I chatted with an organizer in the Democratic Socialists of America's Austin chapter recently about a new school bond in that district. That conversation, as well as a couple others with organizers here in Philly, pushed me to formulate some general positions that socialists might take when it comes to school bonds, which are an important part of any local terrain in the US. Socialists should know what to say about them, particularly in the wake of the recent Green New Deal fight. Green school infrastructure will require adequate financing, but the way we finance school construction in this country is primarily through school bonds. So the issue is an ecosocialist issue too.
TL;DR: our horizon must be public no-cost loans for schools, but there are none yet. We're stuck in a dilemma where school districts need revenue for maintenance and construction but the predominant source of that revenue comes directly from ruling class capitalists. We can navigate this terrain by engaging directly with bond issuance through political education, messaging, issue campaigns, and school board campaigns centered on the no-cost public loans line.
What's a school bond?
A school bond is when a school district takes out a big loan. They need the big loan for big projects, like school building construction and maintenance. They can't pay for these big projects with their yearly budgets so they need a lot of money up front. The bond is an agreement between borrower and lender: lender fronts a bunch of money to the borrower, and the borrower promises to pay the lender back. They're bonded to each other.
In capitalism money is a commodity too, so money has a price. Loans get bought and solid like everything else. There's even a market for them called the credit market. When a borrower needs money up front, the lender charges them for the service of providing it quickly. The price of that service is the interest rate, or how much the lender wants in return given how much they're fronting. In capitalism, and even some socialisms, the borrower agrees to pay this too.
Think about it like your own spending. Every month you need to need to pay for food, transportation, rent/housing, clothes, or other stuff. But when it comes time for higher education, to get married, get a car, or buy a house, you probably need a loan because these costs are really big, way more than you can pay for in your usual budget. In contemporary US capitalism, the loan can come from family, student loan companies, the government, or private lenders like banks or payday loan firms. (MMT says this analogy is bad when it comes to the federal government, FYI--don't be fooled.)
When a school district issues a bond, it's the same thing. They're taking out a loan. Except instead of a family member, they go to the credit market, specifically the municipal bond market. School districts have to sell themselves in this market to get their loans. They get credit ratings from Moody's, Fitch's, and Standard & Poor's. They try to get lower interest rates by doing deals with ruling class geriatrics who want tax-free interest payments. They do all this to make sure students have safe school buildings. It's bad.
What should socialists think about all this? How do we organize around it? There are a couple things to consider. One is really fun and the other is really frustrating. First is our horizon: what we want, what we could have, what we're heading towards as socialists. What's our preferred/ideal model? This is really fun to talk about because we can dream, imagine, and start to demand.
The second thing is not fun at all: our current moment, the balance of forces we live in right now, and its constraints. This is super frustrating because we find out that our dreams are quite far from the terrain we're actually on and it's not at all clear how to get from one to the other and vice versa.
I'd like to start with the socialist horizon for school bonds and then get to the actually existing balance of forces socialists find ourselves in right now when it comes to school bonds in the US.
I'm a market socialist, so I'd like to see a society where companies are owned and managed by cooperatives composed of their workers, producers, and consumers. These socially-owned companies still 'compete' in 'markets' but obviously with a cooperative approach to both of these. In this vision, there's probably still money of some kind, though there are all kinds of programs in place to contain its rapacious tendencies.
When it comes to school construction in market socialism, I imagine that the socially-owned cooperatives would work with elected groups of community members in their region to decide how and when to do projects. The firms would finance these projects with grants or no-cost loans because they understand that the schools are doing important social reproduction work. How else would people learn how to be a social-owner?
The no-cost loans would probably come from wealth funds managed by representatives of the companies. Funds would be set aside specially for the purpose and regions would work with the fund to secure the loan. I'm not sure if bonds would be necessary since there wouldn't be an interest rate. Rather, there'd be contracts between the fund and the regions making sure things happen as efficiently and thoroughly as possible given tax structures such as they might be.
The closest actually existing model of this is the Mondragon system of cooperatives in the Basque country of Spain. One historical example was Yugoslavia in the 1960s. Of course that particular historical situation had many flaws, it produced helpful models like organizational self-management and Illyrian economics that are helpful touchpoints.
