Was the first warning that something was wrong in Poway a May 2012 article by VOSD's Andrew Donohue?

See Update April 2015

Photo by Sam Hodgson

Why exactly was Poway Federation of Teachers President Candy Smiley (left) so happy in this picture?

A few months after this picture was taken, it was revealed that all three Poway Unified board members endorsed by Smiley's organization had voted to sell bonds that would force a future generation to pay a billion dollars in interest for a $126 million loan.

Voice of San Diego editor Andrew Donohue wrote an interesting article last May about "the unique lesson Poway has to teach."

Donohue noted, "Over the last two decades, though, the union and district have forged an uncommonly collaborative bond that started with trust on the budget and has now gone far beyond."

Yes, they were collaborative all the way to a huge scandal about CAB school bonds.

I don't believe that the board would have been able to pull of the CAB stunt without the blessing of the teachers union.

When there's too much "collegiality" among the people who run schools, different points of view don't get aired. Decisions are made behind closed doors. All the public ever sees is the smiling faces of the people who get along so very well together.

School boards work hard to present an image of peace and joy, but that's often the signal that the rest of us should start worrying.

I did more research and found a strong link between the Republican Party and the five Poway school board members who created the CAB bond deal.

Linda Vanderveen, Andy Patapow and Marc Davis openly claim Republican credentials. I couldn't find a party affiliation for Penny Ranftle or Todd Gutschow, but they both received the endorsement of Republican Poway Mayor Don Higginson. It seems that ALL the board members either were Republicans or managed to make themselves acceptable to Republicans.

Interestingly, Marc Davis got the approval of the Poway Federation of Teachers as well as the Republican Party. Penny Ranftle and Todd Gutschow also were endorsed by Poway Federation of Teachers.

Clearly, the bond deal was designed to please Republican constituents who insisted on no new taxes. Todd Gutschow made clear that this demand by constituents was what pushed the board into designing the unusual bond deal.

On November 6, 2012 voters threw out Vanderveen, and likely would have thrown out Patapow if there had been another challenger. Patapow squeaked ahead of Vanderveen by 2032 votes out of about 50,000. Voters replaced Vanderveen with a Democrat, Kimberley Beatty.


Where the Teachers Union and District Love Each Other
May 9, 2012 | Updated: Aug 3, 2012
By ANDREW DONOHUE
Voice of San Diego

When Candy Smiley talks about the school district, the pronoun she uses subtly belies the unique lesson Poway has to teach.

"We," she says over and over again.

"We didn't spend the $6 million from the feds. We can't control the state budget," she says. "When we got the money, we could've hired teachers. We decided collectively not to, that we would save it so that we could ensure that teacher salaries would return."

Smiley leads the union for teachers at Poway Unified School District. Further south, things aren't so friendly. The San Diego Unified School District has repeatedly made end-of-days financial warnings, only to find a way to put off painful cuts at the last second. Meanwhile, union leaders have engaged in a full-throated campaign to discredit the district's numbers and the people that produce them. Nobody trusts the numbers; nobody trusts each other.

Things used to be like this in Poway, too.

Over the last two decades, though, the union and district have forged an uncommonly collaborative bond that started with trust on the budget and has now gone far beyond. Upheaval in the leadership of the San Diego teachers union has led to a pledge of greater unity with the district. Meanwhile, the district has continued to plead with the union to at least sit down and start negotiating a solution to a fiscal crisis that looks likely to put hundreds of teachers out of a job.

If both the district and its teachers are serious about repairing their relationship, then Poway is as good a place as any for them to study.

I originally interviewed Smiley and Poway Superintendent John Collins for a story we did on the revolution happening in teacher evaluation, but Poway's tale didn't fit directly into the story.

Still, I learned a lot from our conversation and many of you have asked for more reporting highlighting solutions being used by other communities.

So here are four takeaways from my research:

• How They Came to Trust Each Other

The way Collins and Smiley describe it, Poway once struggled with many of the same problems other local school districts have today. The district and its unions argued over money. The budgets weren't transparent. Nobody trusted each other.

But about a decade and a half ago, things changed. A new superintendent came aboard. The union president wanted to throw out the emotions and just get down to the data. So, the district and the union sat down and went through the budget line by line. They no longer argued about what the problems were, but rather simply how to solve the problems.

From Smiley:

Once you start talking about the data, you start building a trusting relationship.

Everybody grew to understand the budget in a very honest, transparent way. It wasn't "he said, she said." That is the way we have been doing our business ever since. Today, the two groups still sit down together in a room five times a year to do this. The budget is color-coded to show everyone what's gone up and down. For every question the union has, the administration has an answer and documentation to back it up.

In San Diego Unified, the district has offered to bring the union in and go line by line through the budget. So far, the union hasn't taken them up on the offer.

The union argues that the district has a history of miscommunication when it comes to its budget. And it has a point. District officials admit that for years, their budget was in disarray, and that incorrect information was often given out.

But the same officials say that confusion is a thing of the past. District Deputy Superintendent of Business Operations Phil Stover says confidently that he knows where every penny in the district is being spent. All the union has to do is ask, he says, and he can lay it all out.

