Paso Robles, Cayucos school districts shoulder huge bond debts
December 4, 2012
Both Cayucos Elementary School District and Paso Robles Joint Unified School District turned to capital appreciation bonds (CABs) as a way to raise money during the economic downturn. These bonds, illegal in one state, allow school districts to postpone the start of repayments to decades after the bonds are secured while the balance balloons in size.
The Paso Robles district is faced with a massive CAB debt repayment. In 2010, it issued a $3,700,127 CAB. With principal and interest the debt has swelled 6.9 times to $25,830,814, which is currently under a maturity warning.
That brings the North County district’s total bond debt, which also includes a 2007 CAB issued at $889,871, to more than $30 million.
The Cayucos Elementary School District was issued a $2,633,543 CAB in 2007. Also currently under a maturity warning, the debt has more than tripled in size to $8,785,000.
California Treasurer Bill Lockyer is warning school districts to avoid the bonds. Lockyer compares CABs to the sort of creative Wall Street financing that contributed to the housing bubble, the subsequent debt crisis, and the nation’s lingering economic malaise. [LATimes]
In the long run, property owners — not the school system — are likely to be on the hook for bigger tax bills if the agency’s revenues can’t cover future bond payments, Lockyer told the LA Times.
In California, 200 school districts have borrowed more than $2.8 billion since 2007, using CABs with some maturities longer than 25 years. Ultimately, they will have to pay back about $16.3 billion in principal and interest.