School Bond Refuted: Real Costs Revealed

Op/Ed Contributor

Who Wants to Be A Millionaire?

by Brian W. Carver


The Emery Unified School District's letter to explain its issuance of a soon-to-be-illegal Capital Appreciation Bond (CAB) http://emeryvilletattler.blogspot.com/2013/02/cab-controversy-emery-school-board.html skirts around several important points.

First, while the District claims to be committed to keeping its promise that tax rates will not exceed $60 per $100,000 of assessed valuation, they were only able to issue this CAB by placing their faith in an absolute fiction: the notion that property values in Emeryville will increase nearly 4% per year, every year, forever.

According to Trulia.com, the average listing price for a home in Emeryville for the week ending February 6, 2013 was $397,626. If we, like the School Board, assume that average Emeryville home will increase in value by 4% per year, it takes only 24 years before that home will be valued at over $1 million dollars. If the School Board is to be believed, the average Emeryville homeowner is already a millionaire! Just sit back and watch it unfold over the next 24 years.

The reality is much different. In March 2003, Zillow.com put the average Emeryville home value at $280,000 (median sales price was $297,000) and as of January 2013, puts it at $271,300 (median sales price is $229,300). That is, over the last ten years, while there have been some ups, the downs have left things back where we started, so that values are basically flat or down over the last ten years. The School District's rosy assumptions don't account for this. Rather than look at the last ten years as a guide, they simply put blind faith in a
never-ending 4% annual increase.

The consequences of this false assumption will unfold on your tax bill. Now that the District has bonded us to the limit, it will take only one year with less than 4% annual growth in assessed valuation to see their $60/$100k promise broken. Your tax bill is going to exceed $60/$100k. Get ready for it. Indeed, if the next 10 years are basically flat, as the last 10 years have been, you will be paying nearly $90 per $100k of assessed valuation in 2023.

Second, the legislation that is being considered in Sacramento will limit these CABs to payback periods of 25 years, while our District issued one with a term of over 32 years. This component of the legislation was well-known before our District took action, and it is pure speculation on their part that this aspect will change prior to the legislation's enactment.

The 25-year payback period limitation is important because, contrary to the Board's false comparisons: bonds for school facilities are not comparable to home mortgages.

With regular maintenance one can reasonably expect one's home to appreciate or maintain its value over at least a 30 year period. However, District officials frequently inform us that school facilities,even properly maintained, only have useful lives between 10 and 40 years, and that's ignoring the fact that our District has already used bond proceeds for items such as iPads with useful lives of about 3 years (even though Emeryville residents will continue to pay for them for decades).

The better comparison here is to financing a car whose value depreciates immediately and, even with regular maintenance, continues to decline in value until it requires complete replacement. That is our experience with school facilities and should inform the payback periods on the bonds the District issues: the shorter the better.

Instead, the District routinely disguises what a bad deal this most recent CAB was by blending its payback ratio in with the lower payback ratios the District achieved in prior bonds sales. By participating in federally-subsidized bond programs with payback periods under 20 years, the District got a good deal on these earlier bonds. But just because you got a good deal then, doesn't justify accepting this lousy deal now.

How bad are these latest Series D CABs? Unbelievably bad. The three prior bond sales were going to cost Emeryville taxpayers just over $80 million to pay back. That was expensive, but probably within our means. However, the Series D CABs, by themselves, are going to cost Emeryville taxpayers another $66,185,000 to pay back, increasing the cost of the project by over 82% to a new total payback amount of over $146 million. At current enrollment levels, it would be cheaper to present a $50,000 check to every graduate of Emery High for the next 40 years. Too bad that's not an option.

Prior to the issuance of these costly CABs, District Staff explained that without this latest bond, we could build a new high school, but we simply would not be able to also cram the elementary and middle school students onto the same site. Our School Board's insistence upon shutting down Anna Yates Elementary School is what has nearly doubled the cost of this project and forced Emeryville taxpayers to live far beyond our means.

There were alternatives that this Board refused to adequately consider. Over 70 stakeholders signed a letter asking them to keep Anna Yates open as our elementary school and simply build a less expensive high school on the San Pablo Avenue site. Our School Board refused to consider this alternative and remains doggedly committed to a project design that this City does not need and cannot afford.

Our only option now is a new School Board.

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Brian Carver is a parent of a child in the Emery Unified School
District, was the Chair of the Measure J Citizens' Oversight Committee from March 2011-2012, and has been critical of the School Board's insistence on moving the elementary students from Anna Yates to the Center of Community Life site on San Pablo Avenue.  Mr Carver is an occasional contributor to the Tattler.