Officials question Island schools bond

Oakland Tribune, Feb 28, 2004 by Susan McDonough, STAFF WRITER

ALAMEDA -- A creative but complicated plan to infuse aging Alameda schools with needed money has some people questioning whether the plan is too costly.

Measure C, a school bond on the March 2 ballot, would raise $63 million for aging and overcrowded schools in Alameda.

The bond is billed by supporters as a way to repair schools without raising property taxes.

The bond would extend payments on a current school bond issued in 1989 that is expected to be paid off by 2014.

The new Measure C bond would be issued in two offerings over the next few years, but taxpayers wouldn't begin paying off the loan until the 1989 bond sunsets in 2014.

In the meantime, the loan would incur millions of dollars in interest.

In a Feb. 17 letter to PTA member Trish Spencer, who has been promoting the Measure C plan, Alameda Unified School District Chief Financial Officer Lorenzo Legaspi said the total cost of the school bond to taxpayers could be as much as $259 million, and could take until 2046 to pay off.

Legaspi said the combined interest on the bond could amount to $196 million, more than three times the principle.

He warned that interest rates and local property values could affect payments on the bond.

Measure C campaign coordinator David Forbes cited the 1989 bond as an example of how fluctuating interest rates and housing prices can impact bond payments.

The 1989 bond was issued as a 25-year note that cost homeowners $103 on every $100,000 of assessed property value, he said. Today, homeowners pay $59 on every $100,000 of value because property values here have increased, requiring homeowners to pay less to meet the bond obligation, and because the loan had been refinanced.

Forbes said the 40-year, $259 million estimates are a "worst case scenario."

Still, some say a bond that could accrue more than three times in interest what it raises in principle is a bad idea.

"That's not a good return on investment. There's got to be a better way to do that," said Chris Fresk, a banker and Alameda parent. He called the plan "mortgaging the future for the present," while admitting, "as bad as that is, we really do need to improve the schools."

The district has more than $100 million in repairs at its 18 schools, including fixing leaky roofs and up-grading heating and air conditioning systems, as well as building a new school at Alameda Point to accommodate growth on the island's West End.

John Newton, whose son is a student at Encinal High School, and who's active on that school's PTA, said such a creative, albeit long- range plan was the only way the schools were going to get the money to make the repairs and improvements.

"I think the way they financed (the bond) is fine," he said."We need the buildings fixed. That's the only way they would get the bond passed," he said.

Forbes and others close to the issue agree. Taxpayers have made it clear they wont support something that raises taxes, Forbes said.

"If anyone thought that we could add $60, even $40, to everyone's taxes ... There's not a chance (homeowners) would have voted for it," he said.

The school district's contracted financial adviser Michael Ogburn, said the issue is the same all over the state. His firm, California Financial Services, has at least nine California school districts as clients with similar bond measures on the March 2 ballot.

"There are a lot of communities that want to improve their schools but don't want to increase taxes to pay for it," he said.

Spencer, a parent with three children in the district, and an active member of the PTA Council, has been on a crusade in recent weeks to get the district to disclose details about the bond's fiscal impact to voters.

She calls campaign literature claiming the bond does not raise taxes misleading.

"They don't disclose that it's really open ended, or how many years it's going to be before it's paid off," she said.

"If I went to buy a car, and I was told I was going to have to pay three times (the cost of the car) in interest ... I probably wouldn't buy the car," Spencer said. "I'd look at the alternatives."

The district considered three different money generating alternatives last year before deciding on the $63 million bond, now Measure C.

At least one option -- a $99.5 million bond -- would have raised taxes by $60 per $100,000 of assessed value.

Forbes said any omission on how Measure C could be financed was merely the product of trying to simplify a heady financial matter.

"No one has been trying to hide anything on this," Forbes said. "It's just so incredibly complicated.

Contact Susan McDonough at smcdonough@angnewspapers.com .