Sign in the Santee School District board meeting room. Credit: Leo Castaneda/inewsource
Sign in the Santee School District board meeting room. Credit: Leo Castaneda/inewsource

Santee School District is one of 19 districts in San Diego County that used controversial, high interest bonds to meet demands to improve schools. The $35 million bond it issued in 2011 will ultimately cost taxpayers $58.6 million to repay. That’s one of the most expensive bonds in the state.

But Santee — like other districts — used other means of financing new construction or updates on its K-8 campuses, classrooms and technology.

inewsource dug into public documents, including school board minutes, reports from an independent citizens oversight committee and newspaper archives to construct a timeline of events that shows how pressure was brought to bear and how decisions were made in Santee, some without a full understanding of consequences.

The journey from 2006 until 2011 illustrates reliance on financial advisers, continual changes in the long-term bond plan, shifting in construction priorities and indecision in funding choices.

Timeline: Santee’s road to a capital appreciation bond

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Santee board members contacted for this story didn’t respond to interview requests. President Dustin Burns said he is the only one designated to speak on behalf of the board, and he only communicates with the media in writing. He agreed to answer questions via email and explained the school board was unaware of the true financial impact of using the capital appreciation bonds when it made the decision.

“The total maturity value was not evident to the Board when the documents were presented,” he wrote.  “At the time of issuance, the Board relied upon the expert advice of bond counsel and financial advisors as well as review by the County Auditor and Controller’s office.”

In the year and a half after the decision to issue the Series E bonds, there are few mentions in board minutes of the capital improvement projects and no discussion of the true cost of the bonds. Burns said it wasn’t until late 2012 that the board understood the reality of the situation. It was discussed in December of that year at a citizens oversight committee meeting.

At that time, some committee members were concerned about  the advice financial experts had given the board.

“Eid (Fakhouri) wanted to share that he heard the school districts were being steered into the wrong direction by some advisors and that there were excessive fees on the back end,” the meeting minutes state. “He said the District may have received poor financial advice from the bond underwriters/advisors.”

Sean Karafin, vice president of the San Diego County Taxpayers Association, said the group had no idea the board would eventually decide to use capital appreciation bonds when his organization endorsed Prop R.

March 2014. Santee School District Board. Leo Castaneda/inewsource
Santee School District’s school board

“The payback ratio for the 2011 bonds is an egregious abuse of taxpayer dollars, and certainly not something the Taxpayers Association would support,” he told inewsource. “Santee staff did not communicate to the Taxpayers Association the possibility that long-term capital appreciation bonds could be used, and we cannot guarantee board members will make good decisions years after gaining our support.”

In 2013 the state passed a law to prohibit school districts from issuing capital appreciation bonds with maturity dates longer than 25 years and with payback ratios more than 4-to-1.

Santee’s experience demonstrates why there’s a demand for transparency and a need for financial literacy among school boards, said Mark Leslie, CEO of the taxpayers association.

“What this really kind of indicates is that many people with the best intentions who run for office, school board in this case, really don’t have the financial acumen to make these decisions,” he said. “So much of what they do can have a direct impact on taxpayers.”

As of today, every school in the Santee district has received improvement from the modernization project, although it’s impossible to tell from public documents what projects were modified over time from the original plan.The district’s funding mechanisms also changed during the process. The surplus lands were not sold, leaving a deficit of $30 million. This was partially supplemented by higher than expected state grants, short-term financing, developer fees and the capital appreciation bond.

Burns said the district is in escrow to sell one of its surplus properties and hopes to sell another next year. It  has no plans for selling the remaining two sites.

In August 2012, new state grants allowed the district to move forward with construction at Pepper Drive school.

The classroom addition at Chet F. Harritt is still unfunded.

Madison Hopkins was an investigative assistant for inewsource. She graduated from San Diego State University with a bachelor's in journalism and a minor in women's studies. While at SDSU she served as managing editor of the student-run newspaper, The Daily Aztec. Starting in the fall of 2015 she will...