California Treasurer Bill Lockyer on Monday expanded his request for a legal opinion to determine if some local education officials and the financial underwriters they hire are violating state law by campaigning for school bond measures.
In a second letter to California Atty. Gen. Kamala Harris, Lockyer asked her office to also consider financial advisors and bond counsel that are employed as consultants to help school districts prepare bond issues.
Lockyer first contacted Harris a week ago when he requested that she render a formal opinion on the conduct of school officials and underwriters as it relates to political campaigns for school bonds.
The state treasurer said a legal opinion is needed because some arrangements between school districts and firms that sell bonds “raise substantive questions” about whether the officials are using public money to conduct campaigns advocating the passage of bond measures—an action banned by state law.
Under some agreements, Lockyer said, underwriters who stand to profit from selling bonds conduct voter opinion surveys or help prepare ballot arguments. Other agreements, he wrote, “specify [that] the underwriting fees paid in connection with any subsequent bond sale will reimburse the underwriter for pre-election campaign services provided.”
Lockyer noted that financial advisors and bond counsel may have entered similar agreements to provide campaign services.
In recent months, the treasurer has been examining the way schools issue bonds, in part because of possible abuses that arose from the issuance of risky and expensive instruments known as capital appreciation bonds. He is now supporting pending state legislation that would limit the use of the most onerous forms of such bonds.
Based on data developed by Lockyer’s staff, The Times reported last November that 200 school and community college systems — a fifth of all districts statewide — had issued billions of dollars in such debt, often when pressed for construction money during the recession.
Unlike conventional bonds that require repayment to start almost immediately, long-term capital appreciation notes allow districts to put off payments for decades. The delays, however, often result in staggeringly high compound interest charges that dramatically increase the total debt.