In Poway, that’s already happening.

Smiley again:

We can ask any question we want and I have complete confidence that I will get a straight answer and there will be back-up documentation.

Pretty soon, you just start building a trust. And when they are honest with me we are honest with them.

I feel very responsible for this relationship that was built before I arrived.

Says Collins:

Over the years what that's resulted is a relationship with the union that's based in trust and open and honest communication. Everything's on the table. All our records are available.

We've already agreed on what the facts are and then we focus on solving the problem.

Instead of arguing we don't want to do this, it was, what are we going to do to keep the district from going bankrupt.

Collins and Smiley even issue joint communications to employees and management. • What That Means Practically for District Finances

In Poway, teachers have taken a 4.3 percent salary rollback and the district has offered early retirement to avoid layoffs. Not out of the ordinary. Other places, like San Diego Unified, have also made similar moves.

However, the rollbacks expire this year and the two sides say the district can handle the increased costs. They decided not to spend one-time money from the federal government immediately after receiving it, instead putting it in a reserve. And they're already talking about renegotiating if everything doesn’t pan out.

"They agreed if things get worse we'll be back at the table," Collins said.

• One Reason Behind the Relationship

Poway teachers are a rare breed in San Diego County.

They're part of the American Federation of Teachers, one of two big umbrella teachers unions in the country. Most teachers across the region, and those in San Diego, belong to the National Education Association.

As New York Times columnist Nicholas Kristof has written about, AFT leader Randi Weingarten has been pushing for unions to be actively participating in school reforms.

"I know the AFT has been very progressive," Collins said.

• What That Means for Everything Else

Now, back to the reason I interviewed Smiley and Collins to begin with.

There's a revolution happening right now in how data is used to evaluate teachers and push accountability. It's very controversial, and San Diego Unified isn't having any of it.

Big districts across the country, though, have been.

So I wanted to know if Poway's considering the use of sophisticated data to measure teacher performance.

Their answer: The two sides are in the early stages of meeting and talking about this very thing.

The Poway Federation of Teachers has surveyed its members. They recently had an all-day meeting about assessments with teacher union representatives from every school, every principal, the superintendent, his cabinet and four of the five school board members.

Smiley says evaluation needs to go beyond just test scores. There needs to be multiple measures.

"I'm confident that we will be building our own evaluation tool and we'll decide if we use test scores," she said. "We hope we'll be designing this — rather than having someone else design it for us."

Collins, not surprisingly, agreed.

"We're going to try to get some models in before we get told how to do it. We're hoping we can show the state a better model," he said.

Disclaimer: I'm not an expert in Poway education. This piece is based off of two interviews and a tip I'd received. If you think it's off base or there's something I'm missing, comment on this story or email me. I'm the editor of VOSD and you can reach me at andrew.donohue@voiceofsandiego.org or 619.325.0526.


[Maura Larkins comment: In fact, over a period of years I repeatedly told Andrew Donohue that VOSD was ignoring corruption in our county schools. His response was to refuse to publish important stories. Scott Lewis backed him up. I suspect that Buzz Woolley and Irwin Jacobs' deep pockets are responsible for VOSD's kid-gloved handling of school issues.

Meet the Players Who Shaped Poway Schools' Bond Deals

I'm also curious about the identities of the lucky dogs who BOUGHT these bonds, and whether they have links to the people in this article. Heaven forbid that they might BE some of the same people in this article.

Meet the Players Who Shaped Poway Schools' Bond Deals
In August, dozens of residents showed up to a Poway Unified school board meeting to voice their concern over the district’s controversial bond program.
Oct 9, 2012
By SANDY CORONILLA
Voice of San Diego

Over the last few weeks, we’ve learned a lot about the Poway Unified School District’s controversial bond deals. We’ve learned they will saddle future residents with more than $1 billion worth of debt. We know the district squeezed $21 million in extra up-front cash to pay attorney’s fees and other costs associated with the bonds. But what we haven’t focused on, until now, are the people behind these extraordinary deals.

We decided to put together a quick guide to Poway’s players, so we could share what we know about the individuals responsible for putting together Poway’s bonds. Here’s more information about the players in our suburban saga.

John Collins, superintendent

• Collins began his career in education at the San Diego Unified School District in 1976. In 1989, he was hired by Poway as an assistant principal and worked in school administration at three different schools during the next seven years. For nine years he was the deputy superintendent in charge of business and learning support services and he became Poway’s superintendent in July 2010, following the retirement of Don Phillips.

• Late last year, local media reported that Collins’s home was in foreclosure after a public notice stated an auction would be held to settle $1.1 million in unpaid obligations.

• In his own words: “We want to be open, transparent and forthright in our responsibility to the district. If only one member of the community comes forward with questions and concerns, it’s one too many.” Yet, Collins has so far refused to provide even basic information about a proposed review of the district’s bond deals. He won’t say who’s doing the review, how much it costs or why the individual or company conducting it was chosen.

Linda Vanderveen, board president

• Vanderveen has served three consecutive four-year terms on Poway Unified’s board and is up for re-election this year.

