Poway School Bonds

[ocrenter]

http://video.cnbc.com/gallery/?video=3000107811

this story is gaining traction. now on CNBC.

[ocrenter]

[quote=harvey]

If the city’s tax receipts grow only at the rate of inflation, then they would be in trouble in 20 years time, but it is very unlikely that Poway will not grow and see property tax revenue increase at a much higher rate than inflation. Do you really think Poway will not see population growth, property improvements, and have effectively zero real estate appreciation over the next 20 years? That $11 million in tax revenue could easily be 5x bigger in 20 years.

I’m not arguing that this plan is wise, and I agree may not be an example of effective negotiation by the city. But the terms and expectations are not nearly as outrageous as they are being presented.[/quote]

This would be true IF PUSD territory was the way it was back 20 years ago, in 1992. At that time 4S, Santaluz, half of PQ, Torrey Highland, Del Sur, Santa Fe Valley, and Stonebridge were all empty. PUSD already did its massive growth. It is done.

Does PUSD have any other large plots of empty land out there? if so, where? I’m sure Bill Davidson would love to know about it. The guy is making plans to go into building custom homes because there is no more land for large scale development around the county. Do you know more than a veteran local builder?

The key here is after sucking up millions of MR from all of the above developments, the district still needed more cash. Unfortunately, there is no additional land for large scale housing developments within PUSD. so how do you get 5x bigger tax revenue?

Harvey, are you just the smartest guy in the world and everyone else are just retarded?

[The-Shoveler]

Word to the wise ? (from the CNBC link)

let’s bring in another guest here who saw red flags and decided to get out of all small city bonds, marilyn, thank you for joining us, you know what i find amazing and shocking is the rating agencies are not reflecting this financial risk, are they? they are not and that’s a big bullseye. many people look at their monthly statements and say oh, aa 2, no problem

Here is the rest of it.

it’s the ultimate subprime loan. and it works like this. poway gets that $105 million today. it doesn’t have to pay a dime for — wait for it — 20 years. then it starts paying $50 million a year in interest and principle for the next 20 years. so what you’ve got here is a 40 year loan that is so toxic that the los angeles treasurer wrote a letter to school districts last year saying he will not support any loans saying he will not support any loans like these. herb, stay right there, let’s bring in will, the staff writer at the voice of san diego, he broke this story, do you have any new details? it’s canis. okay, fair enough. ive heard it all before. i guess the newest details, we started to look at some of the other school districts in san diego county, it’s not an isolated incident. we’re seeing bonds at the biggest school districts. san diego unified is over a billion dollars, some are borrowing $30 million and paying back $260 million. how can it be allowed. i know michigan banned it’s school districts from this kind of bond. our children and grandchildren will get screwed, shouldn’t this banned everywhere? well, you know, there are people who back this and think this is a good idea. we think the property values we keep increasing all over california. they never go down and in the future this will be worth all of the homes will be worth more money and that will mean we’ll be able to pay for this out of our existing taxes. we’re pushing the repayments further and further ahead with spending money today and placing the burden of this on future generations. i think they will start ake a look at this. there was legislation last year talking about making these more transparent to the school districts would have to tell the public what they’re going to do and what this will cost. hopefully we’ll see more changes going forward. let’s bring in another guest here who saw red flags and decided to get out of all small city bonds, marilyn, thank you for joining us, you know what i find amazing and shocking is the rating agencies are not reflecting this financial risk, are they? they are not and that’s a big bullseye. many people look at their monthly statements and say oh, aa 2, no problem, and they go off on their merry way. so it is really disingenuous that people do not know what’s below the surface. can it be renegotiated? bonds like this? i don’t know the answer to this unless it was under a structured bankruptcy which is what we’re seeing in stockton, california and san bernardino. but herb, you know southern california, it’s not a growing area there, even if it quadruples, that’s not enough taxes to pay these off, no way.

[sdduuuude]

[quote=harvey]Has anyone actually done the math?

What’s the effective interest rate on these bonds?

A comment in the other thread cited 8% and that seems to be consistent with my back-of-the-envelope calculations (don’t have the precise numbers, but we can make a reasonable estimate.)

It’s a 40 year bond, folks. 8% may be above current market rate for a bond with these characteristics, but it’s really not that outrageous, and not outside historical norms at all. It is by no means a recipe for fiscal disaster.

