The December 15, 2017 bond refinance was very tricky in that the original 2013 bond had a 10-year no-refinance clause. The refinance required creating a parallel bond with a trigger mechanism to pay off the 2013 CAB in 2023.
Some of the savings from this refinance came from a change in interest rates but the bulk of it came from eliminating unpaid interest charges compounding from 2023 to 2043.
I obtained a PhD in Computer Science in 1993. After teaching a year in college I switched to working in Finance and Technology industries as a Data Scientist. Since 2013 I have followed the District’s bond funding options, and provided oversight with detailed comments in emails and Board meetings. My articles can be searched on my HariTitan.com website using keywords: AHT, STEM, Kindergarten or CAB.
Over the 4+ years of attending school board meetings regarding bond financing I discovered various ways in which CABs were misrepresented to the public.
I would like to congratulate the board in responding to the voices of the community who wrote into the board (roughly four years of lobbying later) to view the 2013 CAB negatively and allow for a refinance. However there are a number of issues relating to the process we went through that are troublesome.
The following tool compares Current Interest Bonds (CIBs) with Capital Appreciation Bonds (CABs):
https://HariTitan.com/bond-tax-comparison.htm
It requires the total assessed valuation for the school district and your individual assessed valuation as an inputs.
It also requires the bond amount(s), the interest rates, the life of the bonds and the first year of taxation for the CAB as inputs.
These inputs are in yellow.
By: Elwyn Berlekamp, Bernard Pech, Hari Titan
The School Board has taken to the idea that taxes can be deferred and reinvested to earn a safe return high enough to significantly discount the cost of additional interest charges. This safe return has been chosen to be between 3% and 4% based on a mix of long term Treasuries. The School Board has asserted that as a result of this "discount rate", all financing options including CIBs, interest-only hybrids and CABs cost very close to the same amount! We question this assertion on a number of grounds.
Last week's School Board meeting confirmed that all attendees enthusiastically support renovation of the Alan Harvey Theater. Now, much like buying a home, financing becomes front and center. Do I get a 30-year mortgage? Can I afford 15-year mortgage payments? How about "interest-only"? Can I delay payments until 2018? Oh wait, that last option isn't really an option for mortgages but is for School Bonds.
Creative Financing allows the School District to borrow funds and not have to pay the full interest and principal reduction required according to a normal amortization schedule. This is a way to "kick the can down the road" and not deal with the true cost of renovations.
Last week I mentioned that our School Board will decide in early January on the type of financing for the proposed $14.5 million Alan Harvey Theater renovation. The choice between Capital Appreciation Bonds (CABs) and Current Interest Bonds (CIBs) offer very different costs to taxpayers.
In case readers haven't heard about Capital Appreciation Bonds (CABs) before, Michael Brady, Assistant Superintendent for the School District spoke about these financing arrangements at the November 16 public meeting on the proposed Alan Harvey Theater renovation to an audience of 30 or so community members.
CABs do not pay investors or charge taxpayers for the initial years after the bonds are sold. Instead, compounding interest charges accrue, and are added to the prinicipal debt owed. At some specified time, property taxes go up and taxpayers start servicing this debt.
