San Diego County Treasurer-Tax Collector Dan McAllister traveled to Bonsall Aug. 8 to address the Bonsall Union School District board on Assembly Bill 182, which would provide controls over capital appreciation bonds issued by a school district.
“We were grateful to have him come up,” said BUSD superintendent Justin Cunningham.
In addition to his presentation on A.B. 182, McAllister also explained the Treasurer-Tax Collector office’s role in managing money for school districts. “We just want to make sure they’re aware of all that,” McAllister said. “My message is pretty straightforward: we are there to work with you.”
If A.B. 182 passes with its current language, capital appreciation bonds must be limited to a term of 25 years, must have a payback ratio of no more than $4 per $1 issued, must have an interest rate of no more than 8 percent, and must have callback ability for refinancing at a lower interest rate. The bill if passed would also require public hearings prior to the issuance of capital appreciation bonds.
“It’s good for everybody. It’s good for taxpayers. It’s good for school districts,” McAllister said. “It’s going to create a demand for more transparency when it comes to these kind of bonds.”
The bill passed the State Senate’s Education Committee on June 26 and the Senate’s Governance and Finance Committee July 3. If it is approved by the full Senate, it will return to the State Assembly for concurrence before being sent to Governor Brown’s desk.
“It’s been through every committee and it’s not had one negative vote,” McAllister said. “We are hopeful that it will be passed.”
State Senator Ben Hueso of San Diego County and State Assemblywoman Joan Buchanan of Contra Costa County have been the primary sponsors of A.B. 182. “Both of them have been tireless advocates for this bill,” McAllister said.
“I have nothing but the highest regard for both of them,” McAllister said of Hueso and Buchanan. “They’re really doing good work on behalf of the people.”
In 2008, the Poway Unified School District issued $105 million of capital appreciation bonds and soon found that property owners in the district would be liable for approximately $1 billion including interest. McAllister indicated that since 2007 more than 600 districts have issued capital appreciation bonds, including more than 250 whose bond terms exceeded 25 years and had payback ratios of more than 4:1.
“This will hopefully reign in that kind of activity by school districts and give taxpayers a little peace of mind that what’s going on is for their benefit near and long term,” McAllister said.
The Bonsall Union School District voters approved a bond in the November 2005 election, but the district did not issue capital appreciation bonds. Cunningham (who was not with the Bonsall district at the time) noted that the district received several proposals from bond company representatives, who he explained were more skilled in financing matters than education professionals, so he wasn’t surprised that some districts accepted capital appreciation bond offers.
The legislation will cover only new capital appreciation bonds issued and won’t change the conditions of existing bonds. “Once these bonds are issued you can’t make it retroactive,” McAllister said.
McAllister noted that school districts as well as taxpayers would benefit from the passage of A.B. 182. “It gives them more options, actually, and it also gives the public a chance to see what’s going on more. That’s really important,” McAllister said. “I think it helps everybody.”
The Bonsall Union School District will cease to exist on July 1, 2014, when the K-8 district is replaced by the K-12 Bonsall Unified School District. The Bonsall Unified School District was created in February to provide a transitional period; the same five Bonsall Union School District board members also comprise the Bonsall Unified School District board and the two board meetings are held on the same night.
The Bonsall Unified School District board’s Aug. 8 actions included a 5-0 vote approving a response to the San Diego County Grand Jury 2012-13 report “School District Dilemma – Bonds or Bondage.” The response was in support of the grand jury findings. “It all made good sense,” Cunningham said.