Clariece Tally: PUSD Trustees Betray Parents, Students

The community deserves answers from the board members regarding the $1 billion cost of a school bond.

If Will Carless, investigative reporter for Voice of San Diego, had detonated a nuclear device at the , he would not have created more collateral damage than he did in his well-researched and powerful article, Where Borrowing $105 Million Will Cost $1 Billion: Poway Schools.

Without Carless exposing the details of the 2011 bond financing by the Board of Education, Poway voters and property owners may never have known how deeply they had been deceived—well, not for at least another 20 years. 

To simplify the events: In 2008, the PUSD needed money to finish numerous facility upgrades that were supposed to have been paid for by Proposition U, which passed in 2002.  Why those Prop U upgrades went over budget by tens of million of dollars is a completely different discussion and pales in comparison to this discussion.

In 2007, the school board (President Jeff Mangum and Trustees Linda Vanderveen, Andy Patapow, Todd Gutschow and Penny Ranftle) decided to ask voters for money to finish school repairs and upgrades and to essentially extend the pay-off date for the Proposition U bond. However, by 2007, people were tired of being taxed to death with little to show for it and the country was in the initial stages of an economic free-fall.

So the school board promised that passing the bond would allow them to finish the projects with no tax increase. The length of the taxation would be extended but the tax itself would remain the same. It didn’t seem like such a bad deal at first blush. 

However, instead of disclosing to voters the trustees’ intent to use a highly risky financial instrument known as a capital appreciation bond, they simply said on the ballot the funds would be raised with “general obligation bonds.” They certainly knew including the words “capital appreciation bonds” would have been a red flag that the district planned to mortgage our future to the hilt. Capital appreciation bonds are the equivalent of what sub-prime loans were to low-income borrowers and collateralized mortgage bonds were to lenders during the housing bubble of the last decade.

And look where that got us.

So between hiding critical information and repeating the predictable mantra “it’s for the children,” we were intentionally deceived to the tune of a billion dollars. Right, billion with a “B.”

Predictably, Poway has become the laughingstock of the financial world. CNBC intoned this is “the worst loan ever!” The Financial Times said, “At best, this is a case of kicking the can down the road; at worst, a case of the government dancing with loan sharks.”  Now, bad financial planning by school districts can be referred to as “pulling a Poway.” 

We are a city that has prided itself on our community spirit; our ability to come together in the midst of disaster, to comfort each other in the face of tragedy; and our quality of life rises above the rest of the county. Now we are city that is leveraged to the hilt and will find future bonds out of the question (think infrastructure and storm drains). 

Not surprisingly, PUSD officials have gone into spin mode. Todd Gutschow, still a trustee, said, “We could have authorized more taxes, it would just have been breaking the promises we made to the community.” Jeff Mangum, president of the board at the time and now running for Poway City Council, posted on Facebook: “Short answer is I don’t know anything about it yet. It was passed in 2011 when I was no longer on the Board.” (No, Mr. Mangum, it was passed by the board in 2007 and the voters in 2008.)

I would welcome a statement from the PUSD superintendent and trustees who put this on the ballot in Feb. 2008—with an explanation as to why they have impoverished our children and grandchildren without our fully informed consent. I would also like a real discussion about concrete solutions on how we correct this financial disaster and how we can prevent this from happening to anyone else.

Unfortunately we have already learned the loan cannot be pre-paid or refinanced, so we need to start planning for the future payments now. And the very tax increase that the board said they wanted to avoid will undoubtedly come to fruition, either by a voter referendum with the money earmarked for future payments or by the far more drastic step of the County Tax Assessor forcing a tax on property owners to ensure repayment.

Either way, we need to begin a process of earmarking dollars now. As a result of their actions Mangum, Vanderveen, Patapow, Ranftle and Gutschow have virtually guaranteed us a triple-digit tax increase to cover their mess.   

We deserve answers. There needs to be full disclosure of the details on how this happened. It is abundantly clear we cannot trust the district to provide anything other than intentionally vague information and references to “we did it for the children.” Fortunately the law provides an investigative mechanism, and as an individual citizen or as a group we have the power to request a grand jury investigation against the Poway Unified School District, then-president Mangum and Trustees Vanderveen, Patapow, Ranftle and Gutschow. Because we can no longer trust the individuals or the district to give us honest answers, we will have to rely on sworn testimony and the power of the subpoena.