Perhaps the outrage should be that Piggs don’t seem to understand how long-term compounded interest adds up….[/quote]

While 8% isn’t a terrible rate, it is double what you can get a mortgage for. Not that I would expect it to be the same, but still – me thinks they they could get a better rate with a more conventional type of bond. They are paying more for the loan than the should.

Also, I think the concern is – what is the plan for paying it back ?

Lets say I borrow money at 8% and I don’t make any payments for 20 years. Between now and then, I either need to invest the money to get a return better than 8% so that I come out ahead, or – if it isn’t an investment – I should be putting away some of my income from other sources so I am prepared to pay that thing back. Or, I should secure the loan with some capital that the lender can take if I am unable to pay.

Not sure any of that is going to happen.

More importantly, if you aren’t paying off today’s debts today and your debts are piling up interest and you continue to spend more than you take in, it becomes completely unsustainable. Come the day they need to start paying the loan back, it seems entirely possible that they will be in a position to have to borrow more in order to finance the next round of refurbishments, doesn’t it ? So, faced with a payment higher that is 3x their income now, I don’t think that loan app is going to look very strong. What they gonna do – take out another loan and pay that one off 20 years later before they even make a single payment on the current (i.e. 20-year-old) loan. It’s nuts.

To me, it is simply a plan to allow the city to spend more than it makes (i.e. I expect they will spend the borrowed money and all their income every year) without feeling any consequences of their spending until they are long gone.

[Anonymous]

[quote=ocrenter]
would be true IF PUSD territory was the way it was back 20 years ago, in 1992.

[…]

Harvey, are you just the smartest guy in the world and everyone else are just retarded?[/quote]

Relax dude, I’m basically in agreement with the idea that this bond isn’t prudent, I just think the reaction here is overdone.

I honestly don’t know enough about PUSD and the development potential, I don’t know exactly where the borders are and believed Poway to have some remaining rural sections. But I haven’t studied a city planning map so if you say there’s nothing left to build, then you are probably correct.

As far as how smart I am, I am sometimes smart enough to ask the important questions, and the key question when making any decision is the following:

What are the alternatives and what are the expected outcomes?

So before we can label anything as a terrible choice, it has to put in the context of the alternatives. I don’t know what other choices the city had in this situation but I have noticed that nobody else here has even mentioned a better solution. (From what I can tell from the articles the city had do to something.)

Anyway, I really don’t care that much, as I live in Temecula and our city appears to be managed much better than Poway.

(BTW: My point about making choices amongst the real-world alternatives applies to elections as well. Political discussions here would be far more productive if more people realized that.)

[bearishgurl]

It appears here that the District and their lobbyists were pandering to the voters who reside within PUSD to get this obscure deal passed. I could understand the need to build new schools in the newer areas and that is what the MR is for.

But if you don’t have the money to remodel old schools and the taxpayers don’t want to pay to have them remodeled, you can’t. Parents living in the older areas of PUSD don’t pay MR so they shouldn’t expect to have top-notch, state-of-the-art schools for their kids. To be frank, highly experienced teachers are worth far more to students than the buildings they are learning in.

I don’t believe a very high percentage of property owners residing in PUSD are still protected by Prop 13 and thus have artificially low property taxes. I believe they are likely in the low single digits. I was in Poway for a wedding in the 1970’s and not only was there no civilization whatsoever for over 8 miles between the (newly-constructed) I-15 and Poway, the town itself was very small. PQ and RB were in the PUSD District at the time and were situated close to I-15 with one exit to each community with the later addition of Carmel Mtn Rd. I can’t imagine more than 1-2 developments in each (92128 and 92129) which predated April 1978. Except for RB, Poway and PQ aren’t really “retirement havens” and thus the vast majority of those owners buying in the 1970’s are very likely long gone.

I would guess the entire PUSD had +/- 8K students back then.

So, in sum, the PUSD and other fast-growing school districts in CA’s outer suburbs have to operate within their means.

Our children and grandchildren will NOT buy into these subdivisions if the taxes are raised to begin making payments on these bonds as the tax rate could very well exceed 3% of assessed value for the District to collect enough money to begin even a slow amortization of this MONSTROUS loan.

And why should they? These *new* and *remodeled* schools the Districts are borrowing for today will be worn out by the time our grandchildren and great-grandchildren attend them!

