A bond knot in Rochester
I'm working on a research project looking at racial discrimination in school bond issuance (with the amazing Eleni Schirmer). Part of this project requires doing some initial data collection to see whether predominantly white school districts get better bond deals than more diverse districts. So along with grad students Tia Allen and Heidi Kern, we're combing through school bond documents to find interest rates and cost of issuances across segregated districts all over the country.
I know I'm a nerd, but this is a new favorite activity for me: looking through bond official statements. These bond deals are a touchpoint for capitalism and education, so reading documents reporting on them is like seeing the matrix code of flowing characters behind how school finance really works.
In this process we came across a knot that needed untangling. We were looking for recent bond issuances done by the Rochester City School District in upstate New York.
In doing all this research, I've it's important to remember that these are actual living and breathing places, not just bundles of numbers. Studying school finance is a perfect example of Marx's concept of exchange value: when you think about a school district as a commodity that can be bought and sold (like we have to for municipal bonds), the material substance of the district gets put out of sight in favor of its exchange value. The district and its schools, its students, teachers, parents, community members, all the educational experiences and labor it contains, get reduced to a flat and abstracted credit rating, price, or interest rate. F**k that!
I remember hanging out in Rochester one summer with some friends and watching fireworks on the fourth of July. It's a fun place, the post-industrial shadow of Kodak haunting its red brick buildings. Like Philly, it's a rust best city relying on education and medicine for its economy. Like Philly, it's a diverse place. Like Philly, it has issues with crime, unemployment, and infrastructure in need of some love.
Unlike Philly, it's in New York State, which takes a much different approach to state policy than Pennsylvania, which is probably why we had to untangle this little bond knot.
When I went looking for Rochester City SD's bond statements I couldn't even find them in EMMA, the Municipal Securities Rulemaking Board's database. The district didn't have an entry. I found a Rochester in Pennsylvania, but no Rochester NY. It was odd since the RCSD is a big district. A noodle-scratcher, as Ned Flanders would say.
I know that sometimes school districts issue bonds with their municipal or county governments. I'd seen this happening in Yonkers, on the other side of the state. In Rochester, I thought maybe the city was doing the school bonding rather than the district. So I looked at a bond from Rochester City. Since bond statements set out all kinds of information about the state apparatuses involved in any given bond deal--they're like little almanacs, with updated numbers and lists describing a region's political economy--I control-F'd the document for "school district." That's when I started to see how to untangle this knot.
It turns out that the Rochester City School District is financially dependent on the city government for bonds (like Yonkers). It can't issue them itself. This can be a hindrance. But because of NY state's financial modernization laws of 2007 and 2014, Rochester was able to create the "Rochester Joint Schools Construction Board", a separate entity involving city & district government for the purpose of rebuilding the city's schools. This was part of a state-level initiative to fix the city's school buildings called the Rochester School Modernization Project.
This confirms a hunch I have that school buildings require unique entities for financing and project management. I think we might need these setups because school buildings are a tragedy of capital where large public infrastructure involving real estate and construction, fully commodified industries, encounter a non-commodified space. So providing for these facilities get gunked up and capitalist societies like the US need to create very ornate byzantine patchworks of apparatuses to figure it all out. It's a great case of how US capitalism creates way more bureaucracy and red tape than necessary.
So we've got a city and a district creating a board to advance a project with the state's help. That's four apparatuses right there. But wait, there's more!
The Rochester Schools Modernization Program, through those state laws in 2007 and 2014, works with a county-level industrial development authority to issue its loans. These authorities are financial entities that can go to private credit markets and take out loans on behalf of public entities, maintaining higher credit ratings as self-standing apparatuses. This takes the burden off the district, city, and state (I think?).
In Rochester's case, the County of Monroe Industrial Development Authority (COMIDA) takes out loans for the program on behalf of the board created by the district and city and facilitated by state law. The bureaucratic sprawl is almost endless. It's like those folks songs that feature a nested series of absurd stuff: I knew an old lady that swallowed a cat, she swallowed the cat to catch the spider, she swallowed the spider to catch the fly, I don't why she swallowed the fly...Similarly, I don't know why we don't have a public credit system at the federal level for school buildings, but here we are.
COMIDA has taken out tons of money for this project to fix up Rochester schools since 2012:
2012: $124m
2013: $103m
2015: $44.2m
2017: $123.6m
2018: $197.2m
2020: $44.6m
That's an exciting financing project! I think we should take a moment to appreciate just how much money is going towards the schools in Rochester through this tangle of apparatuses. It's heading towards one billion dollars. If Philly could do something like this, it'd be fantastic.
Coming down from the high of this public spending though, we should remember all this money goes through Wall Street at high cost.
Citigroup is doing the most recent deal, which is phase two of the project (meaning there'll be more loans). The interest rate on the most recent issuance is kinda high at 5%, with various consulting firms taking $1,259,139.13 in fees, almost 3% of the loan itself. The banks and firms make bank here. Not to mention the rich investors. This bevy of bankers and investors all get tax-free interest payments on this deal. Consider this when looking at Rochester City School District's demographics:
57% Black and Latino
$30,156 median income
74% renters
25% unemployment
The people of Rochester, a diverse working class city, make the value of their city together. By charging COMIDA (and thus the district and city) a high interest rate and taking 3% of the bond revenues in fees, the bondholder class is super-expropriating resources from this community. That money belongs to the working class of Rochester. They make their lives in the city, giving value to the fixed capital there, and they pay taxes on that value in sales, real estate, and income. They shouldn't have to surrender their money to ruling class types trying to make a buck on the municipal bond market! On their kids' school buildings no less!
The lesson here is that even cool-looking state arrangements to fix up urban school buildings like the setup in Rochester are all underwritten by private financiers and consultants that super-exprorpiate working class resources by charging high rates and fees.
We need public credit for public schools now!