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School District Owes $1 Billion On $100 Million Loan
NPR: All Things Considered ^ | Dec 7, 2012 | Richard Gonzales

Posted on 12/07/2012 3:58:54 PM PST by ExxonPatrolUs

The Poway Unified School District in California is facing a whopping $1 billion repayment on a loan of just $105 million. It borrowed the money using bonds that the state treasurer has compared to payday loans -- and more than 200 other California districts are in the same boat.

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.

"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."

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.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.


TOPICS: Chit/Chat
KEYWORDS: billlockyer; broke; california; dreaming; lockyer
A billion here, a billion there. Who's pissing on who?
1 posted on 12/07/2012 3:59:03 PM PST by ExxonPatrolUs
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To: ExxonPatrolUs

Most likely it would be cheaper to give them all the schools property and start over.


2 posted on 12/07/2012 4:02:08 PM PST by riverrunner
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To: ExxonPatrolUs
Lockyer is poring through a database collected by the Los Angeles Times of school districts that have recently used capital appreciation bonds.

Yeah, sure he is. I bet he's as good at financial management as he is at wife management.

California, lol.

3 posted on 12/07/2012 4:05:35 PM PST by Lancey Howard
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To: ExxonPatrolUs; Morgana

They went to one of those Payday Loan stores and did this bond?

lol

People need to see the fine print before they vote to pass bonds


4 posted on 12/07/2012 4:08:47 PM PST by GeronL (http://asspos.blogspot.com)
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To: ExxonPatrolUs
Instead, CABs allow districts to defer payments well into the future — by which time lots of interest has accrued.

Note that it doesn't say "requires districts" ...

5 posted on 12/07/2012 4:10:27 PM PST by NonValueAdded (If you can keep your head when all about you are losing theirs, you've likely misread the situation.)
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To: ExxonPatrolUs

I call BS on these numbers. Unless there were derivatives involved I can’t see how these could compound so much.


6 posted on 12/07/2012 4:11:01 PM PST by bt-99 ("Get off my Lawn")
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To: ExxonPatrolUs

Sloppy reporting. No mention is made about the interest rate and only a couple indefinite references to the length A ten times payout 30 years later would be just under 8%. If it is 40 years it would be just under 6%. Depending on when these were issued, like around 1980, those could have been great rates.


7 posted on 12/07/2012 4:13:51 PM PST by KarlInOhio (Big Bird is a brood parasite: laid in our nest 43 years ago and we are still feeding him.)
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To: ExxonPatrolUs

The people running these schools (and the whole country) are just stupid. BLINDLY stupid. They want to pretend that they had nothing to do with this. These school districts have attorneys who review bond proposals, don’t they? These things get debated and all that by the school board don’t they?

They couldn’t be bothered to look at the fine print? These people are the cream of the crop?

Bonds... lets pass it and find out whats in it!

Of course they blame the terms of the bonds, they can’t admit they were blithering stupid. If these people had any honor they would resign en masse and beg forgiveness of the local-district taxpayers.

They probably highlighted that bond as a reason to be re-elected didn’t they? Now, it’s not their fault - someone else did it. The issue they likely praised to get elected will now be the “we was robbed” issue to run for election next time.


8 posted on 12/07/2012 4:17:00 PM PST by GeronL (http://asspos.blogspot.com)
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To: bt-99

If you don’t pay until the end, the payout is (1+rate)^years. 1.08^30=10.06 times the loan for 8% for 30 years.


9 posted on 12/07/2012 4:18:39 PM PST by KarlInOhio (Big Bird is a brood parasite: laid in our nest 43 years ago and we are still feeding him.)
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To: KarlInOhio

Exactly.These are pure discount instruments designed to get around statutory borrowing limits because only the initial payment counts against the debt limit of the municipality for credit rating purposes.


10 posted on 12/07/2012 4:18:56 PM PST by bt-99 ("Get off my Lawn")
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To: ExxonPatrolUs

Well if I were a lender I’d want pretty high interest rates to lend to a California political entity too. There is no telling whether those commies will ever pay their debts. What was it Lenin once said... “for the loans you gave us, we forgive you”.


11 posted on 12/07/2012 4:20:47 PM PST by SeeSharp
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To: ExxonPatrolUs
"Poway has done nothing different than every other district in the state of California," Collins told the program.

