Lawmakers to end excessive bond practice

Jul 7, 2013 by

SACRAMENTO — California lawmakers are on the verge of passing sweeping legislation to rein in school districts that raise money for construction projects by using an expensive and once-obscure financing tool.

These loans obtained through what are called capital appreciation bonds, brought to light in Poway last summer, promise no payments for decades but later hit taxpayers with high-interest balloon payments that can wind up costing as much as 10 times the original principal, if not more.

“The poster child” is the Poway Unified School District, says Assemblywoman Joan Buchanan, D-Alamo, who is carrying the measure.

Poway has a bond contract that will force property owners to eventually pay nearly $1 billion in return for $105 million worth of construction.

Poway is not alone. For example, San Diego Unified, which opposes the bill, in 2010 issued $88.9 million in bonds that will cost taxpayers $630.4 million by the 2047 maturity date. There is no prepayment option. And San Ysidro School District in 2011 issued $15.6 million with a total cost of $228.9 million in 2050. But the district can pay it off in 2023.

Across San Diego County, schools and community colleges have signed 20 bond deals that will require their taxpayers to pay back $13.8 billion for $513 million worth of construction, according to the treasurer-tax collector’s office.

Buchanan is working on the crackdown with Sen. Ben Hueso, D-San Diego, that would impose strict controls on issuing those types of bonds, known as CABs, in the future.

Among the provisions: a ceiling on interest, a cap on total debt service, shorter bond terms, a no-penalty prepayment option and complete public disclosure of the long-term costs before a contract is signed.

“We want more taxpayer dollars to be used on building the actual facilities and not on paying interest,” Hueso said.

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