Home > Uncategorized > 1300% in interest?! The press is on it!!

1300% in interest?! The press is on it!!

  1. A pesky fact
    December 4, 2012 at 10:17 am

    Mitch,

    I seriously LOL’d. That was funny stuff.

    I’m glad some folks in the last thread did some digging on the questions I brought up.

    If I were more than a pesky fact, I’d point out that it seems like a fixed ratio of campaign donations to financial benefit of donor existed on the bond measure.

    I have no tolerance for public corruption. As Glenn Reynolds says, “make the rubble bounce.”

    The goal here should be a RICO investigation.

  2. December 4, 2012 at 10:34 am

    “The press is on it.” Yipper Skipper! The ‘tipping point’ – paradigm shift.

    RICO (i)nvestigation – kinda like the 911 investigation.
    The goal here is in our court. We need to bring the criminals to justice. Not someone else – rather, you, me, we , us. Are these public servant impersonators bonded?

  3. December 4, 2012 at 10:39 am

    What was the original purpose for the sale of these CABs by the McKinleyville USD? Have the proceeds been spent yet, and if so on what? Were the proceeds used to roll over previous indebtedness, as in Willits?

    have a peaceful day,
    Bill

  4. December 4, 2012 at 10:39 am

    pesky,

    The local reaction evidenced here so far is about what I’d have expected, after having generally jumped up and down and shouted and danced about previous issues.

    Numbers are involved, and conservatives are involved.

    If the Tea Party wants to push for a RICO investigation here, I’ll be happy to work with them on it. But this is already well on its way to being silenced to death.

    There should be legislation passed requiring realtors offering property in McKinleyville’s school district territory to provide a warning along the lines of “CAUTION: Starting in 203x, you will be required to pay $xx each year for xx years per $1,000 of assessed valuation to pay back a school bond issued in 2011. It is likely that the school district will be bankrupt, and the obligation on district taxpayers will remain.”

  5. December 4, 2012 at 10:52 am

    highboldtage,

    I suspect the 2008 bond measure was entirely justifiable in response to a real need — it is the terms the district agreed to in 2011 that constitutes the fiasco. It’s one thing to authorize $14 million in needed bonds, expecting that you’ll have to pay twice or even three times that over the next twenty to forty years. It’s another thing to set up people forty years from now to pay back 13x what you borrow.

    The bond measure language, I believe, is as follows:

    “To repair and replace aging roofs, repair structures to meet current fire and safety codes,
    replace outdated electrical, plumbing restrooms, and heating systems; upgrade classroom
    technology and computer labs, repair classroom facilities, and modernize science
    classrooms and labs, shall the McKinleyville Union School District be authorized to
    replace, renovate, acquire and construct school facilities, issue $14,000,000 in bonds at
    legal interest rates, with no funds for administrator salaries, and appoint an Independent
    Oversight Committee to monitor bond expenditures

  6. December 4, 2012 at 11:03 am

    Wow, that was close. We can all rest easy now, right? [I hear your sarcasm, moviedad, but did you miss mine? Check out the T-S link. --Mitch]

  7. Plain Jane
    December 4, 2012 at 11:07 am

    It seems crazy to me that there aren’t laws prohibiting such outrageous maneuvers to get around restrictions on tax increases (as opposed to them paying enough in taxes to pay for their schools) by making future property owners responsible for paying many times over for what should be funded by current tax payers. Allowing loan sharks to eat our school funding is begging for corruption at every level.

  8. December 4, 2012 at 11:10 am

    Yes, every one of us who doesn’t live in McKinleyville can rest easy. Except for those of us who share politicians with the voters of McKinleyville, like all voters in the fifth supervisorial district.

    As for those who do live in MUSD, hey, “it’s all good!”

    And if it isn’t, it’s because those libtard, hugely wealthy teachers were upset at dripping roofs in their classrooms, not because of MUSD’s heroic board members, who always look out for McKinleyville’s taxpayers, ’cause they’re brilliant fiscal conservatives. The teachers could have brought in umbrellas.

