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State Assemblyman Ben Hueso will introduce a bill to tighten controversial borrowing practices at California school districts.
Assemblyman Ben Hueso will introduce a bill aimed at tightening the rules on California school district borrowing will be introduced when the state Legislature reconvenes in January, his spokeswoman told me Monday.
The bills come after months of scrutiny of loans called capital appreciation bonds, which have been the subject of numerous media stories including a large front-page piece in the Los Angeles Times last month.
The bonds allow districts to borrow money up-front but put off their repayment for decades. The loans are much more expensive than more conventional bonds, which districts pay off every year. Last year, the Poway Unified School District issued a bond that raised $126 million but will cost almost $1 billion to pay off over the next 40 years.
Paola Avila, Hueso’s communications director, said the bill hasn’t changed significantly since the San Diego assemblyman first announced it back in September.
“We were hoping to get it in before the recess, but now we’re thinking the first week of January” said Avila.
Hueso’s bill seeks to limit capital appreciation bond deals in a few key ways. Here’s a summary from my post in September:
• Limiting the length of school bond loans to 25 years, down from 40 years, the current maximum loan term.
• Limiting the maximum legal interest rate on the bonds to 8 percent, down from 12 percent.
• Requiring all school bonds to be “callable,” or re-financeable. (One of the most controversial elements of Poway’s deal is that it can’t be refinanced.)
• Requiring one of three government entities to approve every bond deal before the bonds can be sold. (The deal could be approved by a county board of supervisors, county superintendent of schools or the governing board of a community college district.)
• Limiting the debt service ratio — the ratio of the initial debt to the final amount that taxpayers pay off — to four-to-one. (Poway’s deal was more than nine-to-one and other capital appreciation bond deals elsewhere in the state have been ever higher.)
Meanwhile, State Treasurer Bill Lockyer has continued to bang the drum against capital appreciation bonds.
Lockyer is spending Monday meeting with representatives from the bond industry and from California schools to discuss the loans, said his spokesman Tom Dresslar.
Dresslar said Lockyer is meeting with bond underwriters, financial advisers and attorneys to try and establish the most effective way to regulate capital appreciation bonds.
He said school districts have been shifting away from the controversial loans in recent months.
Correction: An earlier version of this post said Assemblywoman Joan Buchanan would be sponsoring a separate bill targeting capital appreciation bonds. Paola Avila told me Tuesday that she misspoke in characterizing Buchanan’s effort as a separate bill. Buchanan, the Assembly’s Education Committee chair who is also interested in capital appreciation bonds, is helping Hueso’s effort but is not sponsoring separate legislation.
Will Carless is an investigative reporter at Voice of San Diego currently focused on local education. You can reach him at email@example.com or 619.550.5670.
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