Sadly, what bothers me most about this situation is not the future increase in taxes or the fact that yet another politician has mortgaged our future—I’ve come to expect that from Sacramento and Washington. No. The real travesty is that this fraud was perpetrated on our community by a few of its own. People we believed to be trustworthy and above reproach—Mangum, Vanderveen, Patapow, Ranftle and Gutschow

Never again should any of you hold office in this community. We cannot afford to have our trust violated again. Shame on you.  

Clariece Tally August 16, 2012 at 02:27 PM
Tom - I'll run if you'll be my campaign manager and if I use the slogan "Vote Clariece Tally - She can use a calculator."
Tom Yarnall August 16, 2012 at 04:29 PM
Clariece, don't think I am devious enough nor smart enough to be a campaign manager, but I do like the slogan. How about "Write in Clariece Talley-She is truthfully concerned about your Sally" Or "Write in Clariece- She'll take care of your niece". The possibilities are unlimited. I would recommend Chris Cruse as a campaign manager. He has lots of ammunition and could really hold the incumbents feet to the fire. Go for it!!
Bill August 16, 2012 at 04:34 PM
For a slogan I'd say "TALLY HO" but considering modern linguistics it might not be a very good idea.
Tom Yarnall August 16, 2012 at 04:43 PM
Chris, I'm sorry to have called you a he if your are a she. In either case I would want you on my side.
Clariece Tally August 16, 2012 at 05:04 PM
Chris is a female. She has a blog that is an interesting read.
Chris Cruse August 16, 2012 at 05:20 PM
Tom, Yes I am a she. One of these days I will put my picture on my blog to make it more obvious. You can read my latest entry here: http://powayblog.blogspot.com/2012/08/pusds-prop-c-naysayers-were-right.html
Chris Cruse August 16, 2012 at 05:23 PM
6-8% http://emma.msrb.org/EA475815-EA365414-EA764813.pdf
Chris Cruse August 16, 2012 at 05:33 PM
Tom, there is a wealth of information in the link that Kimberley provided upthread. http://emma.msrb.org/EA475815-EA365414-EA764813.pdf None of the homes in the SFID are in a Mello Roos district. The assessed valuation (av) for the SFID(for the last 3 yrs) is about 20 billion. (It didn't grow 7-8% as predicted by SDCTA). The top 20 parcels (in av) in the SFID are industrial/ commercial properties mostly in RB and Poway Industrial Parks. Their combined value is more than 8.5% of the total av in the SFID. That is just for the top 20 parcels. So, yes, commercial and industrial properties are a significant factor in the bond payments.
Chris Cruse August 16, 2012 at 06:10 PM
Tom, I am intrigued by your attempt to figure out what the future tax burden will be. Here is how I would estimate it. Divide your current av by 20 billion and multiply the result by the total bond payment that is due in any given year. Consider a home with a $200,000 av. $200,000/20 billion = 1/1000. A home with an av of $200,000 will pay about 1/1000 of the debt payment. The current amount collected for the debt payments is approx $11 million. 1/1000 x $11 million = $110. Currently, a home with an av of $200,000 pays $110yr for the school bonds. Twenty years from now, the bond payments will be about $22 million/yr, so the proportionate share of the tax burden will be about $220. Thirty years from now, the bond payments will grow to about $55 million, so the tax burden would be about $550. This model assumes that no new building occurs and that no homes are sold. If either of those occur in the next 40 yrs, the owner of a home that is currently assessed at $200,000 will likely have less than a 1/1000 share of the total tax burden. The burden on new homes and businesses and resale homes might be pretty steep. By comparison, homes in the mello-roos areas are currently paying $2000- $3000 each year to pay off the mello-roos school bonds. These homes probably have av av of $600,000 to $800,000. An $800,000 in the SFID currently pays $440 in school taxes. The maximum estimated tax could grow to $2200/yr in the final yrs of the Prop C bond payments.
Chris Cruse August 16, 2012 at 06:15 PM
Do you really want to know how that works? If people don't pay their taxes, the tax assessor still doles out the full amount to the appropriate agency or to pay off the bonds. Then the tax assessor goes after the tax scofflaws and gets to keep any fines and interest they collect. If someone still does not pay, the tax assessor slaps a lien on your house and can eventually sell it to pay for the taxes that are owed.
Joe St. Lucas August 16, 2012 at 10:26 PM
So could this have the effect of driving businesses OUT of Poway in the future when the bonds come due? Lowes is taking their time coming in the way it is, the superwalmart is way behind schedule, etc. Or are these businesses not affected? Businesses move out, Poway sales tax revenues plummet as a result, etc.
Tom Yarnall August 16, 2012 at 10:55 PM
