About 200 districts have borrowed billions of dollars using so-called capital appreciation bonds. Districts may have to pay 10 to 20 times the amount borrowed.
Two hundred school districts across California have borrowed billions of dollars using a costly and risky form of financing that has saddled them with staggering debt, according to a Times analysis.
Schools and community colleges have turned increasingly to so-called capital appreciation bonds in the economic downturn, which depressed property values and made it harder for districts to raise money for new classrooms, auditoriums and sports facilities.
Unlike conventional shorter-term bonds that require payments to begin immediately, this type of borrowing lets districts postpone the start of payments for decades. Some districts are gambling the economic picture will improve in the decades ahead, with local tax collections increasingly enough to repay the notes.
CABs, as the bonds are known, allow schools to borrow large sums without violating state or locally imposed caps on property taxes, at least in the short term. But the lengthy delays in repayment increase interest expenses, in some cases to as much as 10 or 20 times the amount borrowed.
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“The school boards and staffs that approved of these bonds should be voted out of office and fired,” California Treasurer Bill Lockyer told the LA Times.
What of Humboldt County? The Times includes a searchable database of all school districts in California that have issued capital appreciation bonds. Six Humboldt County school districts make the list:
The case of the McKinleyville Union School District is especially striking. In 2008, residents of the district just barely approved Measure C, which authorized the district’s board of trustees to offer up to $14 million in bonds. (The measure required a 55 percent yes vote to pass.) Of that, the board elected to offer $4.2 million in the form of capital appreciation bonds. Since that debt was structured over a 40-year period, with interest accruing all the while, taxpayers in the district will eventually be on the hook for over 13 times that amount — a stunning $57 million in total.
