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MDUSD to hold forums regarding proposed property tax increase

By Theresa Harrington
Wednesday, April 11th, 2012 at 5:13 pm in Education, Mt. Diablo school district.

In response to a request from a coalition of community members that the district consider raising property tax rates to accelerate 2010 Measure C bond sales, the district has sent out the following message to the community:

“Mt. Diablo USD News Update
Where Kids Come First
April 10, 2011

As we approach the middle of the spring fundraising season, I want to thank parents, staff, and local businesses for all that you do to enhance our children’s educational program. Your efforts make a real difference in the quality of our children’s education at a time when we must do more with less. We are truly grateful that you choose to invest your time and energy to benefit our children.

Measure C Update
In June 2010, voters in our District approved Measure C, a $348 million bond measure, to renovate and upgrade schools throughout the District. This successful election followed an earlier bond measure approved by voters in 2002. At the time of the 2010 election, voters supported maintaining a combined tax rate of $60 per $100,000 of assessed value between the 2002 and 2010 Measure C bond issuances.

Recently, a district‐wide group of community members requested the Board consider increasing the combined tax rate above the $60 per $100,000 of assessed value in order to avoid issuing more costly Capital Appreciation Bonds and having to prolong the completion of construction projects. Increasing the combined tax rate above $60 would also allow the district to take advantage of current historically low interest rates, more stable construction prices, and to accelerate the completion of projects so our current students would see benefits sooner.

Based on this request, the Board held a study session on April 2nd. The first question was whether the Board has authority to go above a combined rate of $60 per $100,000 of assessed value. Each time a unified school district passes a Prop 39 bond measure, the local School Board has authority to issue bonds that increase the tax rate to $60 per $100,000 of assessed value. Therefore, the Board can legally increase the combined tax rate above $60. From the study session Board members agreed that taking advantage of historically low interest rates, stable construction costs, and selling bonds now allowing the District to get projects done significantly sooner makes financial sense. However, they believe it is important to ensure that the broader community has more information and an opportunity to give input. To view the Power Point that was shared at that meeting, visit http://esb.mdusd.k12.ca.us/attachments/162e8255-a090-4517-8df7-30b7b632a526.pdf.

The purpose of this newsletter is to provide you with information in response to five key questions:

1. How has the District been financially responsible over the past two years with bonds that voters have approved?

2. What projects have been started and completed to date?

3. What are the advantages and fiscal impacts of accelerating the bond sales?

4. What are some possible bond issuance options?

5. How can parents and other community members get their input to the Board?

1. How has the District been fiscally responsible over the past two years with voter approved bonds?

Since Measure C passed in June 2010, the District has issued $121 million in bonds. Advance planning by the board and District staff led to MDUSD to become one of only 40 school districts nationwide to receive federal Clean Renewable Energy Bonds. These construction bonds provided $59.5 million in federally subsidized bonds for our 12.1 megawatt solar project, creating a greener California and saving local taxpayers over $29 million in interest payments.

As interest rates have declined over the past two years, the District has wisely sought opportunities to refinance bonds from the Election of 2002 authorization. Three series of refunding bonds have been issued saving property taxpayers $13.6 million in interest payments.

The District will continue to seek ways to save taxpayers’ money as well as issue the remaining $227 million Measure C bonds in a fiscally responsible manner.

2. What projects have been started and completed to date?

Due to the state budget crisis, a majority of the initial bond sales have focused on projects that positively impact the School District General Fund. Measure C allowed us to positively protect our bottom line by:

 Retiring General Fund construction debt that cost the district $1.4 million annually

 Implementing a 12.1 megawatt solar project that will:

 Result in annual savings of $3 million on utility costs

 Raise $3 million a year for five years through the California Solar Initiative

Measure C, along with additional facilities funds, has allowed us to begin additional construction projects:

Technology

 Computer network upgrades to increase school site and classroom bandwidth and speed

 New Smartboards, LCD projectors, and document cameras for Concord and Ygnacio Valley HS

 Equipment for Project Lead the Way Engineering program at Northgate HS

Site Upgrades

 New heating and air conditioning systems (first phase of 8 sites to be completed by September)

 Window replacement at College Park HS

 Water, sewer, and electrical to football stadium at College Park HS

 Paving at Concord HS

 Stadium Lights at Northgate and Ygnacio Valley HS

New construction

 Science laboratory classrooms for Clayton Valley and Mt. Diablo HS

3. Why accelerate the timeline for bond sales, and what is the financial impact of accelerating the timeline?

As mentioned earlier, a group of community members with ties throughout the District recently requested that the Board consider increasing the combined tax rate above $60 per $100,000 to avoid issuing more costly Capital Appreciation Bonds. This would also allow the district to take advantage of the historically low
interest rates, stable construction prices, and to accelerate the completion of projects so our current students would see benefits sooner. To do so, however, would require an increase to the tax rate that property owners are currently paying.

