A new report shows that fiscal cliff or not, California faces more budget problems. Plus, CA schools are using controversial bonds to finance new buildings, L.A. County pushes for a tax to help pay for storm drain cleanup. BREAKING NEWS: A tragic school shooting in Connecticut has left 27 dead. We interrupted our regular program for national news on this story.
New report shows California faces more budgetary belt tightening
First, just as California's budget woes appear to be on the mend as we pull out of the recession, comes some bad news.
A report issued today by National Association of State Budget Offices warns that spiraling health care costs and reduced federal aid means the state will continue to have to make cuts in its programs.
So whether the whole country goes over the fiscal cliff or not, it looks like California faces more budgetary belt tightening.
Tracy Gordon, a fellow at the Brookings Institution in Washington DC, joins the show to explain the findings of the report.
School building boom: Are districts facing a bond debt problem? (Photos)
California school districts have been in a building boom for the past decade. To finance the shiny new buildings, they’re taking on billions of dollars in debt using financing tools that some state officials say should be banned. But as KPCC’s Vanessa Romo found, some schools argue it’s a good deal.
Mark Keppel High School’s music director Carla Bartlett is corralling students into the school band room. The big Winter Concert is just hours away, but her problems aren’t as bad as they were a few years ago.
"We were in a bungalow that was...I don’t know maybe the '60s, it was put up there?" said Bartlett. "It had asbestos… it would leak whenever it rained...one place was over the piano, we’d have to have trash cans all around to catch the drips."
Sweeping her arms out like a game show model, she shows off the school's expansive new music facilities. "It’s magnificent. …we are so grateful to the voters," said Bartlett.
The voters she's referring to are voters in Alhambra, who’ve approved bonds leading to this and three other new buildings on campus since 2009. Like thousands of construction and upgrade projects across the state, Keppel’s new buildings are paid for in part by something called a capital appreciation bond, a CAB. It's a type of bond that lets school districts put off payments of the principal loan and interest, until it matures.
"So you can say to voters, you’re not going to have a tax increase but you’re going to get new facilities," said California’s State Treasurer Bill Lockyer. He says there’s a huge, possibly crippling problem with these unconventional bonds. By deferring payment, sometimes by 20, 30 years, districts could end up owing up to 20 times what they originally borrowed.
He’s urging state legislators to put a stop to issuing them, and on Monday, Lockyer is meeting with school administrators and their financial advisors.
"We’re trying to convince the people who do this business…they should have a self imposed moratorium for a while, while the legislature figures this out and decides whether they just want to ban the practice or whether there should be circumstances where they’re allowed but they’re constrained a lot," said Lockyer.
In the case of Alhambra Unified, the district issued a long-term bond for $21 million but will end up with a debt of almost $130 million. That’s a little over $6 for every dollar that was borrowed. Until the recent economic meltdown it was unusual for schools to issue CABs. But plummeting property values equal fewer tax dollars for schools which means in order to pay for big projects school administrators needed to get creative.
"These are terms that are imprudent, unreasonable and irresponsible," said Lockyer, referring to his belief that capital appreciation bonds are a shortsighted solution.
Other states, like North Carolina and Michigan, have already taken similar steps, either severely restricting the use of CABs or banning them altogether.
"The reason it’s very concentrated in CA is because the state has capped debt borrowing limits," said Cate Long, who writes a municipal bonds blog for Reuters. "This is a funny finagling way to get around that, so on paper it doesn’t look as though they’ve borrowed as much as they have."
She says these types of loans are a lot like variable interest rate mortgages, where homeowners are offered a low rate in the beginning that can later bounce up quite high. Just as homeowners were faced with balloon payments and penalties for paying off a loan ahead of schedule, the same is true for the 200-plus school districts that have issued CABs in California.
Still, some school administrators insist they’re good deal, you just have to look at them in the right way. Most are issued as part of a package of different kinds of bonds that are bundled together. So, again, in the case of Alhambra, the $21 million loan is part of an $85 million bond issue.
"So in total all of our bonds, our overall ratio now is running about 2.7-percent repayment," said Denise Jaramillo, the Assistant Superintendent of Finance for the district. "So you single out one piece of the CABs, yeah, that looks really big but when you put the entire package together it really is a pretty fair repayment structure that gave this community a lot of money."
