Oct 17 2018

OPINION: Facts About School Seismic Bond Financing and Refinancing

The ongoing School Board election campaign has resulted in misrepresentations about the District’s sale of Capital Appreciation Bonds during the seismic bond program, and the refinancing of those bonds.

I served on the School Board during the seismic program, but anyone can review the meeting agendas and materials to understand the facts. A good place to start is the 2014 Seismic Safety Bond Program Financial Summary, http://www.piedmont.k12.ca.us/bond/SSBP_Finance_Summary.pdf. Below are some relevant facts:

First, the District and the School Board clearly understood the difference between Current Interest Bonds (CIBs) and Capital Appreciation Bonds (CABs), as well as Qualified School Construction Bonds (QSCBs) and Bond Anticipation Notes (BANs). These financing mechanisms, their pros and cons, were discussed in public meetings back to 2006. Very roughly speaking, CIBs reduce total interest payments by levying taxes at a higher rate to pay down the debt starting immediately, while CABs reduce the immediate tax rate at the cost of greater total interest payments by deferring repayment of the debt. Board carefully considered which options were feasible and prudent under the circumstances, and made financing decisions following public discussion.

Second, the Board authorized the sale of CABs (Series E) to allow seismic renovation work at Wildwood and Beach Schools to proceed, rather than defer such work for years until older bonds were paid off, which would have left our children in seismically unsound buildings, increased construction costs, and lost access to the “replacement school” in Emeryville. (If you want more detail, the CABs were sold to repay the BANs that were sold to allow the District to obtain QSCBs—see SSBP Financial Summary. QSCBs were near-zero interest bonds that must be repaid in 15 years and saved the District about $40 million, http://www.piedmont.k12.ca.us/aboutpusd/agenda.minutes/QSCB_012511_presentation.pdf ). Pursuant to statute, anticipated tax rates to repay bonds issued under Measure E were limited to $60 per $100,000 in assessed value. The District could not have sold CIBs to fund this work as the tax rate to repay the bonds would have exceeded the limit. Selling CABs deferred the repayment, and the taxes to make repayment, until other bonds were paid down and thus complied with the limit. See, e.g.,

http://www.piedmont.k12.ca.us/aboutpusd/agenda.minutes/2011_12/050813packet.pdf at pp 2-3.

I do not recall anyone, including current School Board candidates, appearing before the School Board at the time to argue that Wildwood and Beach work should be deferred for years to reduce total interest payments. Wildwood and Beach parents vocally supported proceeding with the work.

Third, refinancing bonds to save money is not a new concept. Even before the CABs were sold, the Board and District anticipated re-financing them as soon as it was possible to do so (call dates were set as soon as feasible given market requirements). See May 8, 2013 Minutes at 3-4, http://www.piedmont.k12.ca.us/aboutpusd/agenda.minutes/2011_12/050813minutes.pdf. The District and Board had a history of refinancing older bonds when interest rates come down, and had done so in 2009 and 2014. See http://www.piedmont.k12.ca.us/aboutpusd/agenda.minutes/2014_15/10-22-14_Packet.pdf. The Board refinanced Series B CABs in 2015. http://www.piedmont.k12.ca.us/aboutpusd/agenda.minutes/2-11-15_Agenda.pdf.

In Fall 2017, the Board and District identified options for refunding the 2013 Series E CABs and held two public meetings to obtain input.




The Board elected to refinance the 2013 CABs with CIBs, saving Piedmont taxpayers $26.1 million.

http://www.piedmont.k12.ca.us/blog/2017/12/15/district-saves-taxpayers-more-than-26-1-million- with-bond-refinancing/. According to Minutes of the Nov. 8, 2017 meeting, however, “Hari Titan encouraged the Board to wait for at least a year on CAB refinancing.” https://agendaonline.net/public/Meeting.aspx?AgencyID=1241&MeetingID=12755&AgencyTypeID=1&I sArchived=True. Fortunately, the Board correctly chose to proceed with the refinancing in December 2017 as interest rates have continued to climb.

Fourth, the School Board, well aware that CABs keep current tax rates lower only by increasing total interest payments, has chosen CIBs over CABs when available. In 2014, when proposing a bond measure to fix Alan Harvey Theater, the Board ruled out using CABs as the feasible tax rate supported the CIB option. No one on the Board was advocating CABs. See January 8, 2014 Minutes at 7-9, http://www.piedmont.k12.ca.us/aboutpusd/agenda.minutes/2012_13/1-8-14_approved_minutes.pdf.

In short, claims about misuse of CABs in the past do not reflect the facts. This School Board election should focus on solving real challenges to maintaining Piedmont’s high quality educational system.

Rick Raushenbush, Former Piedmont School Board Member

5 Responses to “OPINION: Facts About School Seismic Bond Financing and Refinancing”

  1. Thank you Rick. I’m impressed with how much effort you put into this opinion piece. [However,] Hari is totally off the reservation with his arguments.


  2. The lengths to which certain people will go to defend the PUSD’s action to refinance a CIB that was paying less than 4%, to a CAB paying 7% has few explanations.

    But one possible explanation is that some people were able to purchase those 7% bonds…which is a great interest rate to earn on what in practical terms is a risk-free government bond.

    It appalls me to know how carelessly the PUSD board threw away millions in excessive interest payments, while knowing the effort our citizens make to raise money for our schools.

  3. One thing is for sure: Without Hari Titan, the general public in Piedmont would not be aware of the high costs (in interest payments) of CABs, and the strong pressure from the public to avoid CABs in recent years would not have been present. Hari Titan has been tireless and courageous in uncovering and publicizing school issues neglected by those focused on too much on getting along (and going along) with others and not enough on tough, independent oversight.

  4. I have responded to and refuted many of Rick’s statements in a new article: https://harititan.com/article/moment-188-million-was-lost

    Ward Lindenmayer should not make racist statements like “off the reservation” in reference to Native American lands.

    As a bond investor he is entitled to his point of view without personally attacking someone who is espousing a taxpayer point of view.

  5. Hari’s points have substantive merit even if they are sometimes delivered with a dose of vinegar. Folks can bicker over whether or not Hari or the School Board can claim the most credit for the Board’s decision to backpedal from its initial support for CABs. I’m personally thrilled that, with the rejection of CABs, over the long-haul, a higher proportion of my school (bond) taxes will go into quality facilities to support a 21st C education for Piedmont’s students, rather than interest payments to financial institutions or investors. I understand that this choice represents a trade-off and that rejecting CABs means that we can’t have a quick, much less immediate, gratification of our desired school facilities ‘wish list’. I am willing to make that sacrifice.

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