• In her own words: “Our newly renovated schools are testimony to the community's commitment to our Building for Success program. People move to [Poway] for the schools. Clearly, we are doing something right.”

• My colleague Will Carless has called and emailed Vanderveen several times seeking comment or an interview. Vanderveen has ignored all of his requests.

Andy Patapow, board vice president

• Patapow has served four consecutive terms on Poway’s board and is up for re-election this year. He was the principal of Poway’s continuation school for 28 years.

• U-T San Diego reported that he accepted more than $300 in meals from Stone & Youngberg, the underwriter of last year’s controversial bond deal.

• Patapow has also ignored repeated calls and emails from Carless requesting comment.

Marc Davis, board clerk

• Davis is the newbie of the group. This is Davis’s first term as a board member; in 2014 he will be up for re-election.

• Davis promoted himself as a businessman and financial adviser during his campaign in 2010. He is the president and founder of Davis & Seiley Wealth Management.

• In his own words: “I am running to share my financial and business expertise to help address the monumental budget problems that we have now and will have in the future. I understand financial markets, contracts, employment rules, pension plans … and tax issues.”

• Davis is one of three board members who has responded to interview requests. In an Aug. 8 e-mail to Carless regarding the extra money Poway squeezed out of its bond deals, he wrote: “[Poway Unified] did not circumvent the will of the people in doing this but followed long standing legal precedent in doing so and the advice of our bond counsel.” Three attorneys not affiliated with the district who were contacted by Carless said Poway’s deals were, in fact, extraordinary, since they pushed the boundaries of state law. The district’s 2011 deal was also deemed illegal by the state Attorney General’s Office.

Todd Gutschow, board member

• Gutschow is in the middle of his second term as a board member; he’ll be up for re-election in 2014. He was appointed to the Citizens’ Oversight Committee for Proposition U.

• In his own words: He told Voice of San Diego in an Aug. 14 interview: “I think most people who take a moment to think about things before they vote would have said, ‘Well, gee. We’re going to be paying more money for a longer period of time. And that’s probably going to mean that’s going to be more expensive.’ I think that general idea is something most people could have and should have recognized. Would they be able to estimate how much? Would they have been able to have that kind of level of detail? No.”

• Of the five board members, Gutschow has been the most willing to communicate with us on this story. He, Collins and Board Member Penny Rantfle met for an interview last month, and Gutschow is the only board member to respond to Carless’s calls. He has, however, ceased communicating with us as of late.

Penny Ranftle, board member

• Ranftle has been on the board the longest; she’s in the middle of her fifth consecutive term, meaning she has spent the past two decades in her position.

• She has virulently defended Poway from criticism over its bond deals. During the Aug. 14 interview, she said the board had acted in good faith and had delivered what voters wanted: more money to construct schools, without raising taxes.

• Rantfle has spoken out against scrutiny of Poway’s bond deals at school board meetings, including one held on Sept. 10, when she said: “It saddens me to see a couple of members of the media that have turned their scrutiny of this district into some sort of a sport. They have taken a single aspect of this massive rebuilding and modernization program and wrapped it into innuendo and inaccurate reporting, without regard to the damage or expense it is causing the district.”

The Consultants: The Dolinka Group: Benjamin Dolinka

• Poway used this group of financial consultants, which specializes in advising school districts about general obligation bonds, for Proposition C.

• According to its LinkedIn profile, the privately held company employs fewer than 50 employees.

• For the past 20 years, Benjamin Dolinka, the group’s president, has served as a financial adviser to Poway. On March 22 last year, a few weeks after receiving the warning letter from the state Attorney General’s Office, Collins submitted a letter of recommendation for the Dolinka Group praising Dolinka:

“[W]orking with Benjamin Dolinka and the finance team, we have been able to minimize our risks while maximizing the benefits,” he wrote.

• According to the group’s website, Dolinka “focuses on creating new financial and demographic services, identifying potential public-public and private-public partnerships.”

The Consultants: California Financial Services: Michael Ogburn

• This small financial planning firm has advised school districts and local governments for 26 years, according to its website.

• Its founder Michael Ogburn specializes in school district finance in Southern California, and has worked with at least two local districts: Escondido Union and Poway.

The Lawyers: Bowie, Arneson, Wiles & Giannone

• Poway used this Newport Beach law firm for advice on its bond deals.

• According to its website, the firm employs 10 attorneys and has been around for about 40 years and provides public agencies, like school districts, with legal services involving planning, financing and construction of school facilities.

• The firm was the recipient of a letter from state Attorney General Kamala D. Harris’s office last year warning that the deal it was helping Poway Unified put together was illegal.



ClarieceT posted at 3:16 pm on Tue, Oct 9, 2012.

...[Board member] Jeff Mangum was part of the 2009 Series A which had excessive premiums and he was one the one who moved and Vanderveen seconded the resolution approving the Series B bond which had a premium of $21 million dollars...

The Poway deal gets fishier

I already knew that school boards hired lawyers to help them get away with violating the law, but in Poway they took this practice to a whole new level. This is the district that called kids "depraved" for cheating on tests.

