Dan Walters

By Dan Walters
July 5, 2015

  • Capital appreciation bonds accumulate interest costs
  • Los Angeles district wants to change low-bid rules
  • Leaseback court ruling could undo deals

One might think that school construction would be about as simple and straightforward as anything government does.

However, like any governmental activity involving lots of money, school construction is fraught with self-serving interests and politics.

Take, for example, the now-infamous practice of issuing capital appreciation school construction bonds.

Local school officials who should have known better drank the Kool-Aid offered by fast-talking “financial consultants” and issued voter-approved bonds that would accumulate interest costs for decades without any repayments – not unlike the “teaser rate” mortgages that lenders doled out to unqualified homebuyers.

San Diego County’s Poway Unified School District is the poster child for this fiscal malpractice, having borrowed $105 million. It’s now committed to paying back $1 billion long after those who made the bad decision have departed.

Reacting to the furor that erupted when the scheme was revealed, Poway and other districts that issued similar bonds are now trying to restructure them.

Meanwhile, however, the Los Angeles Unified School District is seeking state permission to depart from the traditional process of giving construction contracts to lowest bidders.

Instead, it wants to use “best value procurement,” which is more subjective than competitive bidding.

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