Increasing the combined rate above $60 per $100,000 of assessed value enables the district to:

1. Avoid more costly bonds known as Capital Appreciation Bonds (CABs) and sell Current Interest Bonds (CIBs), which will greatly save property owners on overall interest costs.

2. Take advantage of historically low interest rates. In January 2012, the bond market hit an all‐time low at 3.60%. Interest rates have never been lower for school districts looking to make facility improvements through bond financing. Over time, these low rates will save taxpayers tens of millions of dollars in interest.

3. Take advantage of current stable construction costs. Since the 2010 low, construction costs have increased a modest 2.75%. When the economy was strong between 2005‐2008, the district regularly saw annual increases above 15.0% on construction projects.

4. Accelerate the completion of school projects to provide our children with new classrooms and facilities upgrades now.

As the Board considers accelerating the issuance of 2010 Measure C Bonds, the Board is weighing several factors:

 The tax rate and length of the bonds

 How soon funds are available to complete bond projects

 The types of bonds being sold (CABs vs. CIBs) and the associated interest costs

4. What are some possible bond issuance options?

Current Interest Bonds vs. Capital Appreciation Bonds – Current Interest Bonds (CIBs) are bonds where investors receive regular interest payments throughout the life of the bond. These might be the type of bond you would invest in during retirement to ensure that you received a specific amount of income on an annual basis. Total debt service, principal plus interest, is lowest with CIBs.

Capital Appreciation Bonds are bonds where regular payments are forgone during the life of the bond and only paid at maturity. In exchange for deferring all of the interest, Capital Appreciation Bonds bear a higher interest rate. An example of this is a home loan where the homeowner only pays interest costs for the first five or ten years of the loan. At the end of the interest only time period, the homeowner would see a significant increase in their monthly mortgage. These types of loans general have higher interest rates than a 30 year fixed interest loan. Capital Appreciation Bonds allow school districts to keep their combined tax rate at a lower level, but still issue bonds based on assessed value growth of their community in the outlying years.

Recently, Acalanes HSD issued $30 million in Capital Appreciation Bonds. Their total debt service on these bonds will be approximately $120 million, but using Capital Appreciation Bonds allowed them to maintain their $30 tax rate since they don’t have to make any current payments. If Acalanes sold Current Interest Bonds, their total debt service would have been below $60 million. Put another way, Acalanes HSD property taxpayers are paying an additional $60 million in interest costs because the District did not want to increase the tax rate above the $30 rate.

This is the question our school Board is grappling with: Increase the annual tax rate above the combined rate of $60 and save more than $400 million in interest payments, or maintain the existing combined tax rate of $60 and pay more than $400 million in higher borrowing costs?

Current Option MDUSD is Following

Currently, our bond program focuses on maintaining a combined tax rate for the 2002 and 2010 Measure C of $60 per $100,000 assess value.

Based on the current path and today’s interest rates, the District could issue approximately $50 million in bonds in 2012 followed by a subsequent bond sale in 2015 for $23 million. The remaining balance of $155 million could be issued in 2026. In order to maintain the estimated $60 tax rate approved by voters in June 2010, the District would issue some combination of CIBs and CABs which would bring the total borrowing costs to an estimated $908 million. This would be similar to the Acalanes example where they issued $30 million in bonds and have a principal and interest payback of $120 million.

It is important to keep in mind that there are several variables that can influence bond sales including assessed value growth, interest rates, bond terms, and types of bonds sold. Any change to these variables can accelerate or postpone the timing by which the District might receive funds as well as determine the final borrowing costs.

New Options Under Consideration

Sell the remaining $227 million today – There are two options to consider in regard to selling the remaining $227 million today:

Option 1 would increase the tax rate to $89.53, have a 30‐year term, and use some CABs in order to maintain a lower tax rate. Under Option 1, the total borrowing costs would be an estimated $603.8 million.

Option 2 would have lower borrowing costs totaling $417.8 million in principal and interest (nearly $200 million less than Option 1), but requires an increase to the tax rate to $110.29. The term on Option 2 would be 25 years.

