Mr. Titan’s Claim That the School Board “Lost” $18.8 Million Is Baseless – 

In his October 20, 2018 Opinion posted on PCA, Mr. Titan responded to my October 17, 2018 Opinion posted on PCA. It is unfortunate that Mr. Titan continues to try to bolster his campaign by unfounded attacks on the successful Piedmont seismic bond program and by claiming credit for a bond refinancing for which he is not responsible.

Mr. Titan’s response does not support his past claims (that he saved Piedmont over $26 million) or his new claim that a past School Board “lost” $18.8 million. The District’s intent to refinance the 2013 Series E Capital Appreciation Bonds (CABs) was stated in 2013 when the Board directed their sale, so Mr. Titan did not initiate this commonsense idea (which reduced total interest payments by $26.1 million when approved in 2017). Mr. Titan’s idea that the Board “lost” $18.8 million is based on his suggestion that voters could have approved an additional bond measure to double the authorized tax rate and significantly increased their tax burden to pay off bonds more quickly. This is not “something for nothing” financial wizardry, but a legally uncertain policy proposal that would have imposed greater burdens on current taxpayers for the benefit of future taxpayers that Piedmont voters never approved.

It is worth noting that none of the current School Board candidates served on the Board from 2006 to 2013 when the seismic bond program was approved by voters and implemented by the School District. Indeed, the 2006 Measure E, authorizing the sale of $56 million in bonds to ensure the seismic safety of our schools, and the resulting school construction, occurred before some Piedmont residents moved here. Mr. Titan has chosen to attack these past School Board bond authorizations, and to claim credit for past School Board decisions, in an effort to establish his claim of financial expertise.

As an initial matter, Mr. Titan’s effort to claim credit for the refinancing of the 2013 Series E CABs remains unconvincing. (Mr. Titan makes this assertion in his October 18 campaign email). First, the Board in 2013 clearly expected to refinance the CABs in the future—Mr. Titan did not originate the idea and thus save Piedmont taxpayers $26.1 million. At the May 8, 2013 Board meeting, KNN explained the District’s ability and expectation of refunding the CABs early. http://piedmont.granicus.com/MediaPlayer.php?view_id=3&clip_id=916 at 46:00-46:50. The Minutes also so state. http://www.piedmont.k12.ca.us/aboutpusd/agenda.minutes/2011_12/052213packet.pdf. Second, as discussed in my October 17, 2018 Opinion, Mr. Titan originally opposed the CAB refinancing during the Nov. 8, 2017 Board meeting. Mr. Titan helpfully pointed out that he reversed his position later in the meeting, after hearing KNN’s professional advice (My apologies for missing his change of view). However, changing his view to support KNN’s recommendation and the Board’s position does not mean Mr. Titan is responsible for the Board’s refinancing of the CABs.

Next, as I previously noted, Mr. Titan did not educate the School Board about CABs or other financial instruments, all of which were discussed in public meetings from 2006 to 2013. Mr. Titan now asserts that he educated the public about such terms as “compound interest,” etc. I suspect that most Piedmonters were aware of such terms. Mr. Titan does not mention other key terms, such as tax rate, tax impact, and taxpayer cash flow, which a School Board member must consider in assessing bond structure.

The basis for Mr. Titan’s claim that the Board “lost” $18.6 million is as follows: “My proposal was not to defer the work and financing in 2013, but to use CIBs by getting a new voter authorization.” (Titan Opinion). Mr. Titan does not explain how he calculated $18.8 million and whether he took the CAB refinancing into account. Nonetheless, an important part of a School Board member’s job is to be transparent, carefully and publicly analyze potentially feasible options, and make a prudent decision that balances many competing interests. So, let’s unpack Mr. Titan’s proposal and claim.

