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Monday, September 3, 2012

School District Trots Out New (Unchanged) Bond Financing Scheme

Meet The New Bond, Same As The Old Bond:
Both New & Old Bond Requires Taxpayers Pay $107 Million For $20 Million Borrowed

The new school bond has been
proposed to replace the
discredited CAB.
But if it looks like a duck and
walks like a duck
and quacks like a duck....
In response to angry parents recently chastising the School Board, the Emery School District distanced itself last week from its previous consideration to float a Capital Appreciation Bond (CAB) to fund the last $20 million to help build a new school on San Pablo Avenue and instead embraced a new General Obligation bond that the District admitted would end up costing taxpayers the same as the CAB.
The criticisms caused the District to change the 'Series D' bond, the final proposed bond for the new school from a CAB, considered a risky financing scheme that defers payments for many years to a General Obligation Bond, generally considered safe.  The new Series D bond would begin repayment in 2014 and finish in 2053 as opposed to the former proposed CAB that would have deferred payments until 2032 and finally be paid off in 2049.  Both bond schemes would cost taxpayers $107 million for the same $20 million borrowed.  Both bonds assume a 4% Emeryville Assessed Valuation growth every year for the duration of the bonds and both bonds assume no greater than the promised $60 per $100,000 of property valuation.  The General Obligation bond requires payment every year starting in 2014 but each payment is less than $100,000 until 2032 when the large balloon payments begin.

Capital Appreciation Bonds have been much in the news of late since cash strapped school districts from cities with low property value appreciation across the State have turned to them and reporters have shown the fiscal impropriety of this type of high interest borrowing.  The media has depicted CAB financing as a sort of bellwether for irresponsible financial chicanery in school districts up and down California.
Emery, too has been revealed to be entertaining the idea of CAB financing to fund the move of the existing Anna Yates Elementary School to co-locate with the proposed new high school.  The District has claimed it needs an extra $20 million to close down the elementary school on top of the already raised $48 million to rebuild the high school.

It's a duck.
School Board members last week called for an explanation for the CAB previously presented by District staff in the wake of a Tattler story and the Board heard that a CAB would not be necessary to finance the final $20 million after all.  The staff then introduced the new General Obligation Bond.  Staff members did not volunteer that the new bond would cost taxpayers the same as the discredited CAB bond nor that it would actually take four years longer to pay off than the CAB.

One parent at the meeting commented that the new bond is a CAB in all but name and that the replacement General Obligation Bond is a cynical ploy meant to deceive Emeryville residents.  The parent expressed frustration at the lack of transparency by the staff. "Show us your work" the parent challenged the staff, noting how math teachers require students to reveal how they arrived at an equation.


  1. Brian,

    Please take this as a plea from one concerned resident to another.

    Nay, as a friend reaching out to a friend.

    These are NOT the same bonds.

    Stop hating.

    Clearly, one bond proposal is a duck, and the other is a goose.

    The City and School District do NOT think we are gullible. Get over it!

    ~ Michael

  2. Well, look at the numbers for the two different bonds:

    CAB Series D:
    $20 million borrowed
    $107 million pay back
    37 years to finish paying

    New proposed Series D bond:
    $20 million borrowed
    $107 million payback
    41 years to finish paying

    As you can see, in fact the new bond is actually a little worse since it adds an extra four years to the payback. So to escape from the CAB scarlet letter, the District is talking about making the loan even a little WORSE.
    So if you mean that the two loans are not the same insofar as the new bond is worse, then you are correct. But let's not pussy foot around, the School District is attempting to deceive the people of Emeryville with claims that this new bond is somehow different and better than the CAB. If I'm "hating" it's due to this lack of transparency...and on that score, you should be a hater too.

  3. But Brian the names are different! Doesn't that make all the difference in the world? Do they think we would be that stupid? I mean even the average person could tell the difference between New Coke and original formula. I am sure the new bonds actually provide a better deal,you must look again! In fact now I am sure of it! We get an extra four years to pay the loan back! For no extra cost! That makes the $87 million in total interest pale in comparison, wouldn't you agree? I think getting $20 million now for $107 million later is a STEAL.

    For example, if I buy a used car for $10,000, then about $42,000 in interest on the car would be reasonable, right? Especially since that loan will keep me from buying a new car for the next 41 years, right? I mean a car will last 41 years right? Same with the school! This way we never have to worry about any more bonds to build or fix schools, cool!

    So all in all it is a great deal for the City. I have to applaud the powers-that-be for finding this sane way to avoid the "tarnish" those nasty CAB bonds have been getting in the newspapers lately. Those are the real haters, those nasty out of town newspapers. It's a good thing we don't allow newspapers in Emeryville.

    I think you should simply know that I've decided to join the rest of Emeryville residents by stop being a hater.

    I can hardly wait for them to chop down those old ugly trees, and for them to sell the Anna Yates and that other campus to developers for condos. Gosh I sure hope they turn them into more one bedroom lofts, we could use some more of those!


  4. J/K Brian, of course you are right, I'm just so mad they really think we are this stupid.