Before a School Board majority balked at the proposed bond measure last week, the example from the School District’s bond consultant, KeyGent, presenting a three bond scenario of $25M each, issued two years apart for a total of $75M in bonds, suggests the District use a Capital Appreciation Bond as its third and last issuance. This blending of the fiscally irresponsible Capital Appreciation Bond in with two other more traditional bonds, is the latest hybrid being offered to governmental agencies. The predatory bond is blended in with the other two more traditional bonds so as to smooth over the CAB's outrageous interest charged near the end of the loan.
Published Warning
State Treasurer Bill Lockyer and state Schools Supt. Tom Torlakson issued a joint news release earlier this year. They warned county and school district superintendents against the issuing of any Capital Appreciation Bonds.
Torlakson, Lockyer Caution Against Bonds – Year 2013 (CA Dept of Education)
The two state leaders end their letter saying, “… we believe your district and every other district in the state should impose a moratorium on issuing CABs. The moratorium should remain in effect until the governor and Legislature decide on reforms in the current legislative session. If reforms are enacted, subsequent CABs deals can be conducted in compliance with the new statutory requirements.”
Go See Cal
After seeing KeyGent’s irresponsible example of a CAB in its Board presentation, my suggestion to the Board would have been to disregard this predatory example. The District probably could have gotten better terms on a shady deal from Cal Worthington and his dog Spot.
Mr. Laase may be contacted at GMLaase@aol.com
