Untitled California Attorney General Opinion

BACKGROUND

This opinion request asks us to address questions relating to the issuance of bonds by school districts and community college districts. The most common means of financing new school construction in California is for a school district to issue general obligation bonds. 1 Sale of the bonds supplies the school district with immediate funds to apply to construction projects, and then the district repays the bonds over time, with interest, by levying an ad valorem tax based on the appraised value of real property in the district.

The specific questions presented here involve bond “premium,” which is the amount a purchaser pays for a bond in excess of the face (or “par”) value of the bond. 3 Typically, the initial purchaser of school district bonds is an underwriter—usually an investment bank dealing in municipal securities 4—that resells the bonds to investors.

Sometimes bonds sell at a premium—that is, a price above par value—because the interest rate exceeds the interest rate that would attract willing purchasers of an otherwise identical bond offered at a price of par. In other words, bonds that offer a higher interest rate are more valuable than equivalent bonds…