At the February 27, 2025, meeting of the LAUSD Bond Oversight Committee, committee members and district officials engaged in a mildly confrontational exchange: 

Robert Campbell, Vice Chair (L.A. Co. Auditor-Controller’s Office): One question I have is—going forward—does the district have plans as long as there is capacity in underutilized funds under any bond program to issue more COPs? 

Chris Mount-Benites, LAUSD Chief Financial Officer: I have no plans to do so, uh, nor would I recommend them in my tenure here…it’s unusual to see COPs issued with a bond program, however I do see that these were issued with an intent to cover what was not in the bond program at that time… uh, so, uh especially with our general fund status it would not be something that I would consider fiscally prudent, however I can’t speak for the future or a future board of education either that’s really their purview that would be overstepping my boundaries.  

The quote above was part of a conversation about LAUSDs plan to use up to $250 million of the $9 billion bond measure approved by voters in November to defease (pay off) a very particular type of debt the district currently carries. The COPs in question are not anything police related—COPs refers to “Certificates of Participation.” COPs are a bad deal for the district and pose a threat to classroom funding.  

What are COPs and why do they need defeasing? 

Certificates of Participation are a type of debt school districts can issue that are distinct from regular General Obligation (GO) bonds. First, COPs do not have to be approved by voters because, unlike GO bonds, they are not repaid by property tax levies. A district can go to investors and raise capital without having to ask the voters for approval. In theory, if a sudden capital need arises that was not approved under previous bond measures, a school district can issue COPs. If it sounds too easy, well, it is.  

COPs are also different from GO bonds in how they are capitalized. While a bond is essentially a loan from an investor to a borrower, a COP is a rent-to-own program. When an infrastructure project is funded using COPs, investors technically own school assets until the district pays off the debt. In the meantime, the district is renting it from them.  

Lastly, a key difference between COPs and GO bonds, is where the money for repayment comes from. Unlike GO bonds, which get paid via a sealed-off stream of property tax revenues (this is why voters must approve them), COPS are paid back from the General Fund. That means every dollar of this debt is one less dollar the district can spend on instruction and services for our students. Defeasing (refinancing) the COPs using GO bond funds will free up $303 million in the General Fund. Because of the less secure method of repayment of COPs, they carry lower credit ratings.ⁱ Lower credit ratings mean higher interest rates. For all these reasons, COPs should be avoided. 

LAUSD has more recently moved to issue $500 million in Judgement obligation bonds (JOBs) to finance settlements of sexual abuse cases brought by former students. Like COPs, unfortunately this debt will also be repaid from the General Fund. The JOBs received a higher credit rating than the COPs because the payments are covenanted into the annual budget, non-contingent, “absolute and unconditional obligations.” But unlike COPs, these bonds could not be issued any other way (such as through a tax-exempt bond program tied to property tax levies) since they do not fund capital assets. Annual debt service for the JOBs will be $30.7 million from general fund for 15 years. Moody’s credit rating report noted that “even when combined with the district’s COP payments, these payments represent less than 1% of general fund revenue.”¹ 

In the fall of 2023, LAUSD reversed over a decade of declining outstanding COP liabilities (see figure 1) with the issuance of $425 million of new COPs to fund cybersecurity improvements, campus security systems, and school bus electrification, among other things. At the time the district had just finished the 2022-23 fiscal year with $3.9 billion in unrestricted accumulated general fund balance. So, we agree with the CFO, it made no sense to issue COPs. 

So, defeasing the COPs is good? What is the controversy? 

Just like paying off your high interest credit card debt with a lower interest installment loan can save you a lot of money, paying off COPs with Measure US GO bonds will save the district interest costs and free up dollars in the general fund. But to be clear, all the projects will still be funded. 

The LAUSD Bond Oversight Committee did not see it this way. The BOC had three main points of contention: (1) Even though defeasing the COPs was specifically included in the Measure US project list and approved by voters, they did not feel the BOC had enough opportunity “to review Measure US prior to its placement on the ballot” and therefore felt their oversight role was undermined, (2) by using some Measure US money for paying off the COPs, the BOC believed this would reduce the funding available for other projects, (3) they could have used money from previous bond measures to fund the projects instead of COPs.  

But most of this is inaccurate and over-reach. The Measure US bond project list was public for three months in the lead up to voters approving it. In fact, if LAUSD chose NOT to defease the COPs with Measure US funding, it would be violating the will of the voters—the exact sort of thing the BOC exists to prevent! The mission of the BOC, as spelled out on page one of its charter, is to oversee the expenditure of money from voter-approved bond measures. This means the BOC’s job is to ensure bond dollars are spent efficiently on the specific things the voters approved them for—as detailed in the bond project list on the ballot. Members of the BOC have a right to their opinions about school finances and taxes, and we agree the district should not issue COPs in the future if it can be avoided. But bond measures are for voters to approve, and policy decisions about what kind of debt to issue and when are the purview of duly elected officials on the LAUSD school board, not the BOC.  

But isn’t debt a bad thing? 

Not necessarily. Given the deleterious effects of Proposition 13 on public education funding in California, voter-approved bond debt is the one policy lever available to school districts to tap into more of the local wealth ($900 billion of assessed property value within in LAUSD boundaries) in the district to adequately fund an essential public good. In other states without such strict limits on property taxes, schools don’t have this same problem (they have other problems, for sure). The reality here, however, is that LAUSD has billions of dollars’ worth of needed school repairs and upgrades to do and asking the wealthiest property owners in Los Angeles to pay their fair sure is the solution.  

All that being said, for the tax warriors out there, GO bonds save everyone money in the long run. Because of how they are funded, GO bonds are a safer bet for investors and therefore carry lower interest rates. The preliminary good faith estimate of the COP refunding bonds interest costs is 15 basis points lower than what the district is paying on the outstanding COPs.