MEASURE X — The San Bruno Park School District’s $163,300,000 Poison Pill

The San Bruno Park School District’s          $163,300,000 MEASURE X Poison Pill

by Bill Baker, J.D.                                                                                                Editor and Publisher                                                                                          San Bruno Beacon

San Bruno Park School District (SBPSD) voters will decide whether or not to bury the financially unstable SBPSD under a $163.3 million* mountain of debt during the November 06, 2018 Election.

* The San Bruno Park School District’s Bond Resolution 18-07-01 Exhibit C-1 shows that if all bonds you are being asked to approve are sold, the San Bruno Park School District will repay $79 million principal and $84.3 million interest totaling $163,300,000.

The $163.3 million number, mentioned in the previous paragraph, is a best-case scenario that assumes interest rates don’t go up and SBPSD debt will not be downgraded again. Another debt downgrade and/or higher interest rates before the issuance of the Measure X bonds hikes the projected $163.3 mil- lion Measure X bond repayment to a significantly higher unintended debt obligation.

Take a look at your property tax bill. It is starting to look like a shopaholic’s credit card statement. Just like a shopping addict (shopaholic), the San Bruno Park School District has been teetering on the edge of insolvency and/or takeover. The San Bruno Park School District Board and Superintendent want to use expensive Measure X money to go on a shopping spree, using the property of San Bruno Park School District residents as their credit card. And, just like a shopaholic, the San Bruno Park School District Superintendent and Board do not appear to care about the consequences of burying the SBPSD under a mountain of debt.

You don’t have to be a homeowner to pay for the Measure X debt catas-trophe. Renters will also get a chance to pay up for Measure X taxes when their landlord passes on this property tax, to pay for Measure X bonds, to their tenant(s).

In almost every election, San Bruno Park School District residents are ham- mered by a new tax or bond from the San Mateo Community College, the County of San Mateo, the San Mateo Union High School District (which I hear is coming at us with yet another bond or property tax in the near future), etc.  Among the reasons why the San Francisco Bay Area is such an expensive place to live is that we have out of control public entities; each bleeding taxpayers with taxes, bonds that raise taxes, tolls, etc. because of their out of control spending habits, fiscal irresponsibility and, in some cases, outright fraud and corruption.

THE SAN BRUNO PARK SCHOOL DISTRICT HAS BEEN A VICTIM OF FINANCIAL ABUSE FOR MORE THAN A DECADE AND REQUIRES TIME   TO HEAL. HEALING DOES NOT INCLUDE BEING BATTERED BY THE MASSIVE MEASURE X DEBT ATTACK

For the past decade, the SBPSD has been plagued by chronic budget deficits. In a letter dated February eighteenth, 2018, the San Mateo County Office of Education warned the SBPSD to closely monitor cash balances to ensure funds are available to meet payroll and other expenses. This letter also stated in part, the County Office continues to be highly concerned about the fiscal stability for the District in subsequent years.

The SBPSD now carries more than 50 million dollars of long-term debt on its books that includes a balance of 22.9 million dollars for General Obligation bonds approved by voters in 1998 and many millions of dollars of debt for loans taken out by the SBPSD Board, without taxpayer approval, to pay for the specious SBPSD solar project. In order to avoid a State takeover of the SBPSD, some progress has been grudgingly made to shore up SBPSD finances. That being said, from a financial standpoint, the SBPSD continues to suffer from the effects of more than a decade of extreme financial mismanagement that requires many years to work through and resolve.

Many of the SBPSD Board Members responsible for this financial catastrophe remain on the SBPSD Board. And now, we have a beginner Superintendent who thinks that it is a good idea to pile more debt on top of the struggling District’s already significant debt load.

OVERLAPPING TAX BASE MEANS MEASURE X DEBT PROBLEMS FOR THE CITY OF SAN BRUNO

The City of San Bruno and SBPSD have an overlapping property tax base.

The City of San Bruno’s ability to raise long-term debt and its credit standing could become infected by the Measure X debt virus and negatively impacted by the SBPSD’s crumbling financial condition. This will make it more difficult for the City of San Bruno to issue long-term debt and could result in a debt downgrade for both the City of San Bruno.

During 2017, Moody’s Investors Services downgraded the San Bruno Park School District’s General Obligation Bonds and issued a NEGATIVE outlook.