Now, when I used that excuse, my mom bitchslapped me.

12 posted on 12/07/2012 4:21:04 PM PST by aimhigh
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To: ExxonPatrolUs

What makes this so funny is that the “educators” took a loan that defies common sense. I guess that only shows how “smart” the educators are.


13 posted on 12/07/2012 4:25:46 PM PST by fini
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To: ExxonPatrolUs

They talk like the 2.5m was to get 25m for free, while if you read correctly its 2.5m for a federally subsidized loan of 25m?

I wouldn’t be surprised if the Teacher’s unions weren’t the prime finance source for these bonds.


14 posted on 12/07/2012 4:32:10 PM PST by Usagi_yo
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To: ExxonPatrolUs

There is no way, no way on earth, that politicians, much less local goofballs operating in boring little town council meetings that nobody pays attention to, should be allowed to encumber their constituents this way. No way. This is a failure of 6th grade mathematics.


15 posted on 12/07/2012 4:32:29 PM PST by Attention Surplus Disorder (This stuff we're going through now, this is nothing compared to the middle ages.)
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To: ExxonPatrolUs

Old news, but the LA Slimes and NPR waited till after the election where taxes were raised to report this boondoggle.


16 posted on 12/07/2012 4:32:52 PM PST by Drango (A liberal's compassion is limited only by the size of someone else's wallet.)
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To: KarlInOhio

Thank you.


17 posted on 12/07/2012 4:34:05 PM PST by Attention Surplus Disorder (This stuff we're going through now, this is nothing compared to the middle ages.)
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To: ExxonPatrolUs
It borrowed the money using bonds that the state treasurer has compared to payday loans

My first thought was that they could have saved money to go to a payday loan store...

Mark

18 posted on 12/07/2012 4:43:55 PM PST by MarkL (Do I really look like a guy with a plan?)
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To: Usagi_yo

I’m glad you noticed that too.

So essentially, they pay 34 M for 10% down on a LOAN for 25 M.

This, in a nutshell, the entire problem facing the state of California.

Oh how I wish I could leave this failed state.

Cheers (ish)

knewshound


19 posted on 12/07/2012 4:47:48 PM PST by knews_hound (Reading without commenting since 2001.)
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To: ExxonPatrolUs

Gotta feed that PENSION PIG. More fundraisers ahead!! That’s a LOT of See’s Candy to bridge that gap. LOL!!! Or maybe time for another Proposition on the Ballot to raise taxes for ‘THE KIDS’.. Yes, do it for ‘THE CHILDREN’.. /s


20 posted on 12/07/2012 4:54:02 PM PST by Obama_Is_Sabotaging_America (IMPEACH OBAMA)
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To: ExxonPatrolUs

What the hell?

Did they go to one of those ‘Payday Loan’ places for the loan? ROFL! I bet each and every one of their classrooms has one of those expensive/fancy ‘smartboard’ things, and every student has an iPad for their “studies”.....

Those idiot politicians, and the morons that voted for them obviously deserve whatever they get. I hope they have to go bankrupt! (they probably already ARE, just not on paper quite yet)


21 posted on 12/07/2012 4:54:06 PM PST by KoRn (Department of Homeland Security, Certified - "Right Wing Extremist")
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To: ExxonPatrolUs

It’s way past time to separate school and state.


22 posted on 12/07/2012 4:57:38 PM PST by EternalVigilance (America's creed: Our rights come from God, not men. Governments exist to secure those rights.)
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To: ExxonPatrolUs

This is what happens when Eric Holder’s people get to run things just because they’re Eric Holder’s people.


23 posted on 12/07/2012 5:01:55 PM PST by E. Pluribus Unum ("The more numerous the laws, the more corrupt the state." - Cornelius Tacitus, Roman Senator)
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To: ExxonPatrolUs
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."

Charles Ramsey, Affirmative Action school board member, says: "Math is HARD!"


24 posted on 12/07/2012 5:09:51 PM PST by Nervous Tick ("You can ignore reality, but you can't ignore the consequences of ignoring reality.")
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To: KoRn

>> Did they go to one of those ‘Payday Loan’ places for the loan? ROFL!... Those idiot politicians

That would be bad enough.

