News

Questionable borrowing leads to a mountain of school debt

Cost to taxpayers: More than $9 million over 20 years, analyst predicts

Cash-out bond refinancing done by the Pleasanton Unified School District will cost taxpayers more than $9 million over 20 years, according to a consultant analysis.

The analysis was done by Government Financial Strategies (GFS) at the request of the school board, and preliminary results were released to a newly appointed citizens committee invited to offer feedback on the results.

The cash-out refinancing -- which was ruled illegal in 2009 by then-Attorney General and now Governor Jerry Brown -- will cost nearly $9.3 million over 20 years, according to the analysis. Of that, almost $2.5 million is in interest, while nearly $6.8 million was spend on projects, although the district has not released a list of where that money was spent.

GFS estimated that refinancing the school district's debt to take advantage of lower interest rates without the cash-out would have saved an average of $460,000 a year over the 20 years. Documentation provided by GFS shows the bond debt, including the extra cost for the cash-out, grows significantly from 2006, rising to more than $10 million in debt service in 2007 and topping out at about $15 million in 2013.

The rise in debt service -- money needed to pay off the principal and interest from borrowing -- comes as the district's overall financial situation becomes more and more grim. Between 2013 and 2023, the debt service on district bonds is expected to shrink, dropping from its $15 million peak to just below $5 million by 2015.

In his 2009 decision, Brown compared cash-out refinancing to refinancing a mortgage, taking advantage of lower interest rates to generate additional funds for other purposes. In the decision, Brown cited California Education Code and the state's constitution in saying cash-out refinancing, which was done locally six times between 2003 and 2005 and in many districts across the state around the same time, should have gone to a vote.

GFS President Lori Raineri noted, however, that the board did the borrowing with the best interests of district children in mind, while the current committee is focused more on the cost to taxpayers.

"The cash-out didn't go home in anybody's pocket," Raineri said. "It was spent on facilities."

Raineri said other refinancings done by the district, ones that didn't involve additional borrowing but were done to take advantage of lower interest rates, were "very wise." She also pointed out the district did not borrow as much as possible through cash-out refinancing, and averaged less than other districts in the state.

Members of the new committee, headed by Beth Limesand, had a number of questions that GFS was unable to answer, but promised to resolve by next week, the second and final time the committee will meet before GFS presents its report to the school board.

Kay Ayala, for example, wondered why the process was rushed, with just two committee meetings before the GFS presentation to the board. Julie Testa replied that there was a delay before the consultant was brought in, and that the board now wants the report in time to get the information out before its summer break.

Committee member Anne Fox questioned GFS representatives about the length of the bond term, pointing out that the bonds were to have been paid off by 2020, not 2023, as is currently the case. She also asked for a list of fees paid by the district for each borrowing.

There was also discussion about the bond measures themselves, Measure A and B, because district officials were unable to locate the language included in Measure A.

Ayala also questioned why the oversight committee formed as required by the bond measure didn't question the cash-out refinancing in the first place. Jack Dove, the only member of the original oversight committee on the new committee, noted that the original group only met twice.

Kathleen Ruegsegger criticized the lack of transparency regarding the bond measures, pointing out that the community isn't aware of how much the district added to its debt through the cash-out refinancings.

"You have to expect that the staff understands what they're committing the public to," she said.

Some of the questions posed by the committee may not be answered under the scope of GFS's work, which is to examine the practices by the school board regarding bond purchases. Testa wanted a list of projects the cash-out money was spent on, a question she said she's been asking for years.

"I was asking how they were building projects that were not in the blue book (which detailed the projects to be done under the bond measure), and I was asking, 'Where is the oversight committee?'" she told Raineri.

Raineri said while her group may not be able to provide the answer, it would likely be able to tell Testa where to look.

Testa also questioned the need for the district to hire a consultant in the first place, pointing out she thought Luz Cazares, assistant superintendent of business services, should be able to answer financial questions.

"I don't think anybody asked for this committee or this consultant. None of us asked for this expense," she said. Testa added, however, that she thought GFS had done a good job so far.

The committee members, who also include Jan Batcheller, were invited to email GFS with any additional questions they hoped to have answered by the next meeting, set for June 20.

Despite the three-hour meeting, which ran an hour longer than scheduled, and a commitment by GFS to answer all the questions it could, Testa seemed to remain unsatisfied.

"I don't think this will ever be over," she said. "I just hope that there will be 'best practices' put into place."

Best practices for future borrowing will likely be addressed at the next committee meeting and when the school board meets to discuss the GFS report.

Comments

 +   Like this comment
Posted by taxpayer
a resident of Downtown
on Jun 16, 2011 at 8:58 am

This fiasco brought to you by the same people who will be putting another parcel tax on the ballot. Sure, let's run to their aide with more money -- they have spent money so responsibly in the past!


 +   Like this comment
Posted by unclehomerr..
a resident of Downtown
on Jun 16, 2011 at 9:18 am


It's gonna be interesting to see how this affects home values.

unclehomerr..


 +   Like this comment
Posted by A Parent
a resident of Amador Valley High School
on Jun 16, 2011 at 9:39 am

Actually, this "fiasco" was brought to you by the people who have been voted OFF the school board in the last 2 elections. The current school board members had NOTHING to do with this. They are the ones who are cleaning up the mess. None of the current school board members except Chris Grant where on the board when the decisions were made.


