Del Mar school district expected to approve new policy on use of capital appreciation bonds

By Karen Billing

The Del Mar Union School District is looking at developing a new policy and resolution on the use of capital appreciation bonds (CABs) in regards to its general obligation bond on November’s ballot. The board had Dan McAllister, San Diego County treasurer-tax collector, at its Sept. 19 meeting as it considered the policy.

“We’d like to give the public assurances that we’re doing our fiduciary responsibility in issuing the bond,” said Trustee Doug Perkins.

The county treasurer-tax collector has sent letters to local school districts to highlight how the bond financing can be “excessively costly” for both school districts and taxpayers and to provide the County’s Office of Education with recommendations on other debt financing solutions.

The use of long-dated CABs has come to the public’s attention because of the Poway Unified School District’s situation, but McAllister said it has become a statewide issue.

He said there are cases that districts have used CABs that won’t be paid back to the mid-point of this century, heaping debt on generations to come.

“We talked about pushing for legislation to bring things into normalcy,” McAllister said.

His office wants to promote transparency and openness as a wise way for districts to do business. Changing the legislature will update the California Government and Education codes to bring a more conservative approach to protect taxpayers and citizens.

“We’re not opposed to CABs, they are recognized as a valued debt instrument that does play a role in a well-managed debt portfolio,” McAllister said. “But some can lead to issues that we’d rather not face,”

McAllister said CAB characteristics that can result in a higher debt burden include term structures longer than 25 years, interest rates higher than 12 percent for California Government Code and 8 percent for the Education Code, debt repayment ratios greater than 4 to 1 and no pre-payment clauses.

McAllister said districts can limit the maturity of government code bonds from 40 to 20 years to bring it in line with education code and reduce the maximum allowable interest rate down from 12 percent to 8 percent.

“We’d like to issue legislation that calls for everyone who issues debt has a collable feature, the ability to refinance the debt, giving more options,” McAllister said.

He noted that one local district is stuck for 40 years with no ability to do anything, no options.

The 4-to-1 ratio he feels is a prudent ratio and one that they would like to push for.

McAllister also recommended that written statements be signed by school boards and the County for term structures longer than 25 years.
Trustee Doug Rafner said he’d like to see all of the points McAllister raised reflected in the Del Mar school district’s new policy and resolution. Staff will revisit the policy and it is expected to be approved at a special meeting before the absentee ballots are mailed on Oct. 8.

The San Dieguito Union School District, which also has a bond on the November ballot, approved a similar policy on the use of CABs at the district board’s Aug. 16 meeting.

Related posts:

  1. High school district board approves policy about bond
  2. School districts approve bonds for fall ballot
  3. Del Mar school district field trip policy changes
  4. Del Mar school district continues to move forward on bond
  5. Del Mar school district may place general obligation bond on November ballot

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Posted by Staff on Sep 24, 2012. Filed under Del Mar, News. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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