The Poway deal gets fishier
By Felix Salmon
Reuters
SEPTEMBER 26, 2012

Remember Poway, and the exorbitant interest costs it was paying on its debt? At first glance, those costs were so huge because of the way the deal was structured: there were no interest or principal payments before 2033, and the final payments weren’t due until 2051.

In reality, however, there was something else going on as well: while Poway claimed to have only borrowed $105 million, they were lying about that: in fact, they borrowed $126 million, taking a $21 million kickback on top of the $105 million they were ostensibly borrowing.

As such, in reality they’re “only” paying $855 million of interest on a $126 million principal amount, rather than the $876 million of interest on $105 million in principal that we originally thought. But this is not a good thing. In fact, Will Carless — who’s been pushing this story hard, and has done a huge amount of work in reporting and explaining it — makes a very persuasive case that it’s illegal.

After all, the whole point of pushing the repayment dates back to 2033 and beyond was that Poway had already maxed out everything it was allowed to borrow before that. “When voters allow a school district to issue bonds,” Carless explains, “they set what appears to be a strict dollar limit on how much can be borrowed”. But somehow, that cap on the amount the district can borrow does not seem to be well defined. Somewhere along the way, definitions got fuzzy.

It should be pretty simple, this question of how much someone has borrowed: you just look at how much money they received when they did the borrowing. And to determine how much interest they’re paying, you take all the money they repay, and subtract that initial amount.

But Poway isn’t doing that. Instead, it’s defining the amount that it’s borrowing as the face value on the bonds. Set a bond with a low face value, and you get to borrow much more than face value, without going over the borrowing limit set by voters.

And that’s exactly what Poway did. By artificially jacking up the interest rate on the bonds — and the longest-dated bond, remember, had an interest rate of a whopping 7.2% — Poway managed sell the bonds at a substantial premium to par. That action, according to a formal letter filed by the California attorney general’s office, was not legal. The AG’s office didn’t prosecute Poway, on the grounds that doing so would cause Poway to incur substantial litigation costs. But it explicitly said that Poway’s behavior was unlawful, and that if this kind of thing became a habit, then it might indeed end up being prosecuted.

What’s more, if Poway sold these bonds at 120 cents on the dollar, there’s no way it could buy them back at 105 cents or less, as I suggested a few weeks ago: unwinding this deal is going to be expensive. Not $850 million expensive, of course, but tens of millions of dollars all the same. I was going on the fact that Bondview shows the bonds trading at about 101 cents on the dollar, but there might be something weird going on there.

In any case, the more we learn about this Poway bond, the smellier it gets. And of course officials aren’t talking:

“The simple fact is that [Poway Unified] did not borrow any more funds than those approved by the voters,” Superintendent John Collins wrote in an email on August 29.

Collins wouldn’t elaborate on this position. He and the Poway school board did not respond to several requests for interviews. Nor did Poway officials agree to interviews with their legal or financial staff.

Well done to Carless for pushing on this; I hope his piece causes enough of a stir that Poway is going to be forced to answer for its actions in some forum. But in the meantime, it would be great to get some clarity on which bonds in particular ended up selling at well above par, and where those bonds are trading today. If, that is, they’re trading at all.

Community college districts' bonds inflate cost to taxpayers

Community college districts' bonds inflate cost to taxpayers Erica Perez
California Watch
Aug. 22, 2012

Several California community college districts have sold bonds that allow them to put off payments for up to 40 years, causing the total repayment to cost taxpayers from five to nine times the principal.

Poway Unified School District, while not a community college district, made headlines this month for issuing a bond for $108 million that will end up costing taxpayers nearly $1 billion over 40 years.

Poway Unified has become the poster child for long-term capital appreciation bonds, increasingly common but controversial tools that enable districts to get cash now for voter-approved construction programs, while delaying the payments and tax levy for decades.

A retired Detroit Free Press reporter, Joel Thurtell, reported on Poway Unified's bond sale on his blog. After Voice of San Diego reported in-depth on the deal Aug. 6, the story garnered national attention.

The Los Angeles treasurer and tax collector's office has taken an aggressive stance against long-term versions of these bonds.

"Once you see a repayment obligation that materially exceeds the principal amount, by that I mean four, five or 10 times more, you have to question why they did it," said Douglas Baron, director of public finance at the Los Angeles County treasurer and tax collector's office.

More standard bond sales cost closer to $3 per dollar borrowed.

California Watch reviewed bond sales at several community college districts in search of similar deals. Although few appear to match the size of the Poway Unified example, several districts financed construction programs using long-term capital appreciation bonds that will end up costing much more than traditional financing because of compounded interest.

San Bernardino Community College District issued $56 million in bonds that will cost $493 million by the time they're paid back in 2048 ---- nine times the principal.

Victor Valley Community College District borrowed $34 million in bonds that will end up costing $271 million to pay back by 2049 ---- eight times the principal.

Yosemite Community College District's $78 million bond issue will cost $453 million by 2042 ---- six times the principal.

Chabot-Las Positas Community College District will pay $850 million by 2046 on $169 million in bonds ---- totaling five times the principal.