Chris, I have definitely reached my level on incompetence. Perhaps I should run for the School Board. I think most people would like to know what the true impact of the CAB will be in the future. I try to do that as simple as possible and do miss some things. Please review my assumptions and fill in the blanks, if you would. The $105M Capital Appreciation Bond invested for 20 years at 9% will have a value of $631M at the end of the period. At that time, using the same 9%-20 years, payments to service the $631M loan will be $5.7M per month. Using a $20 B total assessed valuation yields a tax obligation of .00028 dollars per dollar of assessed value. A $200,000 home would pay $672 per year or $336 per $100,000. My assumptions: The interest rate is constant at 9%. That seems high since the average rate in 2001 for a Aa2 bond was 4.5%. Moodys rates Poway at Aa2. There are no special factors in the agreement that changes the math. Tax rates are the same for business and residential. No compensation for inflation and other factors affecting total tax for this one issue.
Tom Yarnall August 16, 2012 at 11:00 PM
Average rate in 2011 for Aa2 bonds was 4.5%--------
Chris Cruse August 17, 2012 at 12:12 AM
http://emma.msrb.org/EA475815-EA365414-EA764813.pdf See p 13 for the debt service table.
Chris Cruse August 17, 2012 at 12:26 AM
Tom, I think in your calculations, you forgot about paying back the $631 M. But your 9% interest rate is too high. The exact payment amounts for each year are on p 13 of the link Kimberley posted.
Kimberley Beatty August 17, 2012 at 12:43 AM
A note about the effective interest rate. The loan principal is $105 million. Over 40 years the total payments equal $981 million. If this were a 40 year mortgage, the effective interest rate would be 23% per annum. (You can use a mortgage calculator to do this equation.) This is because of the compounding (negative amortization) effect of the bi-annual interest payments for the first 20 years. The Capital Appreciation Bonds, structured as a series of zero-coupon bonds, start maturing beginning in 2033 and ending in 2051. (See the link to Chris' posting)
Tom Yarnall August 17, 2012 at 03:43 PM
I do not think this is like a 40 year mortgage.If anything it is more akin to a 20 year reversible mortgage and then a 20 year conventional mortgage that are in series. In any case we know that the for first 20 period no payments are made and the interest due is added to the principal, thus capital appreciation. Payments will start during the second 20 year period. Those payments, according to the article, will be approximately $50 M per year, principal and interest. With an approximate taxable $ 20 B asset base each property holder would be required to pay $0.0025 per dollar of assessed valuation per year. A $200K home owner will pay $500. Chris, the $ 651 M is the amount due at the start of the 2nd 20 year period. That's not accurate because the interest rate of 9% is apparently not accurate. There are three things I am fairly sure of. The first being I would probably flunk Eco 101. The second, always use the KISS system and finally, most readers are bored with this rhetoric and I will make this my last word..
Tom Yarnall August 17, 2012 at 03:50 PM
My last last word. I will not have to pay 1c. The future PUSD suckers will have to pay.Hopefully the good name will be restored by then.
Tom Yarnall August 17, 2012 at 11:43 PM
Chris, p 20 gives the Debt Service Schedule for the full 40 years. As you can see, no interest or principle until year 21 then the total yearly payment builds to over $54M
Tom Yarnall August 18, 2012 at 12:02 AM
Oops, I was looking at the Adobe document page number 13 which is actually page 20 as listed on the document.. Sorry.
Monimom August 18, 2012 at 06:56 AM
@Tom Yarnall...Please note that this bond does not act like a conventional bond after year 20. Please see the "Issue Details" of "emma msrb" where you will see 11 separate bonds (having their own CUSIP#) that add up to the $105 million. The most costly of these 11 CAB bonds, are 2 bonds - the $22.9 million dollar bond that matures in 2046 and the $13 million bond that matures in 2051. The investors to these CABs will receive only one payment of all principal and compounded on the maturity date. The payments you see after year 20 in the debt service schedule make up an early levy to pay for the massive interest payments that will come due in 2046 and 2051. The principal and interest for these bonds are spread over a 20 year period and deposited into a "sinking fund" which acts as a savings account. On the maturity date, the investor will receive their portion of the money sitting in the sinking fund making up all principal and compounded interest. See page 3 of the bond statement - it states that the $22.9 million bond due in 2046 will alone cost over $315 million to pay off! So the cost of this $22.9 million CAB will cost over 14 times principal!!!! The WORST BOND, is the $13.9 million bond due on 2051, which will cost over $321 million to pay off! This 40 year $13.9 million bond will cost over 23 times principal!!!!! We have all been DEFRAUDED!!!! http://emma.msrb.org/EA475815-EA365414-EA764813.pdf