 +   Like this comment
Posted by residenrt
a resident of Another Pleasanton neighborhood
on Jun 16, 2011 at 9:52 am

"The cash-out didn't go home in anybody's pocket," Raineri said. "It was spent on facilities."

Prove it.


 +   Like this comment
Posted by resident
a resident of Another Pleasanton neighborhood
on Jun 16, 2011 at 9:53 am

Surprise … we just extended you obligation by three years. But you can trust us. Really.


 +   Like this comment
Posted by resident
a resident of Another Pleasanton neighborhood
on Jun 16, 2011 at 9:58 am

And by the way, there is nothing "questionable" about this refinance scheme. It is illegal. Those that participated are criminals. And some still work here or receive pensions from the district.


 +   Like this comment
Posted by Julie Testa
a resident of Vineyard Hills
on Jun 16, 2011 at 9:59 am

This is very good coverage of the meeting but I would like to make a correction.

When a committee member said the purpose of the committee was to put the issue to bed, I disagreed. I said I would hope the outcome would be best practices for future oversight. I also expect to see a real oversight committee to monitor this and any taxpayer debt. There should be oversight until the debt is retired. For years I repeatedly requested that the Bond Oversight Committee be reinstated but was told there was no need because the money was already spent, all the while they were illegally cashing out money without voter approval. It seems clear why the previous superintendent would not want an oversight committee. I also believe our job is not done until we know how the money was spent which was the responsibility of the oversight committee that was disbanded.

Even with the AG opinion there are new schemes developing that concern bond experts and taxpayer protection groups, our community should not be so careless and apathetic in future.


 +   Like this comment
Posted by Bill
a resident of Amberwood/Wood Meadows
on Jun 16, 2011 at 12:28 pm

Since the finance officer will be looking at the books, perhaps the oversight committe could also ask where is the money going that is being saved by not running and maintaining school buses. San Francisco is saving $100,000 per year for every school bus that was taken off the books. PUSD had quite a few school buses when the decision was made to get rid of them. The money saved was to be used directly for the benefit of the students.

So how much, and where is it going?


 +   Like this comment
Posted by Pleasanton Parent
a resident of Mohr Park
on Jun 16, 2011 at 1:06 pm

Maybe if we cut down our HUGE police department and used the salaries for school funding we wouldn't have such a short fall. It amazes me that you can't go more than 3 blocks without seeing a cop who appear to do nothing but right traffic tickets to justify their positions. Send them to San Jose and get them off of our payroll!!!!!!


 +   Like this comment
Posted by Concerned
a resident of Another Pleasanton neighborhood
on Jun 16, 2011 at 1:49 pm

Clearly PUSD is being run just like the State of California with no controls living way beyond our means. We are like Greece and it is time to pay the bills. Not a single dime any more till we get proper controls. Cut back administrator salaries, reduce pensions and run the schools efficiently. Instead of constantly hitting students where it hurts cut out the waste.


 +   Like this comment
Posted by Legal action?
a resident of Another Pleasanton neighborhood
on Jun 16, 2011 at 2:59 pm

If the re-financing/cash-ou is illegal, can't the taxpayers due those responsible? (ie, the board members who at the time made the decision, along with the staff, was it Casey?) Does anyone know how it works? I would have voted NO had this issue of cash-out gone on the ballot, so why should I be liable for the illegal decisions of others?

In Santa Clara County, they sued because there was a tax not properly done:

Web Link

The court ruled against the space authority and said the tax was not legal.

What can we do to hold those who illegally acted on this refinancing/cash-out accountable and personally liable?


 +   Like this comment
Posted by Legal action? - correction
a resident of Another Pleasanton neighborhood
on Jun 16, 2011 at 3:03 pm

"can't the taxpayers due those responsible?"

should have read:

can't the taxpayers Sue those responsible?


 +   Like this comment
Posted by resident
a resident of Another Pleasanton neighborhood
on Jun 16, 2011 at 3:21 pm

As much as the district would like you to beleive otherwise, my guess (and it is only that at this point) is yes, there is a course of action possible.


 +   Like this comment
Posted by Mike
a resident of Highland Oaks
on Jun 16, 2011 at 4:15 pm

Is fiscal responsibility too much to ask from the people we are paying such high salaries to?

Shame on you!


 +   Like this comment
Posted by A Lehman Brother
a resident of another community
on Jun 16, 2011 at 4:37 pm

Wow. PUSD, like so many other districts, engaged in cash-out bond refinancing in hopes of enhancing our kids' educations. That's what all the hoopla has been about? Oh, okay.

It's a good thing this kind of thing has never happened in the private sector. These public school districts are soooooo irresponsible.

Signed,
Your friendly banker


 +   Like this comment
Posted by resident
a resident of Another Pleasanton neighborhood
on Jun 16, 2011 at 5:18 pm

During the boom years many people increased their own long term obligation to take cash out of their real estate positions. PUSD increased the obligation of homeowners without their knowledge. Not exactly the same scenario.

And there is not yet documentation establishing where the funds were spent. Since 85% of the district budget is salaries, there is at least a possibility that some funds were used to increase wages.


 +   Like this comment
Posted by RefundingGate
a resident of Valley Trails
on Jun 16, 2011 at 6:01 pm

I want to apologize to the courageous citizens who dared to blow the whistle on the bond cash outs saga. Some of us ridiculed them because we just trusted what the District told us. But shame on us for treating these investigators so shabbily. They have now been proven pretty much right. I call that FULLY VINDICATED. Sorry we didn't believe you. We do now. Thanks for all your detective work to get to the truth.


