$1 Billion School Bond Scam in Poway

Poway Unified School District (San Diego County) borrowed $105 million from investors last year to complete a decade-long renovation of its schools. According to the Voice of San Diego, PUSD promised voters in 2008 that it would get the money without raising taxes. Without the increases, it could not afford to purchase a bond and pay it off over 20-30 years, as school districts normally would do. Instead, they took out a capital appreciation bond, which allows it to make no payments for 20 years, accruing interest all the while, resulting in a net cost to taxpayers of more than $981 million over the next 40 years, nearly 10 times what they borrowed. (In a normal school bond, a school typically pays two to three times what they borrowed).

In addition to the substantially higher costs, capital appreciation bonds are also extremely risky, as they depend on future growth in property values to pay off the original debts. If the current housing market does not recover quickly or another bubble busts during the lifetime of the loan, Poway taxpayers could get screwed even worse. Even in Michigan, where lawmakers seem to enjoy bankrupting school districts so they can invoke their Financial Martial Law rules and give the districts over to private business, capital appreciation bonds have been deemed too risky to taxpayers and banned.

Michael Turnipseed, executive director of the Kern County Taxpayers Association, said such loans are "way worse than loan sharking," calling Poway’s behavior “absolutely insane."

PUSD’s behavior, while seemingly crazy, is actually quite rational in today’s political and economic climate. States have been running regular large deficits and balancing their budgets by slashing education funding, inspiring school districts to engage in ever more risky and unconventional methods of fundraising. At the same time, politicians are scared to antagonize the powerful anti-taxers and worry that the public—still reeling from the recession, high unemployment and the huge losses to middle and working class personal wealth—would not support a tax increase, even for school facilities improvements.

Starting in 20 years, PUSD will have to make its first payment toward the loan: just over $30 million, $24 million of which is interest. After that, payments will increase to roughly $50 million per year for 20 years. Since the money must come from property taxes, the assessed values of Poway property will have to quadruple, or property taxes will have to be significantly raised without an increase in values.

Union-Busting Corporate Giveaways in Michigan

Image from Flickr by Christopher Dombres

Michigan’s infamous Financial Martial Law is now well known to those paying attention to this sort of thing. Numerous towns, cities and jurisdictions—including Detroit Public Schools (DPS)—have already been declared financial catastrophes and had “emergency financial managers” (generally business executives) imposed on them. These managers have the authority to override or fire elected officials, lay off unionized workers, cut services, and give away public institutions (like public schools) to private, for-profit operators.

According to Detroit News.com, 800 DPS teachers will not be hired back next year, while their counterparts in the suburbs of Muskegon Heights and Highland Park will not know if they have jobs until their financial managers can find private charter companies to run them. Once these public institutions have been given away to private corporations, it will be up to the charter operators to determine which teachers get rehired, with few (if any) being allowed to retain union representation.

Muskegon Heights recently signed a contract with Mosaica, a private, for-profit charter chain, giving them control over every school in the district. The details of the deal have not been disclosed, including the amount of taxpayer dollars the district will be handing over to the company.

These corporate giveaways are intended to save the districts from financial calamity.  (Muskegon Heights has a roughly $12 million deficit, while Highland Park Schools' deficit soared is over $11 million). However, the only way this is possible (and the only way their private operators can turn a profit) is by lowering labor costs by shredding union contracts, increasing class sizes, decreasing services, and gutting pay and benefits.

Privatization of public schools in Detroit has been an ongoing problem under former financial manager Robert Bobb (see here and here). Current manager Roy Roberts has slashed teachers’ wages by 10% (in violation of their contract, but apparently perfectly legal under Michigan’s Financial Martial Law), reduced maternity leave to only 12 weeks.

Like much of the Ed Deform movement, Michigan’s unique approach depends on the fabrication of a crisis through years of tax breaks for the wealthy supported through the slashing of education and other social services. The school districts themselves are then blamed for their fiscal woes and businessmen are called in to clean up the mess, as if the public should believe that only businessmen are capable (and trustworthy) enough to solve the schools’ problems. And like the rest of the business world, these businessmen are indeed in it only to make a profit, at whatever cost to the public good. Sadly, despite the nearly daily examples of corporate greed and criminality (and the dearth of evidence that districts run by businessmen perform any better than those run by educators), the public continues to accept the notion that business leaders make good school administrators.

Detroit Unions Give It Away, Snyder Not Satisfied, Will they Strike?

