Archive for Wednesday, December 26, 2012

USD 348 bond refinancing approved

Baldwin USD 348 Board of Education

Baldwin USD 348 Board of Education

December 26, 2012

The Baldwin USD 348 Board of Education approved at a meeting on Dec. 12 a bond refinancing that should save taxpayers $468,000.

The action refinanced $7.37 million of the district’s 2008 bond issue. It reduced the district’s average interest rate on the debt from 5.25 percent to 2.44 percent.

In a November report to the board, Dustin Avey, a senior vice president with Piper Jaffray, said the refinancing would be structured to provide more immediate property tax relief by extending the debt’s retirement date from 2023 to 2029 and making the savings front loaded.

The financing will save the district $158,550 for the current 2012/2013 fiscal year and $87,971 for the 2013/2014 fiscal year.

To provide more immediate mill levy relief, the refinancing will extend the debt retirement from 2023 to 2029.

Avey first presented a proposal to refinance $7.37 million of the district’s 2008-bonded debt.

Avey told the board at the November meeting the district would get placed in the large-issuer market with higher rates should it refinance more than $10 million in bonds in a calendar year. He also said the $7.37 million figure would allow the district to get the most efficiency from its bond escrow account.

School Superintendent Paul Dorathy said the front-loaded refinancing was just one method Avey examined and the board could choose other options.


1776attorney 7 years, 10 months ago

I might suggest that readers Google CAB type school bonds. These type of bonds were pushed on hundreds of California school districts over the past fifteen years by Wall Street. These bonds require very little repayment for the first 10-15 years yet accrue interest, fees and costs. Beginning in year 15, the payments begin after accruing 15 years of interest. Wall Street sells them on the assumption that in 15 years taxpayer incomes will be 3 times higher than today and taxes can be jacked up to match. They are an "easy sell" or easy to "slide past inquisitive taxpayers".

So they borrow $50 million and build new schools and when the payments come due beginning in 15 years the repayment amount is astronomical and the facilities are "old" and antiquated by then. The new school facilities we just built will be at the very end of their life cycle when the payments on these bonds are the highest for taxpayers.

Needless to say, many California school districts are now approaching bankruptcy (some have filed) and the state government is attempting to outlaw CAB type bonds.

Hopefully, this is not what Piper Jaffray sold this superintendent and school board last month. As this newspaper reported, the school board seemed to jump out of their seats at this proposal expressing little interest in hearing the other options or investigating what these new bonds really were.


Stacy Napier 7 years, 10 months ago

So if you extended the rertirement date 6 years does that mean I will be paying the bond issue on my property tax for 6 extra years? I don't remeber how the bond was written on the ballot.

If we have to pay for 6 more years that is hogwash. I save $100 each year to pay an extra $900 for another six years at the end.


1776attorney 7 years, 10 months ago

Without regard to the proper name for bonds of this type, I have serious questions about what the school district just signed on to. I will be the first to say upfront that I do not know exactly.

The bond information will be available at the district offices at some point and the district must provide this to any taxpayer who wants to read the complete deal paperwork.

These bonds that the school board just signed up for are front-loaded with low, low payments (and thus a lower required mill levy) for the first block of years (say 10 years). This makes them palatable to taxpayers and easy for the administration to "sell" them as a good deal.

But during those 10 years the interest and costs accrue and compound. Beginning in year 11, it's like a huge balloon payment. The repayment costs skyrocket and the mill levy must go up accordingly.

They are marketed under the assumption that in 10 years taxpayers will be earning far more than today and thus can afford to be taxed at a higher rate to pay the bonds off in years 10 through 16. While the interest rate quoted is lower, those first 10 years of interest and cost accrual have doubled or tripled the principal owed.

California school districts were sold these type of bonds years ago and build expensive, first class school buildings. But when the repayment costs began at 10 years the economy tanked and property taxes crashed. Thus many school districts could not pay their bonds. The state of California is in the process of outlawing these type of bonds.

So while the interest rate quoted for the Baldwin bonds seems low and the early year savings sound appealing, the surprise and shock may come in 10 years.

What will be apparent in 10 years is that the school buildings we just built will need to be renovated or rebuilt because of age, usage and population growth. But during years 10 through 16 (to 2029), taxpayers will still be paying off the 2012 bonds and at a much higher mill levy.

Piper Jaffray will do fine. They charge a fee for handling the bond issue, collect a commission for selling the bonds to investors or pension funds, and perhaps earn interest on any bonds they hold in-house.

My questioning of this deal is not that the superintendent and school board wanted to save taxpayers, but that they may have not spent the necessary effort to investigate what they were getting into on this deal.


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