 +   Like this comment
Posted by Arnold
a resident of Another Pleasanton neighborhood
on Jun 16, 2011 at 6:02 pm

"It's a good thing this kind of thing has never happened in the private sector. These public school districts are soooooo irresponsible"

I guess in your opinion two wrongs make a right.

"Actually, this "fiasco" was brought to you by the people who have been voted OFF the school board in the last 2 elections."

Just who do you think supported those candidates, that are now gone? Could it have been the CTA, which is still running the CA educational system? I'm just asking...


 +   Like this comment
Posted by Yet Another Teacher
a resident of Hart Middle School
on Jun 16, 2011 at 6:16 pm

Yes, the Attorney General's opinion is that cash-out refinancing bonds is not legal.

However, does an opinion issued by the AG have the force of law?

It does not. Only the legislature can make laws and only the courts can definitively interpret those laws.

I will quote from the site USLegal.com (Web Link):

"Opinions of the Attorney General have advisory effect only. They do not have the force and effect of the law; and is limited to the facts presented by the official or officials requesting the opinion. Further, the opinions may be changed or recalled due to subsequent court decisions and/or legislative enactments. As the chief legal officer of the State, the Attorney General is responsible for rendering opinions to governmental entities and officers only, and not to private individuals."

So while then-Attorney General Brown has ADVISED that cash-out bond financing is not permitted under California state law/California state constitution, this does NOT mean that cash-out bond financing is DEFINITELY illegal. That's for a court to decide.

Accusing Luz Cazares of being criminally negligent, or worse, a willing felon, is just reckless and irresponsible. Yet another attempt to smear the reputation of a public servant.

I really wish our schools would do a better job teaching Civics 101. Folks don't seem to understand the difference between the executive, judicial, and legislative branches of government.


 +   Like this comment
Posted by Vindicated
a resident of Canyon Creek
on Jun 16, 2011 at 6:19 pm

Next step fellow citizens is to dismantle the corrupt and greedy CTA which ARnold rightly notes was behind this hole fiasco. I predict by next year we'll have run all the monkey evolutionists right out of town.


 +   Like this comment
Posted by A Lehmann Brother
a resident of another community
on Jun 16, 2011 at 6:31 pm

Yes, I've argued all along that the private sector banking and investment sector was transparent from the get-go. We bankers weren't fooling anyone. That's why it came as no shock when the economy all but collapsed.

We need to make the schools run more like the private sector which is so much more transparent and responsible. When you put your money into one of our banks, you don't have to worry about it. And let's abolish FDIC while we're at it. Too much unsustainable regulation from the nanny state that tramples our constitutional rights.

Now, I will admit that us bankers' motives were that of pure profit, unlike PUSD which acted in good faith to improve the district. But that distinction really is nitpicking. Today is a day to celebrate!

Signed,
Your friendly banker


 +   Like this comment
Posted by Arnold
a resident of Another Pleasanton neighborhood
on Jun 16, 2011 at 7:18 pm

"Lehmann Brother" doesn't have anything on the public employee unions or their fraudulent pension plan - CalPERS. But, as I've previously stated, two wrongs don't make a right.

Your union needs to come up with some new talking points.


 +   Like this comment
Posted by Stacey
a resident of Amberwood/Wood Meadows
on Jun 16, 2011 at 7:48 pm

Stacey is a registered user.

Glenn Wolhtmann,

A cash-out refunding is not itself illegal. The California Constitution requires that any premium generated from a cash-out is spent on paying down the debt only, as PUSD did in 2010.


 +   Like this comment
Posted by Stacey
a resident of Amberwood/Wood Meadows
on Jun 16, 2011 at 7:49 pm

Stacey is a registered user.

Glenn,
Sorry about the name typo...


 +   Like this comment
Posted by Sal
a resident of Del Prado
on Jun 16, 2011 at 7:58 pm

Refunding is not in itself illegal, but for government entities, the word "cash out" before the word refunding without voter approval means that the proceeds from the refunding are not applied to pay down the existing debt, but the cash is taken "out" and used for other purposes rather than paying down the debt.


 +   Like this comment
Posted by Arnold
a resident of Another Pleasanton neighborhood
on Jun 16, 2011 at 8:19 pm

I wonder what someone's significant other would think if they found out the "other" refinanced their home without knowledge. I guess their first thought would be how much did we save? If the answer was nothing, and interest rates were lower, I think the "other" would have a few more questions:

Did we use the savings to pre-pay for the addition we were talking about?

Did we use the savings to pay down the mortgage?

Did we order a new car?

Did you purchase a second home that you forgot to mention?

It's very difficult to consider this type of action as anything other than deliberate. I'm happy to hear about the audit and hope the disposition of the money is revealed, the truth comes out, and the issue is put to rest.


 +   Like this comment
Posted by Pat
a resident of Another Pleasanton neighborhood
on Jun 16, 2011 at 9:10 pm

There was nothing illegal about this and the district should be praised for what they did. I'm personally thankful that they did, and would very much like to see them to things like this again in the future. I will be making my opinion known to the district. This is nothing but a witch hunt. Senator McCarthy would be proud.


