Who’s Afraid of a Little Long Term Debt?
Mammoth Unified prepares to take $63 million in bond debt to a public vote
On December 7, Mammoth Unified School District (MUSD)’s Board heard a presentation from Don Field, a principal of the consulting firm Orrick, Herrington and Sutcliffe, LLP (Orrick). MUSD’s Board previously approved a contract for bond counsel services with Orrick at its November 16 meeting.
MUSD plans to seek voter approval of up to $63.1 million in bond sales to finance facilities improvements to its elementary, middle, and high schools. The measure would be placed on the ballot for the next statewide election on June 5, 2018, and would have to earn the approval of at least 55 percent of the district’s voting residents.
On December 7, Field presented a draft resolution ordering a School Board bond election and bond proposition to MUSD’s Board. The final resolution and proposition will have to be approved by the Board before the ballot language can be formalized.
According to the draft presented last Thursday, if the bond proposition is approved, MUSD will issue and sell up to $63.1 million in bonds to be used “only for the construction, reconstruction, rehabilitation, or replacement of school facilities… and not for any other purpose, including teacher and administrator salaries…” The proposition also asserted that the school’s other financial needs had been evaluated and prioritized, including the need for new teachers.
In the bond proposition prepared by Orrick, Fields estimated that MUSD would need to raise between $1.9 and $5.3 million annually for approximately 33 years to repay the proposed $63.1 million in bond debt. That money would be raised by levying a parcel tax on property owners within the district. The tax each property owner would pay is dependent upon the assessed valuation of each parcel they own.
The time frame of 33 years to repay the $63.1 million in bond debt assumes a tax rate of 4 to 6 cents per $100 of assessed property value, with an average tax rate of $54.34 per $100,000 of assessed valuation for properties across the district. If all goes as planned, 2051 will be the last year for which the tax is levied.
Orrick reported that the “best estimate of the highest tax rate that would be required to be levied to fund the bond issue,” based on current assessed property values in the district, was $60 per $100,000 of assessed value.
Orrick’s best estimate of the total debt service as of last week was roughly $121.3 million on $63.1 million in initial bond debt. That figure depends on interest fluctuation during the period when the bonds are issued (bonds issued at different times may have different interest rates attached), and the rate at which property values within the district grow. Field said that Orrick assumed that property values in the district would increase by no more than 2 percent a year in crafting the cost estimations provided Thursday. That 2 percent growth is the bare minimum assumed by the Assessor’s Office, as mandated by California Law. If property values within the boundary of MUSD increase at a more rapid rate, the total debt service may decrease.