My take on this is that the District was pandering to parents’ extremely high expectations during the 2008 election season. They didn’t want to put a taxpayer cost on it because newer tracts in the PUSD have among the highest MR in the state, thus an additional $60-$100 per $100K of assessed value was unpalatable and the district couldn’t legally just charge property owners in the older sections for the bonds. Knowing as many native San Diegans as I do, I can safely say that an inland outer-suburb (such as Poway) is not exactly a “destination place” for a SD native. For this reason, I believe the PUSD has far more transplants and relocatees than the older, larger local districts, only because it was so small 35+ years ago and grew by 400-500% since then. Many (most?) of these families moved into the PUSD from the “flyover states” which all have weather-related issues. Thus their schools are all indoor (with no rusty lockers, drinking fountains and lunch tables), multi-story with auditoriums and indoor cafeterias, mostly brick and many have state-of-the-art modern classrooms for which 6-8 can be opened up into one big classroom for seminars. Many also have indoor pools and professional playing fields and track areas, etc. These families move to CA wanting the same thing and see some or most of it in a district such as PUSD so gravitate there but that’s not representative of 95% of CA’s school districts.

Due to ignorance, these thousands of transplant-homeowners in the PUSD fail to consider that they may have been paying property taxes equal to 1.7% – 2.7% of assessed value of their properties situated in the locale they left behind. And, to my knowledge, no other state but CA has a “Prop 13-like” measure on its books. Assessors in other states can reassess at whim if there has been a housing boom. And they often DO. These reassessments often greatly exceed the 2% of assessed value pursuant to CA’s Prop 13.

So these out-of-state school districts have a lot more income at their disposal to build/rehab schools than most CA districts do (those w/o MR infusion).

From the well-established Mendocino Co to Marin Co to SF thru the Silicon Valley, Monterey and Santa Barbara Co, down to the affluent communities of West LA and the OC, 95% of the public schools in coastal CA are older “outdoor campuses” (but perhaps-remodeled at some point). They all seem to be “good enough” for families who reside in communities where the RE is 2-12 times the value of the avg SFR in the PUSD. Why should it be different for the residents of newer inland subdivisions who are not paying MR?

In a nutshell, transplants to CA newer inland subdivisions have too high of expectations for their children’s physical school facilities. In the absence of those residents voting themselves to be charged annually (on their tax bills) for construction bonds, the “expectations” of these parents cannot and should not be fulfilled.

PUSD should have never, ever have taken out a capital improvement loan of this magnitude and with these terms. By their incompetent foolishness, they screwed themselves, and, down the road, their taxpayers.

Now that this news has reached the national level, I predict that a lot of homeowners will list their properties ASAP before the PUSD is strongly advised to begin making principle payments on their subprime “capital appreciation” loan and thus, asks the assessor to raise property taxes to do it. Much higher tax rates could easily reduce the property values within the PUSD.

Has anyone looked at the “Prop C” fine print? Does anyone know if it allows the District to begin taxing if they get into a pinch on his loan or feel they won’t be able to pay it?

There’s no free lunch, folks … ESP in CA.

[end of lecture]

[The-Shoveler]

aahh,

BG, you did see the part about there being an even bigger bill due in “San diego unified school district” right ?

[ocrenter]

[quote=harvey][quote=ocrenter]
would be true IF PUSD territory was the way it was back 20 years ago, in 1992.

[…]

Harvey, are you just the smartest guy in the world and everyone else are just retarded?[/quote]

Relax dude, I’m basically in agreement with the idea that this bond isn’t prudent, I just think the reaction here is overdone.

I honestly don’t know enough about PUSD and the development potential, I don’t know exactly where the borders are and believed Poway to have some remaining rural sections. But I haven’t studied a city planning map so if you say there’s nothing left to build, then you are probably correct.

As far as how smart I am, I am sometimes smart enough to ask the important questions, and the key question when making any decision is the following:

What are the alternatives and what are the expected outcomes?

So before we can label anything as a terrible choice, it has to put in the context of the alternatives. I don’t know what other choices the city had in this situation but I have noticed that nobody else here has even mentioned a better solution. (From what I can tell from the articles the city had do to something.)

Anyway, I really don’t care that much, as I live in Temecula and our city appears to be managed much better than Poway.