 +   Like this comment
Posted by Kevin
a resident of Oak Tree Acres
on Jun 16, 2011 at 9:22 pm

Wait a minute. I thought this was all illegal. I thought some person or persons had committed a crime and was going to jail. You mean to tell me this wasn't a crime? You mean to tell me this wasn't illegal? No one's going to jail? No lawsuits? I am so very disappointed. I wanted to see all the corrupt and thieving union teachers lined up, adorned with dunces hats, and paraded into a paddy wagon. You mean the school district got singed by a misread of the economy, just like about everyone else in the world? What in the heck are you telling me? No dunkings or burnings? Say it ain't so.


 +   Like this comment
Posted by Pat
a resident of Another Pleasanton neighborhood
on Jun 16, 2011 at 9:23 pm

resident,

Do you know anything about education, schools, or the importance of education to society?


 +   Like this comment
Posted by Kathleen Ruegsegger
a resident of Vintage Hills Elementary School
on Jun 16, 2011 at 9:28 pm

The truth is, Pat, this was a bad call by a previous governance team. Moving forward from the error, we just need to ensure that it dos not happen again. While you may be thankful, there are more than a few of us who are unhappy about the process, outcome, and tax bill.

Kevin, there was no misread of the economy, just the rules for refinancing bonds. No one nneds to go to jail; the practice just needs to stop. And I think it already has.


 +   Like this comment
Posted by resident
a resident of Another Pleasanton neighborhood
on Jun 16, 2011 at 9:30 pm

This has nothing to do with the teachers (directly). This is about the administration group refinancing public debt and taking cash out to fund something else without permission of the taxpayers. That is ILLEGAL. Had they refinanced the debt to lower the taxpayer obligation without removing cash it would have been fine. That is not what happened. Just because other districts did it as well, does NOT make it OK.


 +   Like this comment
Posted by Kevin
a resident of Oak Tree Acres
on Jun 16, 2011 at 9:41 pm

@ "the practice just needs to stop. And I think it already has."

But what about the witches? I cancelled my night at the roller rink because I wanted to be part of the spectacle. Oh well, at least we put a stop to a practice that had already been stopped. This comes as great relief, I must say.

@ "there was no misread of the economy, just the rules for refinancing bonds."

So someone DID do something wrong because of this possibly-legal-or- possibly-illegal-thingamajig-practice? I'm more confused now than ever. So many witches to burn, and so little real information.

Congrats to everyone for a job well done.


 +   Like this comment
Posted by Kathleen Ruegsegger
a resident of Vintage Hills Elementary School
on Jun 16, 2011 at 10:02 pm

The link to the information from the consultants is on the other thread.


 +   Like this comment
Posted by Arnold
a resident of Another Pleasanton neighborhood
on Jun 16, 2011 at 10:05 pm

"So someone DID do something wrong because of this possibly-legal-or- possibly-illegal-thingamajig-practice?"

It was illegal. Other than you and your friends no-one thinks suing the district would benefit the PUSD mission - education. Some people have enough sense to understand that lawyers would consume money needed for the classroom. You aren't one of those people.

Shame on you!


 +   Like this comment
Posted by Pat
a resident of Another Pleasanton neighborhood
on Jun 16, 2011 at 10:19 pm

I'm afraid that is where you are wrong Kathleen Ruegsegger. This practice is perfectly legal and needs to continue. A courageous group of education loving individuals did everything thing they could to protect and enhance the quality of the school facilities in our excellent school district through respectable, mainstream financial practices. That very school district even now is under assault from budget cutters, anti-tax cult groups and narrow minded fools.

I'm writing a letter to the school district to tell them I approve of what they did and that I would like to see more of it.


 +   Like this comment
Posted by Kathleen Ruegsegger
a resident of Vintage Hills Elementary School
on Jun 16, 2011 at 10:24 pm

Your choice, Pat.


 +   Like this comment
Posted by Kevin
a resident of Oak Tree Acres
on Jun 16, 2011 at 10:33 pm

So, the practice-thingy hasn't been done since well before 2009 when Brown first opined that it was illegal, and the practice-thingy has since stopped, but now we know that the practice-thingy that stopped should have been stopped, and a good thing too.

But what about the corrupt union that Arnold says was behind the practice that stopped before it was opined to be illegal? Shouldn't they be held liable for being behind a practice that occurred before it was opined to be illegal in 2009?

Lawyers are expensive. That is by far the most incisive idea I've heard all evening! Kudos! How much do consultants cost? Any projections on cost to taxpayers and how its cost will contribute to the educational mission of the school district? (Whew! I am so happy I don't have kids in the system right now! Holy-Moley!)


 +   Like this comment
Posted by Arnold
a resident of Another Pleasanton neighborhood
on Jun 16, 2011 at 10:47 pm

"But what about the corrupt union that Arnold says was behind the practice that stopped before it was opined to be illegal?"

It was always illegal!


 +   Like this comment
Posted by Tim
a resident of Downtown
on Jun 16, 2011 at 11:03 pm

Arnold,

[portion removed] Care to provide us with evidence of both your claims?

(1) that the practice was always illegal. That would entail, I imagine, citing either a specific law/statute or judicial ruling. please do edify us.

(2) that the union was behind the practice. Or is that simply your wild insinuation from being carried away with the prospect of burning witches?

Thanks in advance.

Regards,


 +   Like this comment
Posted by Sal
a resident of Del Prado
on Jun 16, 2011 at 11:48 pm

Stradling Yocca Carlson & Rauth and Piper Jaffray and co-horts must have made an absolute fortune from Pleas USD. How much?


