Posted: 10/02/2012 06:29:21 PM PDT
Updated: 10/02/2012 07:54:34 PM PDT
Related story: School financing methods attracting attention
FONTANA – A Fontana Unified School District plan to finance a $106 million bond payment due in December to stave off a likely state takeover has drawn fire from the county’s top financial official and two county supervisors.
The cash-strapped district has until Dec. 3 to pay $106 million in principal and interest from a short-term “bridge” loan it took out in 2009 to complete several construction projects.
If the district doesn’t pay off the $48 million it owes creditors, the district would probably need a bailout to pay off the loan, which would trigger a state takeover. That would mean local control with an elected school board would be gone, perhaps for decades, county and district officials said.
But that won’t happen, say district officials, because trustees on Sept. 5 approved the new financing plan on a 4-to-1 vote.
The plan would defer payments on this borrowing until 2029.
Still, the plan to sell capital- appreciation bonds drew stern warnings from San Bernardino County Treasurer/Tax Collector Larry Walker, a rare rebuke from an official who doesn’t often publicly wade into the world of school financing. Later, county Board of Supervisors Chairwoman Josie Gonzales and 2nd District Supervisor Janice Rutherford joined in the opposition.
The structure of this borrowing “represents a generational transfer of debt created by a financing mistake, and is clearly not in the interest of the taxpayers,” Walker wrote in a Sept. 21 letter to school board trustees.
Walker opposed the idea of the district selling capital- appreciation bonds, because “it will put all this debt into the future” and affect the district’s ability to raise money for new buildings for district students from 2029 until 2048, when it is paid off.
Walker’s team calculated that Fontana Unified’s bond issue will collectively cost the school district’s property owners nearly $400 million in principal and interest.
However, the school district projects repayment of about $200 million, based on calculations provided by Lori Raineri, a Sacramento-based financial advisor.
Whether the repayment amount is $200 million or $400 million, the total is too high a price to pay for borrowing about $50 million, Gonzales said.
Ultimately, what has county officials so upset is that the repayment strategy chosen by the district is going to cost property owners in the district mightily – the worst case is more than seven times the amount borrowed, they said.
But the district is going ahead with issuing the bonds next week anyway, because those protesting in the county have no oversight authority over school districts, and according to district officials, their options were limited.
A financing mistake?
Fontana Unified was thrown into “a precarious position” because of a financing mistake in 2009, when it took out the short-term “bridge” loan, called a bond-anticipation note, Walker said.
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