Categories
Opinion

Builders Continue to Fund School District Bond and Override Campaigns

by Justin Olson

In 2017, authors Evan Wyloge and Carrie Jung reported through a collaboration between the Arizona Center for Investigative Reporting and KJZZ that “a small group of builders bankroll bond campaigns and dominate K-12 construction contracts." The authors evaluated hundreds of campaign reports filed between 2013 and 2016 by groups that supported school district bonds and overrides and found that a majority of the funding came from construction and design firms.

As Arizona voters will cast their ballots by the end of this week to decide the fate of 21 different school district bond proposals and 39 separate budget overrides, we thought it would be worthwhile to look at the campaign finance reports filed by the groups supporting this year’s ballot measures to see if Wyloge and Jung’s findings continue to hold true.

For our sample, we evaluated the reports of campaign committees supporting the seven largest bond proposals and the seven largest overrides. These proposals accounted for 72% of the total bond amount requested by all of Arizona’s school districts and 67% of the total override amount. This sampling resulted in the evaluation of 12 campaign committees since the Deer Valley Unified and the Gilbert Unified School Districts each made the top seven lists for both bonds and overrides.

Like Wyloge and Jung, we found that this year’s ballot measures were also primarily funded by the same small group of vendors that also consistently win the bids to build the projects that the campaigns support. Their 2017 article included data compiled by the Arizona Builders Exchange (AZBEX).

AZBEX indicated that more than half of the projects awarded through the public procurement process from 2013 to 2016 went to a small group of nine vendors. The group of nine included three construction firms (Chasse Building Team, CORE Construction, and McCarthy Building Companies), three architecture and design firms (Orcutt Winslow Architecture, ADM Group, and DLR Group) and three subcontractors (Pueblo Mechanical and Controls, Wholesale Floors, and Progressive Roofing).

Contributions from these nine vendors made up 48% of the contributions supporting the measures of the 12 school districts in our sample.

The top three contributors to these ballot measures were the three construction firms included in AZBEX group of nine vendors that consistently win the bids.

Chasse Building Team contributed more than any other vendor with a total contribution amount of $91,000. Chasse contributed to 11 of the 12 campaigns in our sample with contributions ranging from $5,000 to $9,800 for an average contribution amount of $8,273.

CORE Construction contributed the next highest amount with contributions totaling $85,000. CORE contributed to all 12 of the campaigns in the sample with contributions ranging from $1,000 to $9,500 and average contribution of $7,083.

McCarthy Construction contributed the third highest amount with contributions totaling $75,500. McCarthy contributed to 10 of the 12 campaigns with contributions ranging from $5,000 to $9,900 for an average contribution of $7,550.

While these nine vendors contributed nearly the majority of the funds received by these campaigns they were not the only vendors to support these efforts.

In fact, a full 86% of the campaign contributions received by these districts came from vendors while the remaining 14% came either from other committees or directly from individuals such as school district employees, parents and other members of the community.

Remarkably, several of the campaigns didn’t even bother to fundraise among individuals at all, instead, opting to fund 100% of their campaigns through vendors that have either won contracts with the school or hope to win them in the future. These campaigns included those for the bonds and overrides of Chandler Unified, Tolleson Union, Deer Valley Unified, and Higley Unified.

The campaign for Chandler Unified’s bond proposal raised more than any other campaign in our sample which is not surprising considering the $290 million bond proposal is the largest measure on the ballot. This campaign raised 100% of its $146,900 from vendors. The largest contribution of $17,500 came from Concord General Contracting, followed by a $10,000 contribution from HDA Architects and nearly $10,000 contributions from each of the three construction firms mentioned above: McCarthy ($9,900), Chasse ($9,800), and CORE ($9,500)

The practice of calling on the development community to fund school district campaigns is not unique to Arizona. For example, Will Huntsberry reported in the Voice of San Diego that “80 percent of the construction companies that donated $5,000 or more to pro-bond campaign groups in the last seven years received contracts with the San Diego Unified School District.”

