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Bill To Limit Risky Bonds Waiting For Governor’s Signature

A bill to limit school district use of risky capital appreciation bonds heads to the governor's desk.

Poway residents were outraged last year to find out $100 million the school district borrowed in bonds for construction and repair projects would cost them $1 billion in repayments over 40 years.

Now, a bill introduced by a San Diego legislator to limit this kind of expensive borrowing has passed both the Assembly and the Senate and awaits Gov. Jerry Brown's signature.

Capital appreciation bonds usually delay loan repayments 20 or 30 years. That delay leads to high payments when the loan comes due. But the school district is betting property tax revenues will rise enough over that time to cover the ballooning payments. If property values don't rise and school districts can’t make those payments, they have the power to increase tax rates.

San Diego State Senator Ben Hueso says that isn’t fair to taxpayers. He introduced the bill that caps the amount of debt school districts can take on to four times each dollar borrowed, and limits the repayment schedule for school district bonds. The bill also increases the number of times bond borrowing has to be debated at public meetings, which Hueso says gets to the heart of what the legislation is about.

“Preserving the public’s confidence in their government is a very important process that we need to always work towards," he said. "Part of the measure is to get people informed about what their government is doing that affects them financially.”

An investigation by the Los Angeles Times last year found that 19 San Diego County school districts and four of its Community College districts had used the risky bonds in the last five years.

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