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 In some cases, the facilities that were built with the bonds will have been replaced by the time the money is paid off.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.