Elena Kadvany, similarly, identified $74,500 of the $130,000 (or 57%) raised by the campaign supporting the Palo Alto School District’s bond measure was raised from construction, building and legal firms that contract with the district.

In 2012, David Olinger in the Denver Post reported the Neenan Construction Company contributed $30,000 to a bond effort of the Adams County Mapleton School District before being awarded the $53 million contract to build five schools. Similarly, George K. Baum & Co. contributed $30,763 and was selected to underwrite the bond for a fee that was seven times the rate charged on other bond sales around the same time.

And, lastly, in 2016, the California Policy Center’s Andrew Heritage reported on the practice in school bond campaigns across Orange County and described a concern of some elected officials of the appearance of a “pay-to-play” requirement.

As I reported earlier this month, if approved these bond proposals will authorize $1.6 billion in new school debt and a corresponding amount of new construction. The debt would be repaid by $2.5 billion of new property taxes to be levied over the life of the bonds. The overrides would authorize $297 million of annual spending above the districts’ budget limits which will also be funded through taxes on property.

As this is a mail-in only election, voters must mail their ballots in time for the post office to deliver the ballot to their county offices by next week’s November 5th Election Day.

 

 

Categories
Opinion

Voters to Decide: $1.6B in K-12 Bond Proposals, $297M in Budget Overrides

by Justin Olson

In this odd-numbered year no candidates are up for election. Still, ballots will be counted this November since school districts can ask voters to approve bonds and overrides in any year.

With their ballots that will be hitting mailboxes any day, Arizonans will be asked to approve 21 different school district bond proposals and 39 separate budget override requests. If approved, the bond proposals will authorize $1.6 billion in new school debt and a corresponding $2.5 billion of property tax debt service levies over the life of the bonds. The overrides will lead to an annual property tax levy of $297 million for each of the next five years.

As school finance in Arizona can oftentimes seem a bit complex, we thought we would break down some of the basic facts about these school district ballot measures.

What is a bond?

A vote for a new bond issuance does two things: first, it authorizes the district to enter into new debt, and, second, it allows a new property tax to fund the annual principle and interest payments on the new debt.  With authorization from the voters, a school district can sell bonds to raise funds to purchase physical assets such as school buildings, vehicles, text books, furniture, and computers and other technology. The bonds are sold to investors in the capital markets with a promise to repay the amount borrowed together with annually accrued interest. The district then uses its property taxing authority to raise the revenues for the annual debt service payments.

What is an override?

A budget override authorizes a school district to levy a property tax to fund spending above the amount allowed under a budget limit called the equalization base. Arizona created the equalization base in the 1980s in an attempt to create more equity across the state in school district expenditures and tax rates.

Prior to the 1980 reforms, the state had very little involvement in school district taxing and spending decisions. Due to court rulings that the Arizona Constitution requires the state to attempt to create more uniformity in school district expenses, the state established this budget limit based on the number of students enrolled in each district.

To decrease the reliance on local property taxes, the equalization base is largely funded with state revenues. For example, for fiscal year 2020 the state funded $4.5 billion of the equalization base while the remaining $2.6 billion was funded through school district property taxes.

If school districts spent only the amount authorized by the equalization base then the average amount spent per student would be about the same in each district. But the school finance laws allow for several exceptions to this budget limit. Among those exceptions are the voter-approved budget overrides that are funded through local property taxes.

With these overrides, districts can increase their budgets by up to 15% for their maintenance and operations expenses which include primarily employee salaries and benefits. Districts can also seek an increase of up to another 10% to spend on physical assets through additional assistance overrides.

Will my taxes increase?

All of the bonds and overrides on the ballot are funded by property taxes. So passing any of these measures will lead to a higher property tax bill than would be due if the measures are rejected.

To determine whether a property tax bill will be higher than the previous year’s bill as a result of one of these measures, however, requires additional analysis. Property tax bills can be somewhat complex since there are many potential changes that can impact a bill. With so many moving parts, it can be difficult at times to identify what jurisdiction is responsible for a particular bill’s increase.

Oftentimes a taxing jurisdiction will argue that a proposal will not increase taxes because the tax rate will remain the same after the measure is approved. This means that the rate is set to decrease unless the voters authorize the new bond or override.

