Recent articles in the L.A. Times have exposed alarming financial abuses resulting from the passage of Capital Appreciation Bonds (CABs) by some school districts. Please note, Burbank Unified's name is not on the L.A. Times list.
CABs with payback ratios of 6 to 1, 10 to 1 and even 20 to 1 paybacks have been uncovered, scandalously burdening taxpayers. (A 20-to-1 ratio CAB costs $20 paid for every dollar borrowed.) The projected payback ratio of the Burbank Unified School District bond is projected to be 2.5 to 1 over the 25-year life of the bond. This is entirely reasonable and meets all the requirements of pending Sacramento legislation placing restrictions on bond financing.
If passed, Measure S bonds would authorize the Burbank Unified School District to issue general obligation bonds up to $110 million. There are no plans to issue Capital Appreciation Bonds. The type of bonds and interest rates will be determined at an open and public Burbank school board meeting. These interest rates at bond issuance will not change; none of the bonds will have a variable or adjustable interest rate.
Current interest rates are at historic lows; the first series of bonds issued will benefit from this very low interest rate market. Now is absolutely the time to incur bonded indebtedness for worthwhile capital improvements in our schools. We simply will never be able to borrow the money at less cost to future taxpayers.
What is the cost to the homeowners of Burbank? The projected tax rate will be $55.18 annual per $100,000 of assessed value. This estimate represents the extension of the 1997 bond tax rate, currently $50.18 plus $5 per $100,000 to fund Measure S. The district will continue to collect this property tax increment at an estimated $55.18 rate after 2027 (expiration of the 1997 bond) in order to repay the bonds issued under the Measure S authorizations.
Is the projected repayment ratio of these bonds unusual or risky to the taxpayers of Burbank? No, the expected ratio (original amount of bonds: total principal and interest) for the Measure S $110 million is 2.5 to 1. The projected repayment ratio assumes a 3.6% property valuation growth annually over a 25-year period.
Will Burbank's tax receipts be able to support these bonds? Yes. Burbank still has a high number of pre-Proposition 13 parcels. As these properties sell their valuation and the subsequent property taxes produced will rise and produce more tax revenues, assuring the repayment of the bonds. Additionally, the assumptions of property value growth for these bonds are set at a cautious 3.6%, well below historic trends.
The bottom line is that all aspects of these bonds are well considered and they represent a very responsible and sensible way to attend to the capital improvement needs of our schools going forward into the 21st century.