 +   Like this comment
Posted by commenter
a resident of Another Pleasanton neighborhood
on Jun 17, 2011 at 12:24 am

Just what are you driving at Sal? Don't you realize it is for the sake of the educational mission?

You people wanted to pay pollsters to estimate chances of a poll tax that would bring more money into the schools. We wanted to bring consultants in to undercut the credibility of the school system. Are you too blockheaded to recognize the distinction?


 +   Like this comment
Posted by Kathleen Ruegsegger
a resident of Vintage Hills Elementary School
on Jun 17, 2011 at 8:33 am

The practice stopped because the AG said it was improper based on the constitution, not because those using or selling the practice collectively realized they made a mistake.

When some pointed to the bad management of tax dollars in PUSD, they were asked to prove it. The current governance team decided it had been raised enough times that it should finally be verified. The link to the materials is on the other thread (district home page) as is the AG's opinion and info about at least one district who did in fact sue.

No one has answered what the problem is with having the truth. There is no local policy to stop entities from using schemes to raise taxes without a vote. We need transparency and protocol for the financial health of the district and community.


 +   Like this comment
Posted by Brian
a resident of Another Pleasanton neighborhood
on Jun 17, 2011 at 9:15 am

To the editor or Pleasanton Weekly.

Isn't journalism supposed to be unbiased? The title "Questionable borrowing leads to a mountain of school debt" is very misleading. The school board didn't increase tax payer burden. They just refinanced a bond measure. However, instead of putting the money they saved into the bank, they used it for projects. Of course, if they did nothing, the school district would be in the same financial situation, but have $6.8 million less to spend on projects.

So this "questionable borrowing" did not lead to "a mountain of debt". It lead to "$6.8 million in freed up capital" that would have otherwise gone to pay bond interest.

I'm very disappointed in the biased way this story was presented by Glenn Wohltmann and will be certain to read his stories with a great deal of skepticism in the future.


 +   Like this comment
Posted by Kathleen Ruegsegger
a resident of Vintage Hills Elementary School
on Jun 17, 2011 at 9:36 am

Brian, tax payer burden was increased--please read the charts provided by the consultant. The savings was supposed to be returned to taxpayers, not spent, not put in the bank. The mountain of debt is ours, not the district's.


 +   Like this comment
Posted by Stacey
a resident of Amberwood/Wood Meadows
on Jun 17, 2011 at 9:39 am

Stacey is a registered user.

"The school board didn't increase tax payer burden."

Yes, why not? When someone refinances their mortgage, usually they get a lower interest rate with a shorter term and monthly payments go up. We save in interest over the total life of the bonds, but with a backdoor increase on your property taxes.

"It lead to "$6.8 million in freed up capital" that would have otherwise gone to pay bond interest."

It isn't freed up capital. There's no assets being liquidized. It's just new debt.


 +   Like this comment
Posted by Stacey
a resident of Amberwood/Wood Meadows
on Jun 17, 2011 at 9:43 am

Stacey is a registered user.

Here's the document Kathleen keeps mentioning: Web Link


 +   Like this comment
Posted by Brian
a resident of Another Pleasanton neighborhood
on Jun 17, 2011 at 10:09 am

Thanks Stacy

Kathleen

I don't see where is says it increased taxpayer burden. In fact is says that the burden would have been reduced by $2 per $100,000 AV if they did not take the cash-out option.

So again, they may have failed to give the savings back to the tax payer, but if the school board had done nothing, we would have the exact same tax burden and $6.8 million less to spend on projects. Am I wrong?


 +   Like this comment
Posted by Lisa
a resident of Bonde Ranch
on Jun 17, 2011 at 11:32 am

The consultant confirmed, that the district had a fiscal responsibility to refinace the bonds to lessen the tax burden. They broke the law when they spent the money without taxpayer approval instead of reducing the debt.

If you believe the end justifies the means and want to forgive our public servents from stealing from you, give me your bank account numbers and I will donate your money to some very good causes.


 +   Like this comment
Posted by Yet Another Teacher
a resident of Hart Middle School
on Jun 17, 2011 at 11:40 am

Ok, once again:

Yes, the Attorney General's opinion is that cash-out refinancing bonds is not legal.

However, does an opinion issued by the AG have the force of law?

It does not. Only the legislature can make laws and only the courts can definitively interpret those laws.

I will quote from the site USLegal.com (Web Link):

"Opinions of the Attorney General have advisory effect only. They do not have the force and effect of the law; and is limited to the facts presented by the official or officials requesting the opinion. Further, the opinions may be changed or recalled due to subsequent court decisions and/or legislative enactments. As the chief legal officer of the State, the Attorney General is responsible for rendering opinions to governmental entities and officers only, and not to private individuals."

So while then-Attorney General Brown has ADVISED that cash-out bond financing is not permitted under California state law/California state constitution, this does NOT mean that cash-out bond financing is DEFINITELY illegal. That's for a court to decide.

*Yes, I know that's a partial verbatim repeat of something I posted higher up in this thread. But the IT'S ILLEGAL AND IT WAS ALWAYS ILLEGAL CROWD seem to have trouble grasping the difference between an advisory opinion issued by the Attorney General (a member of the executive branch of government, which enforces but does not make laws) and the judicial branch (which interprets laws) and the legislative branch (which makes laws).

If cash-out was ALWAYS illegal, then why have several state legislators introduced bills to specifically outlaw this sort of refinancing? Answer: Because existing laws don't clearly spell it out, that's why.