    I wonder if the district will try to get out of paying pensions.

    Watch and learn.

  9. December 4, 2012 at 11:12 am

    PJ,

    There are laws. In Michigan, since the 90s. Thanks to this reporter, who issued the warning in California when he saw the same thing happening here: http://www.joelontheroad.com/?p=8640

  10. December 4, 2012 at 11:25 am

    Legalese presented to the voters in 2008, signed by then Superintendent Dena McCullough. No information is provided on debt service schedules, total interest accruing, maximum interest rate (other than that it must be legal), or allocations to advisors:

    The average tax rate is expected to be 2.99 cents per $100 ($29.90 per $100,000) of assessed valuation over the life of the bonds.

    Voters should note that estimated tax rates are based on the ASSESSED VALUE of taxable property on the County’s official tax rolls, not on market value. Property owners should consult their own property tax bills to determine their property’s assessed value and any applicable tax exemptions.

    Attention of all voters is directed to the fact that the foregoing information is based upon the District’s projections and estimates only, which are not binding upon the District. The actual tax rates and the years in which they will apply may vary from those presently estimated, due to variations from these estimates in the timing of bond sales, the amount of bonds sold and market interest rates at the time of each sale, and actual assessed valuations over the term of repayment of the bonds.

  11. n/a
    December 4, 2012 at 11:26 am

    And what is one of the favorite conservative memes?

    “Unfunded liabilities.”

    How many of you believe that MUSD will be saving a little money every year in a passbook account to pay off the 56 million?

    Since they will be making maybe 1/2 of 1 % interest on their savings while paying 7 % on their loan I suggest the annual savings contribution should start at at least $500,000 per year.

  12. Plain Jane
    December 4, 2012 at 11:26 am

    I’m sure that if they had even considered that such loans could endanger teacher pensions they wouldn’t have even considered them Mitch. (heavy sigh – rolling eyes) But if the taxpayers are on the hook for the bonds if their school districts go bankrupt, do the bond holders have first claim on revenues meant for public safety, road repair, etc?

  13. December 4, 2012 at 11:58 am

    Jane, having given that pdf of McKinleyville’s actual dealings a scan so far, I may suspect they do. There’s ‘insurance’, but rather doubt it intends to pay anything short of district bankruptcy and follow-on consequences. However, can’t vouch that this is correct.

    But the School Board did have a legal advisor, in (drum roll) San Francisco. Who however seems to have advised only with an opinion that the bonds were tax-free, not whether the idea of them was in any way sound.

    There’s a year, 2007, which keeps turning up in Mitch’s articles above in connection with when mass use of CABs by school districts may have started. It may just be a repeated time bound of a report, but still that date is very interesting. Just as the real estate scam fell apart, it seems the local representatives of Wall Street financials may have been out selling their next preparation.

    I’d say preparation, because apparently the CAB idea goes back to 1978, as Prop. 13 gained its teeth. Michigan wrote law to forbid them not recently, but in 1994, as they saw what was coming. California seems to have been silent until an LA tax figure blew a whistle on debt ratios ‘over 25′ in 2011. Hmm.

  14. December 4, 2012 at 12:19 pm

    A few observations…..

    First of all, these are junk bonds. Municipal junk bonds, but still junk bonds. There is a whole category of bonds called municipal junk bonds and dealers who specialize in them. One large muni junk bond fund has a current yield of 5,8% on muni junk bonds. Mactowns School Bonds deliver almost 7% so draw your own conclusions. They are risky for both the borrower (the MUSD) and they lender (the speculators who buy junk bonds.) The risk is that the school district will default, and the bonds become worthless or more usually some amount less than 100% set by some federal bankruptcy judge. Muni junk bonds that default currently return 44% of principal. That is why thier interest rates are high to compensate for the (expected) mathematical expectation of loss on the bonds.

    Who owns them? Speculators. Maybe even some pension funds who have been suckered or pressured into buying them, or have bought them for corrupt reasons. People who are hedging against something or are diversifying a large portfolio with a small amount of this risk. These last two are at least rational. All the above is true but most real people don’t buy 40 year zero coupon bonds because who would buy a bond that matures after you are dead?

