District OK’s $5 million in new bonds

From the 12.19.12 edition

 

By Jack Durham

Press Editor

 

Amid a state-wide controversy over how some school districts are spending too much on bond financing, the local high school district board approved the issuance of $5 million in new bonds last week.

The Northern Humboldt Union High School District Board of Trustees voted unanimously at its Dec. 11 meeting to pursue $5 million in bonds to remodel and expand the multi-purpose room at Arcata High School. The bonds will be paid for by the residents of the district, which includes Orick, Trinidad, Westhaven, McKinleyville, Fieldbrook, Blue Lake, Arcata and Manila.

The bonds are authorized by Measure Q, a $25.8 million general obligation bond approved by voters in 2010. So far, the district has obtained $8 million in bonds. With last week’s decision, NHUHSD staff will now begin shopping for the lowest bond rates, and may be able to complete the deal to obtain $5 million by the end of January. That will bring the total bonds obtained by the NHUHSD to $13 million. The remaining $12.8 million called for in Measure Q will be pursued in future years after the current list of projects is near completion.

Property taxes

Measure Q has an estimated property tax assessment of $19 per $100,000 of assessed value per year. The assessed value is determined by the county and is not the same as market value.

Although the estimate is $19 per $100,000 of assessed property value, the actual tax depends upon the bond financing and how much is owed by the district. The current tax is about $11 per $100,000, which is less than the estimate.

Former NHUHSD Superintendent Kenny Richards, who retired last Friday, said that the district is striving to keep the assessment at $19 or less. However, under state law, the assessment could go as high as $30. Richards said that the district does not anticipate this happening.

School improvements

This year the district upgraded the electrical and communications systems at both Arcata and McKinleyville high schools.

This summer the district will upgrade the bathrooms at the gyms at both high schools. School libraries at both campuses will also be remodeled and upgraded. The old bleachers at McKinleyville High School will be replaced.

The new $5 million in bonds will be used to remodel and expand the multi-purpose room at Arcata High. The 60-year-old structure is too small for the Arcata-McKinleyville Orchestra, which has to rent other facilities when it holds concerts, Richards said.

The NHUHSD will begin designing and planning for the new multi-purpose room this year, with construction tentatively scheduled for 2014.

Other projects called for in Measure Q, including artificial turf on campus football fields, will be considered in years to come.

‘A decent deal’

Before the NHUHSD board held its regular monthly meeting Dec. 11 and approved the new spending, it held a special two-hour study session on bonds. This was sparked by the recent controversy over school districts throughout the state paying high interest rates for bonds.

At the heart of the controversy are Capital Appreciation Bonds, which allow districts to delay making payments for years, but have high interest rates.

Of the $8 million in bonds obtained by the NHUHSD, $195,000 were in the form of CABs. The interest payments alone on those CABs will come to nearly $1.8 million. That means the district is paying $1,975,000 for less than $200,000. That’s 10.1 times more than the amount acquired for school repairs.

This sounds bad, but school officials and bond advisor Greg Isom were quick to point out that the CABs need to be taken in context. They are part of an overall bond financing package of $8 million. When that entire package is paid off in 2036, the district will have paid a total of $17.4 million, a ratio of 2:1. “This is considered a good debt ratio,” Isom said.

Isom told the trustees that had the bond package not included the CABs, then the interest rates on the more conventional bonds used would have been slightly higher to make up the difference, and perhaps would have resulted in higher cost overall.

“It’s unfair that you guys got lumped into the controversy,” Isom told the trustees.

Humboldt County Treasurer/Tax Collector John Bartholomew was in attendance at the study session, and agreed that the bond financing was done appropriately.

“I don’t know if you could have gotten a better deal.” Bartholomew said. “This is a decent deal, even by today’s standards.”

NHUHSD District Trustee Dan Johnson quizzed Superintendent Kenny Richards about the bond, noting that Richards was retiring at the end of the week. Johnson said that the bond program was part of Richards legacy, and asked the outgoing superintendent if he was “completely comfortable” with the bond financing.

“I am,” Richards declared.

“There was a reason we passed the bonds. Our schools were falling apart,” Richards said.

Referring to the state-wide controversy, Johnson asked Richards “When all this press came out your butt didn’t pucker?”

Richards said no, adding “I feel good about it.”

