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Cash-out refinancing practices get first PUSD review

Original post made on Jun 27, 2011

Pleasanton school board members got an earful Tuesday night about cash-out refinancings done by the district, as a consultant walked them through a 20-page document showing the costs and savings to taxpayers.

Read the full story here Web Link posted Friday, June 24, 2011, 12:00 AM

Comments (12)

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Posted by Frustrated
a resident of Val Vista
on Jun 27, 2011 at 9:50 pm

I find it really frustrating that this information is coming out now, AFTER two failed ballot measures. This illustrates the point that so many people were trying to make in opposing the district's plea for more money. The district took on millions of dollars of additional debt without asking the taxpayers who would be responsible for footing the bill. Legally they had no right to do this and yet they did it. The kicker is no one knows how those millions were spent. This is why people are saying "no more money" "no more taxes". Where is the money that they already have? Someone needs to own up to this. Where is the uproar over this? I read articles and opinions in this paper lambasting those opposing the tax increases because supporters thought the schools need the additional funds. Where are they now when the truth comes out that the district had millions and now has nothing to show for it? Where is the accountability? Obviously those district officials responsible for the decision to add to our tax bills don't feel the need to explain to us taxpayers, or should I say bill payers because that seems to be all we are to them.


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Posted by Marie
a resident of Amberwood/Wood Meadows
on Jun 28, 2011 at 8:28 am

The bond funds are restricted to be used for facilities. Ms. Cazares, Assistant Superintendent of Business Services, should be able to share where the funds were spent since she is the head of business which includes facilities. Although she was not in the department during the refinancing, she should be accountable for providing this information. I would continue to inquire with Ms. Cazares for the updated blue-book information.


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Posted by Brian
a resident of Another Pleasanton neighborhood
on Jun 28, 2011 at 11:03 am

Frustrated

Before becoming so frustrated, you should be aware that bonds only pay for capital improvements i.e. buildings. The funds from the parcel tax proposed in measure E would go to the classrooms to make up for some of the expected funding cuts from the state for classroom education. These cuts would have result in higher student teacher ratios, elimination of physical education and shorter school year among other things.

You should also be aware that refinancing the old bonds will save taxpayers around $9.87 million even after cash out. It is true that had they not taken cash out, the savings would have been over $19 million (i.e. 9.28 million more), but some would argue that splitting the difference 1/2 and 1/2 was acting responsibly because the school district has responsibility to both the taxpayer and the students.

Of course, the question of what the cash-out money was used for is still outstanding, but that question is being addressed and we should know in August if there is anything to get upset about.


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Posted by Average Joe
a resident of Val Vista
on Jun 28, 2011 at 3:33 pm

To Brian:

I understand the number game as you tried to point out. Yes refi'n the bonds makes some sense if you never intend to get out of the vicious grasp of debt,

You are missing the point though that Frustrated was making. How better it would have been to just pay off the bonds. Don't the bonds ever expire or get paid back, instead of a never ending debt? Debts are supposed to be temporary.

Interest never rests and it never sleeps! If we can get that monkey off our back, then think of the money going to the classrooms instead of the interest payments.

Accountability is the key to what we all want. Let's get some answers.


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Posted by Steve
a resident of Stoneridge Park
on Jun 28, 2011 at 4:49 pm

Methinks 'Average Joe' and 'Frustrated' may be in cahoots...some over defending going on?


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Posted by Brian
a resident of Another Pleasanton neighborhood
on Jun 28, 2011 at 8:28 pm

To Average Joe

You may be confused by the cash out refinancing that occurred during the housing bubble in which people took cash out on the increase in value of their house

In the case of the bond refinancing, the savings that will occur is a result of a reduction in the amount of interest that will be paid over the term of the loans relative to the term of the bonds. There was no increase in debt as a result of an increase in the assessed value of assets the school district has.

