News Column

School Districts Back Ban on High-cost Capital Bonds

Jan. 18, 2013

Ryan McCarthy

A California moratorium on school districts issuing high-cost capital appreciation bonds wins support from Marysville Joint Unified School District Trustee Frank Crawford, who says interest costs for the bonds "border on lunacy."

"It's almost criminal that they existed for so long," he said of the bonds.

State Treasurer Bill Lockyer and State Superintendent of Public Instruction Tom Torlakson sent a letter Thursday to school district officials in California asking them to impose the moratorium. They say the ban should remain in place until the governor and state lawmakers finish work this year on proposals to reform the bonds by increasing transparency and strengthening taxpayer protections.

Capital appreciation bonds often force taxpayers to pay more than 10 times the principal to retire the bonds, the two state officials say. Some of the bonds are not repaid for 40 years.

"You can't say it's for the kids," Crawford said of capital appreciation bonds, "when it's costing the kids and their kids."

A majority of Marysville Joint Unified trustees in September decided against further review for a capital appreciation bond that would have brought Marysville $12.5 million and required paying $71.1 million. Crawford was among trustees opposed to the bond.

The two state officials letter to California school district says in part that, "Too frequently, board members and the public have not been fully informed about the costs and risks associated with capital appreciation bonds.

"In some cases," the letter continues, "board members have reported they were not even aware they approved the sale of CABs."

Yuba Community College District Trustee Gary Sandy said at a Jan. 10 board meeting that he feels "royally burned" by the $4.6 million bond that requires a $58 million payback in public funds. Sandy had said he was shocked when he learned about the payments for the capital appreciation bond trustees approved in April 2011.

He said Thursday in an email that he supports a statewide moratorium and will bring a measure to the Yuba college district's policy committee to ban future use of CABs within the district.

"It's clear that there is insufficient transparency around the issuance of CABs and the role of financial advisers in promulgating and promoting them," Sandy said. "Those relationships and the degree to which financial interests play a role in presenting them as options to governing boards deserves attention."

Governing boards should also be required to have their own independent financial counsel to advise them on the use of financial instruments like CABs to ensure that boards are acting in the best interests of the district and taxpayers, the trustee added.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: (c)2013 the Appeal-Democrat (Marysville, Calif.) Distributed by MCT Information Services

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