Dec. 13, 2012 Volume XXiii No. 00
editor
North Coast Journal Inc. www.northcoastjournal.com ISSN 1099-7571 © Copyright 2012
The North Coast Journal is a weekly newspaper serving Humboldt County. Circulation: 21,000 copies distributed FREE at more than 350 locations. Mail subscriptions: $39 / 52 issues. Single back issues mailed / $2.50. Entire contents of the North Coast Journal are copyrighted. No article may be reprinted without publisher’s written permission. Printed on recycled paper with soy-based ink.
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on the cover:
Photo by Ryan Burns
Dear School Trustees
P
lease understand that I’m writing with deep affection. In more than 30 years as a voter, I can’t recall ever voting against a local school bond. I’m enduringly grateful for a state college system that once had tuition so low I graduated without a dime of debt, just by working weekends and summers. Schools are one of the very best investments all of us make in future generations. But please, trustees, please, take some time to push past easy analogies and ask a lot more questions about bonds before your district issues them. Slow down. Call for reinforcements. I’ve just started learning about school bond intricacies, but based on interviews with county treasurers, auditors and bond advisers, some off the record and some on, I’ve picked up a few points that might be useful to you now, with at least three Humboldt County school districts preparing to issue new bonds, two of them possibly this week. First: County Treasurer John Bartholomew is available to help you understand the bonds your district wants to sell. You’re busy educators, and he’s a financial specialist who, if asked, will come to your meetings, look over your proposed bond issue, and try all he can to help. “I am willing and available and I’m happy … to make sure that taxpayers get a fair deal,” Bartholomew told me on the phone this week. Second: You have a lot of power. You are entitled to say no to capital appreciation bonds, or no to bonds that last more than 25 years, or no to bonds that cost three or four or eight or 10 times what you borrowed, or no, really, to any individual bond in the bigger pack-
6 North Coast Journal • Thursday, Dec. 13, 2012 • northcoastjournal.com
age of bonds that an underwriter will sell on your behalf. This is a consensus from several bond advisers and county treasurers. In that context, here’s a holdonto-your-wallet tip: Bond advisers often charge school districts an extra $20,000 to $50,000 for putting together a deal that includes capital appreciation bonds, or CABs, said Los Angeles County Assistant Treasurer Glenn Byers. “It’s harder to sell, that’s what they tell you. I say baloney, it’s easier to sell. You have fewer people to talk to,” Byers said in a phone interview on Monday. (Capital appreciation bonds accrue interest for years and pay it off in a big lump sum when they mature, so they’re especially attractive to a relatively small group of investors with long time horizons, such as insurance companies and pension funds, Byers said. These bonds also tend to pay higher rates than current interest bonds, so they are one of the most expensive ways a school district can borrow.) Third: Beyond Bartholomew, you’ve got other resources to lean on. The Los Angeles County Treasurer Tax Collector’s office has been aggressively fighting school bond abuses, and Byers suggests two guidelines for prudent borrowing: Don’t use bonds that take longer than 25 to 30 years to repay, and don’t use a bond package whose repayment costs jump more than 5 percent in any year. (That is, if a bond package costs $100 to repay in year one, it shouldn’t cost more than $105 in year two or more than $432 in year 30.) Fourth: A bond is not like a mortgage. Really. No matter how much your bond adviser might like that analogy. A mortgage is one loan, but a bond issue usually involves many different loans, or bonds,
each with different terms, which can include some real stinkers. It might help to think of it like this: If you get a $125,000 mortgage from a bank at 4 percent, you make one payment every month to one entity. But say instead you buy that same house by borrowing $100,000 at just 1 percent from your rich uncle who always loved you best. Then you run up the other $25,000 on your credit card at 18 percent. It’s absolutely true that your blended interest rate is going to be way lower than that 18 percent, because you borrowed most of the money at 1 percent. It might even turn out that for your own quirky personal finances, this was the best way you could have borrowed. But no matter how good that blended rate looks, it doesn’t make your credit card bill go away. It doesn’t make 18 percent a good interest rate. And it doesn’t mean you shouldn’t have looked — hard — to make sure there wasn’t a better way to do this deal. Fifth: Understand growth, and don’t let anyone jack up imaginary growth rates to pretend a big future tax bite will be smaller than it sounds. Partly because of laws that date back to 2000, people often talk about bonds in terms of their annual cost per $100,000 of assessed valuation. Elementary and high school districts often aim for a target of taxing each property owner no more than $30 annually for each $100,000 of assessed valuation, or AV, and unified school districts think in terms of $60 annually for each $100,000. That can be a very deceptive ratio if someone wants to assume crazy-high growth for your district. If a bond adviser tells you oh, don’t worry, this bond will cost less than $30 per $100,000 even in 2050, you’ve got to fire back another set