That being said, the interest savings can come from 2 things. First, the loan can have a lower interest rate than the bond. Second, the loan can be paid off faster than the bond resulting in a net savings in interest. In the case of the refinanced bonds, at least some of the savings have been or will be due to the loans being paid off faster than the original bond.

All this can be quite complicated and it can be difficult to determine if refinancing is actually beneficial to taxpayers even if it saves money in the long run.

Because of that, I personally believe that the school district should not be involved in debt management, particularly now that it's clear the district can not benefit from their efforts. I believe debt management should be given to an entity that is only accountable to the taxpayer and if that entity does not handle the debt to the taxpayer's satisfaction, that entity can be replaced with a different one.


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Posted by Arnold
a resident of Another Pleasanton neighborhood
on Jun 28, 2011 at 9:35 pm

Brian,

"You may be confused by the cash out refinancing that occurred during the housing bubble in which people took cash out on the increase in value of their house"

Anybody can take cash out of their house if they have equity and credit. The housing bubble only allowed more people to take out cash.

"In the case of the bond refinancing, the savings that will occur is a result of a reduction in the amount of interest that will be paid over the term of the loans relative to the term of the bonds. There was no increase in debt as a result of an increase in the assessed value of assets the school district has."

What? You have completely missed the point. There was an increase in debt as a function of the cash out financing. Do you understand that? More importantly, there is a decrease in trust. The question of where the money went is still unanswered.

Time to sit back and wait for PUSD to report on the issue.


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Posted by Ryan
a resident of Danbury Park
on Jun 28, 2011 at 9:47 pm

It seems to be taking a while to concoct a story about where the money went. It's getting harder to just sweep dirty dealings under the rug these days.


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Posted by Brian
a resident of Another Pleasanton neighborhood
on Jun 28, 2011 at 10:25 pm

Arnold

Yes, you are correct. You can't take cash out without temporarily increasing debt (or principle). The point I was trying to make was the increase in debt by taking cash out will be more than offset by interest savings and at some point the debt will be lower. This is unlike cash out mortgage refinancing in which, more often than not, the total debt and total interest to be paid both increase.

Still, this disussion is somewhat pointless because I think you will agree with me that the school district should not be in the business of debt management.


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Posted by Famished for TRUTH
a resident of Foothill Farms
on Jun 29, 2011 at 6:45 am

I think we should be willing to spend more money on additional consultants to come in and get to the bottom of what exactly did happen in 2003. It is difficult to arrive at truth when the witches out there are so capable of deceiving us and corrupting the hearts of men. They sweep the facts under the carpet like so many particles of dust. LIke Arnold says, we have to restore the trust among the anti-socialists and cheapskates and Tea Party Patriots and anti-education folks so that we can vote against the kids' interests once again. I'ts all so logical if you have the right moral compass.


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Posted by resident
a resident of Another Pleasanton neighborhood
on Jun 29, 2011 at 7:39 am

Don't you just love it when someone that is paid with your tax dollars calls you a cheapskate, then hides behind your kid?


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Posted by another resident
a resident of Another Pleasanton neighborhood
on Jun 29, 2011 at 12:26 pm

Brian, sounds like you are saying that the district, or any public agency, should not be in the business of managing the money that we give them. That is for bonds as well as operations. The governmental agencies work for us, the taxpayers. They have the obligation to do the best monetary decisions with the money we give them. I guess if they receive more money from the State then they expect that you think it is ok that they all go on a trip to Hawaii on our funds.

PUSD did a good thing by refinancing to lower the payments of the taxpayers. They did a bad thing by taking on more debt without our permission.

It is totally amazing that they could not quickly show us what they spent the additional money on that they used from the cash outs. If they administration says they do not have enough time to keep up on all of this, we should reduce their vacation time. They should not be given 6-9 weeks of vacation per year to the administration with the salaries they are receiving. Our Assistant Superintendent of Business Services has salary and benefits of $221,931 per year and works 220 days per year, indicating 8 weeks off per year.


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