Voters in the area approved all three bond measures that have been on the local ballot since 2004.
Over at Alhambra’s Marguerita Elementary School, there’s another construction project underway. A bright red, blue and yellow playground that includes Maya Garcia’s favorite feature: the swirly slide.
Maya’s in first grade and says loves the slide because it’s, "Kind of like when you’re skating and you want to skate fast." The only thing is she'll be 29 when that slide gets paid off.
Explore the data
View details from school districts in Los Angeles, Orange, Riverside, San Bernardino or Ventura counties that have issued a Capital Appreciation Bond since 2007.
Friday Flashback: Susan Rice, fiscal cliff, medical marijuana
Heidi Moore, U.S. finance and economics editor for the Guardian and Jim Rainey, political columnist for the Los Angeles Times chew on the week's big stories, including Susan Rice's decision not to pursue a post as Secretary of State, the status of the fiscal cliff crisis, and can the federal government have the resources to enforce medical marijuana restrictions?
'Living with Guns' urges for compromise between gun control advocates and opponents
The issue of gun control is again on the minds of Americans in the wake of the tragic shooting at Sandy Hook Elementary School in Connecticut. With at least 27 reported dead so far, including 18 children, some are saying it could be the worst mass shooting in American history.
But despite this tragedy and others that have occurred recently in Oregon and Colorado, there has been a lack of cooperation between gun control supporters and opponents when it comes to an open discussion of what could be done to prevent mass shootings.
Former New York Times reporter Craig R. Whitney's new book "Living with Guns: A Liberal's Case for the Second Amendment," delves deep into the history of guns in America, their important role in establishing the United States, but also the need for an effective discussion about how to modify current laws to help prevent the tragic misuse and abuse of the Second Amendment.
On why gun control supporters and opponents absolutely need to have an open discussion about gun control:
"It's an attempt to break the polarization by encouraging both sides to talk to each other about the real problem we have of gun violence, and it shouldn't be true that there's nothing we can do about that. We could if people who support gun rights and people who support gun control would talk to each other about reasonable ways to compromise … If we do nothing to try to cope with things like these mass shootings that occur periodically they're just going to keep happening. How long can we go on just shrugging and saying, 'Well there's nothing we can do?' There is something we can do, we can start by talking to each other about it."
On his view that the Second Amendment is common-law right, subject to regulation:
"When I set out to write the book I didn't have any preconceived idea about whether the Second Amendment was a good thing or a bad thing … but in doing the research about how it came about and what the history of guns was in the United States before it was the United States, I determined that the NRA is right in one respect, it is an individual right, always has been in the United States and in the colonies before that. A common law right though, one that was subject to regulation in those days and has been since. And I think that's all the Second Amendment did was recognize that and protect it to some extent."
On how the Second Amendment as written is out of date:
"A British friend of mine asked me recently when I explained that we'd always had guns in America because we needed them to defend ourselves against indians and against them, the British. He said, 'Well you don't have to worry about indian attack anymore do you, or attacks by Britain?' and I said no. But just because that was the purpose of the Second Amendment and the context of it doesn't mean that's the only thing its good for, the Second Amendment doesn't limit the right to people who belong to a militia, it simply says the right that existed before the Second Amendment was written or adopted will not be infringed or eliminated. The law obviously changes over time, what the Second Amendment meant back then is not limiting on what it means to us today in very different circumstance."
"I think it means, unless you repeal it, that you can't seize or eliminate the 300 million firearms that are in people's private hands today, and I think there are some on the gun control side who would like to do that. In fact, in 1969, a presidential commission concluded that in order to reduce gun violence the best thing to do would be to seize or outlaw the 24-million handguns that were in people's hands those days. They actually recommended that. The report came out just as the Nixon administration was coming into office, so nothing happened, but I think people on the NRA side of things remember that and they keep bringing that possibility up as a means to get members and to raise money today.
