California School District Owes $1 Billion On $100 Million Loan : NPR

More than 200 school districts across California are taking a second look at the high price of the debt they've taken on using risky financial arrangements. Collectively, the districts have borrowed billions in loans that defer payments for years — leaving many districts owing far more than they borrowed.

In 2010, officials at the West Contra Costa School District, just east of San Francisco, were in a bind. The district needed $2.5 million to help secure a federally subsidized $25 million loan to build a badly needed elementary school.

Charles Ramsey, president of the school board, says he needed that $2.5 million upfront, but the district didn't have it.

Why would you leave $25 million on the table? You would never leave $25 million on the table.

- Charles Ramsey, school board president, West Contra Costa School District

"We'd be foolish not to take advantage of getting $25 million" when the district had to spend just $2.5 million to get it, Ramsey says. "The only way we could do it was with a [capital appreciation bond]."

Those bonds, known as CABs, are unlike typical bonds, where a school district is required to make immediate and regular payments. Instead, CABs allow districts to defer payments well into the future — by which time lots of interest has accrued.

In the West Contra Costa Schools' case, that $2.5 million bond will cost the district a whopping $34 million to repay.

'The School District Equivalent Of A Payday Loan'

Ramsey says it was a good deal, because his district is getting a brand-new $25 million school. "You'd take that any day," he says. "Why would you leave $25 million on the table? You would never leave $25 million on the table."

But that doesn't make the arrangement a good deal, says California State Treasurer Bill Lockyer. "It's the school district equivalent of a payday loan or a balloon payment that you might obligate yourself for," Lockyer says. "So you don't pay for, maybe, 20 years — and suddenly you have a spike in interest rates that's extraordinary."

It's so irresponsible, that if I were on a school board — which I was, 40 years ago — I would get rid of that superintendent.

- Bill Lockyer, California state treasurer

Lockyer is poring through a database collected by the Los Angeles Times of school districts that have recently used capital appreciation bonds. In total, districts have borrowed about $3 billion to finance new school construction, maintenance and educational materials. But the actual payback on those loans will exceed $16 billion.

Some of the bonds can be refinanced, but most cannot, Lockyer says.

Perhaps the best example of the CAB issue is suburban San Diego's Poway Unified School District, which borrowed a little more than $100 million. But "debt service will be almost $1 billion," Lockyer says. "So, over nine times amount of the borrowing. There are worse ones, but that's pretty bad."

A Statewide Problem

The superintendent of the Poway School District, John Collins, wasn't available for comment. But he recently defended his district's use of capital appreciation bonds in an interview with San Diego's KPBS Investigative Newsource.

"Poway has done nothing different than every other district in the state of California," Collins told the program.

And he's right. In some cases, districts are on the hook to pay back anywhere between 10 and even 20 times the amount they borrowed.

But Lockyer says it distresses him to hear school officials defend these bonds.

"It's so irresponsible, that if I were on a school board — which I was, 40 years ago — I would get rid of that superintendent," Lockyer says.

Back in the '90s, the state of Michigan banned capital appreciation bonds altogether. But Lockyer says California needn't go that far. He supports a series of reforms such as capping the payback of debt to four times the amount borrowed. Otherwise, says Lockyer, these bonds will be paid well into the future, by the children of today's students.



Things we have now that we didn't have 100 years ago

  • Accounts Receivable Tax
  • Building Permit Tax 
  • CDL license Tax 
  • Cigarette Tax 
  • Corporate Income Tax 
  • Dog License Tax 
  • Excise Taxes 
  • Federal Income Tax 
  • Federal Unemployment Tax (FUTA) 
  • Fishing License Tax 
  • Food License Tax 
  • Fuel Permit Tax 
  • Gasoline Tax (currently 44.75 cents per gallon) 
  • Gross Receipts Tax 
  • Hunting License Tax 
  • Inheritance Tax 
  • Inventory Tax 
  • IRS Interest Charges
  • IRS Penalties (tax on top of tax) 
  • Liquor Tax 
  • Luxury Taxes 
  • Marriage License Tax 
  • Medicare Tax 
  • Personal Property Tax 
  • Property Tax 
  • Real Estate Tax 
  • Service Charge Tax 
  • Social Security Tax 
  • Road Usage Tax 
  • Recreational Vehicle Tax 
  • Sales Tax 
  • School Tax 
  • State Income Tax 
  • State Unemployment Tax (SUTA) 
  • Telephone Federal Excise Tax 
  • Telephone Federal Universal Service Fee Tax 
  • Telephone Federal, State and Local Surcharge Taxes 
  • Telephone Minimum Usage Surcharge Tax 
  • Telephone Recurring and Nonrecurring Charges Tax 
  • Telephone State and Local Tax 
  • Telephone Usage Charge Tax 
  • Utility Taxes 
  • Vehicle License Registration Tax 
  • Vehicle Sales Tax 
  • Watercraft Registration Tax 
  • Well Permit Tax 
  • Workers Compensation Tax 

And you thought I was going to say skyscrapers, planes and Starbucks.

Taxes you pay when you buy a car

When you buy a new car, you pay "tax and license." But did you know you're paying a lot more than just sales tax? Lumped into the "tax" are a bunch of little taxes, likely going to bogus government programs that likely have little to no oversight as to how the funds are spent. This is why I always vote against tax increases. And thanks to this litany of fees, you're likely to pay 10% more than the negotiated price when buying a vehicle.

Here's the full list of taxes that California drivers pay when purchasing a new vehicle:

  • California Highway Patrol Fee
  • County Service Authority for Freeway Emergencies Fee
  • Fingerprint ID Fee
  • Smog High Polluter Repair Fee
  • Smog Abatement Fee
  • Alternate Fuel/Tech Smog Fee
  • Alternate Fuel/Tech Registration Fee
  • Auto Theft and/or DUI Crime Deterrence Program
  • Air Quality Management District Fee
  • South Coast Air Basin Fee - really??
  • City Sales Tax
  • Reflectorized License Plate Fee (shouldn't this be covered by registration?)

At some point, I'd love to look into where this money actually goes and how it's really spent. My guess is there would be a lot more outrage if people actually paid attention to where they don't even know their money is going.