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Sacramento Bond Bills Could Affect School District’s Bond Measure

Bills AB621 and AB182, winding their way through the state capitol, could impact AUSD's efforts to raise money through their own bond issue. (File Photo)

Bills AB621 and AB182, winding their way through the state capitol, could impact AUSD’s efforts to raise money through their own bond issue. (File Photo)

Two bills winding their way through the state capitol could potentially impact Alameda Unified School District’s (AUSD) intent to put a facilities bond measure on the ballot next year.

Bill AB621, introduced by 68th Assembly District representative Donald Wagner, “would prohibit a local agency from entering into a financial advisory, legal advisory, underwriting, or similar relationship with an individual or firm, with respect to a bond issue that requires voter approval on or after January 1, 2014, if that individual or firm provided or will provide bond campaign services to the bond campaign.”

The school district has been working towards a plan to put a bond tax measure worth tens of millions of dollars on the ballot in November of next year, to fund facility repairs across 17 school campuses.

AUSD senior manager for community affairs Susan Davis, in response to a query, told Action Alameda News, “using district funds to procure campaign advice is prohibited by state law. But hiring a consultant to help structure the bond – e.g. strategizing about underwriting; navigating the state funding system to find matching/hardship/other funds; and figuring out if we need one bond or a series of bonds – is not prohibited.”

(Action Alameda News, based on a reading of the AUSD school board meeting agenda packet, previously reported that the district was budgeting as much as $300,000 for the consultant. Davis clarified that the $300,000 was not for consultants, but facilities professionals to help develop the facilities master plan. She did not however provide a response to our question about the amount budgeted for a bond structure consultant, or who the contenders for that contract are.)

The proposed legislation would expressly prohibit such a consultant from crossing over into services or actions such as fundraising support, election strategy and management, or making donations to a pro-measure campaign fund. The bill was approved by the California Assembly in May of this year.

The new law is in response to a scandal centered on the George K. Baum & Company investment banking firm of Kansas City, Missouri, which was hired by the Placentia-Yorba Linda Unified School District in 2008 to help push through a $200 million bond measure that is expected to cost far more than voters realized when they gave their approval.

Earlier this year, the Orange County Register reported that after the measure passed, the Placentia-Yorba Linda school district board allowed the investment bank to issue $22 million in bonds that would ultimately cost $280 million, or 13 times the principal amount, to repay.

The problem with the bonds is that they were so-called Capital Appreciation Bonds, which allows interest to compound from the date of issue, even though repayment of the principal is deferred for decades. This causes the ultimate repayment amount to grow several times beyond what a typical bond issue would require.

It’s unclear at this time what the structure would be of any bond issue put on the ballot by AUSD next year.

Bill AB182 would expressly forbid school districts from issuing Capital Appreciation Bonds, and bonds with similar deferred principal repayment structures. That bill appears headed for the Governor’s desk.

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