Will Work for Free (Image from Flickr, by psyberartist)

Last week, 30 Detroit public sector unions sold out their members by giving away major concessions to the city, including a 10% pay cut, layoffs, and changes to their pensions, in a completely voluntary reopening of existing contracts well before they expire. The move was an attempt to preempt the declaration of financial failure by the state and the imposition of a financial manager who could dissolve local governmental agencies and union contracts.

The Detroit City Council has decided not to vote on the new contracts because they conflict with a proposed consent agreement negotiated with the state and is telling unions the state is requiring them to return to the bargaining table, mlive reported this week.

Gov. Rick Snyder wants city leaders to approve a consent agreement that would eliminate the need for an emergency manager. Snyder’s agreement would require even more take backs from the unions, including a watering down of the grievance procedures.

3 Council members (JoAnn Watson, Brenda Jones and Kwame Kenyatta) criticized Mayor Bing for delaying approval of the contracts and suggested that by doing so they will jeopardize long-term labor relations with the unions.

Now that the deal is off, AFSMCE local 25 President Al Garrett, is refusing to any more negotiations until their current contracts expire and said he would call for a strike before he agreed to the state-requested reforms.

Detroit Slashes Teachers’ Wages 10%

Detroit’s new emergency financial manager, Roy Roberts, is imposing a 10% wage cut on all 10,000 employees of Detroit Public Schools (DPS), according to Labor Notes. On top of this, he is making them pay 20% of their own health care (up from 10% last year). All of this is possible thanks to Michigan’s Financial Martial Law bill, passed in March.

The law gives appointed financial managers the authority to impose budget cuts in cities, towns, and school districts, cancel union contracts and remove any elected local officials.

The wage cuts come on top of an already devastating 2011-2012 budget that shut down or privatized 14 schools and fired 800 employees. Furthermore, most of the district’s unions had already made concessions such as accepting furloughs.

The district has lost nearly half its schools over the last three years. Nearly half of all Detroit children will be attending charter schools this year.

Broad’s Oakland Financial Martial Law Massacre

Huck/Konopacki Labor Cartoons

In 2003, Oakland Unified School District was placed into receivership and bailed out by the state of California to the tune of $100 million. Accused of incompetence and financial mismanagement, a financial manager, Randy Ward, was given control over the district. From 2003 to 2006, Ward ran the district with an iron fist, and amassed over $25 million in fines and other charges from the state Controller’s Office according to the San Francisco Chronicle.

Unlike Michigan, California’s emergency financial managers are not given the authority to fire elected officials or nullify union contracts. However, their broad authority does allow them to privatize their districts, as Ward did, bringing in dozens of private charter schools. And it seems they are also allowed to run their bankrupt districts further into the ground without any oversight and then ask the district to pay for their blunders. (Ward quickly doubled OUSD’s debt).

During his tenure, no annual audits were conducted. As a result, no one knew until years later that Ward had mismanaged the district as badly as his predecessors, when he was supposed to be fixing their mistakes. Rather than addressing OUSD’s fiscal problems, Ward, went on an orgy of restructuring and reform, firing librarians and counselors, shutting down student newspapers, while further bungling district finances. He underestimated payroll liabilities and failed to reconcile cash accounts. Two years ago, when outside auditors were brought in, they discovered that records were missing or inconsistent, the Oakland Tribune reported.

Local officials, who regained control over their district in 2009, are now fighting the penalties, arguing they shouldn't have to pay for Ward's fiscal mistakes. Considering that Oakland cut $122 million from their budget last year and faces another $30 million deficit for the coming school year, it seems unlikely they would even be able to come up with an additional $25 million for the fines. East Bay Assemblyman Sandré Swanson is trying to get the district off the hook. He says he has gotten the total reduced down to about $2 million.

Broadie Toady Randy Wardy

Ward was an early graduate of the Broad Superintendent’s Academy, which trains business leaders how to manage school districts for the benefit of private companies, with heavy emphasis on the creation of private charter schools and union busting. Broad even subsidizes a portion of their salaries, making Broadies irresistible to struggling school districts, virtually guaranteeing their hiring over non-Broadie competitors. According to the Broad Report, the Broad Center was specifically called in by then Mayor Jerry Brown and then Superintendent Jack O’Connell to provide a manager to run OUSD after the state take over. Additionally, the Broad Foundation provided Ward with several Broad residents to help him run OUSD and gave him a powerful collaborator, Kevin Hall, Chief Operating Officer of the Broad Foundation. Even after Ward snuck away from the devastation he wreaked on Oakland for a better job in San Diego, he was succeeded by two more Broadies.

