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School Bonds: San Leandro District Used Long-Term, High-Interest Loan

San Leandro's school district is among hundreds of districts throughout the state using capital appreciation bonds to finance major projects.

The San Leandro School District is among many California school systems that are borrowing against the future to build facilities and improve infrastructure, according to a report in the Bay Citizen.

The publication says 1,350 school districts and government agencies throughout the state are using capital appreciation bonds to finance major projects.

Throughout the state, these capital appreciation bonds have allowed the agencies to borrow billions of dollars while delaying payments, in some cases for decades.

In San Leandro, in 2010 the district borrowed a total of $19 million but will pay $52 million in interest, essentially spending $3.61 per dollar borrowed, according to a Bay Citizen chart.

Bill Clark, the associate superintendent for the Contra Costa County Office of Education, said some school districts don't have much choice.

He explained the state imposes a debt issuance ceiling for school districts based on property values. Districts from higher income areas have little problem issuing bonds for their construction needs. However, districts from lower income areas have to resort to more creative bond issuance plans.

"The schools cost about the same money, but the low wealth district can't build using more acceptable funding methods," said Clark. "Don't the low wealth kids deserve to have effective classroom environments that contribute to their academic success?"

Typically, school districts begin paying off bonds within six months and end up paying two to three times what they borrowed, The Bay Citizen said.

With capital appreciation bonds, some school districts will end up paying more than 10 times what they borrowed. In some cases, the payments don't start for 20 years. In some cases, the facilities that were built with the bonds will have been replaced by the time the money is paid off.

District officials usually decide what type of bonds to use after voters have approved the money through ballot measures, The Bay Citizen reported.

Earlier this month, state Superintendent Tom Torlakson and state treasurer Bill Lockyer urged school districts to stop issuing capital appreciation bonds until the state does a thorough investigation of the practices.

David February 04, 2013 at 01:51 PM
What did they actually borrow the money for? There has been over $100M ($160? if I remember right) in bonds issued for school facilities over the past decade, about $20,000 per student. What additional facilities is this supposed to fund? Or is it just going straight into pensions?
Fran February 04, 2013 at 03:07 PM
I think it's part of those monies David. "District officials usually decide what type of bonds to use after voters have approved the money through ballot measures, The Bay Citizen reported." The fact of the matter is borrowing from Wall Street has gotten very complicated, those approving them are rubes in comparison to the hucksters issuing these bonds. It's unfortunate that our children will be paying the price.
David February 04, 2013 at 03:31 PM
There's nothing complicated about it (they're actually zero-coupon bonds from the sound of it, which always carry a higher implied interest rate since you're not paying regular interest). If our elected officials are that stupid, then maybe we should stop voting for them. Why is it not complicated? Because anyone with common sense realizes: 1) Don't spend money you don't have. 2) Don't get cute with spending money taxpayers have refused to give you. Which is the same as don't spend money you don't have. 3) If it sounds too good to be true, it is. Fran, seriously, you keep blaming "wall street." It seems like it's much more the fault of elected officials trying to spend tax money they don't have.
David February 04, 2013 at 03:41 PM
By the way, the implied interest rate in the SL bond is about 6.5%, compared to around 4-5% generally for other california muni bonds.
Fran February 04, 2013 at 03:51 PM
David, believe me, I am not defending our "leaders" whatsoever. But you have to remember not everyone has the grasp that you do about bond markets. It doesn't help matters that these institutions that underwrite these bonds are more often than not generously contributing to the campaigns of our so-called leaders either. The state can easily stop this practice by banning these bonds, as other states have already done.
David February 04, 2013 at 04:08 PM
All quoted bonds are required to have "Yield to maturity" (and other measurements) quoted. It's a simple matter to look at the interest rate associated with an issued bond and determine whether or not it's worth it. Millions of Americans do every day with their mortgages, car loans, etc.
Fran February 04, 2013 at 04:50 PM
David, I agree with you wholeheartedly. Unfortunately, the masses would rather occupy their brains, by debating which Superbowl commercial was the best. :) You should run for the school board and shake things up a bit.
David February 04, 2013 at 04:54 PM
You know I'd never win.
Pastor Derek Jung February 04, 2013 at 05:14 PM
David, I would vote for you.
Tyler February 04, 2013 at 05:27 PM
All through the 'recession', voters have voted for school bonds, in order to improve SL Schools without raising taxes. Our leaders knew they would, people seem to think bonds are free money. They built a new 9th grade campus, a performance venue, a swimming pool (while our public pools remain closed due to lack of funds!). They built a beautiful track and field for the middle school. The irony is, they had to lay off teachers, and don't have money for supplies. It seemed like the height of insanity at the time, and this news only makes it more special.
jeffrey olsen February 05, 2013 at 06:00 AM
I believe San Leandro Cassidy mafia ready to steal the last penny from taxpayers for their voters and placards suppliers from public workers unions.
Barry Kane February 05, 2013 at 07:11 PM
Yes, you should run and you could win.
David February 05, 2013 at 08:13 PM
thanks for flattery. I'll put it under consideration. I do have a few other ideas beside vouchers, but not sure if they'd really end up working or not. but then again, the current board just keeps on doing stuff they know doesn't work and never has.

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