I don't know what's in the water in this town, but just to be on the safe side, I'm having mine shipped in bottles from elsewhere.


 +   Like this comment
Posted by Chad
a resident of Downtown
on Jun 17, 2011 at 11:48 am

Wait just a Mississippi minute here, YAT. Arnold, Liza and others have advanced the truth claim that the practice was illegal, and Arnold even says the union bums were responsible. You mean they're not telling the truth? You've gotta be kiddin' me....

At any rate, we got that practice that had been stopped long ago stopped. I'm sure it was worth the money.


 +   Like this comment
Posted by Stacey
a resident of Amberwood/Wood Meadows
on Jun 17, 2011 at 12:41 pm

Stacey is a registered user.

Here's the 2007 San Mateo Civil Grand Jury report on the practice: Web Link This was written before Brown's opinion.

"The Grand Jury found that Sections 53550 – 53569 of the California Government Code was used as authority for school districts to enter into these transactions. (See Appendix 1) While cash out refunding has generated income for underwriters and additional revenue for school districts, the legality of this type of transaction is in question. The California Attorney General's office was asked to provide an opinion on whether or not the Government Code allows cash out refunding, but has yet to do so."

"Furthermore, the legality under California law of cash out refunding is doubtful, according to County officials and other financial experts, and the tax-exempt status of some types of refunding bonds is being questioned by the IRS."


 +   Like this comment
Posted by Bill
a resident of Amberwood/Wood Meadows
on Jun 17, 2011 at 12:42 pm

I have lived in Pleasanton for over twenty years. Two things you always hear are 1.Pleasanton rates near the top in teacher salaries and 2. Don't expect answers from questions you ask the PUSD finance department.

Any relationship between these two constants??????

If the refunded bond money had been used for facilities, wouldn't the city of Pleasanton be aware of the construction? Since the city hasn't said a peep about this I assuming that the money was not used for the stated purpose.


 +   Like this comment
Posted by Sandy Piderit
a resident of Mohr Park
on Jun 17, 2011 at 1:04 pm

Bill,

there have been reports about how the funds were used. I'm linking below to one report, from 2009, that shows amounts used at different schools and the categories of expense. It's important to keep in mind that capital expenditures can include new buildings and also remodeling and renovations.

Web Link

I believe that Assistant Superintendent Cazares also delivered a report about measure B in the winter of 2010 at a board meeting. Unfortunately, the way that board agendas and minutes are posted online makes it extremely difficult to locate the supporting documents for such a report.

I agree with Julie Testa that an appropriate outcome for this process would be to implement a new policy about how better oversight will be provided in the future.


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Posted by Joe
a resident of Ruby Hill
on Jun 17, 2011 at 1:23 pm

"Since the city hasn't said a peep about this I assuming that the money was not used for the stated purpose." Why is it impossible to have a discussion about anything in this town that doesn't include a rush to judgement that everyone is guilty/incompetent/hiding something and then let's blame someone with our perfect 20/20 hindsight.
How about letting facts and information be presented in order to clarify where the money was spent instead of baseless accusations and assumptions.
How about asking the PW and their reporter to, just maybe, be a little more thoughtful/deliberate in their choice of words..."Questionable"?!?... back to the basic law of journalism-dog bites man isn't a story, but man bites dog is. Shame on the PW
I also didn't realize that 'ax to grind' or 'endlessly chasing publicity to keep my name out in the community' were required attributes for the committee. Seriously people, putting public pit-bulls into an oversight role isn't exactly enlightened and based on the questions that were asked only reinforces just how mean and self-centered some people in this community actually are and isn't going to result in constructive outcomes. Can wait to see how this plays out.


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Posted by Bill
a resident of Amberwood/Wood Meadows
on Jun 17, 2011 at 2:01 pm

Thank you Sandy.

Now we are getting somewhere.

Shouldn't this information be in some kind of annual report? You would think that any voter approved funds would have its own special section for charting revenue vs expenses. I would also think that this is something that the school district would distribute on a wide basis to show the public how it is spending the voter approved money entrusted to them.

The worst thing is for someone to ask the question "where did the funds go?" and the school district reply is "we don't know, we will have get back to you on that." And then they don't.


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Posted by Marie
a resident of Amberwood/Wood Meadows
on Jun 17, 2011 at 2:19 pm

OMG....where were all of you when these decisions were being made? With the exception of possibly Ms. Testa, did any of you express any concern when these decisions were being made years ago? All were discussed at public meetings. Being an armchair quarterback is pretty easy, isn't it? Especially when the differing opinions come out years after the fact. Shame on you if you did not actively participatie in the meetings held by the board.


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Posted by Kathleen Ruegsegger
a resident of Vintage Hills Elementary School
on Jun 17, 2011 at 3:09 pm

Brian, It's not just how much the per $100,000 went up or down, but also how long it extended the bond repayments, which means everyone would be paying the full amount beyond when the bond repayments were supposed to end. So if, for example, they reduced the debt, maybe we would have been done before 2020 as promised to voters. The charts now say we will pay until 2023, so is that three years added or even longer because of the cash outs rather than reducing the debt? The committee is supposed to hear that answer on Monday I believe.

YAT, AG also said local communities could sue. At least one has.