An Alameda County Grand Jury found that under the Broadies’ control, the district “was hampered by continuous staff turnover, particularly in the area of finance, numerous reorganizations and a succession of state administrators,” according to the Oakland Tribune. “After nearly five years of state management, OUSD's budget remains unbalanced and the district's future is unclear.”

As boss of OUSD, Ward led a restructuring of the district that fast-tracked new charter schools and shut down many neighborhood schools, leading to overcrowding and parental and community opposition. Nearly half of Oakland’s schools were privatized, shut down or converted into “small” schools. The Indy Bay wrote that Ward stonewalled negotiations with the teachers union, while giving raises to all upper level administrators. He also threatened to replace teachers with uncredentialed scabs, and used the threat of charters to help him gain “the upper hand in negotiations with teachers” (See National Model or Temporary Opportunity?).

Ward led an effort that became known as Effect Success! that attracted funding from numerous philanthropies, including Broad, Gates, Walton, Kaiser and Chlorox. Ultimately, they would raise over $25 million, in addition to the $100 million coughed up by the state to bail out the district and the discounted superintendent’s salary paid for by Broad. With all that cash and all those big guns on his side, it is remarkable that Ward could have doubled OUSD’s debt and bungled their finances so horribly that he saddled the district with $25 million in fines.

Financial Martial Law in Wisconsin, Too?

According to Forbes magazine, Wisconsin Governor Scott Walker and his cronies are drafting legislation that would allow him to appoint emergency managers who could cancel union contracts, fire elected officials and school board members, and take control of entire cities and towns. Rick Unger, who wrote the piece, said that the plan is being written by the largest law firm in the state, Foley & Lardner, and is scheduled to be introduced to the legislature next month.

Walker went on the radio yesterday to deny the report, asserting that it was “absolutely bogus.” He denied that he or anyone in his office ever did or said or planned anything like this, which leaves open the possibility that Foley & Lardner are indeed working on such a plan, and that Walker is simply making a stab at plausible deniability. Unger’s source, a Wisconsin political organizer named Nate Timm, refused to name his source for this information, but had confirmed that he received his information from a “highly placed GOP source” who was in a position to know the governor’s plans.

If true, Wisconsin’s plan would be very similar to the financial martial law plan enacted in Michigan earlier this year, where Governor Snyder has already appointed an Emergency Financial Manager, Joseph Harris, to take over the town of Benton Harbor. One of Harris’ first acts as Manager was to issue an order stripping away all powers from the city’s elected officials. Erik Kain, another Forbes writer, said that the Michigan and Wisconsin plans followed a pattern of similar legislation being pushed through in other Tea-Party controlled states enacting strikingly similar legislation all at the same time across the country.

Detroit Mayor Asks God to Close Budget Gap

Huck/Konopacki Labor Cartoons

Detroit’s mayor Dave Bing was quoted in the Wall Street Journal saying "I'm not afraid of an emergency financial manager being named . . . he or she almost becomes god and can do whatever is necessary to bring financial stability back." Bing could be anointed god of Detroit under Michigan’s Financial Martial Law legislation, which allows the Governor to declare any city or school district a failed state and impose a financial manager who has the authority to shred union contracts, fire everyone (and let some other god sort it out later.) Bing, a Democrat, has already slashed city workers' health care and pensions to close a $200 million city budget gap. However, he said that if city unions refuse to agree to rollbacks, the budget gap could reach $1.2 billion by 2015, setting up the unions as straw men to justify declaring financial martial law in Detroit.

Detroit Public Schools (DPS) has already been declared a failed state and has had its own financial manager, Robert Bobb, for several years now. Bobb has taken advantage of his god complex by sending out pink slips to every one of DPS’ 5,466 employees, according to the WSJ, including all of its teachers and 250 administrators. Reuters reports that Bobb has pledged to use his powers as financial manager to address the school districts $327 million budget hole, threatening to make unilateral changes to teacher contracts and abolish seniority rules. Bobb has already shut down dozens of Detroit schools and plans on closing dozens more or converting them to private charter schools.

Meanwhile, opposition has already begun, with at least twelve students and teachers occupying the Catherine Ferguson Academy for pregnant, parenting teens, to prevent it from being shut down, according to the Daily Censored. The protest was organized by the group By Any Means Necessary, which fears that the school will be converted to a charter school and cease to provide services for pregnant and parenting youth. Hundreds of others joined the protest outside, providing logistical support for those inside the school and attempting to block the police from entering. Eventually, though, the protesters were arrested for trespassing and taken to jail, including young mothers and their children. Police threatened to turn their children over to Child Protective Services. However, the children were eventually released back to the parents, all of whom were cited and released.