|Read Part One
“It does seem like a backdoor way of using public funds (to finance campaigns),” said Colorado Ethics Watch director Luis Toro. “To say there’s no chance of corruption is totally out of touch.”
— Denver Post, May 11, 2012
Archuleta School District 50JT is not the only Colorado school district — nor the only Colorado government entity — to struggle with “the appearance of corruption.” In fact, nearly the entire Colorado public education industry seems caught in a struggle between ethical decision-making and the need (or rather, the desire) to achieve an ever-increasing flow of taxpayer revenue — for the “sake of the kids.”
Yesterday, we explored the “Certificate of Participation” financing techniques that schools — and other government entities — have been using in recent years to incur increasing government debt in a time when voters are reluctant to approve bond measures at the polls.
But even the process of taking the high road — placing legitimate bond measures before the voters — has sunk to new ethical lows in the political landscape. And Colorado school districts are among the entities displaying the most questionable ethics.
Colorado law prohibits any government agency from spending taxpayer revenues to campaign for their own bond measure proposals. This naturally poses certain problems, because bond issues are, in these times of lower personal incomes and higher government spending, unpopular. So unpopular that school districts, for example, have little success finding friendly private citizens to spearhead — and underwrite — their bond campaigns.
So school districts throughout Colorado have done the next best thing. They’ve been contracting with big finance companies and construction companies to underwrite and conduct their bond issue campaigns — with a promise that these companies will be rewarded with big contracts, should the bond measure get passed by the voters. The underwriters' role in bond campaigns may begin years before the election, and may include help identifying potential contributors, compiling lists of registered voters, targeting parents, writing direct mail appeals, designing campaign materials.
Most often, these large corporations are not even members of the community in which the campaign is taking place.
Last month, Denver Post reporter David Olinger wrote a 2,000 word article questioning the way Colorado school districts are funding bond issue campaigns.
“When Colorado citizens vote to borrow money to build new schools, a library or a recreation center, the crusader behind the curtain is often the investment banker who gets paid to sell the bonds,” he wrote. “For those pushing bond issues in a tough economic climate, help from a bond underwriter can mean the difference between election day success and defeat. But the prevalence of bond house involvement — everything from polling to designing yard signs — also raises concerns from critics who worry they exert undue influence in a campaign.”
According to Mr. Olinger’s article, the Denver Post analyzed 15 successful Colorado bond campaigns backed by large contributions from investment banks; in every case, the bank that helped finance the campaign then handled the sale of the approved bonds.
Finance company George K. Baum was paid more than five times the rate it proposed when the Mapleton school district in Adams County chose it as an underwriter, the article tells us. Mapleton officials defended the fee as payment for three years of campaign work.
Finance company Stifel Nicolaus “donated” campaign services worth at least $100,000 to two Colorado school districts — Aurora and Brighton — and then collected $1 million in fees from those two districts when bond issues passed successfully.
“The Post found that individual school districts took as much as $137,500 from a single bond company, and that in six of the 15 campaigns, bond company donations amounted to a majority or nearly half of all contributions,” Mr. Olinger wrote.
As a private person, I cannot give more than $1,100 to a Colorado gubernatorial candidate; corporate gifts to state candidates are forbidden by the state’s campaign laws.
Then, does it violate state law when a school district promises an exclusive contract or an “enhanced” sales commission to a finance company — or an exclusive contract to a construction company — in exchange for their help in getting a bond issue passed?
"My understanding is that's the case," Colorado's deputy state treasurer Brett Johnson told the Denver Post.
Here in Pagosa Springs, the Archuleta School District hired finance company Stifel Nicolaus to spearhead the 2011 “mega-campus” campaign, with a contract that guaranteed Stifel Nicolaus would sell the bonds if the tax increase was approved at the polls. The District also enlisted campaign help from Adolfson & Peterson Construction and architecture firm The Blythe Group — with an apparent handshake promise that these companies would be given the contract for the new school.
Archuleta County voters defeated the measure by a 3-to-1 margin.
The neighboring community of Ignacio saw a somewhat different outcome last year, when the school district there struggled to pass a $50 million bond issue.
According to Mr. Olinger’s article:
“Ignacio had been collecting puny amounts of cash — $10 here and there at community meetings — before [finance company ] George K. Baum swept in to give $7,565 for advice and preparation of election materials, direct mail and yard signs. Altogether, Baum provided 92 percent of Ignacio's donations.”
The vote was an exact tie, but in a recount, the bond issue passed 524 to 523.
“Last year, [Baum] charged $501,491 to sell $34.9 million in bonds for Ignacio, a rural school district in southwest Colorado — more than twice the average rate for school bonds in recent years...
“Ignacio Superintendent Rocco Fuschetto said the one-vote margin will enable his district to build a new school and transportation building, modernize other schools, lay an eight-lane running track, and improve its baseball and football fields.. He believes the half-million-dollar payment to Baum was worth every penny.”
Read Part Eight...