Responses to the 2008-2009 Placer County Grand Jury Final Report

Conclusions 14

• CL1
  The Attorney General's recently published opinion makes it unlikely that any future cash out refundings will take place, unless case law develops from future lawsuits or legislation that overrides that opinion. The Dry Creek Joint Elementary School District agrees with this opinion.
• CL2
  Even if the Attorney General's opinion had not been issued, it is, at best, legally questionable for additional money for capital projects to be taken out of a bond refinancing beyond what was approved by voters. Partially Agree: Initially, education officials were guided by bond counsels in concert with underwriters and financial advisors who were and are considered top experts in the field of California public finance. These bond counsel firms put their names on legal opinions regarding the validity of these financings. It is important to note the Dry Creek Joint Elementary School District did not participate in cash out refinancing and instead used the savings to reduce the taxpayer debt of the existing funds.
• CL3
  Voters and taxpayers received virtually no communication from the school districts in the seven cases of bond refinancing examined by the Grand Jury, either before or after the decisions were made other than publicly noticed on agendas. Disagree with finding: As required by law and according to District practice, all public hearing notifications, board agenda postings and documentation of minutes of meetings were posted for the public. In fact, the Brown Act requires the District to post notification of public meetings only on the front door of the District office. However, in the Dry Creek Joint Elementary School District, additional notification is posted at all school sites, in school newsletters, and on the District web site.
• CL4
  Refinancing decisions may involve millions of dollars, but no requirement exists for communicating these decisions to taxpayers beyond minimal legal notice. The District agrees with this finding.
• CL5
  Especially because the document involved in refinancing a bond issue does not normally disclose explicitly the details about the bond proceeds and what is done with the money, refinancings present a high potential for abuse. This can include cash being taken out of the transaction without being authorized, excessive fees being charged for issuance, taxpayer savings being much less than expected when the effort was approved, etc. The District agrees a potential for abuse may exist. The District does not have actual information on how often this is the case on a market basis and, therefore, cannot make a determination as to qualifying the potential as high or otherwise. Additionally, Dry Creek Joint Elementary School District publically stated in the published annotation that ALL proceeds would be used to reduce the existing debt of the taxpayers.
• CL6
  No timely, reliable State oversight exists for the refinancing process. School boards generally accept the recommendations of district personnel and those are generally guided significantly by the investment bankers and bond counsels whose opinions can be, by their nature, self-serving. The District agrees that there is no timely, reliable State oversight for the refinancing process. The District also agrees that investment banker and bond counsel opinions "can be" self-serving.
• CL7
  Existing State law does not require the office of the [County] Treasurer to be involved early in the process of issuing GO bonds or to be involved at all in bond refinancings. However, the Treasurer can provide valuable services to school districts regarding their proposed bond issues. The Treasurer's office can offer an impartial viewpoint on alternatives and provide access to others in the financial community with different points of view. The Treasurer can help structure the many variables of a bond offering to be in the best interests of the district. The Treasurer can help evaluate the fee structure to ensure costs are not excessive and can help make sure that the terms of the proposed issue are well understood and do not include cash out provisions or other inappropriate features. A school district and its property taxpayers would benefit from taking advantage of the Treasurer's knowledge, experience and capabilities. In the absence of any State statues that require this communication to take place, this arrangement may best be established by mutually voluntary agreement. The District agrees with this finding.
• CL8
  The currently outstanding GO bonds in Placer County school districts represent a significant potential opportunity for taxpayers to benefit from refinancing those bonds when market conditions permit. The District agrees that taxpayers can benefit from refinancing outstanding bonds "when market conditions permit." This includes consideration of features included in the outstanding bonds that may affect the feasibility of refunding in any given market. Overall consideration must be given to the net savings generated for the benefit of taxpayers as well as refinancing costs. The Dry Creek District regularly reviews outstanding GO bonds for opportunities to achieve net savings on bonds outstanding. Response to Recommendations:
• CL9
  The District agrees with the findings; or 2 The District disagrees wholly or partially with the finding, in which case the District shall specify the portion of the finding that is disputed and shall include an explanation of the reasons for the disagreement. For each response to a recommendation, in accordance with Penal Code section 933.05(b), the Grand Jury requested, and the District responds by indicating one of the following possible responses.
