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AUSD Measure C Bond Repayments Balloon, Extend to 2036

Based on a 2004 tax bond measure, AUSD issued Capital Appreciation Bonds, which have become controversial. (File Photo)

Based on a 2004 tax bond measure, AUSD issued Capital Appreciation Bonds, which have become controversial. (File Photo)

Although the Alameda Unified School District Measure C oversight committee may be wrapping up its work, Alameda taxpayers will be repaying the bonds tied to that spending for another two decades.

Documents obtained by Action Alameda News through a public records request show that the repayment of so-called Capital Appreciation bonds, issued pursuant to Measure C in 2004, a school district tax bond election measure, extends into the year 2036.

Some 72 percent of Alameda voters approved the tax measure in March, 2004, the stated purpose of which was to:

To renovate aging neighborhood schools, improve student safety conditions, relieve classroom overcrowding, construct, equip, upgrade classrooms, facilities and sites, and qualify for over $17 million in State matching funds, shall the Alameda City Unified School District issue $63 million of bonds at legal rates, with annual audits and citizen oversight, with no proceeds going to the State and all funds remaining in Alameda to benefit neighborhood schools without increasing existing tax rates?

The levy on taxpayers to repay the debt appears on tax bills as “VOTER APPROVED DEBT SERVICE:” in the tax-rate breakdown section of Alameda County property tax bills.

AUSD tax bond measure levies show up on your property tax bill.

AUSD tax bond measure levies show up on your property tax bill.

At least $55.4 million of the total $63 million approved by voters was raised by issuing capital appreciation bonds, which accrue interest for several years without requiring repayment.

Capital appreciation bonds have become controversial as the re-payment is back-end loaded; that is, debt service increases in the latter part of the life of the bonds, and because the total repayment amounts become quite large relative to the amount borrowed.

A San Diego newspaper broke a story last year illustrating that, using capital appreciation bonds, the Poway Unified School District would ultimately pay $1 billion to borrow $105 million for infrastructure improvements.

The Internal Revenue Service initiated an audit of the deal, and the school district hired a forensic accountant and former FBI official to scrutinize its bond program.

The 2004 Alameda Unified School District bond issuance was split into two series, Series A and Series B.

Each series had a current interest bond component, and a Capital Appreciation Bond (CAB) component.

Series A
The Series A CAB component, with a principal amount of $38 million, began accruing interest in 2004, but the school district won’t make any payments on that loan until 2014, 10 years after issuance.

In 2015, the combined Series A current interest and CAB annual debt service amount will jump to $5.2 million, a five-fold increase from the 2013 amount of $953,350; the increase is due to the kick-in of the CAB repayments on the Series A bonds.

The bonds aren’t scheduled to be fully repaid until 2029.

For $38 million in principal borrowed, the Alameda Unified School District will repay a total of $93 million, or 2.45 times the amount borrowed.

Series B
Likewise, the Series B bonds comprised a current interest bond component and a CAB component. However, with series B, repayment on the CAB bonds was deferred for 22 years.

Issued in 2006, those CAB bonds won’t begin see repayment from the school district until 2028, when the annual debt service on the CAB portion alone will total more than $8 million. Those bonds won’t be repaid until 2036, and the structure of the deal requires the district to repay $71.5 million in as little as nine years, from 2028 to 2036, or otherwise refinance the debt.

For borrowing roughly $17 million in 2006, the school district will pay back $71.5 million, or 4.10 times as much as the principal amount.

In total, between the Series A and Series B CAB bonds, the school district will have borrowed $55.4 million, and will be obligated to pay back $164.75 million, or three times the principal amount.

2029 Crush
In 2029, the year that the maximum repayment amounts for both Series A and Series B overlap in the same year, the Alameda Unified School District will be obligated to pay $15.3 million against those capital appreciation bonds.

Earlier this year, the San Mateo County Grand Jury issued a report on capital appreciation bonds, calling them “ticking time bombs” that might better be called “too-good-to-be-true-bonds.”

“The taxpayers who approve these loans are presenting the tab to their children and grandchildren,” reads the Grand Jury report.

In September, Action Alameda News reported that the Sacramento legislature is examining ways to limit the use of capital appreciation bonds, and that these changes may impact any future school district tax bond measures.

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