Additionally, in the current environment where homeowner’s assessed values are increasing, a tax rate that remains the same will lead to a higher property tax bill since the rate is applied to the higher assessed value. Voters that are concerned about a bill going up relative to the previous year will need to compare the proposed tax rate applied to the voter’s most recent assessed value to determine what will be the actual bill impact of the proposed rate.

Why is this on the ballot again?

Overrides can only be approved for up to seven years with a phase down of the override amount required in the last two years. For that reason, most districts that have voter-approved overrides in place will ask voters to adopt a new override before the existing one begins to phase down.

Additionally, if voters reject a bond or override there is nothing that prevents the district from sending the measure back to the voters in the following year. In Maricopa County there are a few examples of bond and override questions that are on the ballot this year after the voters rejected similar measures in the 2018 election.

These examples include the Buckeye Elementary School District where voters last year rejected a $65 million bond proposal with 57% voting no and 43% voting in support. This year the district seeks approval of a $54 million similar proposal. Additionally, the Nadaburg Unified School District voters narrowly rejected a $2.3 million bond proposal last year, and the district now seeks a slightly higher $2.4 million similar authorization. Lastly, voters in the Mesa Unified School District will be voting this month on the same 15% budget override that they narrowly defeated last November.

How can I be sure the additional tax revenues will benefit my child?

Individual districts have a lot of autonomy in how to budget their resources. This results in significant differences in the percentage of educational dollars that reach the classroom from district to district as is seen annually in the Arizona Auditor General’s report on instructional spending.

The percentage spent on instructional support is as high as 78.1% in the Blue Elementary School District and as low as 34.6% in the Red Mesa Unified School District. There is even a wide range among large districts where one would expect less variability. With 61.6% spent on instruction, the Chandler Unified School District leads among the state’s largest districts and is solidly ahead of Tucson Unified where 51.1% reaches the classroom.

School districts’ governing boards adopt budgets annually. It is during this budget process and during the election of school board members that voters can have the most influence on ensuring that the districts’ resources are prioritized on instructional spending.

When is the election?

Like every year, Election Day is the first Tuesday after the first Monday in November. But, as this is a mail-in only election, voters will need to cast their ballots in plenty of time for the post office to deliver the ballot to the county by November 5th.

Categories
Research

Investigator Acknowledges Lack of Expected Related Party Transactions

By Justin Olson

Last month I wrote about the lack of proper deference to the rights of the accused when it comes to the Arizona Accountancy Board’s investigation of charter school auditor, Joel Huber.

Due to the policy of the State Board for Charter Schools, Mr. Huber’s livelihood is put on hold while the Accountancy Board conducts its lengthy proceedings.

While the Accountancy Board’s investigation and Mr. Huber’s responses are not publically available, the facts gleaned from the public hearings and the media reports are striking.

To sum up: 1) a politically motivated anti-charter-school activist group alleges non-disclosed related party transactions at the American Leadership Academy (ALA), 2) the activist group files a complaint, 3) the complaint leads to an auditor’s livelihood being placed on hold for several months, 4) the news media report related party transactions at ALA, 5) the news media celebrate awards in recognition of this reporting, 6) auditor’s attorney reports flaws in the regulatory board’s findings, 7) the board’s investigator acknowledges that the transactions in question did not include a related party that requires disclosure in the audit.

According to posts on its website, ACSA, an anti-charter-school activist organization, filed the complaints against Mr. Huber because his audits of American Leadership Academy lacked disclosure of related party transactions.

Last March, after reviewing the report filed by the Board’s investigator, Marshall King, the Accountancy Board’s investigative panel appeared to agree that these disclosures were needed.

In the open session, the Board’s discussion centered on concerns about disclosure of related party transactions (see audio file posted on March 21, 2019).

While making his motion for the committee to recommend disciplinary action, committee member Brian Lee described his view that Mr. Huber needs to “tighten up” on disclosure requirements for related party transactions on IRS filings for nonprofits. Related party transactions stood out as the only practice area where the committee indicated in the open session that Mr. Huber exhibited deficiencies.