• CL10
  The recommendation has not yet been implemented, but will be implemented in the future, with a time frame for implementation;
• CL11
  The recommendation requires further analysis, with an explanation and the scope and parameters of an analysis or study, and a time for the matter to be prepared for discussion by the officer or head of the agency or department being investigated or reviewed, including the governing body of the public agency when applicable. This time frame shall not exceed six months from the date of publication of the Grand Jury report; or The recommendation will not be implemented because it is not warranted or is
• CL12
  not reasonable, with an explanation thereof. RESPONSES TO FINDINGS Finding #1: The Attorney General's recently published opinion makes it unlikely that any future cash out refundings will take place, unless case law develops from future lawsuits, or legislation that overrides that opinion. The District agrees with finding #1. Finding #2: Even if the Attorney General's opinion had not been issued, it is, at best, legally questionable for additional money for capital projects to be taken out of a bond refinancing beyond what was approved by voters. The District partially agrees with finding #2. Typically, District officials are guided by bond counsel in concert with underwriters and financial advisors who are considered top experts in the field of California public finance. The bond counsel firms sign their names on legal opinions regarding the validity of District financings. The District relies on these professionals, especially bond counsel, concerning the legality of any financings engaged in by the District. The District is not qualified on its own to determine whether a financing is in compliance with the laws governing such financings. In particular, the District is not qualified to render a legal opinion on the practice of cash-out refunding. Finding #3: Voters and taxpayers received virtually no communication from the school districts in the seven cases of bond refinancing examined by the Grand Jury, either before or after the decisions were made other than publicly noticed on agendas. The District has not engaged in refinancing any of its own bonded debt, either as "cash out" or through another financial restructuring. The District is not one of the seven The Honorable Alan V. Pineschi Placer County Grand Jury September 28, 2009 Page 3 of 5 districts referenced in the Grand Jury report. The District does not have information on this finding that would allow it to make a determination in agreement or disagreement. Finding #4: Refinancing decisions may involve millions of dollars, but no requirement exists for communicating these decisions to taxpayers beyond minimal legal notice. The District agrees with finding #4. Finding #5: Especially because the documentation involved in refinancing a bond issue does not normally disclose explicitly the details about the bond proceeds and what is done with the money, refinancings present a high potential for abuse. This can include cash being taken out of the transaction without being authorized, excessive fees being charged for issuance, taxpayer savings being much less than expected when the effort was approved, etc. The District agrees that the potential for abuse exists. The District does not have actual information on how often this is the case on a market basis and, therefore, cannot make a determination as to qualifying the potential as high or otherwise. Finding #6: No timely, reliable State oversight exists for the refinancing process. School boards generally accept the recommendations of district personnel, and those are generally guided significantly by the investment bankers and bond counsels whose opinions can be, by their nature, self-serving. The District agrees that there is no timely, reliable State oversight for the refinancing process. The District also agrees that investment banker and bond counsel opinions "can be" self-serving. Finding #7: Existing State law does not require the office of the [County] Treasurer to be involved early in the process of issuing GO bonds or to be involved at all in bond refinancings. However, the Treasurer can provide valuable services to school districts regarding their proposed bond issues. The Treasurer's office can offer an impartial viewpoint on alternatives and provide access to others in the financial community with different points of view. The Treasurer can help structure the many variables of a bond offering to be in the best interests of the district. The Treasurer can help evaluate the fee structure to ensure issuance costs are not excessive and can help make sure that the terms of the proposed issue are well understood and do not include cash out provisions or other inappropriate features. A school district and its property taxpayers would benefit from taking advantage of the Treasurer's knowledge, experience and capabilities. In the The Honorable Alan V. Pineschi Placer County Grand Jury September 28, 2009 Page 4 of 5 absence of any State statutes that require this communication to take place, this arrangement may best be established by mutually voluntary agreement. The District agrees with find #7. Finding #8: The currently outstanding GO bonds in Placer County school districts represent a significant potential opportunity for taxpayers to benefit from refinancing those bonds when market conditions permit. The District agrees that taxpayers can benefit from refinancing outstanding bonds "when market conditions permit". A decision to refinance includes consideration of features incorporated into the outstanding bonds that may affect the feasibility of refunding in any given market. Overall consideration must be given to the net savings generated for the benefit of taxpayers. The District regularly reviews all outstanding school GO bonds for opportunities to achieve net savings on outstanding bonds. RESPONSES TO RECOMMENDATIONS
• CL13
  In compliance with Penal Code Section 919(b) the Grand Jury inspected the Juvenile Detention Facility and found it to be clean and well maintained.
• CL14
  The Grand Jury is concerned that the JDF has placed too low a priority on installation of additional surveillance cameras with recording devices, because: a. Little or no progress has been made toward the effort to procure and install the cameras in the facility, b. JDF officials appeared to know the process by which to procure the surveillance cameras and equipment, c. JDF officials gave inaccurate statements in their response to the 2007-2008 Grand Jury Final Report by indicating bids had been received, funds allocated, and the cameras would be installed by June 2009, and d. Because the CP1 form had not been completed by April, the installation of cameras cannot be completed by the intended June 2009 date. Response: