Home > Uncategorized > LCO Bombshell (repost): will McK schools really pay $56M to borrow $4M?

LCO Bombshell (repost): will McK schools really pay $56M to borrow $4M?

mckThe Lost Coast Outpost has what ought to be a bombshell. McKinleyville Union School District appears to have put its future self [correction: or McKinleyville’s future taxpayers] on the hook to pay upwards of $56 million to pay back principal and interest on $4 million of bonds.

Click the link above and read the report. Then, if you’re curious, you can always ask the McKinleyville Union School District trustees.  Click on the links below if you’d like to send email, or call 839-1549:

Brian Mitchell - President of the Board (he’s the VP for Accounting at Security National)

Tim Hooven - Clerk of the Board (he’s the Hooven from Hooven Construction)

Justin Zabel- Board Member (he’s from Mercer Fraser Construction)

Sara Alto – Board Representative (of Bella Vista Realty)

Don Rosebrook – BoardMember (controller for Murphy’s Markets when he ran in 2009, saying he could “help the district remain financially stable“)

Jack Durham of the McKinleyville Press conducted an interview with then Superintendent Dena McCullough and then Business Manager Maureen Hester back in 2008, about why the district needed the bonds:

http://mckinleyvillepress.wordpress.com/2008/05/16/measure-c-interview/

The vote (the bonds passed by 14 votes) was challenged by McKinleyville residents David and Penny Elsebusch: http://tomonkgoe.blogspot.com/2008/08/corporations-that-funded-mckinleyville.html

Understand what these bonds, as issued, do: they cause the people of McKinleyville to pay Wall Street one hundred dollars in debt service for every eight dollars received by the school district from the bond issue. But the cost has been shifted as far as 40 years down the road, when these directors will be retired or dead.

(Note: this is a repost of an earlier post. Older comments can still be found at the earlier post, two back.)

  1. A pesky fact
    December 3, 2012 at 9:36 am

    Mitch,

    Try not to wreck your own thread again?

    You might think the stuff you see in cartoons and plays (but I repeat myself) is actually representative of reality, when all it is representative of is your desire to play pretend and be fooled.

    So I repeat.

    This is not an ideological issue. Those that think it is need to aid the debate by not participating. This is an issue of corruption.

    Some serious use of FOIA can result in generating the information about which persons concretely benefitted from these bonds, and who owns them. If it can be demonstrated that there is a connection between the board members, the financial advisor who put the package together, and the persons who may have had first-access to the bonds, the threshold for criminal charges and the potential unwinding of the bonds will begin to be approached.

    As a matter of probability, it is highly probable that any persons involved are also contributors to the DA and sheriff re-election funds. Don’t expect them to do this for you.

  2. Anonymous
    December 3, 2012 at 9:41 am

    As a matter of probability, it is highly probable that any persons involved are also contributors to the DA and sheriff re-election funds. Don’t expect them to do this for you.

    So much of your comment is made up out of your imagination.

  3. December 3, 2012 at 9:42 am

    No, pesky. Those that think this is corruption should say so, and insist loudly that government entitites do their jobs. Actually, those that think this is simply an extraordinarily bad deal should say so as well, and insist loudly that government entities do their jobs, and that those who have failed in their fiduciary responsibilities be removed from power.

    I’m not the press here. I hope the press does its job. If not the press, I hope the citizens of McKinleyville will do their jobs as citizens. I don’t live in McKinleyville, so this is not a financial issue for me. Those who are being screwed ought to follow pesky’s advice and file some Freedom of Information Act demands, and start paying attention to the school board.

    As for Heartbreak House, sometimes fiction is the best way a person has to communicate the truth. Why do you think people care so passionately about great literature and art?

  4. Anonymous
    December 3, 2012 at 10:12 am

    The Times-Standard is working on a story. They won’t rush to judgement like you amateur bloggers. They have the best journalism and access to all these local moguls. They will give you the inside scoop. Like the one that comes with the bag of kitty litter.

    Give them a few more days.

