Limit Use of Absurdly Expensive Bonds in Calif.

Tuesday, March 26, 2013

Providing classrooms now, at the cost of crushing future debt, is a bad trade-off for California school districts. Legislators should approve a bill that would limit a risky type of borrowing that burdens taxpayers with enormous long term repayment costs. Districts’ need to build and upgrade school facilities does not justify forgoing fiscal restraint.

The Assembly Education Committee last week unanimously approved AB 182, by Assemblywoman Joan Buchanan, D-Alamo. The bill would restrict districts’ use of capital appreciation bonds, a type of borrowing that delays repayment for years, yet brings a much larger total expense than regular bonds. AB 182 would require debt service costs to be no more than four times the amount of the borrowing, and would limit bonds to a 25-year lifespan. Any bonds that extend beyond 10 years would need provisions allowing districts to refinance the borrowing. And school boards would have to provide far more information before issuing capital appreciation bonds, including the total expense of repayment and a comparison with what regular bonds would cost.

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