Yuba College trustees unaware $4.6 million bond has $54 million interest
Yuba College officials are "shocked and frustrated" that a $4.6 million capital appreciation bond they approved comes with $54 million in interest, Chancellor Doug Houston said Friday.
They say the bond, unanimously passed by trustees in April 2011, placed a large financial burden on taxpayers to finance the Sutter County campus and Clear Lake campus improvements.
Recent media scrutiny on education districts that issued long-term bonds at the taxpayers' expense spurred the district to take a closer look two weeks ago at what it OK'd.
"I don't hold anybody responsible except the board. We are the ones who make those decisions, so it is our responsibility," said Trustee and board Chair man Brent Hastey. "I'm not sure we were fully informed, but it's our job to ask questions."
Hastey said trustees placed faith in staff to find a way to get as much money as possible. The Series C bond went out for $35 million, not the $95 million originally anticipated, because of the economic downturn's impact on the housing and municipal bond markets.
Of that issuance, $30.3 million was through current interest bonds that will accrue $44.8 million in interest, and $4.6 million through capital appreciation bonds that will accrue $54.2 million in interest, with balloon payments starting in 2038.
Hastey said he did not recall talking about multiple bond types, and certainly not the expense of each.
"We knew we were going to be short on money. We wanted to get as much as we could so we could do as much as we could to help students," Hastey said. "I don't think the board really understood what that $4 million in (capital appreciation bonds) cost. If I knew then what I know now, we probably would not have gotten that extra $4 million."
The district's financial adviser, Jeff Small of Capitol Public Financing Group, was surprised by the assertion the district was uninformed.
He said he discussed capital appreciation bonds in written and oral presentations on multiple occasions, including a written summary in June that stated "it is not the most financially prudent bond structure" and included the dollar figures of its expense.
"I can't imagine what more I could have said or what more I could have done," Small said. "My concern was, if you do issue, I want you to be able to turn around one year from now or five years from now and say, 'We were informed.' The fact they are saying they are not informed is because it was complex, it was sensitive."
Trustees were trying to maximize the bond issuance, and perhaps focused on projects and concerns of broken promises them instead of the cost, Small said.
Based on board priorities, advancing the costly Sutter County campus meant the only way to fund projects at the Linda campus was through costly capital appreciation bonds, and Small said that was made clear.
"I know this stuff is tough. I do this every day, and they don't," he said. "All I can do is try to explain it ... Apparently the communication didn't work, but it wasn't for lack of trying."
Yuba County Treasurer-Tax Collector Dan Mierzwa remembered speaking with Small about the structure early on.
Mierzwa, who voiced opposition to long-term capital appreciation bonds, later spoke with Small and Trustee Jim Kennedy, who added his opposition to that bond type.
The conversation finished with an understanding the capital appreciation bonds would be removed from the series, he said.
It wasn't until the bond sale was complete that Mierzwa realized they were still in effect, and by then it was too late to change anything, he said.
Kennedy, Mierzwa's predecessor as treasurer-tax collector, said he would have voted no if he knew capital appreciation bonds were part of the issuance.
"There is nothing wrong with a CAB, per se, other than the fact it's a very expensive way to get money," he said. "The reality is, unless you ask the specific questions, you are not going to get a specific answer."
The trustees did not do their due diligence, he said, and he was "pissed" to learn the implications more than a year later.
"I was irritated as hell. It went against everything I had done for years," he said. "By nature, I'm a conservative, cautious guy."
Houston signed the bond sale documents the first week he arrived at Yuba College. He said he relied on the knowledge and recommendations of staff, Vice Chancellor Al Alt and former Chancellor Nikki Harrington to give consent without examining impacts.
"I had an opportunity to have studied them vigorously, but I didn't," Houston said. "That was my responsibility, to have verified rather than sign. It's easy to throw my predecessors under the bus, but I was responsible for this."
The board is actively looking for solutions, Houston said. He is not sure if it can release itself from the bonds, recall them or refinance them, or if the district simply has to accept what has been done and move on.
He said this issue should not be a reflection on all of Measure J.
"Overall, across the three issuances, I think the board has done a really good job of being a good steward to the taxpayers," Houston said.
Though some of the bond issuances have come at a higher cost, the overall expense to access the $130 million in bond money is $400 million, the ratio of which is not too much greater than a standard mortgage, Houston said.