Ed Committee backs crackdown on interest-deferred bonds - by John Fensterwald
Despite opposition from several education organizations, the Assembly Education Committee on Wednesday voted 6-0 for a bill that would severely restrict school districts’ ability to float construction bonds that would saddle future taxpayers with huge balloon payments.
These financial instruments are known as capital appreciation bonds, or CABs, and they have become common over the past decade. By deferring payments on the bonds for sometimes decades and extending the term of the bonds to 30 or 40 years, districts can end up paying interest amounting to 10 times the principal or more, instead of twice the principal as is common for a standard 25-year school bond.
District headquarters, Poway Unified
Poway Unified has become the CAB poster child. Taxpayers will pay no interest on the first 20 years of a $100 million construction bond in that district. When it’s fully paid off in 40 years, they will have shelled out $1 billion. But Poway Unified’s is not the extreme case.An analysis of SB 182, the bill approved Wednesday, cited an example of a
