Thursday, May 9, 2013

San Diego Unified School District Launches Prop. Z Program with Sale of $530 Million in Bonds

San Diego Unified received $530 million on April 30 after selling a portion of its $2.8 billion in general obligation bonds for Prop. Z, the bond measure approved by nearly 62 percent of the San Diego voters on Nov. 6, 2012. The bond funds will be used to continue repairing, renovating and revitalizing neighborhood schools. Bond projects include classroom technology, new/renovated facilities for College, Career and Technical Education, air conditioning, safety and security upgrades, turf fields, and other capital improvements at traditional and charter schools throughout the district. By law, the funds cannot be used for teacher or school administrator salaries.

Construction at Knox Middle School.
The school district took advantage of low taxable interest rates and tax-exempt financing to pay for classroom technology. The recent bond sales were structured so that the useful life of assets matched the maturity of bonds. Technology projects have shorter term bonds, while construction projects have longer term bonds.

"The school district used an innovative multiple maturity structure that allowed it to match the useful life of assets to specific needs, and get a very low cost of borrowing," according to Stan Dobbs, chief financial officer for San Diego Unified. "At 1.78 the school district's debt repayment ratio is very low, which gets the taxpayer more for their money. In fact, this was the lowest interest cost of any of the general obligation bond sales since the inception of the district's Prop. MM, the bond measure approved by San Diego voters in 1998."

Before the sale, credit ratings were requested from Moody's Investor's Service and Standard and Poor's Ratings Services for the bonds. San Diego Unified's finance team diligently pursued ratings from the rating agencies, and made its case that factors that secure the bonds are stable. As a result of Moody's and Standard and Poor's review, the bonds were assigned a rating of Aa3 (stable outlook) by Moody's and AA- by Standard and Poor's .

"Achieving such solid investment grade ratings from the rating agencies helped to generate confidence from a variety of buyers, which ultimately led to a lower cost of borrowing for the school district," said Dobbs. "The school district also used several innovative strategies to achieve the lowest cost of borrowing, which included aggressive pricing of its bonds, conservative debt structure and maintaining high credit ratings."

The district does not receive all of the $2.8 billion Prop. Z bond funds at once. It receives them incrementally based on the frequency of bond sales. Additional bond sales will be conducted during the life of the facilities bond program. The next one is slated for 2015.

At its May 14 meeting, the Board of Education will review the Prop. Z project plan that will utilize the bond proceeds.