Public Consent for Premium Bonds?

Piedmont Unified School District (PUSD) has raised working capital to upgrade and rebuild K-12 school buildings with 30-year bond issuances. To repay bond investors that working capital (a.k.a. “principal”) plus interest, property owners in Piedmont are being charged a debt service line item on their property taxes. Lately, the school district has been exclusively issuing competitively priced current interest bonds to ensure the lowest total repayment cost to the taxpayer and funding new construction with a guaranteed maximum price (GMP).


Taxpayer Point of View

Taxpayer POV image

CIB: Current Interest Bond. Works like a fixed-rate mortgage.

CAB: Capital Appreciation Bond. A series of Municipal Zero Coupon bonds with maturity dates in sequentially increasing years.

Bond buyers may mistake Municipal Zero Coupon bonds to be the same as Corporate Zero Coupon bonds.


CABs benefit Bond Investors not Taxpayers

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.


CAB Refinancing Perspective

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 name is Bond. Capital Appreciation Bond

Call me CAB for short. Just when you thought creative financing died years ago, it got resurrected over Halloween of 2017. Refinancing a CAB with yet another CAB was put on the table by our school district from an unsolicited bid by a bond underwriter. The same bond underwriter that financed the $12 million construction of Havens with a $64 million tax liability using a compounding interest CAB. I’m glad this CAB is the subject of refinancing but only with a current interest bond (CIB) not another CAB.


Bond Comparison Tool

The following tool compares Current Interest Bonds (CIBs) with Capital Appreciation Bonds (CABs):

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.



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