This emphasis on the lack of related party transactions in ALA audits was also repeated multiple times in the news media. In an interview on KJZZ’s The Show, the host, Mark Brodie, asked Craig Harris, the Arizona Republic reporter covering the story, what was wrong with Joel Huber's audits. Harris responded, “He wasn’t reporting things called related party transactions. That's a very nice word of saying insider deals. And he was not reporting a lot of the insider deals that were going on at American Leadership Academy and you're required, by law, to put those in audits with the state, and you're also required by federal law to put those in your tax returns.”

These related party transactions were cited by Long Island University as the reason for awarding Craig Harris and other Republic reporters with the George Polk Award in Journalism. “The award for Education Reporting goes to Craig Harris, Anne Ryman, Alden Woods and Justin Price of The Arizona Republic for initially disclosing insider deals, no-bid contracts and political chicanery that provided windfall profits for investors in a number of prominent Arizona charter schools,” reads the award’s announcement.

But the Board’s investigative committee’s decision, the Arizona Republic reporting, and the corresponding accolades all came prior to consideration of the 32 errors that Mr. Huber’s attorney identified in the report filed by the Board’s investigator.  According to the audio recording of the committee’s August 1, 2019 meeting, Mr. Huber’s attorney identified these errors in a letter submitted to the committee on July 22, 2019.

In response to this letter, at the August 1 meeting the committee moved to have a new investigator evaluate the case, perform a new investigation, re-interview Mr. Huber, and produce a new report that the committee would rely on going forward.

A month later, the Board’s staff brought the item back to the committee for reconsideration of this motion. In the audio recording of the September 5, 2019 committee meeting, Monica Peterson, Executive Director of the Accountancy Board, suggested that, instead of engaging a new investigator, the committee should rely on the expertise of its members to determine which of the 32 errors identified by Mr. Huber’s attorney have merit and which do not.

Discussion then ensued which included the following exchange among committee members (while the minutes of the meeting lists the committee members in attendance, the identity of the committee members making each statement in the audio recording is not clear):

Committee Member A: “So Brian, as the liaison, and I apologize I didn’t go back through the points for this meeting, but as you have looked at them, do you believe they are valid or do you believe they are not?”

Committee Member (and case liaison) Brian Lee: "I think they're differences of opinion that don't back us off our findings."

Committee Member B: "Well, hold on, that's not exactly true."

Committee Member C: "Yeah."

Committee Member B: "There was a conclusion that Marshall came to, and he admitted that that conclusion he came to was not correct.”

Committee Member C: "Correct."

Committee Member B: "We need to correct that. I mean, you know, we just can’t blindly move this thing forward. I think the advice we’ve been given that at a minimum is we need to go back and vet this and compare the two, the 32 that they came up with. The reason we wanted to have another investigator is just to have a fresh look, to see if there’s something else there that was overlooked in the process. And that’s why we made that recommendation. But, at a minimum, and I understand where Monica is coming from that we are this far along in the process, is there a way that this committee can come back and nail this thing down. I still have concerns, quite frankly, with this going to hearing, you know, with all this going back and forth the way it is. It’s all public information as it is. But at a minimum, you know, we can't let that go the way it is. We know it’s not right."

When the Board’s investigator, Marshall King, got a chance to respond he also acknowledged errors in his report. King said, “I own my mistakes. There clearly was a mistake in terms with the conclusion reached with the one technical issue, potentially a second as regards to whether or not it met the test for related party transactions.”

Later in the meeting, King even more clearly acknowledges that the report was flawed with respect to its conclusions on related party transactions.

In his own words, the Board’s investigator sheepishly admits, “With the issue of related party, as they articulate it and you look back at it, I think there’s enough persuasiveness in the argument that you say, ok, maybe they didn’t meet the definition of a related party.”

If the Board ultimately upholds the investigator’s new position that the transactions in question did not include a related party, I will look forward to the lengthy series of media reports on these new findings, as well as the professional awards and the corresponding celebrations.

But I’m not going to hold my breath while waiting.