There are other horizons though. An anarchist might want something quite different from a communist when it comes to school construction finance, for instance. I can imagine these using sci-fi books (Iain M. Banks's Culture novels, Ursula K. Le Guin's The Dispossessed, Kim Stanley Robinson's Mars Trilogy among them), but I'm sure history has a ton of examples that I don't know about. It'd be great to research more anticapitalist horizons of school construction finance. Maybe I will some day. I'm too busy with the current balance of forces!
The school bond balance of forces
My horizon is no-cost public loans for public schools. PUBLIC CREDIT NOW! would be my slogan. But crashing into reality is tough. Right now in the US there are no public institutions that would issue such loans. Some state governments provide loans, but they come with interest rates.
We're closer to public loans than ever before, though. The Bank of North Dakota (BND) is an old public bank at the state level. Philadelphia is currently in the midst of maybe creating such an institution for the municipality. I don't know if or how these public banks might handle school bonds--good question for a future post. A version of the Build Back Better bill made vague mention of an Infrastructure Finance Authority, which made the bondholder class mad. It didn't survive.
The Municipal Liquidity Facility, my first love in school finance organizing, could have issued federal no-cost public loans. The program made it possible for the Federal Reserve to lend directly to municipal governments. But it was conceived of and run by people who had a very conservative interpretation of the program, making it almost impossible to use. Then Pat Toomey killed it and salted the earth. Reddy and Feygin have a new working paper I'd like to study where they propose a public buyer that goes into private municipal markets and forces better deals for local governments. Also very interesting and worth more study.
But the thing is, none of these are viable. They can't be used (unless maybe you're in North Dakota).
There are systems that could almost kind of approximate public no-cost loans to school districts. For instance, when schools issue a bond, some states have reimbursement programs where the state government gives the district a percentage or even the full amount of the project using appropriations from their General Funds, coffers filled by sales tax money. But I don't know exactly how many states do this. It's very uneven. Even in this case, districts still have to issue bonds that have interest rates. If they don't issue the bond themselves, someone still does (like the state).
In theory, you could get state legislation to fully reimburse school districts for construction projects, including all interest payments. But the state would still be paying the ruling class. Socialists should want to expropriate this bondholder class out of existence, not support them in some other way.
And here's the rub. Since there are no-cost public loans, the socialist has to decide between supporting the ruling class or standing in the way of much-needed revenue for school buildings. This dilemma can be really intense. In Philly, the schools are so toxic that kids get asbestos poisoning and pieces of the ceiling fall out during the school day. The socialist can't say "I don't support a bond issuance because it helps the ruling class." That's cruel and will be completely unpopular.
At the same time, as soon as a socialist says they do support the bond, it means giving millions of dollars in fees to capitalist investment firms, capitalist lawyers, and even more millions in interest payments to ruling class investors, which simultaneously robs the state of needed public revenue because the interest payments are tax free.
What is to be done?
If the horizon is public no-cost loans, but the balance of forces doesn't permit a clear or immediate path to this goal, then what should a socialist do about school bonds? Sitting with the tension and examining your specific terrain will get you some concrete answers. Generally speaking, here's what I'd recommend:
Examine the hell out of the bond, make it public, talk about alternatives. This is a political education tactic. Get to know exactly what's happening with your specific bond. Is it general obligation or a revenue bond? Who are the banks involved? Who are the consultants, lawyers, firms involved? How much will they all take in fees? What'll the interest rate be? Exposing the fact that the bond issuance is a private, profit-making venture on a public good will help advance the cause of public credit. People will ask: so how should this happen? You can say: public credit now. You can also technically support the bond while saying all these things, admitting that it's the only way to get schools revenue right now but that you're working towards new structure of public credit.
Organize pressure campaigns to lower or get rid of interest rates and fees. If you do the research, you can find out who's profiting off the backs of students, parents, and the community. You can publicly shame them and demand lower interest rates and fees for the bond. This saves the district money. There's a precedent for this kind of campaign out of California that I'm researching now.
Demand that key social-democratic institutions come out in favor of public credit. School boards, superintendents, city councils, mayors, and school district finance directors are all very important players in the school bond game. If there's a groundswell for public credit from them, then the situation could become more ripe for a structural change.
Run school board candidates with public credit as a platform issue. Demanding public credit will save districts millions of dollars every year, dig poor districts out of debt spirals, and put more money in the pockets of taxpayers while simultaneously improving their school buildings. Plus you're taking on the capitalist ruling class directly. It's a win-win issue and a very strong footing for socialists in local politics.