  5. Just Watchin
    December 3, 2012 at 10:31 am
  6. December 3, 2012 at 11:07 am

    From Quickdraw McGoogle:

    http://www.bondbuyer.com/issues/121_183/california-school-districts-capital-appreciation-bonds-consequences-1044196-1.html

    http://www.bloomberg.com/news/2012-08-06/payments-on-105-million-school-bond-will-top-1-billion.html

    and what may be the original piece that broke this news:

    http://www.joelontheroad.com/?p=9043

    and the reporter’s explanation:

    http://www.joelontheroad.com/?p=8640

    What is happening in California today played in a similar way in Michigan in the late 1980s and early 1990s. In 1993, when the carnival of bond profiteering was exposed — in a set of articles reported and written by me and published in the Detroit Free Press — the plunder came to an abrupt halt. A school board member from northern Michigan told me his district was poised to sell high-interest CABs when my stories broke on April 5, 1993. Finally aware of the CAB monster, electors were furious and made school board members aware that CABs were poison.

  7. December 3, 2012 at 11:31 am

    JW’s link might be useful in a particular sense, to look at realistic long term interest rates.

    The University of California fixed rate on long term loans look to be just over 3%, from the charts — again this is something I’m taking a very quick look at, not being a financier whatsoever.

    I can put this against my actual original estimate of what rate McKinleyville is paying, which was 6.7%, or roughly twice.

    If you calculate the simple way what 3% costs you over 40 years with no payments, your loan will require roughly 3 and a half times its original value to pay off.

    If you calculate the same simple way what 6.7% costs over 40 years with no payments, you get the answer that it will cost you roughly 13.4 times what your original loan was.

    The second answer gives within spitting distance of the 57mil McKinleyville future payout, so I think I was correct on interest rate estimate of 6.7%.

    Without spending more time than I have, I can’t decode the arcane language of bond traders to see if this 6.7% has any sense to it, but if not, it would be another rather important question to have answered about this deal, if I had anything to do with it.

    The reason I don’t go farther here is that surely there are a _lot_ of factors not on the table, which financiers calculate constantly by their models for whose advantage we can generally imagine. Like inflation, like likelihood of diverting legal maneuvers which change the whole picture later in the 40 years (on either side), etc..

    I’d actually like to understand if there is sense that the apparent bond interest is 6.7% vs. the UC figure of 3.5%, if anyone can answer it.

    I went back to my spreadsheet, and seem to find the suggestion that if you had a 3.5% loan over 40 years, and paid down equal amounts per year, you would pay about 200,000 a year, and pay a total of about 8 mil for the original 4.5 mil. Again, unless I am missing something, this is more like buying a house. And with whatever turns out to be an appropriate interest rate, it is at least a bound you could remember at in choosing a future point in time to begin paying back while still allowing for time to do something about the politics of Prop. 13, something like the Poway San Diego bond plan does.

    I am smiling because a little subject-innocent rationality about this probably doesn’t get me far in terms of the realities, financial or otherwise.

  8. December 3, 2012 at 11:33 am

    Narration,

    I think this is worth reading: http://www.joelontheroad.com/?p=8640

  9. December 3, 2012 at 11:53 am

    Yup. Seems pretty clear, and that’s a good point of view article for anyone interested in the subject overall.

    I just enjoyed the sense of taking an innocent approach, and see where it got me. You know, independent voter ;)

    I had another look at that table of Calif. interest rates, and it sort of compensates for my slight mistake of using 3.5% by the time I got back to the spreadsheet. Actually, that looks pretty realistic. But here I bow out.

  10. Plain Jane
    December 3, 2012 at 1:16 pm

    Whatsamatta you lefty lucies?? How do you expect underwriters, bond attorneys, financial advisers and bond purchasers to make a killing from education funds and how can right wing businessmen bankrupt our schools and force everyone into privatized education if you guys can’t mind your own beez wax? It makes the current school boards look like geniuses who can magically fix school infrastructure problems without raising taxes immediately and by the time the bill comes due, they’ll be off on some other adventure, maybe running for BOS or even the legislature on their sterling school board reputation. Don’t be a hater because you haven’t found a spot in the chow line. Keep trying!

