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NCJ on school bonds

wimpyCarrie Peyton Dahlberg has described some local school bond issues in a story in this week’s North Coast Journal.  While the tone is measured, the meaning is clear.

And, for the misanthropes among us, there’s this near-perfect summary of the problem, courtesy of Northern Humboldt Union High School District board president Mike Pigg:

“If you want to make a big deal out of year 2035 and year 2036, go ahead,” Pigg said. “The question you should ask is what McKinleyville has done. Theirs is scary.”

The quote appears to come in response to Mr. Pigg discovering his own district has $200,000 of bonds scheduled to cost $2 million to repay.  In fairness, that’s a small proportion of NoHum’s borrowing.  The scandal, I suspect, is that school districts have to offer underwriters these outrageously high interest deals to get them to underwrite the more reasonable parts of the bond deals.

In McKinleyville’s case, the entire $7 million deal in 2011 appears to have been this sort of outrageously high interest deal, leading their scheduled indebtedness to be $70 million plus.  And for this, advisors are paid.

  1. December 6, 2012 at 8:09 am

    2035, ha! That’s, what, 73 years from now?

  2. December 6, 2012 at 8:59 am

    Bankers and financial officers are the most criminal element of the “New American Century.” They want to eliminate anything that has “public” in the title. So to turn education into a Privateer’s wet-dream, like the prisons have become the golden-goose for those other, or are they the same; Privateers, they have to break them financially so they can ride in on their white horse and “save” the schools. They will of course also make much hay out of the fact that this is what happens when you let “Liberals” run education. Pretty much business-as-usual for the New-American Centurions. Lies, crooked loans, shifting blame, political grandstanding, misleading media campaigns, disregard for the welfare of the people/children involved; this is how these guys roll. Funny thing is they don’t see themselves has Anti-Americans, even when they are blatantly attacking and destroying public infrastructure. Quite the opposite, they see themselves as saviors, protecting their class from an educated public which might get wise to their shenanigans and press charges.
    “Pay-Day Loan” companies are not just for the inner-city poor; they’re for everybody.
    Yeah, yeah.

  3. Just Watchin
    December 6, 2012 at 9:28 am

    You hit the nail on the head Moviedad……it is what happens when you put libtards in charge of education. But wasn’t this whole thing a result of a vote by the people. Surely you don’t believe that EVERYONE is dumber than a box of rocks, do you ?

  4. December 6, 2012 at 9:48 am

    JW,

    Are you thinking that MUSD’s board is full of “libtards”? Because I’m not sure that’s entirely accurate. What’s your clever name for fiscal conservatives who set up 10:1 interest to principal ratios and loans where you encumber 40 year olds not yet born?

    If it takes a “libtard” to approve a million dollars to do maintenance on the buildings in which our children get educated, what do you call the financier on the school board who decides to borrow that million by promising Wall Street ten million in forty years? The first realizes that the kids can’t learn if their roof is leaking, and approved a million. The second is in charge of getting the taxpayer a good deal, but approved ten times as much for Wall Street. Who is doing the right thing, and who isn’t?

  5. Just Wankin
    December 6, 2012 at 10:02 am

    Moviedad – Just Watchin’ is a troll who doesn’t know anything about this situation. He lives in Florida. He only posts to provoke. He isn’t adding anything, just hoping for a response. Please don’t feed the troll.
    By the way, I agree with your analysis. It’s always interesting how the right can ignore unfinanced wars, bank bailouts, Ag and oil subsides in their self-righteous claim to fiscal conservatism. It would be worth debating that with the likes of High Finance. Fred, or Ponder Z. But JW is a troll who will just continue to provoke without any meaningful dialogue.

  6. December 6, 2012 at 10:23 am

    Why are these CAB bonds not unconstitutional, given that they clearly appear to constitute taxation without representation?

    Handling the federal government’s debt is a very different issue, as the federal government can print more money when it needs to.

    But these school debt issues are imposing obligations on voters who won’t be born for twenty years, all to pay for public investments that may not even exist for their benefit when they are called upon to pay in 40 years. How this is legal is one of the many mysteries I just wonder about — I’d always understood that school bond issues were like mortgages, and you received the benefit from them while you paid for them.

