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Governor Signs Bill Cracking Down on School Bond Deals

Gov. Jerry Brown signed legislation Wednesday that will put an end to school bond sales like the one that made Poway famous.

Gov. Jerry Brown on Wednesday signed legislation that radically curbs school bond practices that have come under criticism for the last year or so.

Brown signed AB 182, jointly sponsored by local state Sen. Ben Hueso and Democratic Assemblywoman Joan Buchanan, which places far stricter limits on the type of bond sales school and community college districts can engage in.

The bill grew out of reporting by Detroit blogger Joel Thurtell, Voice of San Diego and the Los Angeles Times about bond deals around the state that have left taxpayers on the hook for loans with repayment amounts of more than $20 for every dollar borrowed.

The most infamous of those deals was at the Poway Unified School District, where in 2011, officials borrowed $126 million that will ultimately cost them almost $1 billion to pay back. The deal eventually caught the attention of the New York Times, Financial Times, Washington Post, and several other news outlets.

We outlined the four big changes introduced by the bill in this story last month. Here’s an extract:

The bill reins in irresponsible borrowing by making four big changes.

It forbids school districts from borrowing money over more than 25 years.

The point of this reform is simple: It stops districts shunting debt payments far into the future. That means things like school buildings and facilities will be paid for over their useful life, instead of long after they’ve started to crumble.

(Though the same won’t be true for bond purchases like iPads.)

It limits the payback ratio on school and community college bonds to 4-to-1.

There have been some really crazy deals made around the state. Districts have saddled taxpayers with loans with payback ratios of $10, $15 and even $20 for every dollar borrowed.

AB 182 puts an end to all that.

It requires school districts to actually tell the public what they’re doing.

Let’s face it, the reason districts like Poway got away with their wild deals is because nobody’s been paying much attention to school bonds. The new legislation tries to combat this by requiring districts to lay out what they plan to do and how much taxpayers will have to pay, in explicit detail aired during public meetings.

It forces districts to include escape clauses in their deals.

One of the most controversial elements of Poway’s deal was that the district has no chance to renegotiate. AB 182 will ensure that all future bond deals (of more than 10 years) are re-financeable.

A spokesman for California Treasurer Bill Lockyer who has been vocally opposed to the controversial school bond practices, emailed a statement this morning:

AB 182 corrects a fundamental unfairness.  It ensures school districts no longer can heap outrageous debt burdens on the backs of future generations of taxpayers, force them to pay for aging facilities their children won’t fully enjoy and at the same time reduce those taxpayers’ ability to finance the schools their kids need.

The reforms are reasonable and balanced, and they won’t harm districts’ ability to meet their school construction needs.  By increasing transparency, AB 182 also helps ensure school board members and taxpayers get all the pertinent facts when underwriters and financial advisors pitch CABs.

Lockyer told Voice of San Diego earlier this year that the people who put together Poway’s bond deal should be voted out of office or fired.

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