Isom noted that bond rates have fallen over the last year and a half, so the rates the district will get on the new bonds should be even lower than on the previous bonds. The actual interest won’t be known until the deal is made in January. Isom said the new package won’t contain any CABs.

 

 

Of CIBs and CABs: McK School Board Addresses Expensive Bond Financing

From 12.19.12 issue

By Benjamin Fordham
Special To The Press

The McKinleyville Union School District School Board of Trustees met last Wednesday, Dec. 12, and on the agenda was the pricey school bond they acquired last year. As reported last week, MUSD’s Capital Appreciation Bond, or CAB, has a debt repayment ratio of about 10-to-1, meaning the $7 million bond could end up costing area taxpayers $70 million.
At the meeting the board spoke by phone with a representative from Kelling, Northcross, and Nobriga (KNN), the Oakland finance firm that brokered the bond sale. She explained that it was a “very difficult market” at the time and rumors abounded of school districts defaulting on bonds, which spooked investors. This led MUSD to the very high-interest, back-loaded CAB, the best deal they could get at the time for the money they needed.
“We got hit with a perfect storm of bad credit, high interest-rates, timelines to meet, rising construction costs, and a reduction in the growth rate of community asset values,” said Board member Tim Hooven of the situation.
“We had a contract with a project manager, and other significant costs invested in the middle school project,” said Hooven. When Measure C was on the ballot in 2008 voters were promised, among other things, a new gymnasium for McKinleyville Middle School.
“With the benefit of hindsight one would wish they had delayed the offering,” said County Auditor-Controller Joe Mellett, “but I’m sure the Board acted as they thought best at the time.”
Some Board members expressed surprise at the terms of the bond. Board member Sara Alto was quoted in the North Coast Journal as saying, “It was a shock for me… If I had seen that figure ($70 million) at that meeting, there would have been more questions from myself.”
Members of the public are invited to speak at the Board meetings, and two such people showed up to voice their displeasure on Wednesday. “You called her a representative,” said McKinleyville resident Mark Olsen of the KNN rep, “but she’s a salesman, and she sold you a bag of goods.”
“Do you know what the interest-rate will look like next year? Does anyone?” said Olsen regarding the Board’s options to refinance. Jeff Lytle, also of McKinleyville, said that he had warned the Board of the possibility of declining property values before the bond was approved in 2011.
MUSD Superintendent Michael Davies-Hughes later said of the criticism, “It is a complex issue, and the District will need to be diligent in looking for the best time and the best method in which to take action for improving the debt service over the long term.” The earliest the bond can be refinanced without penalty is 2021.
Six school districts in Humboldt County currently possess CABs, McKinleyville Union’s being the largest. Part of the concern with the MUSD CAB is that, over the last 10 years of its life, property-owners could see the $30-per-$100,000 of assessed home value tax skyrocket to up to $300-per-$100,000 to pay off the bond. This could affect not only home-owners, but also renters if costs are passed on to them.
Also at issue is the fact that the firms associated with the bond donated heavily to the passage of Measure C, a practice Mellett feels should be banned. “Wall Street interests with no ties to our area impose themselves into local tax and school financing decisions, at times to the significant detriment of the local community.”
Five firms donated a total of $16,750 towards the passage of Measure C, which passed by .44% of the vote. These include KNN, the financial firm; Jones Hall, a financial consultant specializing in bonds; Godbe Research, a firm hired to gauge Measure C’s chances of approval; and Siskiyou Design, an architectural firm. These donations amounted to approximately 90% of the funds raised toward the passage of the Measure. Between them, the firms made over $140,000 in fees.
At the time of the passage of Measure C, well-known McKinleyville resident David Elsebusch had complained about the donations, stating that without them, “the bond measure would surely have failed.”
Four years later, the promised gymnasium is not complete, and won’t be unless the political/economic climate changes. Other projects ran over-budget, including asbestos removal at Dow’s Prairie, leaving the district short on funds. Options, including selling 7.5 acres the district owns on Washington Avenue and applying for state funds, are not feasible at the moment.
“At some point we will have to make a decision on the gym project, as there are timelines associated with the plans, bond proceeds, etc.,” said Hooven. “I suppose that will be determined by the numerous factors that influence the decision to use these bonds to finish up the Middle School.”
The MUSD School Board meets on the second Wednesday of every month at 6:30 pm in the Azalea Conference Center at McKinleyville Middle School. The meetings are open to the public.