It *could* just be sheer stupidity... but it has the stench of corruption to me.

My guess is, a portion of that $30+-million interest payment ends up in Ramsey’s personal bank account.


25 posted on 12/07/2012 5:13:12 PM PST by Nervous Tick ("You can ignore reality, but you can't ignore the consequences of ignoring reality.")
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To: ExxonPatrolUs

Woohoo! I have a checkbook full of blank checks so I can spend until it’s empty, wheeeee!


26 posted on 12/07/2012 5:16:57 PM PST by bgill (We've passed the point of no return. Welcome to Al Amerika.)
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To: Lancey Howard

Lockyer is the one condemning the CAB practice; others are defending it.


27 posted on 12/07/2012 5:21:58 PM PST by EDINVA
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To: ExxonPatrolUs

Probably these instruments were designed by Goldman Sachs if the truth be known.


28 posted on 12/07/2012 5:43:46 PM PST by Revel
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To: EDINVA
I wouldn't say Lockyer is "condemning" the CAB practice, exactly.

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.

Lockyer sounds more like your typical scumbag Soviet Democrat.

29 posted on 12/07/2012 6:09:23 PM PST by Lancey Howard
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To: bt-99
I call BS on these numbers. Unless there were derivatives involved I can’t see how these could compound so much.

Read the article again.

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.

They made no payments for years on either interest or principle, so the interest just begins compounding on itself as well as on the principle. In essence, they not only didn't make any payments for whatever the term was, but also borrowed the interest on that principle every month at the same interest rate.

They were idiots to take out those kind of loans, and what ever oversight agency they might have were idiots to allow them to do that.

30 posted on 12/07/2012 6:42:46 PM PST by Ditto
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To: ExxonPatrolUs
"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.

ROTFLMAO. There is a sucker born every minute, and Ramsey was one of them.

31 posted on 12/07/2012 6:51:22 PM PST by Ditto
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To: fini

The clue is that they refer to themselves as “educators”, a sure sign that they are not teachers or educated.


32 posted on 12/07/2012 7:15:20 PM PST by RetiredTexasVet (The law of unintended consequences is an unforgiving and vindictive b!tch!)
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To: GeronL
Of course they blame the terms of the bonds, they can’t admit they were blithering stupid.

Yes they are and I would think that the lenders would have boards that would wonder about the wisdom of making such loans.

I suspect maybe they know they can stick the taxpayer either way. The lender and borrower both are pretty stupid, or maybe they are just corrupt? Naw, couldn’t be.

33 posted on 12/07/2012 7:20:21 PM PST by itsahoot (Any enemy, that is allowed to have a King's X line, is undefeatable. (USS Taluga AO-62))
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To: itsahoot

or maybe they didn’t care because it’s not their money?


34 posted on 12/07/2012 7:25:25 PM PST by GeronL (http://asspos.blogspot.com)
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To: Nervous Tick
"it has the stench of corruption to me."

Without a doubt. Has the same feel as the Jefferson County Alabama case, where something very similar went down with their new sewer system.(obviously the very best over a billion dollars could buy lol). If you aren't familiar with it, please Google it for some additional entertainment. When crooked politicians meet crooked bankers, very bad things tend to happen for the tax payers.

35 posted on 12/07/2012 8:01:58 PM PST by KoRn (Department of Homeland Security, Certified - "Right Wing Extremist")
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To: ExxonPatrolUs

I wonder who Ramsey voted for this last election?


36 posted on 12/07/2012 8:19:25 PM PST by blueunicorn6 ("A crack shot and a good dancer")
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To: aimhigh

“Now, when I used that excuse, my mom bitchslapped me.”

Yep! Followed by a lashing with whatever was within her reach ;D!


37 posted on 12/08/2012 2:26:57 AM PST by poobear (Socialism, in the minds of the elites, is a con-game for the serfs, nothing more.)
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To: ExxonPatrolUs

The sad thing is that these school districts are where the kids learn things like “economics” and other ways to screw yourself and your neighbors by increasing the amount of taxes it takes to support their sorry a$$e$..


38 posted on 12/08/2012 4:34:42 AM PST by trebb (Allies no longer trust us. Enemies no longer fear us.)
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