question-mark

By IAN LOVETT
Published: February 9, 2013

LOS ANGELES — School officials in Santa Ana were in a bind several years ago: they wanted to build hundreds of new classrooms, but feared that voters would rebel against tax increases to pay for the construction.

So in 2009, the Santa Ana Unified School District borrowed $35 million using an inventive if increasingly controversial method known as capital appreciation bonds, which pushed the cost of the construction on to future taxpayers. Not a cent is owed until 2026. But taxpayers will eventually have to pay $340 million to retire that $35 million debt.

Since 2007, hundreds of school districts and community colleges across California have used capital appreciation bonds to raise nearly $7 billion for various construction projects, according to data from the state treasurer’s office. The bonds have allowed school districts that are short on cash to finance classroom renovations and new athletic facilities while delaying payment for years, or even decades.

But these new facilities often come at an enormous cost to future taxpayers, who will be liable for huge interest payments that sometimes balloon to more than 10 times the amount borrowed over as much as 40 years. By contrast, repayment on traditional school bonds usually costs no more than two to three times what was borrowed.

“It’s the school district version of printing money,” said Bill Lockyer, the state treasurer. “These bonds are bad deals for taxpayers, and they contribute to the general view that the government doesn’t spend their money intelligently.”

In San Diego, property owners owe $630 million on a $164 million bond. For the Folsom Cordova Unified School District, a $514,000 bond will cost $9.1 million.

To read entire story, click here.