Options 1 and 2 demonstrate the fundamental relationship between tax rates and borrowing costs. If the district increases the tax rate, it will save property taxpayers nearly $200 million in this scenario. If, however, the District wants to keep a lower tax rate (in this case $89.53) and issue bonds, it comes with a higher overall cost of borrowing.

Sell a portion of bonds today with the balance to be sold in the future – Another consideration is to sell bonds in two or more issuances. While these options would delay receiving all bond proceeds by a few years, it could be a less expensive alternative allowing for a more modest tax rate increase but also lowering the overall cost of borrowing.

Under Option 3, the District increases the combined tax rate to $89 in 2012 followed by an additional increase to $95 per $100,000 of assessed value starting in 2015. Option 3 does not use any CABs and has a 25‐year term, so the overall Total Debt Services is low at $385 million.

The following table presents the different options that the District is considering in light of the recent community members’ request to accelerate the bond sales:

Current Path: Bonds with CIBs and CABs
Issue Dates: 2012, 2015, 2026
Bond Structure: CIBs & CABs
Financing Term: 25 years
Bond Issuance Amount: $49 M, $23 M, $155 M
Total Interest: $681 M
Total Debt Service: $908 M
Tax Rate per $100K of assessed value(1): $60.00

Option 1: One Bond sale, some CABs
Issue Date: 2012
Bond Structure: CIBs & CABs
Financing Term: 30 years
Bond Issuance Amount: $227 M
Total Interest: $376 M
Total Debt Service: $603 M
Tax Rate per $100K of assessed value(1): $89.53

Option 2: One Bond sale, no CABs
Issue Date: 2012
Bond Structure: CIBs Only
Financing Term: 25 years
Bond Issuance Amount: $227 M
Total Interest: $190 M
Total Debt Service: $417 M
Tax Rate per $100K of assessed value(1): $110.29

Option 3(2): Bonds sold next 3 years
Issue Dates: 2012, 2015
Bond Structure: CIBs Only
Financing Term: 25 years
Bond Issuance Amount: $150 M, $77 M
Total Interest: $158 M
Total Debt Service: $385 M
Tax Rate per $100K of assessed value(1): $89.00, $95.00

Note: All the above analyses are based on market interest rates and subject to change due to variations in actual interest rates, bond terms, and types of bonds sold at the time of the sale as well as the District’s construction schedule.
(1) Combined 2002 & 2010 Election tax rate
(2) In order to keep a CIBs only structure and access all remaining bond funds in 2015, tax rate would need to be increased to $95.00

5. How can parents and other community members get their input to the Board?

There are significant benefits to accelerating the bond issuances, but there are multiple variables that go into informing that decision and selecting a path. The ‘best path’ will be determined by which variables people believe are most important:

 getting facility improvement projects completed as quickly as possible to maximize lower construction costs

 minimizing overall borrowing costs by increasing the amount above the combined rate of $60 per $100,000 assessed value and utilizing lower interest rates

 maintaining the current combined tax rate of $60 per $100,000 assessed value, but having higher borrowing costs due to higher interest rates and a longer project timeline

If you would like clarification around any one of the many issues addressed in this newsletter or would like to provide your feedback and opinion, please feel free to drop by one of the public forums being held the week after spring break. Below are the dates, times, and locations of the public forums. The forums will be
facilitated by staff and be appropriately publicized so that Board members can attend to listen to the dialogue. The format of the public meetings will be a Power Point presentation followed by a question and answer time. At the end of each public forum, we will pass out and collect a survey similar to the random
phone survey that we will be conducting to gather community input. The results of the survey will be shared with the Board at the April 23 Board meeting.

Date, Location, Time:

Monday, April 16 Riverview MS Multi Use Room 6:30 p.m.

Tuesday, April 17 College Park HS Multi Use Room 6:30 p.m.

Wednesday, April 18 Ygnacio Valley HS Library 6:30 p.m.

Thursday, April 19 Monte Gardens Multi Use Room 6:30 p.m”

Unfortunately, the options presented in the newsletter differ slightly from those presented to board and are numbered differently.

Most surprisingly, the district has revealed that it would not be able to complete all the projects in seven years, as originally planned, if it continues on its current path. Instead, the district now estimates it would need to delay issuing $155 million until 2026.