District officials chose the more expensive bonds for a number of reasons. Some said they saw the bonds as the best way to maximize buying power without exceeding legal or promised limits on tax rates.

Here's the difference between capital appreciation bonds and the standard variety: With traditional current interest bonds, districts borrow money and start paying interest right away. The money for the debt payments comes from taxes on residents.

They can only borrow so much this way because state law says community college districts can't levy more than $25 per $100,000 of property value.

With capital appreciation bonds, districts get the cash up front, but don't have to pay interest or levy taxes right away. The interest on these bonds compounds over time, without being paid out, until the bond comes due. The further out the bonds come due, or mature, the bigger the payoff for investors and the higher the price tag for districts and future taxpayers.

State law prohibits districts from selling bonds that come due more than 40 years out. The Los Angeles County treasurer and tax collector's office published a white paper stating it would not support capital appreciation bonds in that county with maturities greater than 25 years.

And Baron said the office would advocate changes in the law that would set a cap at 25 to 30 years.

Joel Thurtell exposed the Poway Schools bond scam 3 months before Voice of San Diego wrote about it

Poway board members and administrators were trying to advance their own careers at the expense of taxpayers when they scammed voters into approving over $100 million in capital appreciation bonds with a 1000% interest rate (not 10%, not 30%, but one thousand per cent). My friend Karen Horwitz has a name for this kind of thing: white chalk crime. The voters should get rid of the board members, lawyers and administrators who planned this deception.

This secret bond deal reminds me of the famous City of San Diego pension scam. Where's Bonnie Dumanis' Public Integrity Unit when citizens need it? Down in South Bay, going after Mexican Americans that Greg and Cheryl Cox don't like.

Click on the following link to see Joel's well-done graphic:
CAB scam in Poway
May 12, 2012
By Joel Thurtell
Joel on the Road blog

The nicest thing I can write about the language used by Poway schools in San Diego is that it was shrewdly phrased. But when framed with the ‘no new taxes” promises flung out by bond supporters, the bond proposal amounts to a brazen lie.

Whether they put down “yes” or “no” on the 2008 ballot proposal, voters in the Poway school district in San Diego could not have known that the “legal interest rate” on some of the bonds they approved would amount to an eye-popping, wallet-ripping 2200 percent.

How a $100 million loan turns into a $1 billion payoff at 1000 percent interest

Proposition C

To provide safe and modern school facilities, improve student learning, and qualify for approximately $20 million in State matching money, shall School Facilities Improvement District No. 2007-1 of the Poway Unified School District issue $179 million in bonds at legal interest rates to upgrade aging classrooms, libraries, science & computer labs; replace roofs, plumbing, heating, ventilation and electrical systems; improve fire alarms and school security; remove hazardous materials; fund needed facilities, subject to mandatory audits, independent citizens’ oversight and without an estimated increase in tax rates?

Nowhere in the ballot language was it spelled out to voters that the majority of the debt that was approved would be in the form of Capital Appreciation Bonds with interest rates so usurious that CABs were banned in one state — Michigan — when the monstrosity was exposed.

Neither promised “mandatory audits” nor “independent citizens’ oversight” captured the reality for citizens — that these pernicious instruments of debt could only fulfill the promise of “no new taxes” if property values increase by hundreds of percent.

Nor were voters made aware that there is no escape from this hall of financial horror. A term of the bond official statement states that they may not be re-financed to better terms.

Here in Michigan, I watched the value of our house in Plymouth plunge by 42 percent from its 2005 peak. Around the nation, similar drops in home value make California CAB promoters’ arguments for continuously increasing value seem delusional. Yet since 2000, California schools have issued more than 1,000 CABs with principal of $20 billion and interest that could be triple or more of principal.

All justified by hallucinations about growth in real estate value.

Now, here’s another unpleasant fact about the Poway CAB issue: It is written into the official statement of the bonds that they cannot be refunded. Poway is stuck with these parasites until 2051.

There were opponents to the Poway bond proposal, but they were unaware of how bad the plan really is. They may have had suspicions. In “Arguments Against Proposition C,” opponents stated, “Would you take out a 25 to 40 year mortgage to buy computers that last maybe 5 years, to trim trees, or to make plumbing repairs?”

The opponents had a good point: Had they known how costly these bonds would turn out to be, they could have re-stated their argument: “Would you take out a 25 to 40 year mortgage to buy computers that last maybe 5 years, trim trees, or make plumbing repairs at an interest rate of 1000 percent?”

Here is the real question: If school officials had told voters the truth — that they were obligating taxpayers for 40 years to a sky-high interest rate to pay for short-term projects and that taxes might indeed go up — would the proposal have been approved?

What was so important about this proposal that school officials chose to scam voters?

That’s a question for elected trustees of the Poway Unified Board of Education:

President: Penny Ranftle
Vice President: Linda Vanderveen
Clerk: Andy Patapow
Member: Mark Davis
Member: Todd Gutschow

A Creative Borrowing Boom: Poway Not Alone in High-Interest Financing

A Creative Borrowing Boom: Poway Not Alone in High-Interest Financing
August 7, 2012
By WILL CARLESS
Voice of San Diego

The Poway Unified School District may be California’s poster child for exotic school bond financing, but it is by no means alone in San Diego County...

