How to borrow $105 million for $981 million

poway.jpgThe Poway Unified School District has cut a sweet or a lousy deal, depending on your point of view. It's sweet because the district doesn't have to make any payments on its debt for 20 years - an attractive prospect for a cash-strapped school system. It's lousy because interest on the loan will keep piling up over those 20 years, adding to the debt. The $981 million price tag from what's known as a capital appreciation bond is way higher than what it normally costs to pay off a school bond. From Voice of San Diego:

Poway Unified, a district more accustomed to praise for its fiscal austerity, has found itself at the center of the debate over these bonds. For a year now, it's come under fire from taxpayer groups and concerned elected officials around the state, for whom Poway's bond has reached legendary status. "This is way worse than loan sharking," said Michael Turnipseed, executive director of the Kern County Taxpayers Association in central California, which has lobbied the state Legislature to tighten laws on school district borrowing. "And Poway is the poster child. What they have done is absolutely insane." Officials at the district and two members of the school board who approved it acknowledge that the deal is expensive. But they say Poway's overall construction program has been a roaring success and a boon to local students and homeowners alike.


Last year's bond doesn't just affect the taxpayers who voted on it. It also saddles their children and grandchildren with hundreds of millions of dollars in debt, and raises the risk that property taxes could spike once the district finally starts making payments on its loan. In short: In order to keep its promises to current residents, the district entered into a deal that places a billion-dollar burden on future residents. Last year's deal, in the words of County Treasurer and Tax Collector Dan McAllister, "is a perfect example of how something that's done today can adversely affect the next generation and the generation after that."

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
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