from high school or go to college. Is that what we want for our kids? For our country? For the generation that is going to have to pay off the school bonds? What is the PUSD Board thinking?

Fortunately, there is a challenger running for the PUSD Board. I am going to vote for Kimberley Beatty.  I've been impressed by her understanding of the bonds and support for school funding. Paying taxes to support the schools is not the problem. Paying a billion dollars to borrow a little over $100 million is a problem, but in order to avoid that situation, you have to at least ponder different possibilities when a deal is proposed. That takes critical thinking and sound reasoning, not an anti-tax pledge.


Will Carless said...

Hi Chris

This is Will Carless. Can you contact me? I'm at will.carless@voiceofsandiego.org



Anonymous said...

Good post.

Anonymous said...

Wow, fascinating read. Thank you!

John Scanlon said...

Mr. Cruse
I have completed a review of Prop C Series B concluding it is illegal and thereby should be rescinded/ redeemed. The Board violated numerous sections of the Education Code. You can read the review through these links:
Review of Prop C Series B.doc - a Word.doc at:

PU.xls - an Excel doc with supporting spreadsheets at:

I have been unable to discover who enforces the Education Code. The District Board is primarily responsible, but they are the problem. The Attorney General’s office referred me to the Education Department’s Accountability Unit, but the Department’s website states it does not have jurisdiction over school districts. I left a message with the Unit. They have not returned my call. The State Auditor’s website states they do not investigate school districts but an investigator on their hotline said they can audit a school district if requested to do so by the Legislature. The investigator referred me to the Joint Legislative Audit Committee. I have left a message for them to call. They have not returned my call.
We live in a wholly corrupt society.
John F Scanlon
Rancho Penasquitos
13336 Caminito Ciera #38
San Diego CA 92129-6028
HP 858 538 1434 Cell 858 354 3336

PowayBlog said...

John, I believe the CAB bonds were issued under the government code, not the education code. The government code allows 40 yr terms after the issuance of the last bond, the education code only allows 25 yr terms. I support new legislation requiring school bonds to be issued only under the education code and not the govt code, but even under the education code there is still wiggle room that extends the repayment period. Prop C allowed 40 yrs repayment after the last bond was to be issued. They can stagger those and easily make that take another decade. Plus, the original bridge loans had about 3 yrs worth of interest payments that were refinanced with the last Prop C bonds, That was one of the issues in the validation court case. Was that legal? The attorney general of California said no in a letter but not in court. Likely, the laws are a little squishy on this and need a rewrite with some forceful regulations embedded in them. Yay for regulatory laws that protect taxpayers!

PowayBlog said...

John, the education code is enforced by civil action (California Education Code Section 262.4), which means you would have to sue them.
But, as I said the Prop C bonds were issued under the government code, not the education code.