Babs August 21, 2012 at 07:17 PM
What, exactly, was the "crime" that has been committed? If you fill out this form you'd best be able to support the accusation that a "crime" was committed. http://law.justia.com/codes/california/2009/pen.html
AdamJ August 22, 2012 at 05:08 AM
Mangum did NOT vote on this 2011 billion dollar loan (he wasn't even on the school board then), so why are you trying to blame him for all of this?
Gary Vineyard Poway City Council Candidate August 22, 2012 at 05:29 AM
@Babs Are you a tax advocate? If so that's what everybody is bitching about. You want to tax Walmart a hardware store a car dealer...so tax them...who do you think is going to pay THEIR tax increase?,,,US in higher costs...throttle back a little
Gary Vineyard Poway City Council Candidate August 22, 2012 at 05:31 AM
AdamJ...he was one of them that orchestrated this debacle and we're not blaming it ALL on him...just HIS share.
AdamJ August 22, 2012 at 04:40 PM
Gary, thank you for validating my theory that those who are trying to make this look like Mangum's fault are the ones who have something to gain by attempting to make Mangum look bad. How did Mangum "orchestrate this debacle"? He wasn't even on the school board when they voted on this 2011 bond. Prop C states: "The interest rate on any bond, which is established at the time of bond issuance, cannot exceed 12% per annum. The final maturity date of any bond can be no later than 25 years after the date of bonds issued pursuant to the Education Code or not later than 40 years after the date of bonds issued pursuant to the Government Code. Principal and interest on the bonds would be paid by revenue derived from an annual tax levied on taxable property within the District in an amount sufficient to pay the interest as it becomes due and to provide a fund for payment of the principal at maturity." How is that not clear? Even the controversial 2011 bond (of which Mangum was NOT a part of) falls within these guidelines laid out in prop C. Or are you saying that Mangum should have been psychic enough to know what was going to happen to the economy and that the school board was going to pass this controversial bond when he was no longer on the board? Again, those who are attempting to place blame on Mangum are the ones who have something to gain by trying (however dishonestly) to make him look bad.
Chris Cruse August 22, 2012 at 06:07 PM
Adam, the CAB bonds started in 2006. Way before the recession started and before Prop C was even on the ballot, and when Magnum was still on the board. PUSD issued a $3 million Prop U bond that was not subject to redemption before the maturity date in 2013. The interest was almost $16 million for a total payment of $19 million. That is a 6-to-1 payback.
Clariece Tally August 22, 2012 at 06:32 PM
AdamJ - Jeff Mangum did vote for this. He made the motion to authorize $105M at the October 2010 Board meeting. It was seconded by Linda Vandervene. Bonds do not happen in a vacuum. There is research and opinions that must be delivered to the Board well in advance of the actual date of issuance. But you're right in that it is the voters fault for being suckered into believing this is all for the children. The buildings are for the children but the FINANCING is for the investors and we got snookered good.
Cynthia Hedrick August 23, 2012 at 11:19 PM
For everyone concerned about this issue, First of all the person whose name i will not speak DID NOT RESEARCH THIS STORy, the research was done by a reporter out of the midwest. He just copied and used someone elses work. Also ask him where his wife works and ask him if she ever got a pink slip from her district. Also his is complaining about the cost of the bond but ask him where his child goes to school because he wants her to have the best education she can. Oh and by the way she does not live in the district where she is going to school.
Fran October 09, 2012 at 08:43 PM
I just now saw this comment. Will Carless used the midwest as a base for his article and then did further research. Where his wife works or where he lives is irrelevant. Complaining about the depth of research that has continued on the bond mess including the ILLEGAL premiums paid out in 2009 and 2011 are what's important. Should we point out that the PUSD superintendent's house was in foreclosure during this mess? No. Because it's not relevant. Cynthia - attempting to use a spouse as a smear tactic is childish and reflects a lack of understanding of the deeper issues which is how our school board screwed us over.


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