"We do have a long history with guns, we wouldn't have a United States of America if it hadn't been for the fact that people who lived in America then had arms and knew how to use them, and had been organized in militias to defend themselves … Later those became the elements that went into building the continental army, which defeated the British they were the most powerful military force in the world at the time. There's the wild West and indian attacks were a real threat to the colonists in the 17th century and even early into the 18th. So we owe our existence as a country to an extent to firearms and we think of firearms as part of our history and they are more than they are in most other countries."
"I think spreading fear and paranoia is very effective when people don't know the facts. Take what the NRA has been saying about President Obama, they say he's a rabid gun control supporter. Well, when he was a state legislator, and maybe for a little while when he was a representative from Illinois, he supported some gun control that's true, but what did he do as president in four years?
"Neither of those two things squares with the NRA's view of him as a dangerous gun control ideologue, yet gun sales or at least applications to buy guns, soared after his election in '08, and they spiked again…after his reelection all because enough people believe the NRA when it said he wants to take your guns away. Well, show me the statement he's ever made where he said he'd do that."
"We have to live with them, because we've got 300 million of them in this country and unless we figure out a way to deal with the gun violence problem more effectively than we do, more people than should will die from guns … It's not a question of getting rid of them, it's a question of how do you get at the human behaviors that lead people to misuse them, and how do you make them safer, maybe how do you deal with the social problems that lead to gun violence."
Los Angeles County pushes parcel tax to pay for stormwater cleanup (Photos)
Each time it rains, a clean-up crew converges on a Long Beach industrial site near the mouth of the Los Angeles River. A metal boom reaches out an arm across the river, to grab debris carried along by runoff before it hits the beach. Crew chief David Duncan says winter rain's first flush is the worst. This is the second.
"It's not too bad, it doesn't look like we got any dogs and cats in here today. we usually end up with three to four dogs, four to five cats. Soccer balls are the number one ball that comes down."
Duncan's crew plucks trash out of the boom and tosses it in a dumpster. A dripping mattress is a tangible reminder that thousands of miles of storm pipes drain to the river, twisting under apartments and mansions, churches and big box stores and industrial parks.
The LA County Flood Control District is proposing a parcel tax to help pay for stormwater cleanup: one goal would be to minimize the need for exactly this scene. County officials estimate potential revenue of $275 million a year. Half of that would go to regional projects, 40 percent would go to cities that claim they don't have enough money to fight runoff now, and 10 percent would go to monitoring how well the cleanup is going.
Standing in a light rain at the Whittier Narrows recreation area, LA county engineer Hector Bordes watches geese flying over Legg Lake, which exceeds federal limits for copper, ammonia, and lead. He talks about how the water hits the nearby 710, and picks up toxins that drain straight into the man-made lake.
"You can't go in the water," says Bordes. "It's highly unfortunate."
He notes that the county's stormwater system was built on now-outdated principles. "Years ago, if there was a flooding problem we just put a bunch of pipes underneath the ground, get those pipes connected to the rivers and get the water out of there," he says. "Now we think totally differently."
The flood control district is proposing a major shift in strategy, based on capturing more rain close to where it falls, filtering it through nature, and storing it for use. The new parcel tax would require homeowners to pay on average about $50 a year toward the cause.
Some county supervisors are skeptical about the plan. Edel Vizcarra, who works on storm water issues for Supervisor Mike Antonovich, argues that the state, not property owners, should foot the bill. And he says Antonovich has questions about how the tax would be spent.
"Twenty percent of the revenue can be used for administration," says Vizcarra, who adds that "project management isn't categorized as administration so that doesn't have a cap on it." In addition, he points out that "there are going to be levels of bureaucracy set up for any project over $2 million, which is just about everything that the county does."
Environmentalists share concerns about how the money will be spent, though they do argue that the county should take action. Natural Resources Defense Council attorney Noah Garrison has criticized past regional stormwater efforts, calling them ineffective and poorly enforced.
"We really don't know what the money is ultimately going to go towards," says Garrison, "and until we see a clearer version of the selection criteria and how they're going to put this program in place, we just really don't know what impact this program will have."
The state constitution requires the parcel tax proposal go through a two-step process. First, the supervisors will hold a public hearing on Jan. 15. Unless more than half of the county's property owners protest, the supervisors likely will schedule a mail-in vote for March.