MJUSD trustees fret about hefty bond payments

A $12.6 million bond at a cost of $72.6 million in interest is setting off alarms among Marysville Joint Unified School District trustees and county officials.

Trustees are expected to discuss options at a special Sept. 17 board meeting.

Without issuing the final round of Measure P bonds, board members have been warned that three long-standing school improvement projects could be at risk.

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About $35 million of the $47 million bond measure approved by voters in 2008 was issued in 2009 and has since funded improvements at school sites throughout the district. Voters are taxed at nearly $60 per $100,000 of assessed property value to support the bond.

Because of the 2009 issuance and an assessment value limit, there is little room for new bond payments until all 2009 repayments are paid, likely not for 20 or more years, said Jonathan Edwards, the district's financial consultant.

What has been proposed is a capital assessment bond that would postpone payments while freeing up funding to move forward with construction and be considered for state matching funds.

The proposed bond structure would issue the bond at $12.6 million and secure an expected $10.3 million in state matching funds.

The total interest repayments would be $72.6 million, paid back over time at a present daily value of $29.5 million, with total repayment of $85 million because of the principle.

Such a proportionately high interest accrual — higher than on any major bond the district previously has issued — has sparked serious concerns.

"The cost of construction right now is obviously the time to build. You can get more bang for your dollar," Trustee Jeff Boom said at an Aug. 28 board meeting. "And we need these buildings. Some of our schools are falling apart. But do you strap the taxpayers for 40 years when you know they wouldn't have voted for the bonds at this point? It's a tough way to go, a tough decision."

Weighing the cost

Yuba County Treasurer-Tax Collector Dan Mierzwa opposed the bond structure at the August meeting and said he thinks there are alternatives, including pursuing a new bond measure.

He said he supports the school system, noting the district has always made fiscally sound decisions, but the terms of this bond structure are simply too expensive.

"I don't think the reward is worth the risk — to the district, to the taxpayers, to the students," he said.

Typical bonds are like mortgages, which are repaid at about twice the original value of the loan, Mierzwa said. A capital appreciation bond, because it defers interest for so many years, is worse than an interest-only loan and more like a balloon payment.

It may best be understood at the dollar level, Mierzwa said.

"You are borrowing $121⁄2 and you are paying back $85," he said. "That's a simple question to ask people — how would they feel about borrowing that dollar? It's easy to spend other people's money, but would you do this with your own?"

Trustee Frank Crawford opposes the structure as proposed.

"I realize what we might be losing, but I realize projects are being canceled all over the state because the matching funds are questionable at best," Crawford said. "What we are really asking the citizens of Yuba County to do is take on an incredibly large tax that I cannot in good conscience ask them to do."

Trustee Jim Flurry is also hesitant to support the structure because of the high interest rate.

"We are there for the public," he said. "If we are not their guardian, we should not be in that role."

Impact to projects

The risk to the projects is being weighed in the argument.

Arboga Elementary, where student population has exploded in the last decade and most classrooms are in portables, would get two permanent buildings with 14 classrooms, restrooms and storage, extensive field renovations and a new bus loop.

Ella Elementary would get a two-story building of 10 classrooms, extensive field improvements, a new bus loop, expansion of the parking lot and frontage improvements along Seventh Avenue.

The Linda Elementary project would construct a 10-classroom building and a separate library.

"Once we get bumped off the list for those projects, we end up at the bottom again," Trustee Bernie Rechs said in August. "It's hard for me to vote for something that raises my own taxes, too, but at the same time we have an obligation to these kids."

The catch is the district cannot access the state matching funds until it signs a construction contract, which it cannot do until it has enough money to complete construction, said Mark Allgire, district superintendent of business. But he is optimistic about the district's chances of getting the state's matching funds.

"I'm not going to sit here and tell you that's a 100 percent guarantee, but I will tell you that every project we have submitted and complied with all the rules, we have been paid for," he told the board.

The Arboga and Ella projects were scheduled for construction this spring before state approval expires in summer, and Linda Elementary was to begin in spring 2014, a few months before its approval's expiration.

"If not (advanced now), those projects go on indefinite hold, and, quite honestly, they may never be seen again," Allgire said at the meeting.

The district is looking at alternative scenarios, although options are limited, Allgire said.

Choices are to not issue the bonds and let approval expire, issue half of the bonds or issue all of the bonds.

CONTACT Ashley Gebb at agebb@appealdemocrat.com or 749-4783. Find her on Facebook at /ADagebb or on Twitter at @ADagebb.