The Internal Revenue Service sent a letter to San Diego Unified School District last month asking for a wide variety of documents, including bank statements and receipts for how the district spent money raised from bonds.
The request was made for the General Obligation Bond, Series C issued in 2010, a nearly $164 million dollar bond, which is also one of the controversial Capital Appreciation bonds.
The IRS letter states this is a routine examination of districts that issue bonds, but a similar letter and request was sent to the Poway Unified School District last year.
Our media partner Voice of San Diego (VOSD) reported the State Attorney General warned Poway Unified School District about improper spending of funds raised from bonds, namely the premium. It's extra money the school gets for paying a higher interest rate to investors.
At that time, the state attorney general said that extra money must go towards interest or school improvements. But VOSD reported Poway spent the money on attorneys and other fees, which could be deemed illegal.
Section F of the California Education Code Section 15146 states:
(f)The proceeds of the sale of the bonds, exclusive of any premium received, shall be deposited in the county treasury to the credit of the building fund of the school district, or community college district as designated by the California Community Colleges Budget and Accounting Manual. The proceeds deposited shall be drawn out as other school moneys are drawn out. The bond proceeds withdrawn shall not be applied to any other purposes than those for which the bonds were issued. Any premium or accrued interest received from the sale of the bonds shall be deposited in the interest and sinking fund of the district.
San Diego Unified's documents show it collected a $5.8 million dollar premium. A little more than $2.1 million was allocated for underwriters' discounts and the cost of issuance.
It's unclear whether the IRS is looking into the same issues, but the requests are similar.
The IRS would not return our questions about their interest in the bond. SDUSD said this is just a routine examination. The district said their attorneys have already replied to the IRS's request.