  7. Just Watchin
    December 6, 2012 at 10:52 am

    Strange that when you mention that the VOTERS approved this, you get crickets. Were they ALL so easily duped?

  8. December 6, 2012 at 11:03 am

    Voters did not approve this.

    Caifornia school bonds are described to voters based on the amount of money that will be made available to schools, not the amount of money that will be stolen by Wall Street. So voters, quite properly, evaluated that the schools needed the additional money for the purposes listed on the ballot and in the election materials.

    It is up to the school boards to structure the actual bond issues. Different school boards chose to structure the issues in different ways, and to consult with different advisors and offices.

    McKinleyville’s school board, which includes a VP of Accounting at Security National and a current or former controller for Murphy’s Markets, appear to have decided that putting future McK residents on the hook for $71 million in order to get the full remaining $7 million authorized by the voters (as opposed to $4 million, which could have been financed by a much more legitimate route).

    Voters who vote to spend $1 million should not wake up to the fact that they’ve set their grandkids up to pay $10 million.

    First, it should be illegal.

    Second, they should be able to expect more from their school boards.

    No, school board members need not be all that financially aware. But due diligence would require that each school board member go over the actual bond issue with people who are financially aware. And a pretty minimal set of questions is: (1) how long will this take to pay back; (2) how much total interest will be paid; and (3) how does this compare with other bond issues by other entities. If the advisors lied or misled, perhaps at least some funds can be clawed back. But if the advisors were never asked, or if they asked and answered, the fault is with the school board members, particularly those who have a background in financial wizardry.

  9. December 6, 2012 at 11:05 am

    I think you are ‘misunderstanding’ again.

    Voters approve bond issues.

    I sincerely doubt they approved the specific portfolio of _how_ they would be issued, and therefore have no responsibility for any agreement to mega-interest CAB bonds.

  10. December 6, 2012 at 11:07 am

    That’s aimed in the direction of the Florida contingent, JW, of course.

    Clear exposition, Mitch.

  11. Just Watchin
    December 6, 2012 at 12:38 pm

    Don’t voters elect school board members?

  12. December 6, 2012 at 2:25 pm

    This really is earache territory from you. The board members here would look like they know what they’re doing. In a certain way, it seems likely, they did. Town meeting coming up next week to get some judgement on that.

  13. Walt
    December 6, 2012 at 3:22 pm

    Anyone know how these “junk” muni bonds are rated? ZZZ? And I’m guessing they aren’t insured?

  14. December 6, 2012 at 3:30 pm

    As we both know, Walt, the ratings mean nothing. McKinleyville’s bonds may well have been rated AAA+cherry+whippedcream, for the right fee. But I think there is an insurance policy for buyers, though I don’t know what it covers.

  15. Anonymous
    December 6, 2012 at 4:10 pm

    At the base of the financial meltdown in 2007 was the utter failure of AIG to cover all the insurance bets it had issued in our casino economy. AIG was too big to fail. McKinleyville USD isn’t.

  16. ThreadJack
    December 6, 2012 at 5:09 pm

    Meanwhile back in Amerika…….

  17. Anonymous
    December 6, 2012 at 9:35 pm

    #8) “…due diligence would require that each school board member go over the actual bond issue with people who are financially aware.”

    Their advisers already provided the identical answers available from dozens of brokers in Eureka: these bonds are indeed rated AA…they are insured, (sometimes by both the broker’s agency, and the municipality), few have ever sold at a loss when traded, fewer still have defaulted.

    In other words, no one’s asking the right questions of the right people.

    The question is how high state and nationwide municipal debt load is growing beyond the reasonable ability to ever pay it back, similar to the housing bubble. Once this is reported, tens of millions of retirees will begin to sell their bonds in a panic, Go Bonds will begin trading at big discounts, and we will begin to see a watershed of defaults as this funding source diminishes.

    Then, the sharks on the school boards will be applauded for jumping on the bubble early having squeezed their millions out of the life savings of the nation’s elderly who cannot afford the illnesses associated with returning to work.

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