(BTW: My point about making choices amongst the real-world alternatives applies to elections as well. Political discussions here would be far more productive if more people realized that.)[/quote]

you don’t need a city planning map, just some common sense and google maps will do. personal suggestion is next time you assume a city’s tax base can increase by 5x within 20 years, just take a minute of thinking time before you make the comment.

[ocrenter]

[quote=The-Shoveler]aahh,

BG, you did see the part about there being an even bigger bill due in “San diego unified school district” right ?[/quote]

did you attend a wedding in San Diego in the 70’s? If not I don’t think you’re qualified to make any comments on the state of affairs in SDUSD.

[barnaby33]

On the one hand it seems irresponsible period. Borrowing to pay for consumption. Where has that meme come about before?

On the other hand oh wait, there is only one hand. The district doesn’t have the money and needs to either raise taxes or cut services.
Josh

[Anonymous]

[quote=ocrenter]you don’t need a city planning map, just some common sense and google maps will do. personal suggestion is next time you assume a city’s tax base can increase by 5x within 20 years, just take a minute of thinking time before you make the comment.[/quote]

Sorry that my comment bothered you so much, I’ll try to be more sensitive next time.

One would need a city planning map, or some knowledge of the exact borders for taxation revenue purposes, at least to make the claim you are making.

Did you even try the google map yourself?

https://maps.google.com/maps?q=poway&hl=en&ll=32

There’s a helluva lot of undeveloped land inside the dotted line.

[ocrenter]

[quote=barnaby33]On the one hand it seems irresponsible period. Borrowing to pay for consumption. Where has that meme come about before?

On the other hand oh wait, there is only one hand. The district doesn’t have the money and needs to either raise taxes or cut services.
Josh[/quote]

I still think the biggest issue at hand is how the district can blow $150 million on just a high school. why does the high school need to be state of the art? I think most parents would be perfectly happy having a well constructed new school without all of the state of the art gimmicks.

[The-Shoveler]

Was not trying to comment on SDUSD in particular really.

Just pointing out it’s not just the newer suburbs that are running into this type of thing

[ocrenter]

[quote=The-Shoveler]Was not trying to comment on SDUSD in particular really.

Just pointing out it’s not just the newer suburbs that are running into this type of thing[/quote]

sorry, that was a poor attempt at a joke.

[bearishgurl]

[quote=harvey][quote=ocrenter]
would be true IF PUSD territory was the way it was back 20 years ago, in 1992.

[…]

Harvey, are you just the smartest guy in the world and everyone else are just retarded?[/quote]

Relax dude, I’m basically in agreement with the idea that this bond isn’t prudent, I just think the reaction here is overdone.

I honestly don’t know enough about PUSD and the development potential, I don’t know exactly where the borders are and believed Poway to have some remaining rural sections. But I haven’t studied a city planning map so if you say there’s nothing left to build, then you are probably correct.

As far as how smart I am, I am sometimes smart enough to ask the important questions, and the key question when making any decision is the following:

What are the alternatives and what are the expected outcomes?

So before we can label anything as a terrible choice, it has to put in the context of the alternatives. I don’t know what other choices the city had in this situation but I have noticed that nobody else here has even mentioned a better solution. (From what I can tell from the articles the city had do to something.)

Anyway, I really don’t care that much, as I live in Temecula and our city appears to be managed much better than Poway.

(BTW: My point about making choices amongst the real-world alternatives applies to elections as well. Political discussions here would be far more productive if more people realized that.)[/quote]

First of all, harvey and sdduuuuude, I’m sure you’re aware that it is the PUSD (and not the city) which is in fiscal hot water over this foolishness.

The few remaining rural lots are likely 1-4 AC apiece. Some are situated within HOAs and most have no utilities whatsoever brought to them.

Only deep-pocketed buyers who really wanted to live east of Poway would attempt to buy and build on these lots. The amount of taxes these few lots (1-3 doz?) could generate in the future pales in comparison to the taxes the PUSD collects from all the newer tracts within the it.

I don’t see the taxes collected by the PUSD growing more than the 2% per year, pursuant to Prop 13. And as far as double-digit appreciation coming back to the area served by PUSD in the next 20 years … I don’t see that, either.

In any case, I don’t see PUSD ever being able to make principle payments on this loan without laying off most of their teachers and shuttering schools. OR filing a Chapter 9 BK to get a court order to modify and recast this ridiculous “capital appreciation” loan they voted in.

There are also other ramifications to its students if it chooses to file for BK protection.

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