San Diego Unified — Borrowed: $164 Million. On the Hook For: $1.25 Billion In 2010, the county’s largest school district borrowed almost $164 million from investors using capital appreciation bonds.

The loan was part of 2008’s Proposition S, in which voters approved the district to borrow more than $2 billion to complete district-wide renovations and modernization. Just like Poway, San Diego unified won’t start paying back those bonds for 20 years. The first payment is due in 2030. By the time the loan is fully paid back, in 2050, San Diego taxpayers will have paid back $1.25 billion, or about 7.6 times what the district borrowed in the first place.

That’s much more expensive than a typical school bond which, like a home mortgage, is paid back every year of the loan. In a more typical bond, a district would pay back two or maybe three times the total amount of the initial loan.

Oceanside Unified — Borrowed: $30 Million. On the Hook For: $280 Million Further north, in Oceanside, the payback ratio for taxpayers is even bigger, though the district’s loan is significantly smaller. Oceanside Unified borrowed $30 million in 2008. By 2049, the district’s taxpayers will have paid back almost $280 million. That’s more than nine times what they originally borrowed.

Escondido Union High School District — Borrowed: $27 Million. On the Hook For: $247 Million

Escondido Union High School District has a similar deal.

The district borrowed almost $27 million in 2009 using capital appreciation bonds. Taxpayers in the district will pay back almost $247 million by the time that debt is paid. Again, that’s more than nine times the initial debt.

Making the Same Deal

Apart from their sheer cost, there are other stark similarities between these three deals and Poway Unified’s 2011 bond.

All three districts passed bond measures that paved the way for their capital appreciation bonds in 2008.

And, all three of those bond measures were floated for the same reason: To finish off previous bond programs that had been started in the districts years before but hadn’t yet finished because of cost overruns and delays.

All three districts also promised voters their tax rates wouldn’t increase to pay for the new swath of borrowing. As I explain in detail in yesterday’s story, the same promise of steady tax rates led Poway Unified to seek out this creative form of financing.

There’s one more similarity between two of the three deals and Poway’s deal: The San Diego County Taxpayers Association gave its backing to the bond measures that paved the way for both San Diego Unified and Escondido Union High School District's sales of capital appreciation bonds.

The association didn’t back Oceanside’s bond, saying the ballot language for the bond was too vague.

Where Borrowing $105 Million Will Cost $1 Billion: Poway Schools

"The bond...had considerable cachet, thanks to a coveted endorsement from the San Diego County Taxpayers Association. Indeed, association President Lani Lutar’s name was first on a list of five local dignitaries named on the ballot as supporting the bond. Lutar said had she known the full implications of the bond, she would not have recommended the association support it."

[Maura Larkins comment: Why didn't Lutar figure out the implications before she recommended it? The taxpayers association has a habit of giving awards and endorsements without investigating. A few years ago they gave Chula Vista Schools an award without looking at CVESD's budget! One might suspect that the association's decisions are political.]

Where Borrowing $105 Million Will Cost $1 Billion: Poway Schools
August 6, 2012
By WILL CARLESS
Voice of San Diego

“This is way worse than loan sharking.
...What they have done is absolutely insane.”
—Michael Turnipseed, executive director
of the Kern County Taxpayers Association...


“This is a perfect example of how something
that’s done today can adversely affect
the next generation and the generation after that.”
—Dan McAllister, San Diego County
treasurer and tax collector.

Last year the Poway Unified School District made a deal: It borrowed $105 million from investors to fund a final push in its decade-long effort to revamp aging schools.

In many ways, the deal was unspectacular. Some of the money was used to pay off previous debts from delayed and over-budget construction projects. The rest went towards finishing upgrades that Poway taxpayers had been promised as far back as 2002. To a casual observer, it was just another school bond.

But Poway Unified’s deal was far from normal.

In 2008, voters had given the district permission to borrow more money to finish its modernization, and they had received a big promise from the elected school board in return: No tax increases.

Without increasing taxes, the district couldn’t afford to borrow money in the conventional way. So, instead of borrowing from investors over 20 or 30 years and paying the debt down each year, like a mortgage, the district got creative.

With advice from an Orange County financial consultant, the district borrowed the money over 40 years in a controversial loan called a capital appreciation bond. The key point for the district: It won’t make any payments on the debt for 20 years.

And that means the district’s debt will keep getting bigger and bigger as interest on the loan piles up.

The bottom line: For borrowing $105 million in 2011, taxpayers will end up paying investors more than $981 million by 2051, or almost 10 times what the district borrowed. That’s wildly more expensive than a typical school bond, in which a district pays back two or maybe three times what it borrowed.

As well as being expensive, capital appreciation bonds work by tapping future growth in property values to pay today’s debts, a concept considered by many in the school bond business to be both risky and inequitable. In 1994, the state of Michigan banned school districts from issuing bonds like this, deeming them too toxic to taxpayers. Nevertheless, California’s ever-strapped districts have increasingly looked to capital appreciation bonds to raise money for improvements without increasing taxes on current residents. Across the state, districts have borrowed billions this way, using exotic financing to shift the burden for paying for today’s school construction to future generations of Californians.

