San Dieguito district gives OK to second round of Prop AA bonds for school improvements

The San Dieguito Union High School District has adopted a resolution authorizing the issuance and sale of its second series of Prop AA bonds, not to exceed $125 million. The vote at the March 19 district board meeting was 4-1, with board member Mo Muir voting against it because she did not agree with the bonds’ structure.

The negotiated sale is similar in structure to the district’s first issuance of bonds. The funds will be used for construction and modernization of several school facilities across the district.

Projects funded through Series B include the interim housing and reconstruction of the Earl Warren campus, remodel of the media center at Oak Crest, design of a two-story classroom building at Pacific Trails, HVAC and building remodel at La Costa Canyon, building and front entry renovation at Torrey Pines, and the design and construction of new classroom buildings at Canyon Crest and San Dieguito Academies.

Eric Dill, associate superintendent of business services, said staff worked closely with the bond underwriters and finance team to take the board’s requests into account.

“The plan honors our commitment to keeping the tax rate below the cap of $25 per 100,000 of assessed values, there are no capital appreciation bonds in this series of bonds and they were kept to a repayment term of 25 years, more restrictive than the law would allow,” Dill said.

Trustee John Salazar said he was very happy with the plan, as original talks about 30-year bond terms and the use of capital appreciation bonds made him very cautious. Trustee Joyce Dalessandro also complimented the staff for a job well done, recognizing the “tremendous” amount of work it required.

“I think we’ll have no trouble selling these bonds,” Salazar said.

As explained by Dill and the district’s financial adviser, Adam Bauer, the financing plan only uses current interest bonds, and the true interest cost is estimated at 3.69 percent. The projected yearly assessed value growth is constrained to 4 percent during the 25-year repayment term.

The principal amount of $117 million will be repaid over the course of 25 years, and from the period of 2019-2026 will be interest-only, to allow for the growth of assessed value and to accommodate future issuances.

Very close to Series A, Series B will have a payback ratio of 1.74:1, which Salazar remarked was very reasonable and better than what most people do with their homes.

Muir had concerns about eight years of paying interest, not premium, and that the structure resembled a “balloon payment.” She worried whether taxpayers would be paying more about 25 years from now.

Bauer said he did not believe that to be the case.

“It works a lot like home mortgages. I wouldn’t characterize it as a balloon payment,” Bauer said. “You’re paying more interest and less principal in the early years, and as it amortizes, the formula flips.”

The bonds are expected to trade above their par value, creating a premium that the market is demanding, Bauer said. Typically, a bond will trade at a premium when it offers a coupon rate that is higher than prevailing interest rates, as investors want a higher yield and will pay more for it. The amount gained by selling at a premium will be used to reduce debt service and for issuance costs.

“I’m very confident that the structure in front of you is the most cost-effective way to sell bonds,” Bauer said.


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