BILL TO REFORM SCHOOL BOND FINANCING ON GOVERNOR’S DESK

Measure targets  school districts engaged in  risky borrowing, including  Poway Unified and Santee School District

By Cary Hyatt and Miriam Raftery

October 1, 2013 (Sacramento) – Assembly Bill 182 has been passed by the Legislature and is now on Governor Jerry Brown’s desk.  Several local legislators coauthored the bill including Democrats Ben Hueso and Marty Block as well as Republicans Rocky Chavez and Mark Wyland. 

The measure would create restrictions in California on capital appreciation bonds (CABs) used by school and college districts.  CABs defer payments far into the future and can cost 10 to 20 times more than the original amount borrowed. 

CABS gained notoriety after media reports exposed that  Poway Unified School District borrowed $105 million for renovations and will owe over a billion dollars.  AB 182 would limit the amount of time that payments could be deferred, thus lowering total debt.

This bill received opposition from some school districts. While some later withdrew opposition following amendments,  the Community College League of California continues to oppose the measure along with the Oceanside Unified School District and some non-local districts.  It has been supported by taxpayer groups. 

The Los Angeles Times reported that Santee School District borrowed $3.53 million in capital appreciation bonds and will pay back $58.1 million- - $16.57 for every $1 borrowed

Over 200 school systems in California have borrowed money using CABs, at an average cost 6.6 times higher than the amounts borrowed.   A Times analysis found that one-fifth of all California  schools borrowed money through CABs, which don’t require payments for up to 20 years. 

A Voice of San Diego article from November 29, 2012 titled “Schools Statewide Are Risking Big With CABs” indicated that state officials have school districts to avoid the practice—and at least one state has banned the practice outright. 

California Treasurer Bill Lockyer compared CABs to creative Wall Street financing that contributed to the housing market crash/foreclosure crisis and the nation’s debt crisis. 

“The school boards and staffs that approved these bonds should be voted out of office and fired,” Lockyer said.

The Governor has until October 13, 2013 to sign or veto the bill, or allow it to become law without his signature.