In 2012, Voice of San Diego broke a massive story about a financing deal in Poway Unified School District that produced a yearslong ripple effect.
Poway had borrowed $105 million to pay for construction projects at its schools. That part was pretty standard, but the terms of the deal weren’t. Poway would have to pay back an eye-popping $1 billion over the course of the loan, as former Voice reporter Will Carless discovered at the time.
In other words, taxpayers were on the hook for roughly ten times what they borrowed.
“That’s wildly more expensive than a typical school bond, in which a district pays back two or maybe three times what it borrowed,” Carless wrote.
Poway had used an unconventional financing tool called a capital appreciation bond. Under the terms of the deal, Poway wouldn’t have to start paying back the loan for 20 years — which sounds kind of nice, but during all that time interest would be piling up.
In honor of Voice of San Diego’s 20th anniversary, we’re looking back at the stories we broke that had a tremendous impact on San Diego. Read more here.
National media picked up on Voice’s story and a lot of people had immediate and sharp reactions.
“This is way worse than loan sharking,” said one taxpayer advocate. “What [Poway has] done is absolutely insane.”
Bill Lockyer, who was state treasurer at the time, called capital appreciation bonds “disgraceful.”
And he had especially harsh words for Poway officials: “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.”
Just a few months after Carless’s story, state legislators introduced a bill to crack down on the practice. It capped the debt-to-principal ratio at 4-to-1.
In other words, districts couldn’t take any deal in which they would have to pay back more than four times what they borrowed.
Gov. Jerry Brown eventually signed the bill into law.
But the ripple-out effect didn’t stop there. Poway voters kept the bond issue alive for years. It represented the first crack in the teacup for Superintendent John Collins, whose demise we’ll cover in the next installment of our series on Voice’s 20 years of impact.
Check out Mello Roos bonds that increase annually….