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Posted by Kathleen Ruegsegger
a resident of Vintage Hills Elementary School
on Jun 17, 2011 at 3:26 pm

On the questions of teacher unions: might CTA have supported improving facilities? Sure. Did union members benefit with raises? I guess raises could be given if there was some corresponding relief to the General Fund that came form cash-out refinancing of bonds. If bond money could, say, backfill the deferred maintenance fund, that would relieve pressure on the General Fund which subsidizes deferred maintenance. Possible; it seems a bit of a stretch.

Also, the charts show 233 cash-out refinancings by school districts. PUSD did six of them. There is no list of which other districts used this method that I can find, but even if it were 1 per district, out of 1,000 districts state-wide, these cash-out refinancings were not all that common.


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Posted by long time parent
a resident of Birdland
on Jun 17, 2011 at 4:39 pm

On the question of the annual report, the annual reports are not broken down enough and are hard to follow. There have been a group of parents who have been asking about this for years and the district could not pull together the necessary information to do these calculations. In fact the director of finance could not figure it out and that is why a consultant was hired to sift through all of this. The consultant did figure out the history but interestingly enough, it seems the data the consultant found were not consistent with what the district was reporting to the state. As they say, the plot thickens...


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Posted by None of the Above
a resident of Another Pleasanton neighborhood
on Jun 17, 2011 at 4:51 pm

Is violating the education code and/or the state's constitution illegal? If so, then cash-out refinancing was illegal before the letter from Jerry.

If there's a law against shoplifting and I get caught shoplifting but I don't get prosecuted, did I break the law?


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Posted by long time parent
a resident of Birdland
on Jun 17, 2011 at 5:36 pm

cash-out refinancing was illegal before the letter from Jerry. Jerry did not write law; his office just enforces it. It amazes me how much of our school board is not conversant in civics. They keep saying that this type of activity is now illegal because of the Attorney General. The Attorney General upholds the laws but does not create the laws. It is the legislature that creates the laws and the state constitution is clear that an agency cannot raise bond debt without a vote of the people; a step the school district skipped by cashing out, which created more debt.


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Posted by Yet Another Teacher
a resident of Hart Middle School
on Jun 17, 2011 at 9:25 pm

No, the legislature has not made its intent clear on the issue of cash-out refinancing, which is why there are two or three competing bills now pending in the state Assembly that would spell out the "do's" and "don'ts" of cash-out refinancing.

In other words, there is no law *clearly* outlawing this practice, and those who claim that it's definitely illegal (and always were) are either ignorant of the law or are deliberately ignoring facts presented to them.

ONE LAST TIME: When our current Governor was Attorney General, his office issued an OPINION that cash-out financing was illegal (done in 2009). An OPINION--and the first OFFICIAL WARNING that this MAY be illegal and would be ruled so in court. That's why school districts stopped doing cash-out refinancing, but at the time PUSD did it, they reasonably believed it to be permitted.

Yeesh, people, learn to read.

@Kathleen: Yeah, people can sue a school district? Gosh, that's a new one. I can sue the State of California for not spray-painting the public beaches rainbow colors (that's an actual lawsuit filed by someone, by the way!). This is America; anybody can sue anybody for anything. God bless us!


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Posted by Stacey
a resident of Amberwood/Wood Meadows
on Jun 17, 2011 at 9:54 pm

Stacey is a registered user.

Which bills?

Did you notice that Governor Brown vetoed the budget because it contained "legally questionable" measures?


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Posted by Simon
a resident of Country Fair
on Jun 18, 2011 at 5:46 am

Is driving a blue car illegal if, three years after the fact, an Attorney General offers an opinion that driving blue cars may be illegal?


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Posted by Kathleen Ruegsegger
a resident of Vintage Hills Elementary School
on Jun 18, 2011 at 7:10 am

It was always in the constitution that a vote was required. This would be a little more like a car dealer telling you no one was going to do anything about your illegal blue car and you bought it. Now hat?


 +   Like this comment
Posted by Kathleen Ruegsegger
a resident of Vintage Hills Elementary School
on Jun 18, 2011 at 7:12 am

Now what--sorry! Punish you, the dealer, both, or just say knock it off?


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Posted by Polly Anna
a resident of Birdland
on Jun 18, 2011 at 11:54 am

YAT,
You are wrong again but I am glad it is the last time you will share wrong information.

There have long been several government (GC 53550) and ed codes that required voter approval to create bond debt. This practice was illegal before the AG opinon and the district knew they were circumventing the law. The culture in the district has been to pay attorneys to write an argument to support the position that they want, giving them permmission to do what they want to.
There was a grand jury investigation into questionable finance practices in John Casey's previous distrct while JC was doing this here.


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Posted by vindicated
a resident of Canyon Creek
on Jun 18, 2011 at 12:44 pm

My senitments exactly. If there was a grand jury investigation of Casey in a prior district, then he's guilty. I don't care what the grand jury concluded, I don't care whether it happened in another district, I don't care if lawyers gave the PUSD advice to move forward ... their all guilty. Every single one of them. Witches one and all.


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Posted by long time parent
a resident of Birdland
on Jun 18, 2011 at 10:52 pm

I really hope that YAT is not a teacher. At least not a teacher in our district. Obviously does not know anything about the State Constitution, who makes laws, etc. The constitution clearly states that issuing more bond debt can only be done though a vote of the people. Cashing-out is adding more debt; debt that was not previously approved by the voters. Now the taxpayers in the city will be stuck with the additional bill.

