RICHMOND -- Rapidly escalating costs for older school construction bonds in coming years could mean higher tax rates for West Contra Costa property owners.
The information came during a Feb. 13 presentation to the West Contra Costa school board by Dave Olson, the district's bond program adviser with Oakland-based KNN Public Finance.
The bond program has constructed or rebuilt more than 30 of the district's schools, with about 20 left to go, said Charles Ramsey, a 20-year veteran of the board and one of the architects of the bond program. Taxpayers are paying debt on five bond measures, not including Measure E, which passed in November.
The bill for repaying the entire package of $322 million under 2005's Measure J is scheduled to rise 4.5 percent annually from about $11 million in 2010 to a peak of about $48 million in 2034 before falling to about $30 million in the final two years before payoff.
West Contra Costa has been able to stick to its maximum tax rate target on the bonds of $60 per $100,000 in assessed property valuation for the past four years, but its ability to do so in the future will depend on continued increases in assessed property valuation within the district's boundaries, Olson said.
Although less of a threat, debt service on about $300 million in bonds issued under 2002's Measure D goes from about $40 million this year to more than $60 million in 2030 before declining to $50 million at payoff in 2033.
"Like 2002 Measure D, 2005 Measure J continues to face tax rate pressure," according to the KNN report. "Absent continued strong tax base recovery or corrective action by the district, Measure J tax rates could increase beyond targeted maximums."
The report also states that, despite a 20 percent downturn during the recent recession, increases in assessed valuation have averaged 5.65 percent annually over the past 30 years, and the 10-year rolling average has never dropped below 4 percent.
The district started a so-called tax-rate stabilization fund last year to be used if valuations fall or increases are disappointing, Ramsey said. He acknowledged that the potential cost increases under Measure D and Measure J were troubling.
"Measure J is real dangerous for ratepayers, but we believe we're doing everything we can to manage it," Ramsey said.
The bonds with the most potential to spike tax rates under Measure J were a series of $100 million issued in September 2009. The effective interest rate on the series is 6.26 percent, by far the highest for any of the more than $800 million in construction bonds West Contra Costa has outstanding. Schools cannot be built in pieces, and it was important to keep the program going while schools were under construction, despite the recession, Olson said.
In fact, the district did come back with a $27.5 million bond series in 2010 at 3.77 percent, according to the report. The 2009 and 2010 bond sales included much-criticized capital appreciation bonds, in which most of the debt is deferred until later in the repayment term, by which time large amounts of interest have accrued. However, the premiums on the capital appreciation bonds were paid upfront, holding the total repayment ratio for the 2009 bond series to 2.86. That means the district will pay $2.86 in interest for every dollar borrowed, compared with nearly $9 per dollar borrowed in one capital appreciation bond deal done elsewhere in California, Ramsey said.
More recent bond measures, 2010s Measure D and recently approved Measure E, "have been designed around lower tax base growth assumptions and a more modest implementation schedule," according to the report. "Both programs have been designed to avoid the issuance of capital appreciation bonds."
A report by Aquacena Lopez, West Contra Costa's former financial adviser, gave a bleak picture of the district's condition before the first of six bond measures passed in 1998.
West Contra Costa was in receivership to the state with a trustee who had final say over any school board action. Despite increasingly dilapidated schools, the district was unable to participate in any state-financed bond program from 1991 to 1998.
Lopez said she and her team worked hard to get an A-bond rating from Fitch that was high enough to enable the first $40 million sale.