  11. School Rhodes
    December 3, 2012 at 1:33 pm

    I wonder, how much of that $4M the district actually gets? Often, fees paid to all the consultants, lawyers, and bond issuers and the like are included as principal, i.e., the district doesn’t get the whole $4M. Or alternately, how much more principal is put on top of the actual amount the district gets to cover such fees?

    Regarding the interest rate, the question is how much would an obscure, isolated, un-incorporated district have to pay 40 years hence to get investors to loan it $4M today? In that light, $56M actually seems kinda cheap.

    On the other hand, where else can you put your $4M today and get a 6.7% return exempt from federal income tax?

    Speaking of taxes, are the fees to the bond issuers et. al. taxed at the same rate as regular income? Or are there ways to finagle this income into some form that is taxed at a lower rate?

  12. December 3, 2012 at 1:37 pm

    All good questions, SR. I’m not able to answer them. I hope our area’s reporters will locate people who can answer them. I hope McKinleyville voters insist on getting the answers, in great detail.

  13. tra
    December 3, 2012 at 2:06 pm

    School Rhodes asks: “I wonder, how much of that $4M the district actually gets? Often, fees paid to all the consultants, lawyers, and bond issuers and the like are included as principal, i.e., the district doesn’t get the whole $4M. Or alternately, how much more principal is put on top of the actual amount the district gets to cover such fees?”

    Assuming that the numbers in this 2008 article from the McKinleyville Press are correct, this article may provide at least a partial answer to your question, SR. It also shows how some of those who stood to gain from the passage of the bond donated to the political campaign urging voters to pass the bond. No surprise there (at least not to me), but illustrative nonetheless:

    the school district had hired several consulting firms which contributed money toward the passage of Measure C, and which also benefited, or will benefit financially from the bond’s passage.

    One of the firms in question is Kelling, Northcross and Nobriga (KNN), an Oakland financing firm. MUSD approved a contract with KNN at its Jan. 9 meeting. KNN performs the bond sales, and will be making about $80,000, which will be paid from the bond’s proceeds. If the bond had not passed, KNN would not receive any money. KNN contributed $7,000 on April 16, and an additional $1,500 on May 23 to Citizens in Favor of Measure C, the group which ran the political campaign.

    Another firm in question is Jones Hall, a San Francisco financial consultant, which serves as the district’s bond counsel, advising them on legal issues, which will be getting about $45,000 from MUSD. Jones Hall contributed $5,000 to the campaign on April 16, and an additional $1,500 on May 23.

    A third firm, Godbe Research, a consultant from Half Moon Bay, hired by the district in 2007, evaluated the community to see if the bond would be acceptable. Superintendent Dena McCullough said that this company has already been paid a fee of approximately $14,000. Godbe contributed $250 to the campaign on April 8.

    A fourth firm, Siskiyou Design from Yreka, has been hired as MUSD’s architect. According to Dena McCullough, they will get between 11% and 14% of the project cost. Siskiyou Design contributed $1,500 on April 18.

    The contributions of these four firms totaled $16,750, about 90% of the $18,600 raised by Citizens in Favor of Measure C. Most of the remaining contributions were made by top MUSD administrators, or their family members.

    Details about the financial contributions were obtained from forms filed with the County Elections Office.”

    http://mckinleyvillepress.wordpress.com/2012/12/02/flashback-measure-c-bond-campaign-financing/

  14. Anonymous
    December 3, 2012 at 4:44 pm

    PJ you b dumb. You and the bums you elect are destroying our schools. Go back and get any additional money,(if needed), for schools from the lottery. Period. Ca. gave the lottery the right to do it’s biz in Cali in exchange for funding our schools. They have the money and we can say “MORE” to them.

  15. Anonymous
    December 3, 2012 at 6:21 pm

    Mitch :
    No, pesky. Those that think this is corruption should say so, and insist loudly that government entitites do their jobs. Actually, those that think this is simply an extraordinarily bad deal should say so as well, and insist loudly that government entities do their jobs, and that those who have failed in their fiduciary responsibilities be removed from power.
    I’m not the press here. I hope the press does its job. If not the press, I hope the citizens of McKinleyville will do their jobs as citizens. I don’t live in McKinleyville, so this is not a financial issue for me. Those who are being screwed ought to follow pesky’s advice and file some Freedom of Information Act demands, and start paying attention to the school board.
    As for Heartbreak House, sometimes fiction is the best way a person has to communicate the truth. Why do you think people care so passionately about great literature and art?

