An independent investigation into Poway Unified’s controversial billion-dollar bond deal absolves officials of wrongdoing, even glossing over some aspects—such as the hefty price tag and the absence of a call feature—that have elicited sharp rebukes from the public and state officials.
The report noted “no evidence that anyone involved in the transaction acted improperly within his or her respective role in the transaction” which turned $105 million in bonds sold in August 2011 to cover loans and bonds for school repairs into a nearly $1 billion debt obligation for taxpayers.
[Find the full report here and attached to this story.]
Poway Unified School District Superintendent John Collins commissioned the report in August amid uproar over the deal, whose true cost gained exposure after a Voice of San Diego investigation that month.
Collins and board members, who the report said knew the deal would end up costing taxpayers nearly $1 billion, have steadily defended their decisions—and now this report appears to do so, too.
According to the report, by Robert Price at ESI International, Inc., using the pricey bonds PUSD chose allowed the district to seize an opportunity to clear debt and ease the burden of repayment on its general fund. Instead, the Capital Appreciation Bonds (CABs) would be repaid by taxpayers over a 40-year term that significantly increased interest costs.
District officials had the right information to make the decision and the transaction was done according to proper procedure, according to the report.
Investigators “explored the possibility” that the district erred by not making the bonds callable—meaning, they could be paid off early—but ultimately made no definitive ruling on this controversial aspect.
State officials are now pushing for legislation that will require any school district bonds with terms exceeding 10 years to be callable.
Because investigators could not “recreate the market conditions at the time of the sale in order to gauge the market’s response” and determine how much it would have cost to add a call feature, the report did not spell out whether that is what the district should have done.
During the Aug. 20 PUSD board meeting, board member Marc Davis estimated that making the bonds callable would have added more than $100 million in interest costs.
“Some people can argue, ‘You should have put the call feature on there.’ Maybe we should have put the dang call feature on there. But the question is did we operate within the parameters that our voters gave us,” Davis said at the August meeting, as the crowd groaned.
By and large, the report argued that district officials could not tell how the municipal bond market would change going forward and made decisions consistent with the information they had at the time.
Board members have said as much, including Todd Gutschow who in August said he was "not pleased with the results of the decision we made in 2011, but I believe it was necessary given the circumstances."
At the same meeting, board member Linda Vanderveen—who would lose her seat in November's election—said she would "never be sorry for the decisions that I made."
The board is expected to hold a special meeting at 4 p.m. Monday, Feb. 4 to discuss the report, which was first released Tuesday night.