By Gail Fry
(October 2) At the November 4, 2014, general election registered voters within the boundary of the Hesperia Unified School District will be asked to vote on Measure M, a $207 million bond measure purportedly to improve school district facilities.
On August 4, 2014, at the Hesperia Unified School District regular board meeting, the resolution ordering a school bond election for Measure M and authorizing necessary actions that are connected to the bond election was approved four to one with Hardy Black, Niccole Childs, Ella “Lee” Rogers and Eric Swanson approving the resolution and Cody Gregg dissenting.
Exhibit A of the resolution approved by the school district indicates that Hesperia Unified School District in issuing all of the authorized bonds “might require the outstanding debt of the district to exceed its statutory bonding limit of 2.50 percent of the total assessed valuation of taxable property in the district” and in order to exceed the limit the school district will need to “seek a waiver of its bonding limit from the State Board of Education.”
The 2.50 percent limit “the value of taxable property in the district” on the amount a unified school district can borrow is required by California Education Code Section 15106.
According to documents obtained by the Sentinel, during calendar year 2013, the State Board of Education processed 11 requests for waiver with regard to laws pertaining to school construction bonds from school districts throughout the state, of which all were approved with conditions.
In 2012, six waiver requests were submitted to the State Board of Education with five being approved with conditions, and no action taken on one. Similarly, in 2011 the State Board of Education approved nine out of ten requests with conditions. One request was withdrawn.
Another restriction placed on school construction bonds is that the tax rate levied as a result of any single election be no more than $60.00 for a unified school district per $100,000 of taxable property value.
These two restrictions have led school districts to use creative financing in order to accomplish the goals of the bond measure while keeping the outstanding debt under the 2.50 percent of the “total assessed valuation of taxable property in the district” and keeping each assessment to the property owners at less than $60.00 per $100,000 of taxable property value.
The financing by school districts became so creative that it got the attention of the California state treasurer, the state schools chief and the California State Legislature. School districts across the state were financing their school construction bonds with a very costly type of bond known as the capital appreciation bond or CABs.
According to a news release from the California Department of Education. dated January 17, 2013, CABs “have forced taxpayers to pay more than 10 times the principal to retire the bonds.” The news release continued, “The transactions have been structured with 40-year terms that delay interest and principal payments for decades, resulting in huge balloon payments and burdens on future taxpayers that cannot be justified.”
The reason these school districts were using CABs according to the news release was, “districts face a critical need to build or modernize facilities for their children,” and “falling property tax assessments” combined with “revenue losses,” along with “statutory debt service limits” and reduced “districts’ debt financing options.”
On October 2, 2013, California Governor Jerry Brown signed legislation requiring the ratio of total debt service to principal for each bond series not exceed four to one, that districts with CAB financing be allowed to payoff the bond “beginning on the tenth anniversary of the date the bond was issued,” that the district’s carry out an independent financial analysis, that the term not exceed 25 years and that the item be placed on two separate school board agendas that include specific information on any bonds having compound interest, that is, interest calculated on a balance that includes the interest accrued to date In other words, school districts can still finance their construction projects through CABs. They just have to be a little more transparent about it when they actually get ready to issue the bonds. They have to tell the school board the specifics on the bonds they are seeking on two separate agendas, require the district to obtain a financial analysis from a financial adviser unaffiliated with the school district, keep the ratio of total debt service to principal at four to one for each bond series, restrict the term of the bond to 25 years or less, and the bondholders have to allow the school district to pay off the CABs after 10 years.
As an example, if Measure M passes and Hesperia Unified School District issues $207,000,000 in bonds, the district can legally incur $828,000,000 in debt service, or equal to a four to one ratio of the bond indebtedness that the district is asking the voters to approve at the November 4, 2014 general election. This means Hesperia schools will be provided with $207 million to undertake improvements throughout the district, but the taxpayers in the district will have to pay $828 million to retire the debt for utilizing that money.
There are many different types of debt instruments. In the bond market there are Build America Bonds or BABs, current interest bonds or CIBs, capital appreciation bonds or CABs, and convertible capital appreciation bonds or CCABs.
One concern regarding the $207 million bond measure requested by Hesperia Unified School District is that the district has hired as its financial consultant Dolinka Group, LLC., the same financial consultant who advised the Poway Unified School District in its construction bond financing that will end up costing its taxpayers more than a billion dollars for $105 million in up-front financing, according to the Voice of San Diego.
California State Treasurer Public Information Officer Tom Dressler told the Sentinel that the most common type of bond financing used by school districts are the current interest bonds or CIBs.