    Can they be recalled? If the legalities can be worked out , yes. Calculating their fair market value is trivial. Maybe the MUSD will have to pay a premium of 1% over fair market to buy them back. They have not existed long enough to have grown in value significantly. The queston is who would refinance them, since MUSD has obviously bumped up against its credit limit. Force the people who put these deals toghether to pay back their fees and commisions. In the Bernie Madoff case they call this a clawback.

    It goes without saying that a vice president at Security National, a company whose sole existence is about mortgages and securitized credit and debt instruments should understand the consequences, costs and risks of issuing zero coupon bonds. For him there is no excuse and his failure to communicate this to the community is inexcusable. The same can be said for several other board members. On the other hand there might be other board members there and in other communities around California who are just “good government” types of people, and they might be Republicans or Democrats, and these people might have simply believed what “staff” told them, or more likely what “staff” omitted. These people are victims, just the same as elderly victims of con artists. This is not a left right issue. Around California there is legit outrage at this from both “liberals” and “conservatives.”

    But it is more complicated than just corruption. Sure there most likely is corruption at some level. And we will hope that it will be found out and prosecuted. But it is also a symptom of a systematic problem with our economy: over-financialization. Too much of our GDP now is tied up in Wall St. derivative products that have created essentially the biggest casino on Earth (And in the history of Earth!). Not enough is tied up in truly productive assets like factories and schools, and the social safety net, which is certainly a productive investment in our common social capital.

    have a peaceful day,
    Bill

  15. Skippy
    December 4, 2012 at 12:23 pm

    This story broke towards the end of last week. Will the McKinleyville School Board of Trustees be making a statement explaining what happened and how it all came about?

    State Treasurer Bill Lockyer thinks the deals are a big mistake. Lockyer said,

    My personal view is that voters are going to have to defeat some people running for school board, and fire school superintendents who have done this stuff,” he told KQED’s Stephanie Martin on Thursday.

    It’s irresponsible and it’s going to require a public reaction that’s severe to stop it,” he said.

    Meanwhile, local Humboldt County Superintendent of Schools Garry Eagles has sidestepped the fiasco, saying it was beyond his control and oversight and squarely placing the responsibility back onto the shoulders of the local trustees for their decision.

  16. December 4, 2012 at 12:41 pm

    Skippy,

    Until the TeeVee or the TeeEss cover it, the story hasn’t actually broken. Perhaps someday soon we’ll be treated to a reporter dragging a cameraperson along behind them and demanding to know “who pooped and peed on McKinleyville,” but I doubt it.

    It seems safe to say, Skippy, that the MUSD hasn’t shown interest in commenting here, whether to correct the record or to explain their rationale. I’m sure none of them ever read the Herald, so they probably don’t know the topic has been discussed here. But perhaps some of them read the Lost Coast Outpost and might comment there.

    Or, I’m sure within a few weeks the paid newspaper people will cover this issue properly, and no doubt they’ll include quotes from the MUSD officials — that’s journalism, after all.

    Here at the Herald, we don’t believe in journalism, we believe in truthiness, in JW, in Weed Kings and Forest Queens and apple pie with peace, justice, and extra malarkey for all. So here, weeks before its impending publication, is your selection of truthy quotes — “these were a last resort,” “we were just trying to follow the voter’s will,” “everyone does it,” “we were badly advised,” “this is (liberals’/ the state’s/ Prop 13’s/ Obama’s/ Gallegos’/ Salzman’s/ Lovelace’s/ Atkin’s/ Garr Nielsen’s) fault.”

    (And, of course, “this is what happens when you let gay people marry.”)

  17. December 4, 2012 at 1:12 pm

    You just give me chuckles Mitch. Of course, my “First of all” would be that (i)nterest isn’t even a part of the equation – it’s never printed – even in funny money, promise-to-pay
    s o m e d a y, private foreign-owned corporation Federal Reserve Bank. Seems that not so long ago, what sparked a revolution was a 2% tea tax trying to be imposed by our European cousins. Our forefathers must be rolling over in their graves. 1% is usury.

