LOS ANGELES — Los Angeles Unified School District will be among the first to use long-term financing to provide students with iPads when it goes to market next year on a $50 million bond sale to pay for the tablets and wireless infrastructure for 47 schools.
District officials say they are being careful to match the length of the financing with the lifespan of the equipment it will pay for.
The second largest district in the nation used cash to purchase $30 million in iPads, software and technical support from Apple and educational systems provider Pearson in a contract approved by the school board on June 19, said John Walsh, LAUSD’s financial policy director.
The contract represents the first phase in a multi-year project expected to cost $400 million and eventually provide iPads for students at the district’s 786 K-12 schools, Walsh said.
The overall budget for the first phase of the tablet project is $50 million with the remaining $20 million going to pay for “fairly substantial infrastructure upgrades” to enable the kids to use the iPads at the schools, he said.
The district plans to issue bonds sometime during calendar year 2014 to reimburse itself for the purchase, Walsh said.
Students at 47 schools will begin receiving the tablets over the next few weeks as school starts. Teacher training on the devices began on Monday.
LAUSD joins a handful of school districts across the nation that have plans to put an iPad in the hands of every student. Apple estimates there are nearly 10 million iPads in schools around the world today.
Other school districts that are providing all students with their own iPads include McAllen School District in Texas and Coachella Valley Unified School District in Riverside County, Calif.
San Diego Unified School District financed more than $100 million for tablet computers during an April bond offering.
Loop Capital Markets served as the senior manager on a two-part April sale of $530 million San Diego Unified Proposition Z general obligation bonds. The sale was the inaugural issuance under the $2.8 billion bond measure approved by San Diego voters in November 2012.
Loop priced the first two series of bonds totaling $113 million on April 2 as a short-term taxable and tax-exempt series, according to Loop release. The short term series financed a technology component of the program, which included iPads in the classroom and whiteboards.
The $52.5 million Series 2013A taxable bonds, maturing in July 2014, yielded 0.342%. The $60.5 million tax-exempt Series 2013B carry a July 2015 maturity and priced with a top yield of 0.5%, according to Thomson Reuters.
On April 18th, Loop Capital Markets priced two additional series, totaling $417 million, representing the long-term capital improvement portion of the program.
LAUSD aims to provide every one of its students with a tablet by 2014, said Jaime Aquino, deputy superintendent of instruction.
Apple will provide iPads that include the Pearson Common Core System of Courses delivered via a new application as part of the integrated solution. Apps such as iWork, iLife and iTunes, in addition to a range of educational third-party apps, are also included in the price. The district is reportedly paying $678 for each device, a price that includes the iPad, the educational software, and an extended warranty.
LAUSD officials say they are being thoughtful of the dangers inherent in using long-term financing to pay for rapidly-changing technology.
The bonds will be issued so that the bond maturities match up with the expected three-to-five year life span of the iPads, Walsh said.
Using long-term bonds to pay for rapidly-changing technology may be somewhat new for school districts, but it’s a tried-and-true concept for hospitals, according to Doug Baron, director of public finance for the Los Angeles County Treasurer/Tax Collector’s office.
“My expectation is that it would have to a larger bond issue such that a portion for the tablets would have to be amortized over a shorter time-span,” Baron said.
For instance, if it were a $2 billion issuance with $2 million for tablets, then balance it with a 30-year for infrastructure projects, he said.
“You have to make sure the combined amortization works,” Baron said. “The county has done it. You can have equipment with a 5-to-10-year life span at a hospital combined with the financing for a hospital building that has a 30-year expected life.”
The question isn’t really one of the useful life of the item, according to Baron, but whether it is a qualified capital expenditure under tax laws. “That’s what the lawyers have to figure out,” he said.
“The maturities, taken as a whole, must match the useful life of the projects financed with the proceeds, taken as a whole,” said Tom Dresslar, a spokesman for state treasurer Bill Lockyer.
An issuer couldn’t use long-term financing to fund iPad purchases “if the only bonds sold had maturities of, say 20, 30 or 40 years. But if some shorter maturities were thrown in, like 1 to 5 years, then the purchase of iPads could well be permissible,” Dresslar said.
The remaining bonding capacity from LAUSD’s Measure R and Measure Y bond authorizations from 2004 and 2005 respectively, will pay for the $30 million first phase, according to Walsh.
“We expect to issue the remaining $678 million left from those two bond measures early next year,” Walsh said. “We also have the $7 billion Measure Q approved by voters in 2008 that we haven’t issued under.”
Measure Q is part of the district’s $19.5 billion new school construction and modernization program that began in 1997. The goal in constructing new schools was to get the majority of the district’s 655,000 students on a traditional nine-month schedule. Many of the district’s schools had been on year-round schedules with rotating vacation timetables.
The tentative plan on the three-phase iPad roll-out is to go back to the district’s school board in the fall to talk about what was learned from phase one and move forward with authorization for the remaining phases, Walsh said.
“We are working carefully with bond counsel,” Walsh said.
The district assembled a team to construct a plan to issue bonds for the iPads and other of the district’s capital needs.
Neil Kaplan, a partner in the New York office of Sidley Austin, is bond counsel for the district on the planned issuance. Jean Buckley, president of Sausalito, Calif.-based Tamalpais Advisors, is the financial advisor. An underwriter has not been selected.
“We are still working on how best to do it,” Walsh said.
In addition to the iPads, he said, the bonds would pay for the longer-life wireless infrastructure needed to support the devices. Half of the more than $400 million for the iPad project would be used to pay for devices, and the other half would pay for installation of the wireless infrastructure.
With a team assembled and board authorization to sell the remaining amounts from Measures R and Y, the district is “working very hard on the cash flow issues,” according to Walsh.
The district hasn’t gone to market for new money bonds since 2010 when it issued $2.3 billion, according to Thomson Reuters.
The plan is to go to market sometime within the next calendar year, he said.
“We have a number of upgrade, modernization and improvement projects that exceed $7 billion,” Walsh said. “It is a matter of prioritizing what the issues are. The facilities people have been having conversations with stakeholders.”
