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HMG-CN INVESTIGATION: ‘Megataxers’ Hang $94 Million in Bonds on Tiny Bassett Unified

 

 

July 16, 2021

 

From 2004 to 2018, $94 million in bonds was authorized and issued, costing taxpayers tens of millions.

This is part one of two on Bassett.

Editor’s Note: This is the second story in the exposé. Click here to read the first story.

By Brian Hews and Jonesy Smith

Bassett Unified School District (Bassett) was established in 1898. The district serves the communities of La Puente and Baldwin Park, encompassing around 8 square miles.  The area is absent of hills and valleys; residents call it “Pancakes” or the “Flatlands.”  The Eastside 13 did not Walkout in this neck of the woods and face 66 years in prison.  They marched for better conditions in schools and spearheaded a movement.  Just ask Moctesuma Esparza. 

 

Bassett Unified District boundaries.

 

In the early 2000s, under Basset’s Board and Superintendent Robert Watanabe, someone placed a call to George Pla of Cordoba Corporation.  He delivers. At the time, Bassett served approximately 6,000 students at 4 elementary schools, one magnet school, one academy, one high school, one continuation high school, and an adult school.

Cordoba supported Bassett and took the lead in developing a needs assessment study, otherwise known as a Facilities Master Plan, a common tool used by districts and companies to sell bond measures, kind of like nation-building;  brick by brick, lined with mortar,  Cordoba leaves something to show for its work,  they are a nationally recognized infrastructure firm much like Telacu.     

In November 2004, the first wave in the set hit Bassett; residents of Bassett Unified voted to authorize the issuance of $23 million in public school bonds.

The Megataxers had a big hand in the passage of the measure.

Types of Bonds

Principle and interest of Current Interest Bonds (CIB’s) are paid quarterly or semi-annually over the term of the bond, can be refinanced after 10 years, cost is usually 2:1, term is usually 10 to 25 years, and repayment begins the first year.

A Term bond (Term) refers to a bond that matures on a single, specific date in the future. At the time, the bond’s face value, the principal amount, must be repaid.

On the other hand, principle and compounded interest are paid at maturity with Capital Appreciation Bonds (CAB). They are the worst of the worst: they cannot be refinanced, the bond term can be as long as 40 years, and repayment is deferred for several years. The cost ratio varies from 4:1 up to as much as 16:1; a $1 million bond cost taxpayers up to $4 million at maturity.

In 2004, Basset sold over $12 million in CIB’s maturing between 2006 and 2027 and  $773,000 in CAB’s due between 2016 and 2018. For the $773,000, Bassett paid $1.5 million just in costs; the accreted value to taxpayers will be close to $2.5 million.

Paul Solano was president of the Board of Education at the time.

Cordoba became the service firm for Bassett, supervising the improvement of existing facilities that included exterior plumbing and restrooms, commercial doors and related hardware, and fire alarm systems at multiple locations.  The firm employs experts in federal, state, and local infrastructure, with unfathomable and unimaginable experience in construction management.  Just ask Leon Panetta.       

In July of 2006, the Board sold $6.6 million in Term and CIB’s due between 2009 and 2030; a $614,000 CAB was sold, the accreted value to taxpayers would be over $2.1 million, four times the price.

Another CAB, due between 2032 and 2043, valued at $4.021 million, was sold, which will stick taxpayers with an accreted value of $25.6 million, over five times the price.

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$614K million bond documents from George K. Baum showing the bond’s accreted value of $2.190 million.

 

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$4 million bond documents from George K. Baum showing the bond’s accreted value of $25.6 million.

 

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Paul Solano was still President of the Board of Education, while James Ballard was Assistant Superintendent of Business Services.   

On November 7, 2006, the Megataxers worked their network and convinced residents to authorize the Board to issue another $20 million in bonds; the total was now $43 million.

In July of 2007, the Board sold Term and CIB’s totaling nearly $19.4 million due between 2008 and 2027. Another $1.2 million in CAB’s was sold and due between 2032.

Cost to the taxpayers would be over $5.7 million for the CAB’s.

The authorization came on the heels of a Bassett Unified study projecting declining enrollment, losing nearly 1,000 students over a decade.

In 2008, the Board sold $1.5 million in CIB’s along with another  $3.53 million in CAB’s with maturity dates between 2025 and 2037; cost to the taxpayers will be $11.51 million.

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$3.5 million bond documents showing the bond’s accreted value of $11.5 million.

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All told, the Megataxers had hit tiny Bassett with nearly $47 million in bonds from 2006 to 2008, creating long-term debt over decades along with selling with CAB’s totaling $10.2 million, costing taxpayers well over $30 million.

In mid-2014, the Board, relying on the advice of Lalo Trujillo of Mission Trails Advisors, LLC and the Director of Finance at the city of Pico Rivera, proceeded to refinance the outstanding debt.

He restructured Bassett’s debt by issuing Series A Refunding Bonds for $8,690,000 and Series B for $6,415,000 with significantly reduced interest rates.

Paul Solana was again President of the Board.

By the time of the Unity Conference in San Diego, California in October of 2014, things were looking very promising.  

Another Bond

On November 4, 2014, the Megataxers once again convinced residents of Bassett to authorize $30 million in bonds.

Within a  few months, the Board sold another $10 million in CIB’s due between 2016 and 2044.

Undeterred, three years later, the Board issued $20.1 million in CIB’s due between 2018 and 2046.

Bassett had officially become a casualty of the Megataxers; a high debt burden and constant borrowing to make debt payments rather than building or repairing their aging infrastructure.

On top of that,  Basset’s enrollment tanked.

According to the California Department of Education, the average daily attendance at Bassett is now less than 3,500, down from 6,000 in 2004.

The state pays districts a per student ADA of $12,498; the decline in enrollment equates to a $31 million loss in revenue.

Yet Another Bond

In November 2019, the Bassett Board approved Resolution 06-20 for another tax measure scheduled for the primary election on March 3, 2020; the Board subsequently changed the date to November 2020.

The minutes of the meeting reflected the motion passed but did not mention the change of election date to November 3, 2020.

Immediately after the March 3, 2020 primary, Governor Gavin Newsom declared a state of emergency due to COVID and placed California on lockdown. That did not matter; the Megataxer Machine had convinced nearly sixty school districts in thirty counties to prepare bond resolutions.

In L.A. County, Bassett was the first in line.  Dolores Rivera told the County Registrar-Recorder that she sent “an original, adopted Resolution” for the November 3, 2020 election when the minutes do not reflect that.

She also sent a Tax Rate Statement showing the true cost of the next bond to be $96 million.

Coincidently the entire amount of debt sold since 2005  was $94.5 million.

Bassett had called the experts to solve their debt problem; they had called the Megataxers.

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