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School Board Members Scrutinize Bond Issues

Buy-now-pay-later bonds issued by AUSD in 2004 are beginning to come due this year. (File Photo)

Buy-now-pay-later bonds issued by AUSD in 2004 are beginning to come due this year. (File Photo)

Two Alameda Unified School District (AUSD) board members are taking a closer look at district plans to ask for more voter-approved debt later this year, as the risks of the previous tax bond ballot measure, Measure C in 2004, come into sharp relief.

In 2004, voters approved Measure C, which authorized the school district to issue $63 million in face value of debt, to fund repairs to local schools.

The district issued Capital Appreciation Bonds, which have become notorious now, because they defer principal repayment and vastly increase the amount of debt that taxpayers must ultimately repay, including interest, beyond the face value of the bonds.

The bond repayment schedules show that, for $63 million in face value debt issued by the school district in 2004, taxpayers are on the hook to ultimately repay $176 million, or almost three times the original amount borrowed.

To date, no principal amount – only interest – has been paid on these bonds, but as Action Alameda News previously reported, those initial balloon principal repayments begin this year.

The bond underwriters, the firms that handled the issuance and sale of the bonds on behalf of the school district, and ultimately profited from the deal, UBS Securities and Piper Jaffray, each contributed $25,000 to Alamedans for Better Schools, the pro-bond tax campaign committee that urged voters to approve the debt issue in 2004.

With another tax bond campaign looming, this past bond measure, and the problems with capital appreciation bonds – last year the legislature moved to restrict school districts’ abilities to use the instruments, citing scandals in southern California – is receiving closer scrutiny.

AUSD school board member Trish Spencer has been highlighting the issue on her Facebook page, and pointing out how, during the 2004 Measure C campaign, she questioned the wisdom of using ‘buy-now-pay-later’ capital appreciation bonds.

She posted the text of a 2004 Oakland Tribune article, which read, in part:

Alameda parent Trish Spencer led a growing number of community members who questioned the district’s plan to delay payment on the loan for 10 years. Measure C will avoid raising parcel taxes by extending payments on an existing school bond issued in 1989. The new bond will be issued in two offerings during the next few years, but taxpayers won’t begin paying it off until the old bond ends in 2014. Meanwhile, the loan could incur as much as $196 million in interest, more than three times the principal, according to a report by district Chief Financial Officer Lorenzo Legaspi. And it could be 2046 before taxpayers pay off the debt.

School board member Margie Sherratt, confronted the details of the looming balloon payments, news articles about the southland bond scandals, and hers and her husband’s Measure C campaign contributions, recorded alongside UBS Securities and Piper Jaffray’s contributions, and asked if she would push for anything different this year on the tax bond ballot measure effort, would say only, “Thank you for your email and for the attachments. I will study this information.”

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