    Why does it have to be corruption? Why not (if your story is true & that is a big if) simple incompetance?

  16. Anonymous
    December 3, 2012 at 6:42 pm

    Umm what do you mean “if your story is true?”

    McKinleyville USD issued a bit over $56 million in zero coupon bonds due in 40 years and sold them for a bit over $4 miilion. Fact or fiction?

  17. Just Watchin
    December 4, 2012 at 5:30 am

    I f you want the person responsible, put all of the voters in one big circle, and have them each point to the person on their left.

  18. December 4, 2012 at 8:49 am

    Blame the public for the back-room shenanigans of finance crooks and corrupt officials? Typical.

  19. December 4, 2012 at 9:05 am

    moviedad,

    This is one of those cases where I agree with JW, except I think the voters should point to the person on their right. McKinleyville deserves this.

    It’s a democracy. McKinleyville voters elected, among other people, the Vice President for Accounting at Security National and another business’ comptroller, who was running on a platform of being able to help the district be financially stable. Voters then apparently left those folks to their own devices. Voters got what they voted for. If they cared enough, there are actions they could take to see to it they are not fleeced again. They could also possibly challenge the bonds on legal grounds, as their terms are so completely and objectively outrageous it’s hard to believe any reasonable person would agree to them.

    Voters could invest in a watchdog position. Voters could contribute to the creation of a functional press for the area. Voters could stop tolerating a press that doesn’t report, and they could stop electing politicians who wouldn’t even be allowed to run in most jurisdictions, because they commit criminal offenses as the race begins. Hell, they could put in sidewalks, if they wanted.

    There are a lot of things McKinleyville’s voters could do. Unfortunately, they’ve proven themselves to be too cheap, stupid, and lazy. They deserve what they got.

    McKinleyville: Where Horse’s Asses Have the Right of Way

  20. Just Watchin
    December 4, 2012 at 5:38 pm

    Point to the right…point to the left.. it doesn’t really matter.

  21. December 4, 2012 at 6:10 pm

    Too true, JW. “They told me under capitalism, man exploits man. Under communism, they said, it would be exactly the opposite. And they were right.”

  22. Anonymous
    December 4, 2012 at 7:30 pm

    JW is a Troll – “yawn”

  23. Just Watchin
    December 5, 2012 at 6:55 am

    Anon…..can’t you make up some name to distinguish you from the other “Anons”.It may take some creativity, so if you get stuck, BJ or Mitch could help out. Since I’ve become your only reason to live these days, how about “I hate JW” ??

  24. Plain Jane
    December 5, 2012 at 7:49 am

    #22, It is possible that JW’s functional illiteracy and what appears to be idiocy is due to dyslexia since it consistently confuses P’s and B’s. Just a thought.

  25. December 29, 2012 at 9:06 am

    Refinancin​g Student Loan Debt: A Modest Proposal

    The recent McKinleyville bond scam (the issuance of 40 year zero coupon bonds that will cost over $50 million to repay) brought to me an idea of how to refinance the crushing debt burden faced by our young people who actually believed the hype about the value of an education. The McKinleyville School board calls these zero coupon bonds just a “tool” in the “financial toolkit” and I see what they mean now.

    For instance, if we take $10,000 face value of student debt and swap it out with zero coupon debt maturing at 50 years at 1% interest (let’s give them a break on the interest, what the hey, they are our kids and right now the banksters are getting an interest free float from the feds of $80 billion a month) and you get a zero coupon debt paying back $16,446.31 in the year 2062. Why 50 years? Well they way they talk about pushing back the retirement age our 20 somethings are looking at 50 years of work. Right?

    So using the tool of zero coupon debt our young indebted people can re-fi their student loans, each $10,000 increment paid back with $16,446.31 in the year 2062.

    If the tool fits, use it.

    http://www.miniwebtool.com/zero-coupon-bond-calculator/?f=16446.31&r=1&t=50

    have a peaceful day,

    Bill

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