The Morning Report
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Assemblyman Ben Hueso pledged this afternoon to sponsor legislation to limit a type of controversial school borrowing called capital appreciation bonds, which push debt onto future generations of taxpayers.
San Diego County Treasurer and Tax Collector Dan McAllister had publicly called for the legislation last month in the wake of controversy over the Poway Unified School District’s 2011 bond deal, in which taxpayers will pay back almost $1 billion on $105 million the district borrowed.
Public attention has focused in on capital appreciation bonds in the weeks since our story explained the extraordinarily expensive borrowing in Poway.
In a joint press conference with McAllister, state Assemblyman Marty Block and other local government representatives, Hueso announced that (if he is re-elected) he will push for the new law in the first week of the state legislative session in December.
“School districts should not be allowed to shift such a heavy burden to future generations,” Hueso said. “It’s just not a transparent way to conduct themselves in ensuring the best decisions will be made today.”
The legislation, which is also supported by state Treasurer Bill Lockyer and state senators Darrell Steinberg and Juan Vargas, tackles the most controversial elements of Poway’s billion-dollar bond and other similar deals made in San Diego and across the state.
McAllister outlined the main purposes of the proposed legislation:
• Limiting the length of school bond loans to 25 years, down from 40 years, the current maximum loan term.
• Limiting the maximum legal interest rate on the bonds to 8 percent, down from 12 percent.
• Requiring all school bonds to be “callable,” or re-financeable. (One of the most controversial elements of Poway’s deal is that it can’t be refinanced.)
• Requiring one of three government entities to approve every bond deal before the bonds can be sold. (The deal could be approved by a county board of supervisors, county superintendent of schools or the governing board of a community college district.)
• Limiting the debt service ratio — the ratio of the initial debt to the final amount that taxpayers pay off — to four-to-one. (Poway’s deal was more than nine-to-one and other capital appreciation bond deals elsewhere in the state have been ever higher.)
You can read an initial draft of the legislation here.
Will Carless is an investigative reporter at Voice of San Diego currently focused on local education. You can reach him at email@example.com or 619.550.5670.
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