Poway Unified, a district more accustomed to praise for its fiscal austerity, has found itself at the center of the debate over these bonds. For a year now, it’s come under fire from taxpayer groups and concerned elected officials around the state, for whom Poway’s bond has reached legendary status.

...Officials at the district and two members of the school board who approved it acknowledge that the deal is expensive. But they say Poway’s overall construction program has been a roaring success and a boon to local students and homeowners alike. District taxpayers should have understood that borrowing money over a longer period of time, without raising taxes, would be pricey, the officials said...

"We could have authorized more taxes, it would just have been breaking the promises we made to the community," said school board member Todd Gutschow.

But last year’s bond doesn’t just affect the taxpayers who voted on it. It also saddles their children and grandchildren with hundreds of millions of dollars in debt, and raises the risk that property taxes could spike once the district finally starts making payments on its loan.

In short: In order to keep its promises to current residents, the district entered into a deal that places a billion-dollar burden on future residents...

A Hard Sell

In 2008, Poway Unified’s school modernization plans were way off schedule. Construction costs had spiraled upwards, fueled by the region’s real estate boom. This, combined with other construction delays and cost overruns, meant the district needed more money to complete its ambitious renovation program.

Voters had agreed back in 2002 to allow the district to borrow $198 million to bring state-of-the art facilities to 24 schools. But by 2008, the district was asking for $179 million more to finish the job.

Traditionally, school districts in California fund renovation programs by borrowing money from investors and paying back those loans with small increases in local property taxes.

That’s what Poway Unified’s first bond did in 2002. With California’s economy starting to warm up from the boom-and-bust of the late-1990s, voters approved the district bumping local property taxes up by $55 for every $100,000 of home value. That revenue was then tapped to pay off the district’s construction loans.

By 2008, however, the economy was in trouble. The real estate market had already been tanking for a couple of years. Stocks were sliding downwards and unemployment was on the rise.

It was a tough time to sell a tax increase to voters.

But with some Poway Unified residents still waiting for the renovations they had been promised back in 2002, the district decided to approach voters once more.

"We knew the voters wanted these projects, and we knew they wanted them sooner rather than later," said Poway Superintendent John Collins.

This time, Poway Unified didn’t try to push a tax increase. Instead, it came up with a different way to pay for its new bond program, Proposition C.

Rather than increasing the tax rate, the district asked voters if they’d be willing to extend the life of the existing property taxes for an estimated additional 11 to 14 years.

That passed muster. Despite some vocal opposition, on Feb. 5, 2008, district residents voted 63.9 percent in favor of Poway Unified borrowing another $179 million.

But the bond’s supporters hadn’t made clear to the public just how they planned to borrow money without raising taxes, or how much that would end up costing taxpayers. In 2008, there wasn’t enough money coming in from the district’s $55 property tax levy to pay for all the new borrowing it wanted to do. All the cash being generated by the existing taxes was eaten up paying off old loans that had already been used for upgrading schools.

The district’s plan, then, was to borrow money against the future tax revenues it would receive by extending the life of the taxes. In other words, it would get the money now, but wouldn’t start paying it back for a long time.

Borrowing money in this way is possible for school districts, but it’s much more expensive than paying a loan back year-by-year.

Last year, the district put together its deal to borrow $105 million, without paying anything towards the debt for 20 years.

In two decades’ time, taxpayers will start paying about $50 million a year towards the loan. They’ll make those payments for the next 20 years or so. It’s a bit like a massive version of one of those exotic loans that got homeowners into so much trouble.

With one key difference: For the next 20 years, Poway Unified isn’t even paying the interest.

...But a voter reading the ballot statement for Proposition C in 2008 would have learned nothing about the overall cost of the deal the district was setting itself up for. The full 2,200 word statement makes no mention of capital appreciation bonds, and says little about how the borrowing would be paid back. The ballot arguments against the bond don’t mention the unusually high costs involved in borrowing money that won’t begin to be paid back for 20 years. The bond also had considerable cachet, thanks to a coveted endorsement from the San Diego County Taxpayers Association. Indeed, association President Lani Lutar’s name was first on a list of five local dignitaries named on the ballot as supporting the bond.

Lutar said had she known the full implications of the bond, she would not have recommended the association support it.

...Last month, the association changed its criteria for endorsing school bonds. In the future, it will ask districts how, exactly, they will finance their bonds. ...Glenn Byers, Los Angeles’ assistant treasurer and tax collector, said districts like Poway have been dishonest by issuing bonds without laying out the consequences and costs of the loans for taxpayers.



Find High-Interest School Bonds in Your District: A Five-Step Guide
August 8, 2012
By WILL CARLESS

Since publishing the story on the Poway Unified School District’s billion-dollar bond, we’ve had a bunch of inquiries from all around the state asking one question: Is this going on in my local school district?...

Step One: Find your district in our capital appreciation bond database...