The San Bruno Park School District 2018 – 2019 Adopted Budget’s 2017-18 Estimated Actuals Schedule of Long-Term Liabilities shows a June 30 ending balance of $50.5 million in Government activities long-term liabilities including, but not limited to:

$22,964,012.60 “General Obligation Bonds Payable”

$4,120,000 “Other General Long-Term Debt”

$21,834,272 “Net Pension Liability”

In 2017, the City of San Bruno City Council sold $25,345,000 worth of Wastewater Revenue Bonds. The PRELIMINARY OFFICIAL STATEMENT FOR THESE WASTEWATER BONDS, DATED NOVEMBER 3, 2017 provided:

“The San Bruno Public Financing Authority (the “Authority”) is issuing its 2017 Wastewater Revenue Bonds (the “2017 Bonds”) to finance the acquisition and construction of certain improvements to the wastewater system….”

Although these wastewater bonds are secured by revenues, as opposed to property taxes like the Measure X bonds, the issue of overlapping debt is addressed on page 136 of this 248-page document. On this page, you will find a Computation of the City of San Bruno’s Direct and Overlapping debt. If you are a San Bruno Park School District property owner, this page shows how many different public entities are using your property as their credit card.

In an October 2008 paper, published in the American Journal of Political Science, titled, “Piling On: Multilevel Government and the Fiscal Common-Pool“, University of Chicago Professor Christopher Berry observed:

“A central theme in the recent literature on distributive politics is that an overspending bias emerges when authority over fiscal policy is shared by multiple officials or jurisdictions serving different constituencies.”

Because the San Bruno Park School District shares a common property tax base with the City of San Bruno, the $163,300,000 ($79,000,000) bond principal ($79,000,000) and ($84,300,000) interest carves out a big piece        of the limited overlapping property tax base pie for specious repairs and maintenance that could be paid for by selling some of the San Bruno Park School District’s approximately 54.055 acres of surplus San Bruno real estate.

The San Bruno Park School District owns two non-operating sites; Engvall (23.4 acres) and Crestmoor (11.505 acres). In February 2018, the District’s Board voted to close El Crystal (3 acres) and Rollingwood schools (16.15 acres).

We cannot allow the San Bruno Park School District’s financial irres- ponsibility to go viral and infect the City of San Bruno with the Measure X debt virus. Measure X’s $163,300,000 debt burden will impair the already limited debt capacity of the limited San Bruno Park School District property tax base that is shared by the City of San Bruno.

If the City of San Bruno is required to issue more bond debt for City of San Bruno employee costs, police and fire services, or other capital costs, the San Bruno Park’s massive Measure X debt will create great difficulty for the City of San Bruno and will almost certainly raise the City of San Bruno’s debt costs.

THE SAN BRUNO PARK SCHOOL DISTRICT COULD BECOME        A SINKING SHIP WITH NO LIFEBOATS IF MEASURE X IS AP- PROVED. 

Earlier in this article, I mentioned that:

During 2017, Moody’s Investors Services downgraded the San Bruno Park School District’s General Obligation Bonds and issued a NEGATIVE outlook.

Moody’s did not downgrade the San Bruno Park School District’s General Obligation Bonds and issue a negative outlook as a signal for the SBPSD to reach a new low in its documented history of fiscal irresponsibility by burying the SBPSD under a crushing debt load that will require SBPSD taxpayers to repay $163,300,000 in bond principal ($79,000,000) and interest ($84,300,000) which is more than 5 times the amount of long-term debt that the San Bruno Park School District now owes.

Downgrades and negative outlooks from debt rating services increase in-terest costs because a higher interest rate is required to pay debt investors  for taking on the added risk of buying the lower-rated debt. As interest rates increase and/or the debt markets become less liquid, it may become difficult, prohibitively expensive, even impossible for a lower rated entity to raise money. A bankrupt entity loses access to traditional debt markets.

Measure X is a recipe for financial disaster. Take a financially unstable school district, teetering on the brink of insolvency, smother it in $163,300,000 in bond principal ($79,000,000) and interest ($84,300,000) Measure X debt and you have the beginning of the end for the SBPSD. Measure X debt will trigger another review and perhaps downgrade of the San Bruno Park School Dis-  trict’s financial situation.

Before or after the Measure X bonds are issued, the SBPSD may receive more debt downgrades. At some point, in the not too distant future, it may become prohibitively expensive for the San Bruno Park School District to issue more debt. With limited access to credit markets and the San Bruno Park School District’s deteriorating credit situation Measure X will eventually result in the SBPSD becoming a sinking ship with no lifeboats.

The financially abused SBPSD requires time to heal and recover before taking on more debt. I strongly urge you to VOTE NO ON MEASURE X. IT’S THE RIGHT THING TO DO.

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