State Treasurer Bill Lockyer used a keynote speech at a conference in San Francisco on Wednesday to blast the practice of school districts taking out high-interest, long-term loans called capital appreciation bonds.

He didn’t stop there. In a post-speech interview with Voice of San Diego, he called out the Poway Unified school district, whose bond program we investigated earlier this year. Lockyer said the staff members who put together that deal should be fired and the school board should be voted out. He also said the deal would eventually be investigated because it probably wasn’t legal.

Capital appreciation bonds gained nationwide attention earlier this year, after we published this story on Poway’s $105 million bond deal, which will eventually cost taxpayers almost $1 billion.

Lockyer’s speech at a public finance conference organized by The Bond Buyer, called out the districts, underwriters and consultants who put these deals together. The speech had bond reporters tweeting excitedly.

I wasn’t at the speech, and haven’t yet tracked down a recording or transcript, but I interviewed Lockyer soon after the speech about the bond deals. Here are some snippets from our conversation:

Lockyer said high-interest school bond loans are an important issue statewide:

I think there are lots of examples of really bad deals that were made.

In the last dozen years, there were over 1,000 [capital appreciation bonds] done by school districts. We’re still analyzing the data.

There are a number of these deals where the repayment ratio is, like, 30-1. I just think they’re disgraceful, and I would hope the people that underwrote or helped make those deals would make a genuine effort to renegotiate them.

He said the deals were being driven by consultants:

There’s a group of financial advisers who kind of circuit ride and pitch these products to people.

On Poway’s billion-dollar deal, Lockyer harkened back to his early political career, when he served on a school board:

I would fire staff that made a deal like this. And if I were a voter, I’d pick a different school board. But that’s just how I react to how egregious I think this deal is.

I asked Lockyer about another element of Poway’s deals: the fact that it squeezed millions of extra dollars out of its bonds, a move the state Attorney General’s Office said was illegal:

I agree with the AG’s opinion. I don’t think [Poway] can legally do that.

And that somebody pitched that as part of the deal I think adds to the odor around it.

If somebody did something illegal at some point, obviously, there’s going to be an enforcement action against that. I don’t know who does that, or when that occurs, but I think that happens eventually.

Lockyer said there needs to be greater transparency around school bonds and greater constraints on the deals that can be done. He applauded the work of San Diego Treasurer and Tax Collector Dan McAllister and Assemblyman Ben Hueso, who are pushing legislation to significantly tighten the rules on school bonds.

I think there’s a need for some reforms.

One of the underwriters of one of these deals approached me at the Bond Buyer conference and said “We’ve done some of these deals and I’ve taken a closer look at them, now that it’s become a matter of public debate, and I have the same revulsion that you do. I have the same belief that these are just really indefensible.”

Finally, I asked Lockyer whether the state has any recourse to try and unravel Poway’s deal.


But we’ve got a database [at the state]. We know who underwrote these deals, who the financial advisors were, who the bond firms were that said they were all fine.

I want [those firms] to know that when future state business is being considered, that track record hurts you.

So you can make a choice: If you don’t want to keep doing business with the state, then fine, keep making these deals.

Will Carless is an investigative reporter at Voice of San Diego currently focused on local education. You can reach him at or 619.550.5670.

Disclosure: Voice of San Diego members and supporters may be mentioned or have a stake in the stories we cover. For a complete list of our contributors, click here.

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Will Carless was formerly the head of investigations at Voice of San Diego.

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