If voters had been asked in 2010 whether they would approve a $348 million tax measure that wouldn’t see 45 percent of the projects completed for more than 16 years, do you think Measure C would have passed?

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  • Doctor J

    Only 32 current 8th graders who are in the CVHS feeder pattern are going to high schools other than CVCHS. 28 to Northgate and 4 to Concord.

    This is a major slam on Lawrence and Eberhart. Gary, you bet on the wrong horse.

  • Theresa Harrington

    Since Northgate is higher-achieving than CVHS currently, this is no big surprise. If no special ed students transfer out of CVCHS, the district may need to lower its estimates for how much the charter is costing.
    At last night’s COE Board meeting, I was struck by the difference between the county’s strong recommendation against the proposed WCCUSD charter, in contrast to its strong support for the CVHS charter. Clearly, the COE staff was impressed by the CVCHS application and is willing to reject applications that don’t measure up.
    The county expects to vote on updates to its charter policies, to bring them in line with state Ed. Code. Although the draft policy is not posted online, it is available by request. Some trustees suggested approving the changes last night, but others wanted to wait for a second reading to give the public a chance to weigh in.
    Also, the county staff strongly urged districts to prepare to implement TK, instead of waiting for the May revision, since it is in the law now and funding is available for it.

  • Doctor J

    @TH#102 Who from MDUSD was there to hear the recommendations of county staff ? I suspect no one.

  • Theresa Harrington

    No one was there from MDUSD, since there was nothing on the agenda specifically related to the district. The assistant supt. made the TK comments as part of her staff report, but said she has been making the same recommendations during meetings with district reps. She didn’t say which districts have been sending reps to the TK meetings.

  • Anon

    Dr J 99-Does your 28 number include the students in CVHS feeder pattern who can attend North Gate because they live in Crystal Ranch? A number of students from those middle schools attend North Gate every year because of the old developer agreement. Is Crystal Ranch considered part of CVHS feeder pattern so they can choose CVCHS, or not?

  • Anon

    I heard yesterday that CVCHS numbers are up more than 100 students over the current enrollment with more on a waiting list. I would say that was telling.

  • Doctor J

    Why are all of the boy’s basketball coach positions vacant at Northgate High ?

  • Another Parent

    Theresa, I’m sure the County would not have had a favorable reaction to CVCHS’s original charter petition. I read it, page by page, and it was one hot mess. The version submitted to the county was the one that resulted from MDUSD staff working with the petitioners and telling them point by point what had to be changed. I hope the CV teachers sent MDUSD staff big bouquets of flowers in thanks. They wouldn’t have gotten approval from the County without all the help from MDUSD staff.

    I remember reading that one of the large school districts in SoCal was toying with the idea of refusing to have district staff work with charter petitioners on their petitions before they were brought to the board for a final vote. Their theory was that if the charter petitioners couldn’t even manage to write a decent petition, there wasn’t much chance they’d actually be able to run a school.

    Did CVCHS get accepted into the El Dorado County SELPA?

    I understand that CVCHS has adopted a half-in/half-out approach with UMDAF. They will be a member for fundraising purposes only, participating in the annual 5K run, but they won’t co-mingle their fees with UMDAF or the District. Do you know what effect this will have on financing sports in the remaining MDUSD high schools?

    You mentioned changes to the ed. code regarding charters. What are the changes?

    Thanks.

  • Anon

    Did y’all see agenda item 16.7 to extend contracts to June 2015

  • http://www.k12reboot.com Jim

    #106 “Another Parent” — “Bouquets” for MDUSD? Are you joking?!? How can you be so “sure” that the County BoE would have had an unfavorable reaction to the CVCHS petition without the “help” from MDUSD? Please. Many of us who follow this blog read the petition for ourselves and saw it as a better example of planning and concern for student achievement than ANYTHING that MDUSD has produced in years. The months spent “working with” MDUSD may have dotted some i’s and changed some formatting, but looking at the before and after versions, it is hard to justify the district’s input in light of the delay it caused.

    If people want to see a genuine “hot mess”, just follow Theresa’s blog covering the corruption, dysfunction, and almost comic incompetence of the MDUSD leadership, which they insist on making so evident almost every week of the year. You can make insinuations about the charter, and apologize for this shrinking district, but the growing waiting list at CVCHS will tell the tale. No wonder that MDUSD dreads school choice. When parents have an opportunity to escape this laughing stock monopoly, they will do so.

