Thursday Jul 24

Law targets school finance schemes

San Mateo district's troubles helped inspire Mullin bill

By Will Oremus / Daily News Staff Writer

A new state law authored by Assemblyman Gene Mullin, D-South San Francisco, takes aim at the kind of risky school construction financing schemes that helped plunge the San Mateo Union High School District into crippling debt.

Under the law, districts must alert county and state education officials 30 days before voting to issue a type of loan called certificates of participation. Introduced by Mullin as AB 2197, it was signed by Gov. Arnold Schwarzenegger last week.

Districts often use the certificates to supplement voter-approved bond money for big construction projects. The notification requirement is intended to make sure they don't misuse them.

Mullin, who chairs the Assembly Education Committee, said the issue has bubbled up from several school districts statewide in recent years.

"Districts were issuing certificate of participation without a clear sense of how the repayments would be structured," he said. "I think they're a pretty risky piece of business, frankly."

The San Mateo Union High School District was one of those cited in an analysis of the bill by committee staff.

Between 2004 and 2006, it issued three bundles of certificates totaling some $50 million as it struggled to finish the projects promised in its Measure D construction bond. For the third bundle, a civil grand jury report found that the district had no clear plan to repay the money - and it never properly notified the county education office.

Chief Business Official Liz McManus was shocked at the depth of the debt when she came to the district in 2006. She said it limited her options in dealing with a financial crisis that struck just before she arrived.

McManus believes additional oversight from the county might have helped.

"It makes people really have to think, what's the short-term plan and the long-term plan, what are their options, and are they making the right decision for today's kids and tomorrow's kids," McManus said.

Superintendent David Miller, a school finance expert who came to the district in 2007, welcomed Mullin's law. He said certificates of participation were meant to be used only in the short term, and only with a clear repayment plan.

"Without those two things, I think they can be terribly dangerous," Miller said.

Another district cited in the analysis of the bill was the Western Placer Unified School District, which issued $147 million in certificates over five years. The district planned to repay the loans using developer fees from an ever-growing housing market, but ended up in the hole when the fees fell short.

Theresa Parsons, associate superintendent at the San Mateo County Office of Education, said the new law will mean a bit more paperwork but could be helpful.

"This just adds another layer of check to ensure that districts remain financially sound," she said.

Mullin said the bill ran into opposition in its original form, which would have given county education offices the power to deny issuance of the certificates. Once that was softened to require only advance notice, it sailed toward passage.



E-mail Will Oremus at woremus@dailynewsgroup.com.