Questionable borrowing leads to a mountain of school debt
District cost: $460,000 yearly average
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 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 spent 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.
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, measures 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.