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An action that California’s Napa Valley Unified School District took in 2009 is just now getting exposure, and at least one board member said that if it had been a private deal (not a taxpayer-backed one), he would be running for cover. Jose Hurtado, a NVUSD board member, said he stands by the deal he voted for — to borrow $29 million and put off paying it back until 2049 — but if it were a traditional mortgage, he “would run” away from it.
More than 400 school districts and other agencies have racked up $9 billion in CAB debt and, by his calculations, the total when the “surprise loans” come due will be $36 billion.
Capital Appreciation Bonds: Delaying the Inevitable -
Neither Napa nor Alvord has gone to the excesses that Poway United School District did in 2011 when it used CABs to borrow $105 million, which will balloon to $982 million when it’s due, a payback rate of more than nine times the original loan.
Not be outdone, the Santee School District borrowed a paltry $3.5 million, which will balloon to just under $60 million, or more than 16 times the original loan.
Swimming with the Sharks
In 2009, the lenders' lobbying group than proposed and promoted AB1388, a California bill eliminating the debt ceiling requirement on long-term debt for school districts. After it passed, bankers traveled all over the state pushing something called "capital appreciation bonds" (CABs)] as a tool to vault over legal debt limits. (Think Greece again.) Also called payday loans for school districts, CABs have now been issued by more than 400 California districts, some with repayment obligations of up to 20 times the principal advanced (or 2000%).
In 2013, California finally passed a law limiting debt service on CABs to four times principal, and limiting their maturity to a maximum of 25 years. But the bill is not retroactive.
In several decades, the 400 cities that have been drawn into these shark-infested waters could be facing municipal bankruptcy -- for capital "improvements" that will by then be obsolete and need to be replaced.
originally posted by: RobinB022
a reply to: FarleyWayne
So, these 'loans' come due in 34 yrs., just in time for their kids and grandkids to pay them back. Cost of living planning on being THAT much higher?
This is just awful. I can barely eat my ice cream now!