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School Bonds: Acalanes Union Using Controversial Long-Term, High-Interest Loans

Acalanes is among hundreds of districts throughout the state using capital appreciation bonds to finance major projects. Taxpayers will repay at least $201 million in interest.

Back in 2011, Acalanes Union High School District issued bonds to borrow almost $37 million. By the time taxpayers retire the debt, they will have paid $153 million in interest for a total of $191 million.

Acalanes is among the California school systems that are borrowing against the future to build facilities and improve infrastructure, according to a report in the Bay Citizen, which is also the source of the figures above. 

The publication says 1,350 school districts and government agencies throughout the state are using capital appreciation bonds to finance major projects.

These capital appreciation bonds have allowed the agencies to borrow billions of dollars while delaying payments, in some cases for decades.

Issuer Amount borrowed Interest payments $1 borrowed costs Min. total debt Issue date Acalanes Union High School District $37,999,106 $153,154,151 $5.03 $191,153,256 7/6/2011 Acalanes Union High School District $29,999,817 $48,270,183 $2.61 $78,270,000 3/30/2010 Source: The Bay Citizen

Mt. Diablo Unified School District will pay $100 million to settle a loan of $50 million from bonds issued in 2010. 

In in 2011, the Martinez Unified School District issued bonds to borrow almost $25 million. The loan will cost taxpayers $5 million in interest. 

The Moraga, Lafayette and Orinda elementary school districts are not listed on the chart.

Typically, school districts begin paying off bonds within six months and end up paying two to three times what they borrowed, the Bay Citizen said.

The bond market is like any other capital market, whether you're borrowing money from Big Vinnie or Wall Street—the more you need the money the more you'll have to pay for it.

Bill Clark, an associate superintendent for the Contra Costa County Office of Education, said that the state imposes a debt issuance ceiling for school districts based on property values. Districts from higher income areas have little problem issuing bonds for their construction needs. However, districts from lower income areas have to resort to more creative bond issuance plans.

"The schools cost about the same money, but the low wealth district can't build using more acceptable funding methods," said Clark. "Don't the low wealth kids deserve to have effective classroom environments that contribute to their academic success?"

With capital appreciation bonds, some school districts will end up paying more than 10 times what they borrowed. In some cases, the payments don't start for 20 years. In some cases, the facilities that were built with the bonds will have been replaced by the time the money is paid off.

District officials usually decide what type of bonds to use after voters have approved the money through ballot measures, The Bay Citizen reported.

Earlier this month, state Superintendent Tom Torlakson and state treasurer Bill Lockyer urged school districts to stop issuing capital appreciation bonds until the state does a thorough investigation of the practices.

Bailey Lee February 01, 2013 at 06:07 PM
This off the subject a little but highlights the complete dishonesty of politicians up and down the food chain. Good old Uncle Joe can't keep his mouth shut sometimes. http://firstread.nbcnews.com/_news/2013/01/31/16794835-biden-new-gun-controls-likely-wont-end-shootings "Nothing we're going to do is going to fundamentally alter or eliminate the possibility of another mass shooting or guarantee that we will bring gun deaths down to 1,000 a year from what it is now," Biden told reporters Thursday afternoon after he spent over an hour lunching with Democratic senators at the Capitol." THEN WHY DO IT IF THERE IS NO UNDERLYING AGENDA, JOE?
Ophelia OBrien February 01, 2013 at 06:33 PM
Chris, My understanding of CABs is this, with a typical GOB, just like with a mortgage, the borrower begins paying both interest and principal with the first payment. With CABs, as with student loans, no payments are made and interest accrues for a couple of decades before the first payment is made. Which is why the payback amount is ridiculously high. The other thing to consider is, the school district builds a shinny new building that will, hopefully, last 50 years. In about 30 years, factoring in all the wear and tear schools experience, the district will likely be facing a need for major capital improvements to that facility. At this point the CAB, with its payments will be coming due on resident's property tax bills. How do you convince the public to foot the bill for the new, necessary capital improvements?
Ann February 01, 2013 at 09:28 PM
The problem underlying all of this is the general under-funding of public schools in CA. Look around Lamorinda, we do not have any shiny new buildings. In fact, when we relocated here nearly 11 years ago, I could not believe the awful state of the school buildings that my children were to attend. The schools have barely enough funding to run quality academic programs. The bond issuers know they have the school districts over-a-barrel.
HH February 01, 2013 at 10:09 PM
Disagree with Ann on that. There is plenty of funding ... it is called mismanagement! But no worries, all the schools have to do is use buzz words like layoffs or increased class sizes and Contra Costa County and our state votes in more tax dollars. They don't have to be responsible when they get away with schemes like this and know that taxpayers will bail them out next election. For those of you not concerned, why do you think other states outlaw this type of bond/financing for schools? It's criminal.
Alex Gronke February 02, 2013 at 10:15 PM
Here is the actual document detailing the $37 million CAB: http://emma.msrb.org/EP536191-EP418304-EP815734.pdf

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