  • Another Parent

    Jim, I read the original petition cover to cover and listened to the teachers and was very disappointed by what I read and heard. I wanted to see some innovative and well thought out ideas for improving student performance and a financial plan to show they could implement their ideas. What I saw and heard from the teachers was a belly full of complaints about how the teachers were treated. They wanted to be paid more. They didn’t want their pay and benefits reduced by furlough days. They wanted to spend more time in training classes. They wanted additional non-teaching time each day. They didn’t want to take direction from administrators. They wanted more respect from students. They didn’t like the way the students dressed…. On and on about how unhappy they were and what changes they would make to improve the workplace for the teachers.

    What I did not find was a well thought out educational plan for the students or a detailed financial plan for implementing anything. What was the educational philosophy behind the charter? How would it be different educationally from the current school? What research had they done to come up with a better way to educate the students? What detailed plans did they have and how did they tie to a financial plan? As a parent I could read the charter petition and see exactly what was new educationally and what was just a rehash of what was already being done. Believe me, there weren’t many new ideas.

    I was also disappointed in how little research the teachers did in how to write a charter document and what had to be included. It wouldn’t have been hard to do. There was a lot of information online that detailed what other districts (ones that have a lot of experience evaluationg charter petitions) require. It was the same detailed info that MDUSD would require. The teachers could have saved themselves and the community a lot of aggravation if they had simply done their research.

    In fact, it was quite clear that beyond discovering they could get more money by converting to a charter, they hadn’t done much research at all. What does it say about their research when one of the charter schools they named as one for us to emulate was recently involved in a huge scandel involving multiple teachers molesting students and very nearly had its charter revoked for poor management? If the teachers had done even the slightest research, they would have known that and not advertized them as a school for us to emulate. I really expected better of them.

    One of the allowable reasons for a teacher trigger conversion is to provide a better work environment for teachers. I have no doubt CVCHS will succeed on that level – they’ve put themselves in charge. I’m more doubtful it will provide a better education for students. It was quite disappointing to see that the County Board of Ed warned CVCHS that the math plan they were proposing had already been proven to lower student achievement. Is that the best the CV teachers could do? It doesn’t bode well for the future.

    I wish them well, I really do, for the students’ sake. But I am very worried.

  • MDUSD Board Watcher

    Another Parent,

    I am sure you are allowed to enroll your child elsewhere. For those of us in CVCHS don’t you worry your little heart one bit, this is the best thing that could ever happen to us.

  • Flippin’ Tired

    “Doctor” J, where did you get the numbers you quote in #99 and #101?

  • Theresa Harrington

    Here’s a blog post about the contract extensions and other items on Monday’s agenda: http://bit.ly/IXIkbU

  • http://www.k12reboot.com Jim

    “I wish them well, I really do, for the students’ sake. But I am very worried.”

    Another Parent, if I were you, I would re-direct your worries to the irresponsible shananigans brewing in the Dent Center (silencing thoughtful critics on the board, extending sweeheart contracts before the next election, etc, etc.) If you’re so concerned about “the students’ sake”, take note of how much damage this sort of mismanagement has already done to our district.

    Like so many critics of charters and school choice, you leave out one small detail about the CVCHS conversion — the existing school and how well it is doing as a monopoly provider of public education to the students in its attendcance area. Did you subject the district’s educational “plans” to the same sort of scrutiny that you paid to the charter’s? Of course not, because the district doesn’t have such plans. In fact, it has never bothered to plan for the future to the extent that the charter organizers were asked to do. (Remember all of the granular questions asked about the CVCHS teacher schedule for 2012-13 — when NO school in MDUSD had such a plan itself?)

    The point of a charter is not to achieve some ideal educational environment and program. That would be nice, but that is not the point. The point is to provide a BETTER publicly funded education ALTERNATIVE to the sorry schools being operated by by so many of our large district monopolies. It’s about CHOICE — you know, the kind of choice that you exercise in almost every other area of your life.

    Clearly, the parents and teachers saw that CVHS was in trouble. We’ll see whether the parents and teachers who operate CVCHS — the adults with the most to gain or lose — end up providing a better education for those students. But one thing is indisputable: those families now have a CHOICE, where they didn’t before. We may soon see why the district (and their apologists) were so afraid to see that choice arrive.

  • Flippin’ Tired

    “Doctor” J, where did you get the numbers you quote in #99 and #101?

  • Flippin’ Tired

    “Doctor” J, are you ever going to tell us where you got the numbers you quote in #99 and #101? Or did you make them up?