  18. ThreadJack
    December 4, 2012 at 1:56 pm

    Regarding school bonds….the shady business of finance.

  19. tra
    December 4, 2012 at 2:23 pm

    From the original LoCO article: But when, in 2011, it came time for the district to raise more cash, it was already bumping up against the school bond tax rate cap imposed by the state of California, which allows a district to levy no more than $30 per year for every $100,000 worth of property value. The CAB structure on the additional $4.2 million allowed the district to push repayment way into the future in order to avoid these limits.

    I don’t know enough about the conditions of McKinleyville schools to say whether I think the $4.2 million in repairs and upgrades are necessary and urgent. But let’s assume they are. If I understand the argument correctly, because of a legal limit on the amount the School District is allowed to raise in taxes they simply cannot raise enough revenue to be able to begin making payments sooner, and to pay off the bonds over a shorter period — both of which would have resulted in a far lower payout amount.

    Not doing necessary and urgent repairs and upgrades would shortchange kids who are attending these school now and/or who will be attending these schools in the near future. But financing these repairs and upgrades with this CAB fleeces McKinleyille taxpayers (including some of those same kids, when they are grown up and paying taxes) over the course of 40 years. So, shortchange these kids now? Or make these kids pay for their own K-12 school facilities decades later, and at a ridiculously inflated price? Sounds like two very bad options. Here’s an idea: How about today’s adults actually cough up the dough to repair and upgrade the schools for today’s kids, and then let those kids, when they are grown up, pay for repairs and upgrades to their own kid’s schools. I know, crazy, huh?

    I don’t get the rationale for such a low legal limit on the amount local school districts are allowed to raise in taxes to finance repairs and upgrades of their school facilities. I don’t see why we should so severely limit local school districts from raising more money to improve school facilities, if that’s what local voters choose to do. I’m happy to pay a bit more to improve school facilities — but I wouldn’t be real happy to pay 1300% interest for it! If money needs to be borrowed, I’d much rather pay over 10 or 20 years with repayment beginning immediately, even if it means I have to pay a bit more in the short-term, as opposed to this arrangement where payments are deferred and the accrued interest keeps piling up, and I (or my kids and grandchildren) end up paying much, much more in the long-term.

    It would be interesting to see someone do the math and figure out how much money McKinleyville taxpayers would have saved in the long run if their school taxes could be raised to, say, $40 per year for every $100,000 of property value, instead of the current state limit of $30 per $100,000 of property value. Let’s put it this way: If you own a $250,000 house in McKinleyville, and your current annual school tax is $75 at the $30/$100,000 rate, but it would be $100 at the $40/$100,000 rate, then, yes, you’d be paying $25 more per year in the short-term, but this would allow the school district to repay its debt ___ years sooner, and therefore would only have to pay $_______ to finance the $4.2 million worth of repairs and upgrades, rather than the $56 million required by this CAB. This would be a total savings of $_________ for the district, and would save the average McKinleyville taxpayer an estimated total of $_________ over the long term. I would love to see someone fill in those blanks.

  20. December 4, 2012 at 3:18 pm

    Looking ahead from the current problem, it’s clear that any time voters are asked to approve a bond measure, they need to vote on the maximum amount of indebtedness they are authorizing, not just the amount of funds that will be received. It’s crazy that by authorizing a $14 million bond measure, voters can be allowing a school board to put itself into $200 million of debt.

    As for the McKinleyville situation, it looks like ten or so property owners represent about 8% of the assessed value of property in McKinleyville. It is their interests that were protected by throwing the town to the wolves.

    I think Timber Ridge was on the top of the list, then a lumber company or two, then Azalea apartments. Anyone who cares can find the list.

  21. Thorstein Veblen
    December 4, 2012 at 3:39 pm

    Mitch, I don’t get how those 10 property owners were protected? If the tax is based on assessed valuation, it seems that they would be paying along with all other property owners.

