Big Bond Lawsuit Raises Key Questions for SD Unified - Voice of San Diego

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Big Bond Lawsuit Raises Key Questions for SD Unified

As it gears up to borrow and spend $2.8 billion in bond money, is San Diego Unified opening itself up to more lawsuits like one it recently lost?

 

The San Diego Unified School District just lost a multimillion-dollar lawsuit over the way it spent the proceeds from Proposition S, a $2.1 billion bond measure passed by voters in 2008.

A group of local residents claimed the district spent bond money on several projects that voters weren’t told about. Specifically, the group sued over floodlights built at local school stadiums, claiming they weren’t included in the list of bond projects that voters approved. The group, which also claimed that San Diego Unified failed to properly meet the requirements of the California Environmental Quality Act, lost the lawsuit in Superior Court, but just won on appeal.

The district must now have to find other money to pay for the floodlights, which were erected over the last few years. Officials say there is another construction fund they it can draw on to do that, and also vowed to further appeal the ruling.

But the real question the lawsuit raises for San Diego Unified is whether similar challenges are possible, or even likely, as it moves ahead with spending $2.8 billion from its latest bond measure, Proposition Z.

In the run-up to election last November, district officials and campaign consultants continually told voters that they would use Prop. Z money to fund certain projects and programs instead of spending from the district’s day-to-day budget.

That wasn’t a popular notion among taxpayer hawks. Bond proceeds are only supposed to be spent on capital improvements — building stuff. Over the years, however, the definition of what constitutes capital improvements has gradually loosened, and California districts now routinely spend bond money on everything from iPads to new light bulbs.

San Diego Unified promised to be ever more inventive with its bond money, finding new ways to spend it in order to save money elsewhere.

But that commitment to frugality could, ironically, cost the district more money if it becomes the catalyst for more lawsuits.

Over the next few years, could the district be sued for using bond money in nontraditional ways? If so, who might sue them? And are there any specific elements of Prop. Z that might bring future legal challenges?

Let’s take a look at each of those questions.

Can nontraditional Prop. Z projects spur lawsuits?

In short: sure.

Professor Bob Fellmeth, executive director of the Children’s Advocacy Institute at the University of San Diego School of Law, said capital improvements like buildings usually last a long time, and the whole point of a school district borrowing money by selling bonds is that it allows the cost of those long-term assets to be spread over their useful life. It’s a simple concept of generational fairness: Each generation, in theory, plays its part in paying off the bonds, and each gets the use of whatever has been built.

This is the chief reason that capital appreciation bonds are so unpopular: Such bonds, which put off repayment sometimes for as long as 20 years, essentially allow some generations to get off scot-free on the repayments, while others down the line get hammered with massive interest costs. Indeed, San Diego Unified pitched Prop. Z as a way to avoid such bonds.

Over the last decade or so, California school districts have gotten more creative about what constitutes a capital improvement, said Cory Briggs, a local attorney who frequently sues municipalities. Districts now routinely spend money on things that don’t have a long lifecycle, like laptops and iPads, Briggs said, and that puts them in a tricky legal situation.

“They’re probably pushing the envelope, if not bursting it,” Briggs said.

Fellmeth agreed. Though he said he’s unaware of any recent big lawsuits challenging school districts on their bond spending, he said taxpayer advocates and other groups could probably bring a case against districts that are pushing the boundaries of bond spending, including San Diego Unified.

But every lawsuit needs a plaintiff.

Who might sue?

The floodlights lawsuit was something of an isolated incident.

The group that sued the district was initially upset that bond money was spent on floodlights because the lights themselves were a significant nuisance. They shone into people’s houses and the increase in nighttime sports events at schools led to more traffic in neighborhoods that had previously been quiet after dark.

San Diego Unified Chief of Staff Bernie Rhinerson said there’s no indication the lawsuit is a precursor to others.

But there are other groups that could pressure the district if it starts to spend money in ways they don’t like.

In the run-up to November’s election, the San Diego County Taxpayers Association ran several vitriolic ads against Prop. Z. The group was outraged that San Diego Unified wanted to borrow another $2.8 billion when it still has more than $1 billion left to borrow on Prop. S.

Chris Cate, interim president of the SDCTA, said the group will be keeping an eye on the district’s bond spending, but said it is unlikely to sue.

“We’ve never done that before,” Cate said. “Our role would more likely be outreach.”

Cate said the group would likely publicize something it saw as a violation by the district, and then leave it to a concerned or aggrieved individual to file a lawsuit.

Craig Sherman, the lawyer who represented the group that brought the floodlights case, said that doesn’t happen often.

“It’s very rare and very difficult to bring a case like this, and you need a group that’s well coordinated,” he said.

Are there any specific elements of Prop. Z that might compel future legal challenges?

One of the key legal arguments used by the homeowners in the floodlights case was that the district had moved forward on projects that were not on its official project list.

When school districts put a bond on the ballot, they must carefully explain to taxpayers what they plan to do with the money. For Prop. Z, San Diego Unified created a 100-page project list that was included on the ballot.

While the list details hundreds of projects school-by-school, the district can still attempt to do things that are outside the scope of what it promised voters. And there’s already a hint that it plans to do that.

District officials told me before the election they currently spend about $30 million to $40 million on a program called “Major Maintenance and Repairs.” That program is currently paid for with a state construction fund that officials said is about to run dry. If Prop. Z didn’t pass, they would have to take that $30 million to $40 million out of their everyday budget.

Prop. Z did pass, however, and soon the district plans to start spending bond money on the major maintenance and repairs program. But here’s the rub: The 100-page project list for Prop. Z doesn’t say anything about spending money on “maintenance.”

This could mean nothing. Rhinerson asked a district lawyer, who said San Diego Unified would be insulated because the project list does make several mentions of “repairs” and “rehabilitation of schools.”

But “maintaining” schools is arguably different from “repairing” them.

We will just have to wait and see whether some concerned resident or attorney decides to seize on that subtle difference.

Will Carless is an investigative reporter at Voice of San Diego currently focused on local education. You can reach him at will.carless@voiceofsandiego.org or 619.550.5670.

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