The other amazing thing in these meetings was learning that there were only two meetings of the oversight committee of the bond. With all the spending of money on projects, including spending bond money that was not in the "blue book" (the approved list of projects for the bond), plus cashing out, and the district superintendent not calling the oversight committee together was a real travesty. Plus an insult to the taxpayers who approved the bonds. The district really proved that they cannot be trusted with additional money from the taxpayers.


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Posted by Fred
a resident of Another Pleasanton neighborhood
on Jun 19, 2011 at 10:36 pm

Sure does look like a witch hunt to me. Seems like the district was acting in the interest of our children. Years later, a bunch of knit picking busybodies try to turn it in to some kind of crime. The district followed the advice of their lawyers, right? They thought they were acting in accordance with the law, right? I'm trying to see how our children's education was impacted in a negative way by this. Help me out here. How did this refinancing harm the quality of education in Pleasanton schools?


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Posted by Shannon
a resident of Rosewood
on Jun 19, 2011 at 11:28 pm

Fred,
You're kidding right? What do your questions have to do with the witchhunt? This is all about undermining our trust in PUSD. See?!?! We were right!!!! You shouldn't have voted for Measure E because the schools are not to be trusted. And besides, they used lawyers. See?!?! I was too cheap to fork out 30-some cents a day because the language wasn't specific enough. See?!?! They're all a bunch of scoundrels and crooks, tied in with the unions and teachers who make more than I do in my 4-hour day job sweeping floors at the company that once paid me a good salary until they discovered my incompetence.

Right-wing hijacking of PUSD. To what end? Vindication of a pernicious world view; an opportunity to pose before community with nonsense numbers, cases, decisions, opinions. One of the most disgusting things I've ever seen.

Lies, hyperbole, calumny and deception....


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Posted by long time parent
a resident of Birdland
on Jun 20, 2011 at 8:14 am

The district shopped around for a lawyer that would support the cashing out. This was not the norm of the state and most lawyers would not recommend it. This is also not something that is just being questioned "years later". This has been questioned for a long time but the previous administration ignored the inquiries.

The refinancing was not the problem. The problem was the cashing out, which was taking more money from the taxpayers without their permission.

I guess to some people, the ends justify the means. Does not matter if it was illegal if they got what they wanted.


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Posted by Kathleen Ruegsegger
a resident of Vintage Hills Elementary School
on Jun 20, 2011 at 8:32 am

Fred, We don't know all the ways this hurt children yet. It may be enough to have two attempts at a parcel tax fail.

The likelihood is it was known this was a way around the law. I don't know that lawyers were asked, just the consultants who suggested and benifitted handsomely from this cash out plan. Few were done comparatively, which at least says many consultants did not recommend this plan to their clients, including the organization this committee is working with tonight.

If it was so wise, why were only 233 done by districts--6 of which were PUSD's? There are 1,000 districts; while there may be some without bonds or other tax plans for facilities, it appears the large majority didn't use cash out refinancing.


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Posted by Fred
a resident of Another Pleasanton neighborhood
on Jun 20, 2011 at 9:11 am

Interest rates are at historic lows now, and I'm seriously looking at getting a group of us together to see if we get another cash out refinance started today. There is no reason to let a small group of extremists within our community wreck our schools.


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Posted by Kathleen Ruegsegger
a resident of Vintage Hills Elementary School
on Jun 20, 2011 at 9:42 am

Fred, you certainly could try. No one is doing them now. Some like to say the then AG's opinion was only an opinion, but it did in fact stop the practice a few years ago.


 +   Like this comment
Posted by Kathleen Ruegsegger
a resident of Vintage Hills Elementary School
on Jun 20, 2011 at 9:50 am

Fred, just to be certain you know, this money can only be used for facilities. It isn't going to save CSR or other programs in the facilities.


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Posted by Fred
a resident of Another Pleasanton neighborhood
on Jun 20, 2011 at 11:15 pm

I understand that. Just a casual look at the facilities gives me the opinion that the facilities could use more money. I say let's jump start the practice.


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Posted by Donovan
a resident of Birdland
on Jun 21, 2011 at 12:44 am

Most of the school districts didn't do the cash-outs; so, on KR's reasoning, the one's that did must have been wrong to have done it and/or knew they were wrong to have done it.

I purchased a new car last year, but most people didn't. I guess that means I was wrong to address my specific needs and/or know I was wrong to have made the purchase.

So many witches to fry, so little time. It is indeed the season of the witch. I'm just happy all this money on consultants will finally put a stop to a practice that stopped 6 years ago.


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Posted by Kathleen Ruegsegger
a resident of Vintage Hills Elementary School
on Jun 21, 2011 at 7:00 am

Don't think the constitution prevents you, as an individual, from buying a car. But there are plenty of laws that sat you must or must not do certain things. If you don't follow them, even if you have a need, there are consequences.

In the end, staff and the board members wanted all the ducks back in a row. It's been a helpful process. More to follow in the fall. Initial update to the board this evening.


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Posted by Kathleen Ruegsegger
a resident of Vintage Hills Elementary School
on Jun 21, 2011 at 7:02 am

say, not sat.


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Posted by Elizabeth Dallmann
a resident of Mohr Park
on Jun 21, 2011 at 10:01 am

Kathleen,

Thank you for taking the time to explain the practice, the results and the work being done by the committee regarding the bonds. As a community we need to focus on how to deal with the consequences of this practice and its impact on the education of our children. It seems that the current PUSD board is determined to "clean out" the closets and put PUSD on the right track, in the midst of a very difficult situation. Kudos to the committee and the board.

Elizabeth


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