[Maura Larkins comment: Here are some of the districts I found:

2006-0201 Bonsall Union School District 2/23/2006 8,920,243.00 General obligation bond
2007-1030 Bonsall Union School District 7/26/2007 4,698,309.00 General obligation bond
2006-1353 Bonsall Union School District 1/25/2007 3,381,128.00 General obligation bond

2001-0148 Capistrano Unified School District 2/28/2001 29,999,930.00 General obligation bond

2000-1370 Cardiff School District 7/19/2000 10,999,035.00 General obligation bond

2011-0482 Carlsbad Unified School District 6/7/2011 52,998,238.00 General obligation bond
2009-0237 Carlsbad Unified School District 5/12/2009 79,998,017.00 General obligation bond

2011-1278 Escondido Union High School District 10/6/2011 20,000,451.00 General obligation bond
2009-0981 Escondido Union High School District 8/18/2009 34,216,905.00 General obligation bond
2009-1391 Escondido Union High School District 12/1/2009 26,996,392.00 General obligation bond
2002-0430 Escondido Union School District 7/18/2002 46,299,622.00 General obligation bond

2008-0504 Grossmont Union High School District 7/22/2008 88,159,578.00 General obligation bond
2006-0779 Grossmont Union High School District 5/31/2006 124,999,225.00 General obligation bond
2004-0710 Grossmont Union High School District 6/3/2004 60,841,197.00 General obligation bond

2010-0902 Lakeside Union School District 9/22/2010 12,982,209.00 General obligation bond
2009-0034 Lakeside Union School District 4/23/2009 21,833,149.00 General obligation bond

2010-1239 Lemon Grove School District 9/23/2010 7,999,480.00 General obligation bond
2002-1813 Lemon Grove School District 10/18/2002 2,191,178.00 General obligation bond
2000-1769 Lemon Grove School District 11/30/2000 2,560,587.00 General obligation bond

2012-0447 Oceanside Unified School District 4/11/2012 14,999,282.00 General obligation bond
2010-0235 Oceanside Unified School District 5/5/2010 29,999,991.00 General obligation bond
2008-1062 Oceanside Unified School District 2/19/2009 49,995,054.00 General obligation bond

2010-0094 Poway Unified School District 3/10/2010 24,998,007.00 Bond anticipation note
2010-1369 Poway Unified School District 8/3/2011 105,000,150.00 General obligation bond
2008-1217 Poway Unified School District 1/9/2009 3,698,554.00 General obligation bond
2008-1216 Poway Unified School District 1/9/2009 73,998,936.00 General obligation bond
2006-1091 Poway Unified School District 10/19/2006 119,300,766.00 General obligation bond

2007-0692 Ramona Unified School District 6/13/2007 24,333,360.00 Certificates of participation/leases

2008-0412 Rancho Santa Fe School District 7/22/2008 1,959,042.00 General obligation bond
2008-0413 Rancho Santa Fe School District 7/22/2008 33,997,571.00 General obligation bond
2004-1209 Rancho Santa Fe School District 7/30/2004 2,836,419.00 General obligation bond

2012-0397 San Diego Unified School District 3/1/2012 65,434,442.00 General obligation bond
2012-0485 San Diego Unified School District 5/10/2012 149,998,824.00 General obligation bond
2010-0997 San Diego Unified School District 8/5/2010 163,869,783.00 General obligation bond
2009-0232 San Diego Unified School District 4/23/2009 131,157,581.00 General obligation bond
2004-1372 San Diego Unified School District 8/19/2004 199,996,373.00 General obligation bond
2005-1469 San Diego Unified School District 8/18/2005 195,024,802.00 General obligation bond
2002-1426 San Diego Unified School District 8/22/2002 274,995,346.00 General obligation bond
2003-1434 San Diego Unified School District 8/7/2003 349,993,599.00 General obligation bond
2001-1770 San Diego Unified School District 11/8/2001 199,995,712.00 General obligation bond
2000-1584 San Diego Unified School District 12/6/2000 149,999,084.00 General obligation bond

2012-0109 San Ysidro School District 1/31/2012 10,409,715.00 Certificates of participation/leases
2011-0496 San Ysidro School District 6/15/2011 17,599,623.00 General obligation bond
2007-1350 San Ysidro School District 11/15/2007 33,952,741.00 General obligation bond
2004-1729 San Ysidro School District 1/14/2005 24,619,363.00 General obligation bond

2004-1742 Sweetwater Union High School District 11/4/2004 96,999,415.00 General obligation bond]



Kudos to Michigan Journalist on the Poway Bond Story
August 8, 2012
By ANDREW DONOHUE
Voice of San Diego

We've gotten more national attention on our Monday story about bonds at Poway Unified School District than we imagined. While it's been great, today a retired reporter and blogger in Michigan is upset with us for taking credit for breaking the story...

Joel Thurtell is a retired Detroit Free Press reporter who has a long history of great reporting on this type of borrowing. He now keeps his own blog called Joel on the Road and did important work on Poway’s expensive borrowing back in May, long before we wrote about it...

First, there’s no doubt Thurtell’s work deserves highlighting. Here are three tremendous stories he did on the Poway financing in May: CABs = Compound Trouble in California, Disaster Shadows Poway and CAB Scam in Poway...