Merci beaucoup, Burbank!
Call me naïve (I only studied French for a year), but I have a hard time understanding why the Burbank City Council last month approved a private school — Lycee International de Los Angeles — using the city’s authority to sell $12 million in tax-exempt municipal bonds to buy the old GM training site in the Rancho District for a new campus.
I had the same problem with the Los Angeles City Council last week approving exclusive Buckley School, selling $40 million in tax-free bonds to expand its Sherman Oaks campus where tuition is more than $30,000 — nearly three times what Lycee charges to provide a “French education” to some 900 students at schools in Tarzana, Pasadena, Los Feliz and Santa Ana.
This is all being done at a time when public schools all over California are cutting summer programs and adult education, increasing class sizes and furloughing and laying off teachers.
So why would city officials help private schools reduce their costs of borrowing so they can expand to drain off more students from public schools? Why would they give up state and federal income tax revenue from the profits on the bonds — and in the case of “nonprofits” like Lycee and Buckley — sales and property taxes as well?
The easy answer is our officials don’t really know what they are doing, but that wouldn’t be completely true. It is more to the point that they don’t care because you don’t care enough to pay attention and, in Burbank’s case, there was the added benefit of pleasing the 60 or 70 residents of the Rancho District who said they prefer the school at the GM training site in their equestrian community to the 50 houses that they fought so hard to block.
Despite the loss of all that tax revenue, Finance Director Cindy Giraldo pitched the deal as fiscally responsible without risk or cost to the city since it is carried out through the California Municipal Finance Authority, which will even give the city 25% of its fee. The $7,000 commission hardly offsets all the revenue that other uses could have brought in.
The finance authority was founded as a joint powers agency in 2004 and now has more than 150 cities that have joined to provide cover for tax-exempt financing for all kinds of capital investments: Chevron USA got $250 million for pollution controls, Christian universities Biola and Azusa Pacific each got more than $100 million, while smaller Westmont College got $65 million and Catholic Mater Dei High School $25 million.
The list goes on and on into billions of dollars in tax-exempt bonds for private corporations, hospitals, schools, affordable housing and not-so-affordable housing — all carried out by a non-government agency accountable to no one, an agency that is free to pick and choose which projects to support by its own values as long as it can find a city or county to provide cover.
That’s why Assemblyman Mike Feuer (D-Los Angeles) demanded a full and complete state audit of the California Municipal Finance Authority and the much larger California Statewide Communities Development Authority, which has facilitated more than $40 billion in tax-exempt bonds since it was set up in 1988 by the League of California Cities and the California State Assn. of Counties. The audit is due next month.
State Treasurer Bill Lockyer said they amount to “a private business being run out of a government agency” and need “a thorough scrubbing of their books and their operations.”
More and more cities like Burbank are jumping aboard now because they no longer have access to tax-increment financing since redevelopment agencies were abolished.
How little scrutiny the Lycee International deal got from city officials was clear in the City Council discussion on May 22 when City Atty. Amy Albano offered assurance that this scheme “can’t be [used] for a for-profit” business — which isn’t true — and that it was just like the city recently approving a bond sale by Bob Hope Airport, which Burbank owns with Glendale and Pasadena.
Yet, only Councilman David Gordon had qualms, noting the IRS offers three pages of risks about this kind of tax-free financing. He wondered what the public benefit is and worried that it “opens up a whole new world” for developers and others to seek the same deal.
He was pretty much trampled by his colleagues, with Mayor Dave Golonski dismissing all his concerns, Jess Talamantes calling the deal “a no-brainer,” Gary Bric basically telling Gordon to shut up and Emily Gabel-Luddy asking: “What do you think is the risk for the city in the purchase and renovation of property that is welcomed by the community … are you backing away from your commitment to the community?”
“It’s amazing how you people put words into my mouth,” Gordon responded, having noted it was “clear we don’t want to ask too many questions.”
Gordon has reflected on what happened and still wonders what the pitfalls are, why staff or Lycee officials never mentioned the financing deal earlier and why his colleagues didn’t care.
“I have no problem with the French school coming or what the Rancho people want,” he says. “What bothers me is this happens very often, where decisions are made and we don’t have all the information in front of us. It was simply a matter of what the city was getting involved in and why. Frankly, I wasn’t getting satisfactory answers.”
RON KAYE can be reached at email@example.com. Share your thoughts and stories with him.