MODESTO — Building schools never was cheap. But on top of the land, materials, prevailing wage, interminable regulations and lengthy state approvals come the borrowing costs.
Property taxes due last week help to cover roughly $2 billion in school building debt that Stanislaus County landowners will pay off for decades.
In Turlock, for instance, property owners are paying off $57 million in bonds authorized since 1996 to build Pitman High, Walnut and Medeiros elementaries and to modernize older Turlock Unified campuses. Their debt will be done in 2032, having paid $91 million, or 1.6 times the amount borrowed.
Contrast that with the situation in the Patterson Joint Unified School District. Residents there are paying down $37 million in school bonds approved since 1996 to build Creekside Middle School, Walnut Grove school and facilities at Patterson High. With interest, Patterson property owners will pay $165 million, more than four times the amount borrowed, by the time the last check clears in 2049.
The difference is Turlock Unified bonds are all current interest bonds. Like a mortgage, those bonds pare down principal and interest from the start.
Patterson Unified has large capital appreciation bonds. Like student loans for college, those payments start at a later date, after years of interest have quietly accrued. That deferred interest quickly multiplies the debt.
Ceres Unified also has a high-cost, 40-year capital appreciation bond as a portion of its debt. The $15 million it borrowed will cost $123 million to pay back over 40 years, more than an eightfold increase.
The funds were needed to finish a school after property values plunged, Superintendent Scott Siegel told board members. But it came at a high cost. "We're on the wrong side of the line on this one," he admitted.
The bond can be refinanced in 2020, however. He and board members pledged to remind each other in eight years, "That needs fixing."
Patterson Superintendent Phil Alfano said his district chose a high payback over a high yearly cost.
"The commitment was made to the community to keep their payments down. It's just like any payments you make over time. You stretch out your payments, your payments go down. It's no different than a mortgage," Alfano said.
Not building was not an option, he said, with the town booming and up to 1,200 children stuffed into one elementary school.
"In the early part of the last decade, the town doubled in size," Alfano said. State figures show Patterson Unified's enrollment was 3,519 in 1996, rising steadily to 5,888 last year, a 67 percent increase.
One of Patterson's capital appreciation bonds tallied the highest borrowing costs in the county, tapping $9.6 million from the 2008 measure. That series, timed to start repayment only when another bond series ends in 2033, will cost taxpayers $96.6 million, more than 10 times the amount borrowed.
That's the same ratio that made headlines when Poway Unified, north of San Diego, issued $100 million in bonds that will cost taxpayers $1 billion after 40 years.
Legislation gives limits
Poway and worse spurred Assemblywoman Joan Buchanan, D-Alamo, and state Sen. Ben Hueso, D-San Diego, to write a bill to limit the use of capital appreciation bonds. In an unusual show of solidarity, the Assembly Education Committee passed Assembly Bill 182 unanimously March 20. It has yet to come to a floor vote. The bill got a first reading in the Senate on Monday and now heads to committee reviews.
The legislation addresses only the pay-later capital appreciation bonds. The bill would:
Limit total cost of a bond to four times the amount borrowed. Seven school bonds in Stanislaus County would not pass that test, including Patterson's.
Give school districts the option to refinance any capital appreciation bond that stretches beyond 10 years. Most of those in Stanislaus County cannot be refinanced.
Limit future school bonds to 25 years.
Require public disclosure at a school board meeting of the total financing cost; a comparison with total cost under a current interest bond; and the reason capital appreciation bonds are being recommended.
Disclosure would be a major change. Most bonds are structured by hired financial advisers whose fees are built into what generally is a set-and-forget package.
Budget presentations to school boards focus on yearly operating costs and reserves, not on bond debt payments. The inch-thick annual audits of district accounts mention bond debt only as a notation under "long-term obligations."
Even the bonds' citizen oversight committees watch spending, not financing, said California School Boards Association President Cindy Marks, who has been on the Modesto City Schools board since 1997.
After Modesto's Measures S and T passed in 2001, she said, the board debated questions such as where schools' bathrooms would be, if they were close enough for between-class passing times, and large enough for a crowd at a school performance.
"Those were the sorts of things we as board members were looking at," Marks said. She said CSBA financial training for new members gives basics, but information on bond finance is available.