I: I suppose the reason the SacBee editors appended “Opinion” to the headline is that this hardly qualifies as News!
Capital appreciation bonds accumulate interest costs
Los Angeles district wants to change low-bid rules
Leaseback court ruling could undo deals
By Dan Walters | Sacramento Bee | http://bit.ly/1Hb2W2b
6July2015 :: One might think that school construction would be about as simple and straightforward as anything government does.
However, like any governmental activity involving lots of money, school construction is fraught with self-serving interests and politics.
Take, for example, the now-infamous practice of issuing capital appreciation school construction bonds.
Local school officials who should have known better drank the Kool-Aid offered by fast-talking “financial consultants” and issued voter-approved bonds that would accumulate interest costs for decades without any repayments – not unlike the “teaser rate” mortgages that lenders doled out to unqualified homebuyers.
San Diego County’s Poway Unified School District is the poster child for this fiscal malpractice, having borrowed $105 million. It’s now committed to paying back $1 billion long after those who made the bad decision have departed.
Reacting to the furor that erupted when the scheme was revealed, Poway and other districts that issued similar bonds are now trying to restructure them.
Meanwhile, however, the Los Angeles Unified School District is seeking state permission to depart from the traditional process of giving construction contracts to lowest bidders.
Instead, it wants to use “best value procurement,” which is more subjective than competitive bidding.
The process could be used to award contracts to those with political pull – especially unionized companies. Details of the authorizing legislation, Assembly Bill 1185, and its union support point to that outcome.
Finally, there’s Davis vs. Fresno Unified, a recent appellate court decision that invalidates “lease-leaseback” school construction contracts.
Under such deals, a district leases land at nominal cost to a construction company, which builds a new school and then leases it back to the district.
Like capital appreciation bonds, leaseback deals avoid big outlays for new schools in the short run, responding to an era when state school bond money has dried up and voters are leery about approving new local bonds. But their long-term costs are much higher.
Fresno taxpayer Stephen Davis’ lawsuit, backed by taxpayer groups, challenged the leaseback of a new middle school, saying it violated competitive bidding laws, and the appellate court agreed.
The decision, if upheld by the state Supreme Court, could be a financial bombshell, forcing school districts and their corporate partners to undo deals worth hundreds of millions of dollars.
In response, school construction and contractor groups are seeking legislative validation of their leaseback deals. Their lobbyists are circulating language to that effect in the Capitol, looking for a bill to which it could be attached.
Could that vehicle be AB 1185, the measure that to make Los Angeles Unified’s “best value procurement” scheme legal?
A spokesman for its author, Assemblyman Sebastian Ridley-Thomas, D-Los Angeles, says there are no plans to do that.
II: “Meanwhile, however, the Los Angeles Unified School District is seeking state permission to depart from the traditional process of giving construction contracts to lowest bidders.
Instead, it wants to use “best value procurement,” which is more subjective than competitive bidding. “
- Best Value Procurement is competitive bidding - it’s competitive bidding on steroids, It is much more subjective than “low bid bidding”; it is essentially a search for the “Best Price” …not the lowest price.
“The process could be used to award contracts to those with political pull – especially unionized companies. Details of the authorizing legislation, Assembly Bill 1185, and its union support point to that outcome.”
- Because LAUSD has a Project Stabilization Agreement in place, the union boogieman argument is moot: All potential construction contracts are with “unionized companies”.I can understand that some might not like this – but it takes the union shop argument out of the procurement discussion.