If 55 percent of voters within the Hesperia Unified School District boundaries approve of the $207 million bond measure to pay for acquisition, construction and improvement to its facilities, the Hesperia Unified School District through its bond brokers will go to Wall Street with a variety financing instruments in order to fund the amount of money as authorized by the bond measure approved by its voters.
For example, if the voters approved a bond measure of $207 million, then the school district through its bond brokers will package several individual bond sales, using a different types of bond instruments. They will go out to the market and obtain the market interest rate for that day and for their type of bond, marketing them accordingly.
Documents obtained by the Sentinel reveal that the money obtained through Measure M, if approved by 55 percent of the school district’s registered voters, would be deposited into the bank accounts of Hesperia School District Financing Corporation. The district will then be free to disburse the money for those uses approved by the voters.
According to its articles of incorporation, Hesperia School District Financing Corporation, a California corporation formed on August 20, 1986, was created “To provide financial assistance to the Hesperia School District by acquiring, constructing and financing various facilities, land and equipment, and the leasing of facilities, land and equipment for the use, benefit and enjoyment of the public served by the District.
This corporation, Hesperia School District Financing Corporation, is registered with the California State Attorney General’s Office as a charity corporation formed for a public benefit and recognized by the state as a state charity on December 31, 1990.
The board of directors of the financing corporation, according to its articles of incorporation, has the power to “control” the business and affairs of the corporation, “select and remove all other officers, agents and employees of the corporation, prescribe such powers and duties for them as may not be inconsistent with law or the articles of incorporation by by-laws, fix their compensation and require from them security for faithful service” and power “to borrow money and incur indebtedness.”
The articles of incorporation explain, “The property, assets, profits and net revenues of this corporation are irrevocably dedicated to the district, provided, however, that until all indebtedness of this corporation shall have been paid, such net revenues may be used for the purpose of paying or calling for redemption any bonds, certificates of participation, debentures, notes or other evidences of such indebtedness. Upon the dissolution, liquidation or winding up of this corporation, or upon abandonment, the assets of this corporation remaining after payment of all or provision for all debts or liabilities of this corporation and after compliance with chapters 15,1 6 and 17 of the California Nonprofit Public Benefit Corporation Law shall be distributed to the district.”
In other words, the district’s assets were transferred to Hesperia School District Financing Corporation shortly after the organization was formed for the purpose of “acquiring, constructing and financing various facilities, land and equipment and the leasing of facilities, land and equipment” in order to provide “financial assistance” to the district.
The Hesperia Unified School District’s wish list of school improvements totals $614,807,000. Therefore the $207,000,000 bond it is asking the voters to approve is insufficient to complete all of the improvements the district intends to complete.
According to documents obtained by the Sentinel, the Hesperia Unified School District intends to spend $25,571,000 at Carmel Elementary School, $24,640,000 at Cottonwood Elementary School, $6,620,000 at Cypress School of the Arts, $23,929,000 at the Eucalyptus Elementary School, $17,941,000 at Hollyvale Elementary School, $39,209,000 at Joshua Circle Elementary School, $22,446,000 at Juniper Elementary School, $22,382,000 at Kingston Elementary School, $8,486,000 at Krystal School of Math, Science and Technology, $33,913,000 at Lime Street Elementary School, $28,137,000 at Maple Elementary School, $21,035,000 at Mesa Grande Elementary School, $26,843,000 at the Mesquite Trails Elementary School, $12,236,000 at Mission Crest Elementary School, $30,858,000 at the Topaz Preparatory Academy, $7,290,000 at the Cedar Middle School, $50,120,000 at Hesperia Junior High School, $22,828,000 at Ranchero Middle School, $5,883,000 at Canyon Ridge High School, $113,797 at Hesperia High School, $12,138,000 at Mojave High School, $16,618,000 at Oak Hills High School, $36,567,000 at Sultana High School, $246,000 at Shadow Ridge Independent Study, $1,509,000 at Community Day and Adult School and $3,385,000 at Hesperia Alternative and Adult Education.
Historically, additional funds have been made available for school construction by the State of California. However, during this year’s budget process, Governor Brown did not provide any monies for the purpose of school construction.
In past bond measures presented by the Hesperia Unified School District, the results have been varied. Voters approved a $2.75 million issuance by 94.1 percent in June of 2013 to pay for public school facilities; in June 2001 the district asked the voters to approve $35,000,000 in bond indebtedness, with the measure failing to meet the 55 percent vote requirement and only 35.8 percent of the voters endorsing it; in April 1992 the voters approved $32,000,000 in bond indebtedness to construct a new high school; and in June of 1991 the Hesperia Unified School District asked the voters to approve bond indebtedness of $32,000,000 for construction improvements, which failed to pass when only 58 percent of voters voted to approve, with a 66.7 percent requirement to pass the measure.
By Gail Fry