LOS ANGELES — California's Poway Unified School District stood in an uncomfortable spotlight when a capital appreciation bond deal it sold became the example critics of the CAB structure cited as excessive.
The news reports on Poway USD and its CAB deal — focusing on a $105 million series that will require about $1 billion in debt service through the 40 year maturity, without a call option — reverberated locally, where voters ousted school board incumbents, and in Sacramento, where the state treasurer at the time, Bill Lockyer, spearheaded legislation limiting CAB structures for school districts.
But the turnover on the Poway school board appears to have stalled movement toward refinancing and restructuring its CABs, even as other districts with similar debt structures have done so.
The Poway district brought in financial advisor Dale Scott, who had worked with other school districts to refinance similarly non-callable CABs, to give presentations on his ideas.
"Nothing happened with it," said Scott, president of San Francisco-based Dale Scott & Co. "The item was tabled, because of the upcoming board election."
Scott's proposal — already used in other districts — involves offering to buy the long, non-callable CABs from their owners.
They can be refinanced with bonds using a more conventional amortization schedule.
After Poway held a series of
During that election, three new school board members were elected to the board.
Challenger Michelle O'Connor Ratliff, Charles Sellers and T.J. Zane were elected; incumbents Todd Gutschow and Marc Davis lost.
Another board member didn't seek re-election. The challengers campaigned on concerns over the bonds.
Given the fact that the board has three new board members, Scott said he assumes it will at some point want to revisit the issue, but right now it is on hold.
After the board held three public hearings on Scott's proposal, the board didn't make a decision either to move forward or not to move forward, according to a district spokeswoman.
The school board is advertising for residents who are interested in working on a bond advisory committee that would help decide whether to refund the bonds, and if so, how it would be structured.
The school district held last year's hearings at the behest of Ron Bennett, chief executive officer of consulting firm School Services of California, Inc.
Bennett said in an interview that he recommended the school district speak with Scott after he heard about Scott's proposal to help California school districts that had issued CABs with balloon payments.
Bennett has worked as a fiscal consultant to the district for nearly 15 years. He would receive no financial gain from Scott's proposal, according to school district documents.
The district has presentations from both Bennett and
While Poway has not moved ahead on plans to refund its CABs, Scott said several other school districts have achieved savings over the original issue.
The Stockton Unified School District refinanced and restructured a fair number of its CABs for savings of $72 million, Scott said.
Others that have refinanced or restructured their CABs include Ceres USD in Stanislaus County and the San Leandro USD in Alameda County.
He also is working with Lakeside Union School District in San Diego County on a proposal that could price in the next several weeks, he said.
"There are a number of other district boards looking at it, but haven't taken action," Scott said.
The estimated savings is not "discount savings," but taxpayer savings, Scott said.
The reason the Poway district entered into the long-dated CAB deal in the first place was to finance construction today without raising property tax rates on present-day taxpayers.
"The need for the CABs arose because the district needed to pay off a short term lease revenue bond issued in 2008 to ensure the remaining 18 projects were completed as quickly as possible," according to a school district presentation.
The trade-off is that taxpayers 40 years in the future will still be footing the bill, expanded due to compounding interest.
Poway's CABs are estimated to require a payback of $1 billion as they stand now, using nominal, not discounted numbers, Scott said.
The program he has employed in other districts — and has proposed for Poway — would shift the payments forward, so they are evenly distributed. It saves money for both the present and future taxpayers, he said.
"We are not able to acquire all the CABs, but it reduces payments on the ones we can acquire," he said. "From a financial point of view it's a no-brainer. You are taking high cost long-term debt and refinancing it into lower-cost short term debt."
But then, he said, the discussion evolves into policy issues about the best way to restructure it.
The Poway district did recently refund $89 million of unrated public financing authority special tax revenue refunding bonds through a new Series 2015A priced on March 22.
It also has plans to refund another $63.8 million in series 2015B for the school district's Community Facilities District No. 6, issued for 4S Ranch.
The finance team on the Series A bonds included Stifel as underwriter; Best, Best & Krieger LLP as bond counsel; McFarlin & Anderson LLP as disclosure counsel; and Fieldman, Rolapp & Associates of Irvine as financial advisor.
Standard & Poor's rated the Series B special tax revenue refunding bonds BBB-plus with a stable outlook.
At the same time, Standard & Poor's affirmed its BBB-plus long-term rating and underlying rating on the Poway district's Community Facilities District No. 6's existing special tax bonds, issued for 4S Ranch.
"We expect that the CFD and improvement area's fully developed status will continue to produce adequate coverage by owner-occupied properties," wrote Standard & Poor's credit analyst Kate Burroughs. "The diverse property tax base mitigates the district's reliance on a small amount of owners to provide special taxes."
The CFD encompasses 530 taxable acres in the master-planned community of 4S Ranch, 23 miles north of downtown San Diego. The CFD is almost entirely built out, and the 2015 levy on the authority level bonds encompasses 3,762 parcels.
The 2015B bonds issued under the Marks-Roos Local Bonds Pooling Act, are secured by next special tax revenues levied from CFD No. 6 and CFD No. 6 Improvement Area B.
The CFD and improvement area are both responsible for their own local obligations. Special taxes levied in one cannot be used to pay the debt service in other. A combined reserve, however, will provide partial cross-collateralization, according to S&P.
Assessed value within the CFD No. 6 as a whole has increased during the past three years to $2.5 billion in fiscal 2014 with IA-B encompassing $1.1 billion of the total CFD AV, according to the S&P report.
The liens have been closed for any additional parity bonds at the authority and local levels of both the CFD and IA, therefore no additional parity debt may be issued, according to the S&P report.
S&P cited a largely developed, entirely residential property tax base, a very diverse taxpayer base; and strong coverage levels for the rating.
