A Creative Borrowing Boom: Poway Not Alone in High-Interest Financing

A Creative Borrowing Boom: Poway Not Alone in High-Interest Financing
August 7, 2012
By WILL CARLESS
Voice of San Diego

The Poway Unified School District may be California’s poster child for exotic school bond financing, but it is by no means alone in San Diego County...

San Diego Unified — Borrowed: $164 Million. On the Hook For: $1.25 Billion In 2010, the county’s largest school district borrowed almost $164 million from investors using capital appreciation bonds.

The loan was part of 2008’s Proposition S, in which voters approved the district to borrow more than $2 billion to complete district-wide renovations and modernization. Just like Poway, San Diego unified won’t start paying back those bonds for 20 years. The first payment is due in 2030. By the time the loan is fully paid back, in 2050, San Diego taxpayers will have paid back $1.25 billion, or about 7.6 times what the district borrowed in the first place.

That’s much more expensive than a typical school bond which, like a home mortgage, is paid back every year of the loan. In a more typical bond, a district would pay back two or maybe three times the total amount of the initial loan.

Oceanside Unified — Borrowed: $30 Million. On the Hook For: $280 Million Further north, in Oceanside, the payback ratio for taxpayers is even bigger, though the district’s loan is significantly smaller. Oceanside Unified borrowed $30 million in 2008. By 2049, the district’s taxpayers will have paid back almost $280 million. That’s more than nine times what they originally borrowed.

Escondido Union High School District — Borrowed: $27 Million. On the Hook For: $247 Million

Escondido Union High School District has a similar deal.

The district borrowed almost $27 million in 2009 using capital appreciation bonds. Taxpayers in the district will pay back almost $247 million by the time that debt is paid. Again, that’s more than nine times the initial debt.

Making the Same Deal

Apart from their sheer cost, there are other stark similarities between these three deals and Poway Unified’s 2011 bond.

All three districts passed bond measures that paved the way for their capital appreciation bonds in 2008.

And, all three of those bond measures were floated for the same reason: To finish off previous bond programs that had been started in the districts years before but hadn’t yet finished because of cost overruns and delays.

All three districts also promised voters their tax rates wouldn’t increase to pay for the new swath of borrowing. As I explain in detail in yesterday’s story, the same promise of steady tax rates led Poway Unified to seek out this creative form of financing.

There’s one more similarity between two of the three deals and Poway’s deal: The San Diego County Taxpayers Association gave its backing to the bond measures that paved the way for both San Diego Unified and Escondido Union High School District's sales of capital appreciation bonds.

The association didn’t back Oceanside’s bond, saying the ballot language for the bond was too vague.