Mr. Titan’s idea was that the Board should have asked voters to approve a new bond measure, so that bonds under that measure would be subject to a second $60/$100,000 assessed valuation (AV) anticipated tax rate limit in addition to the $60/$100,000 AV anticipated tax rate limitation on the 2006 Measure E bonds. In other words, to repay seismic bonds, Piedmonters could have been taxed up to $120/$100K AV rather than up to $60/$100K AV. As anyone with a home mortgage knows, if you pay down debt more quickly, your total interest payments over the term of the loan go down. But you must pay more in the short term.

What would the tax impact of Mr. Titan’s proposal, if approved, have been on Piedmont taxpayers? We do not have a 2013 KNN analysis of CIB interest rates, likely term, and the tax rate necessary to make payments on such bonds. For illustrative purposes, let’s consider an additional $30/$100K AV. Added to the $60/$100K AV already assessed for outstanding seismic bonds, the total tax rate for seismic bonds would be $90/$100K AV, or $900 per year for a home assessed at $1 million (this would have been added to tax payments on older bonds). But the tax impact would vary among homeowners. Young families, which may have stretched to buy a Piedmont home and have high assessed valuations, might owe much more and have trouble paying it. Seniors might be on a fixed income and have trouble paying the tax bill.

Moreover, the new school buildings are expected to serve children for at least 50 years. While some families plan to live in Piedmont for many decades, others may stay only while their children attend school. They may be more concerned about short-term cash flow than total interest payments as they would not make many of those future interest payments. If Mr. Titan wrestled with any of these concerns, he did not explain his position.

Mr. Titan’s claim has two other defects. First, Mr. Titan has not shown whether such a bond authorization would be legal. The 2013 Series E CABs refinanced existing Bond Appreciation Notes. Proposition 39 (Article XIII-A, Section 1(b)(3) authorizes school bonds for “the construction, reconstruction, rehabilitation, or replacement of school facilities,” but does not mention re-financing other debt. KNN did not answer this question at the May 8, 2013 meeting, but rather responded to my question about a potential theater bond measure. Nor did KNN state at the October 11, 2017 meeting that the BANs could have been refinanced by CIBs without a new bond measure.

Second, Mr. Titan’s claim rests on voter approval, which is entirely speculative. Measure E itself was narrowly approved, with campaign materials indicating the sponsors’ hope that the tax rate to repay the bonds would be no greater than $20/$100K (which contemplated the use of CABs). The recession and the opportunity to obtain near-zero interest Qualified School Construction Bonds (QSCBs) required exceeding $20/$100K AV, which the Board approved after numerous meetings seeking public input. But tax rate and tax impact was a key consideration throughout the seismic bond program. Neither Mr. Titan nor any other citizen proposed Mr. Titan’s idea in 2013 in lieu of CABs. Mr. Titan did not volunteer, or identify anyone else, to run a 2013 campaign seeking voter approval of higher taxes to reduce total interest payments. Nor does Mr. Titan discuss the timing of such a campaign or election, followed by bond authorization and sale, and how it would have meshed with the need to repay the BANs.

In short, Mr. Titan’s claim that the Board “lost” $18.8 million rests on (a) his policy preference to pay higher taxes now to reduce total interest payments, without consideration of tax burden and cash flow impacts on PIedmont voters as a whole, and (b) speculation that Piedmont voters would have approved a second bond authorization, though its legality is uncertain, and no one in 2013 proposed it, no one ran a campaign to endorse it, and Piedmont voters never approved it.

Finally, Mr. Titan’s discussion of the Board’s consideration of CABs under Measure H misunderstands the fundamental responsibility of School Board members. The Board has a responsibility to identify potentially feasible options, allow public comment, evaluate feasible alternatives and make prudent decisions that it believes are in the best interests of the community. Mr. Titan asserts that having KNN present options that included CABs somehow means that the Board would have approved CABs but for Mr. Titan’s opposition. That was not the case, as Board members made clear in several public meetings.

I encourage Mr. Titan to present his views on critical issues facing the District today rather than misrepresenting what happened in the past.

Rick Raushenbush, Former Member Piedmont School Board