Chico school bond measure faces scrutiny

To assure voters that Measure E—which would authorize the Chico Unified School District to sell $78 million in bonds for school improvements—is a good deal, district officials have vowed to sidestep pitfalls that have mired other districts in astronomical debt.

“The Board [of Trustees] will have the ultimate say when we sell the bond what direction we want to take,” Maureen Fitzgerald, CUSD’s assistant superintendent for business services, said during a phone interview. “Capital-appreciation bonds are the ones that get districts in trouble, and we will not go in that direction.”

By “trouble” Fitzgerald was referring to 11 California school districts that, since May 2011, have issued capital-appreciation bonds that mature in 40 years and eventually cost several times the initial loan in interest.

A prime example is the Poway Unified School District. Last year, the suburban San Diego County district issued a $105 million bond. In the end, taxpayers will pay more than a billion dollars to retire the bond, more than $10 for every dollar borrowed.

Fitzgerald said that, though a bond can legally be financed for up to 40 years, CUSD doesn’t intend to do so. She also said it was “impossible to speculate” what Measure E’s ultimate cost to taxpayers would be until after it is approved and implemented.

“There’s no real way to say what it’s all going to cost 10 or 15 years from now, because it hasn’t even been determined how much the first draw will be,” she explained. “We’re looking to get approval for up to $78 million, but until we actually sell a bond and know the financing terms, it’s not something that can be speculated.”

At no time will the district take on more debt than can be met with the current property-tax assessment of $45.50 per $100,000 of assessed valuation, Fitzgerald said. In that sense Measure E simply continues the funding mechanism provided by Measure A, a $48.7 million general-obligation bond passed in 1998.

That measure has been controversial, however. Originally $39 million of it was to go toward building a new high school in southeast Chico. But before construction could get underway, it was determined that, because of an unexpected decline in enrollment in the lower grades, the high school wasn’t needed after all.

Instead the trustees decided, on the recommendation of their oversight committee, to use the money to upgrade the existing high-school campuses. In doing so, the CUSD has been able to leverage an additional $11 million in state funding to augment its bond funding.

Still, some voters are upset and distrustful. They believe the trustees pulled a bait-and-switch on them. In 2008, however, the county grand jury looked into the matter and determined that the decision was justified.

There won’t be any redirection of funds this time, Fitzgerald said. The measure’s stated purposes—to repair leaky roofs; provide modern classroom technology; modernize outdated classrooms, restrooms, school facilities and fields; upgrade the plumbing, electrical and HVAC systems; and install energy-efficiency improvements—will not change.

If Measure E gains the required 55 percent of the vote to pass, a Bond Finance Committee—consisting of Fitzgerald, Superintendent Kelly Staley and the Board of Trustees—will decide the type and amount of bonds sold and the financing mechanism, while a Bond Oversight Committee made up of independent citizens will manage projects and ensure funds are properly used.

The fate of districts like Poway sucked into super-expensive capital-appreciation bonds has concerned watchdogs monitoring this year’s California elections. Of particular interest is the relationship between bond underwriters, school districts and advisers hired to handle bond campaigns.

As Fitzgerald explained, district dollars cannot be used to fund bond measure campaigns. Therefore, a bond campaign committee works with an outside consultant who handles all of the campaigning, In the case of Measure E, CUSD is working with Isom Advisors, a Walnut Creek-based firm that on its website claims a better-than-90 percent success rate at passing general-obligation bonds.

Isom Advisors is also handling the campaign for an $11 million Gridley Unified School District bond proposition, Measure G.

That the same company is promoting both measures is visible in the nearly identical fliers they sent out. The Gridley flier is navy blue and the Chico flyer is green, but other than that and a few specifics, they are very much alike, including the wording.

Of more concern than what can be chalked up to lazy corporate campaigning, though, are the companies that underwrite bond measures. According to a May 3 article on California Watch, five major underwriters have donated $1.8 million to help pass 111 ballot measures authorizing $15.5 billion in debt. In most cases, bond underwriters who contributed to these campaigns were granted contracts by school districts to manage the bond sales. Critics call this a “pay-to-play” system and are lobbying the Securities and Exchange Commission to impose greater regulation and disclosure.

Two of the top five underwriters are involved in the Gridley and Chico measures. Measure E is underwritten by Los Angeles-based De La Rosa & Co. Measure G is underwritten by Stone and Youngberg, a division of Stifel Nicolaus & Company. Stone and Youngberg also underwrote the ill-fated Poway measure. They and financial adviser Dolinka Group, of Irvine, made $1.4 million off of the deal.

None of this means the bond measure is suspect, only that close attention has to be paid to how the bonds are issued, a process Fitzgerald has promised will be completely open and transparent.

This is an optimal time to pass a bond measure, Fitzgerald said, because interest rates are so low. “We will not see interest rates this low again for a long time,” she added.

The passage of Measure E is extremely important to CUSD, she continued: “It’s pretty vital. It would be the only mechanism we have to do facility improvements for years to come.

“I’m sure anyone who has kids in Chico schools knows how much it’s needed. Schools are a part of the community, and the better our schools are, the better the learning experience, so I urge voters to go out and do what’s right.”