Bad Bonds to Cost taxpayers Millions, Lawmakers Aim to Ban Them

Apr 10, 2013 1:15 AM

State lawmakers have advanced a bill aimed at restricting the use of high-cost school bonds. The Assembly approved the bill Monday.

It limits the ability of school districts and community colleges to issue so-called capital appreciation bonds.

State treasurer Bill Lockyer says changes are needed to protect taxpayers from what he said were “terrible bond deals" that delay payments for years, while interest keeps accruing.

The bill would prohibit bond maturities that exceed 25 years, and limit debt service to four times the amount borrowed.

School administrators and finance officers oppose the bill in its current form.

The bill now goes to the state senate.

For many Shasta County schools, these bonds seemed like free money. But in 30 years they have the potential to create some serious problems when its time to pay-up

Critics say what's worse, is that the money is due so long from now it will be paid by a future generation.

In 2007, it was a small cost to get a gym at Pacheco School.

“The loan was taken so that we could do great things for kids obviously , and so we could get a gym,” said Jason Provence, the Pacheco School Superintendent.

Get 2.8 million dollars now and promise to pay 7.6 million in 30 years.

“Well I think that those are the loans that are out there, I am not all that familiar with other loans that schools can get,” said Provence.

These ‘Capital Appreciation Bonds’ are different from your normal loan. Instead of making yearly payments, they're paid off at the end of the term.

“We did not have a bond passed yet, so they were looking for ways to get things done to benefit kids. at that point it seemed to be the best option i think,” said Provence.

Several other school districts also liked the idea. Enterprise Elementary is on the hook for nearly 32 million for borrowing 6.2 million.

Gateway will need to pay out 8.1 million for borrowing 2.7 million dollars four years ago.

A separate 200,000 dollar loan will cost Pacheco school more than two million dollars over 25 years.

Compare that to a typical 200,000 dollar home loan. The difference? The district will pay about two-million in interest over 25 years. The homeowner will pay only 200,000 in interest during the same time frame.

But the pacheco district says its aware of its obligation and is planning accordingly.

“I think you have to have a plan, I know Pacheco School District at this point is looking at the future to make sure that they can meet those obligations,” said Provence.

Shasta County schools have accepted 21.5-million dollars in these bonds since 2007. When they are finally paid back, it will have cost a whopping 71-million dollars in taxpayer money.


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