Dec 11 2013

OPINION: Taxpayers Should Be Told True Costs of Proposed School Bonds

The following letter was sent to the Piedmont Civic Association questioning the cost of additional taxpayer obligations to pay for Piedmont High School Auditorium upgrades.

Dec. 10, 2013

PUSD School Board
c/o Constance Hubbard

re: 12/11/2013 Item 6B Bond Election Presentation

Dear President and Board,

In all likelihood the Board will go forward with a bond measure to be approved by Piedmont Taxpayers to finance improvements to Allen Harvey Theatre (“AHT”). I previously suggested that the Board be mindful of the already very high Piedmont taxpayer burden and keep that burden stable by delaying further bond debt. While my concern for overall taxpayer cost remains, floating a bond that will delay bond payments is undesirable.

Delaying taxpayer burden by the use of Capital Appreciation Bonds (“CABS”) essentially burdens taxpayers with what amounts to a negative amortizing mortgage with an above market interest rate. While CABs make the passage of bonds easier for public agencies, the use of CABs is now being questioned by a number of agencies and knowledgeable taxpayers.

With CABs, the total cost becomes substantially greater as both interest is added to principal and excess interest premiums are necessary to attract investors. If AHT is to be rebuilt through floating a bond measure, taxpayers should know and be willing to pay that cost now and not pass on an increased tax burden down the road for themselves or future residents. The assumption by KNN Public Finances that modest appreciation of home values will continue so modest increases in bond payments will be “net zero” is unrealistic. The recent sharp downturn in the Real Estate market from 2007 to 2012 contradicts KNN’s assumption.

Kindly only consider an approach that lets Piedmont taxpayers understand the real cost now and whether we are willing to pay that cost.


Rick Schiller, Piedmont Resident

Editors’ Note:  The opinions expressed are those of the author and not necessarily those of the Piedmont Civic Association.

6 Responses to “OPINION: Taxpayers Should Be Told True Costs of Proposed School Bonds”

  1. Piedmont residents will have an opportunity to vote whether to finance renovation of the aging Alan Harvey Theater. As PHS students eloquently have presented to the Board, and as anyone attending performances at the Theater knows, renovation is necessary. If the Piedmont community approves a bond measure in June 2014, bonds would be sold a few months later so that work can begin promptly.

    Last night, the District’s financial advisor, KNN, presented four options for bond structure. The presentation can be found at Although the market-based interest rate and Piedmont’s assessed property valuation will be determined at the time the bonds, if approved by the voters, are sold, the Board will identify the expected bond structure before the June 2014 election. The Board is looking for public comment on bond structure until the Board’s January 22, 2014 meeting. The basic choice is between keeping taxes lower each year, but paying more over the life of the bonds, or paying a bit more tax each year to reduce the total amount paid to retire the bonds. I encourage residents to review the KNN presentation and share their thoughts with the Board. The Board then will identify an expected bond structure at the January 22 meeting, so that voters are well aware of it before voting in June 2014.

    Rick Raushenbush, School Board President

  2. Renovation, si.

    $14.5 million, NO!

  3. I guess it all depends how much longer you expect that you and your family will live in Piedmont. If you are here for the long haul, you want to pay more now and minimize the total interest expense over the life of the bond issue. If you plan on moving out in a few years, you want to pay the least amount while you are here.

    Jack Follick

  4. I largely agree with Rick Schiller re opposing the use of Capital Appreciation Bonds. These types of instruments essentially defer the interest payment as long as possible, but then require the maximum amount of total interest to be paid at a much later date. Or what is usually referred to kicking the can down the road. Rick is also correct that Piedmont was nearly maxed out in terms of its legal bonded indebtedness limits when Measure E was passed in 2006.

    I concede I have only followed the basic issue of there even being a need to rebuild the HS theater from the Post and Piedmonter. But I did not find the case made to be very convincing. Our two kids went through Piedmont HS in the early 2000s. We attended dozens of events and presentations at the Alan Harvey Theater over the years, and I do not recall there being any evidence of inadequacy. Mr. Rauschenbush describes the theater as “aging” as though that is justification for tearing it down. There are an endless number of places of public assembly in the Bay Area from the Grandlake Theater to the numerous halls at UC, that are more aged than the Alan Harvey Theater. While such structures have been periodically retrofitted and refurbished, there is little call to tear them down.

    I would think that borrowing money to the legal maximum should be reserved for emergencies and absolute necessities. I don’t believe that is the case with the theater.

  5. If the Board goes forward with a bond measure to renovate AHT, and they no doubt will, then taxpayers should be provided simple numbers as to total cost and total individual obligation on the proponent ballot argument.

    Mike Henn’s comment that these CABs should only be used for “emergencies and absolute necessities” is well taken. But in Piedmont there is sometimes a stretch of what is considered an “absolute necessity.” I was remiss in not visiting the AHT open house and observing the interior condition. If AHT is truly in a nearly unusable condition, then renovation is needed and hard decisions concerning financing will have to be made.

  6. There are a lot of numbers in the KNN presentation and some of the key data is not as clear as it should be.

    I have an alternative way to compare CIB and CAB options using a web based tool:

    This can be customized to your own property assessed value.

    My website has more analysis on CABs and CIBs.

    Creating an account opens up more of the electronic town hall I am envisioning for the School Board.

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