Dan Walters

Dan Walters

By Dan Walters
dwalters@sacbee.com
Published: Thursday, Jul. 4, 2013 – 12:00 am | Page 3A
Last Modified: Thursday, Jul. 4, 2013 – 8:46 am

A half-decade ago, while too many Californians were taking out too many home mortgages with teaser interest rates and artificially low payments, hundreds of California school districts were being similarly shortsighted.

They were issuing “capital appreciation bonds,” on which only interest would be paid initially and payments on principal would be postponed for years or even decades. They allowed school officials to promise voters that new bonds would not immediately raise their taxes.

Poway Unified School District became the poster child for CABs, as they were dubbed, having issued $105 million in construction bonds that, over 40 years, would cost its property owners nearly $1 billion in taxes.

While school districts were issuing CABs, local governments – especially cities – were also engaging in fiscal flimflam.

They were sharply increasing pension benefits on the assumption that an ever-rising stock market would cover costs with no burden on taxpayers – a fiction promulgated by the California Public Employees’ Retirement System.

When the assumption proved false, many cities compounded their folly by issuing bonds to pay their rising pension obligations.

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