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Poway Unified School District board balks at using CAB-linked firms

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Poway Unified School District board members were divided at the monthly board meeting on Sept. 16 over several issues concerning financial advisors, consultants and underwriters.

The shadow of the Capital Appreciation Bonds (CABs) came back to haunt the district as board members expressed an unwillingness to work with companies associated with the maligned bonds again.

An agenda item asking the board to approve of the appointment of several financial consultants for the sale of Community Facilities District (CFD) No. 15 (Del Sur East) Improvement Area ‘C’ special tax bonds failed after much discussion due to the inclusion of the Dolinka Group, a firm that was involved in the sale of the CABs in 2011.

While the item asked the board to approve seven different positions, it was two of the proposed companies that caused controversy, Dolinka Group and Stifel, Nicolaus and Company, Inc.

Dolinka Group’s Benjamin Dolinka was the district’s financial advisor during the 2011 CABs, which will cost taxpayers nearly $1 billion over the next 40 years.

Stifel, Nicolaus and Company were not directly involved with the CABs. A company they have since acquired, Stone and Youngberg, LLC, however, was involved in the sale of the CABs in 2011.

Dolinka Group’s position in the CFD No. 15 (Del Sur East) Improvement Area ‘C’ special tax bonds would be as a special tax consultant and would have nothing to do with financial advising. Stifel, Nicolaus and Company were one of two options to be the district’s underwriter in the transaction (Piper Jaffray was the second option for underwriter).

The district has a five-year, $600,000-plus contract with the Dolinka Group for Benjamin Dolinka to act as the district’s special tax consultant. It was unknown as of the meeting the terms of the contract and if the district was required to use Dolinka.

Several board members expressed reluctance to work with anybody involved in the sale of the 2011 CABs, no matter how tenuous (in the case of Stifel, Nicolaus and Company).

“To whom does the board owe fiduciary responsibility when issuing bonds?” asked Kimberley Beatty, board president.

Board member Michelle O’Connor-Ratcliff said that even though Stifel, Nicolaus and Company weren’t directly involved with the CABs, the risk that Stone and Youngberg employees might end up on the underwriter team was still there.

“The level of culpability is not the issue here,” said O’Connor-Ratcliff. “We have a duty to the public, and the public has spoken. They want anyone involved with the CABs out. We owe it to the public to be sensitive to that. I want to do this right.”

Sandi Burgoyne, district planning director, said going with Piper Jaffray over Stifel, Nicolaus and Company would delay any bond sales for about six months, as she would need to take the time to get the new underwriting team up to speed on the district’s many CFS special tax bonds.

Beatty replied that going with Piper Jaffray and delaying special tax bond sales was “painful, but had to be done” because of Stifel, Nicolaus and Company’s acquisition of Stone and Youngberg.

Board member T.J. Zane said he would like to see an ‘or’ option for the special tax consultant role, which would allow them to choose whether or not to use Dolinka for bond sales, similar to how the underwriter position has two options.

An amended motion to pass the agenda item with Piper Jaffray as the underwriter failed after not receiving enough yes votes (only Beatty and fellow board member Charles Sellers voted yes). An attempt by board member Andy Patapow to pass the original agenda item failed after it did not receive a second.

Board members argued about who they considered acceptable for district staff to bring back for consideration in the future. O’Connor-Ratcliff reiterated the importance of listening to the public. “I’m trying to be congnizant to my duty to the public to follow what I believe is public mandate, that they don’t like the CABs or anyone involved in it,” said O’Connor-Ratcliff.

The next step will be district staff bringing a new list of financial consultants for approval to the board in the future.

The next board meeting will be at 6 p.m. Monday, Oct. 16 at the district office in Carmel Mountain Ranch.

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