  22. December 4, 2012 at 3:45 pm

    It’s pay now versus pay later. If they’re still around 40 years from now when the bill comes due, they’ll have to pay it. But for now, their additional taxes remain capped.

    I’m not saying this was done at their request, and I shouldn’t have used the word “protected.” More that they are the largest short term beneficiaries of the situation, other than the various bond salespeople, advisors, insurers, and construction companies.

    In general, when a lot of property in an area belongs to a few owners, it seems advisable to check and see whether seemingly irrational behavior on the part of pols might help the large owners.

    I’m a bit irrational on this right now as well. I really don’t know why things like this stick in my craw when they don’t affect my finances a bit. But they do. I remember being angry out of all proportion when “payday loan” storefronts began appearing. Hell, that was nothing.

    I realize how unrealistic this is, but I just can’t stop thinking about how nice it would be for McKinleyville middle class residents to have been able to get a 3% return on loans made to the district, so they wouldn’t continue to put their money into 0.2% savings accounts at Coast Central. At 3%, the district would owe less than half what it will owe by going the Wall Street route, and it would have been more likely to actually pay back the borrowing.

  23. tra
    December 4, 2012 at 4:07 pm

    In comment #15, Mitch said: “the MUSD hasn’t shown interest in commenting here, whether to correct the record or to explain their rationale. I’m sure none of them ever read the Herald, so they probably don’t know the topic has been discussed here. But perhaps some of them read the Lost Coast Outpost and might comment there.”

    On the comment thread to the article on LoCO, Hank Sims asked Tim H the following (I’m assuming Tim H is trustee Tim Hooven):

    “So why’d you all take this dramatic step? Doesn’t it rely on an astronomical amount of future growth in the McK area?”

    Tim responded:

    Hank, I am not the spokesman for the Board and I don’t want to talk out of school (ha!). I would suggest you call the district office and review the meeting materials and associated minutes from the February and March 2011 meetings and the November 2012 meeting.”

  24. tra
    December 4, 2012 at 4:09 pm

    Jack Durham of the McKinleyville Press has promised that he will have a story on this CAB issue in a future edition of the McKinleyville Press.

  25. December 4, 2012 at 4:22 pm

    Here’s information on Prop 39, which is what laid the groundwork for this new statewide situation:
    http://www.calvoter.org/voter/elections/archive/2000/general/propositions/topten.html#39
    http://ballotpedia.org/wiki/index.php/California_Proposition_39_(2000)
    http://ballotpedia.org/wiki/index.php/School_bond_elections_in_California

    I’m certain I voted for Prop 39. What a chump!

  26. December 4, 2012 at 4:35 pm
  27. December 4, 2012 at 5:31 pm

    Bill (humboltage), thanks for a great primer on some of the issues only financially-orientated persons will be clear on. A big help, and as I didn’t want to speculate there not being one, though there are no surprises.

    tra, I think you have the sensible nail hit on the head, within a factor of two anyway. With my back-of envelope moment of calculation, I get that you have to add $20 new dollar/100k to get to $200k/year extra funding.

    This will by previous calculation roughly make the annual payments on a 3.5% 40 year loan of the ordinary kind. And very likely you can go for much less than 40 years, not having any finaglery in mind, so the payments could be much lower.

    This is based on the McKinleyville property base out of the financial report Mitch posted, rounded off to $1 billion (it’s a bit more, but I’m not sure if industry pays school tax).

    All it takes to do this is some kind of guts/legalism to knock out Prop. 13’s chilling effects in some way so they don’t apply for this case. Now, how do you go about arranging that???

  28. Jon Brooks
    December 4, 2012 at 5:59 pm

    Simple, keep single family residential property under prop 13, since they change hands every 7-10 years on average, and are re-assessed then. Everything else gets re-assessed every year. It would be raise revenues to local govt some, and would still keep grandma from being taxed out of her house. Which is why we all voted for it in the first place, not realizing that corporate ownerships would be the biggest beneficiaries.

  29. December 4, 2012 at 9:28 pm

    Well that’s new. How did you insert your comment into mine? You could conceivably do that with any post? Write whatever you want and it would post under the Commentator’s profile? I didn’t realize the blog-moderator had the ability to post under someone else’s profile.

  30. December 5, 2012 at 7:07 am

    Yes, moviedad. The thread moderator can edit the post and any comments, on this blog and any wordpress blog.

  31. December 5, 2012 at 7:54 am

    You just loaded the Anonymi’s gun. Now they can be completely justified in remaining anonymous. Why take a chance that your words can be changed and still posted under your personal profile.Yeah, the moderator can do it. But I think it’s unethical to “edit” someone else post. If it’s offensive, don’t post it. If you allow it, then please leave it as it is. Yeah, yeah; I understand that there’s such a thing as “italics”. Not the point…..It’s just not ok to insert words into someone else’s post, and let it fly under that person’s profile. Maybe the Herald should switch to Discus and then we’d have the “reply” function.
    Anyway, no big deal I guess. Keep up the good work.
    Signed: “Anonymousdad.”

  32. Plain Jane
    December 5, 2012 at 7:57 am

    It would be better to leave poster’s comments as written and then quote them to make your point, Mitch. I don’t like the idea of moderators changing posts without request from the poster either.

  33. December 5, 2012 at 8:00 am

    OK, moviedad and PJ. I’d thought the italics and signature was OK, but I’m not wedded to it. I won’t add comments within comments any more.

  34. December 5, 2012 at 9:33 am

    “Never doubt that a small group of thoughtful, committed people can change the world. Indeed, it is the only thing that ever has.” Margaret Mead -American Cultural Anthropologist

    California Government Code
    Section 54950 et seq.
    In enacting this chapter, the Legislature finds and declares that the public commissions, boards, councils, and other public agencies in this State exist to aid the people in their business. It is the intent of the law that their actions be taken openly, and that their deliberation be conducted openly.
    The people of this State do not yield their sovereignty to the agencies which serve them. The people in delegating authority, do not give the public servants the right to decide what is good for the people to know, and what is not good for them to know. The people insist on remaining informed so that they may retain control over the instruments they have created.

    “It is true that at common law the duty of the Attorney General is to represent the King, he being the embodiment of the State. But under the democratic form of government now
    prevailing, the people are the King (Queen) so the Attorney General’s duties are to that sovereign rather than to the machinery of government.” Hancock V. Terry Elkhorn Mining Co., Inc., and Commonwealth Ex. Rel. Hancock V. Paxton.

    One can’t just talk the talk, because they will quickly figure that out. We have to “walk the walk.” If you are not competent to assert your sovereignty, then you are by definition, not sovereign. It’s all about taking back your sovereign rights. No government or system gives you those rights. They must be claimed and accepted on a daily basis by you, personally.

    Becoming a taxpayer requires consent. Womb/men don’t want to recognize that we have a choice, especially when coming to that realization means that we end up having to make different choices from those which have become habit. Breaking habits is difficult.

  35. December 5, 2012 at 9:15 pm

    xV4X,
    What do all of those numbers mean?
    How I came to that solution? Becoming sovereign is not an event. It’s a journey. A lifestyle.
    It’s like a chess game. It begins with a limited amount of moves and as the game proceeds the moves become virtually limitless. I am not a taxpayer – by choice. We don’t have to re-invent the wheel . . . just bring the criminals to justice. Our de jure courts are in abeyance, waiting for ‘we the people’ to bring them out of hibernation.

    “Not to find out new principles, or new arguments never before thought of . . . but to place before mankind the common sense of the subject, in terms so plain and firm as to command their ascent, and to justify ourselves in the independent stand we are compelled to take.” Jefferson

    Some will let it happen, some will make it happen, some will wonder what happened.

    We have all been here before.

    Anyone desiring to start the journey back home, I would suggest “The Greatest Story Never Told, Until Now!” by Al Barcroft – revised Oct. 2012. It’s on-line.

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