The Culver City Unified School District will not be utilizing a type of financing scheme to borrow money for capital improvements that other school districts have used in the past that have saddled them with decades of debt, says one local school board member.
Capital appreciation bonds have been used by other school districts to borrow large sums without violating state or locally imposed caps on property taxes. They allow school districts to postpone bond payments for several years, unlike shorter term bonds, and in several recent cases districts find themselves on the hook for far more than they initially borrowed.
The Culver City Unified Board of Education has renewed talks about placing a school bond measure before the voters this year after an attempt to get one on the November ballot did not materialize.
“We’re not interested in replicating the mistakes that other school districts have made,” CCUSD board member Katherine Paspalis said.
The local school district’s infrastructure has deteriorated during the last several decades and the idea of borrowing money through a bond initiative has been one of the most debated and highly-charged topics of the last year. It was also mentioned frequently during the recent school board election.
The Poway Unified School District will be required to pay $981 million on a $105 million loan due to the passage of a capital appreciation school bond passed by voters in the San Diego are district last year.
One Poway board member said the district decided to go with this type of bonds because local homeowners wanted to keep property tax rates low.
A new state law could curb the practice of the use of capital appreciation bonds for school repair. Gov. Jerry Brown signed into law Senate Bill 265 (Anderson R- San Diego) in October.
The new legislation, which took effect on Jan. 1, regulates capital appreciation bonds used for schools. It limits total debt service on the bonds to four times the principal and limits their maturity to a maximum of 25 years.
State Treasurer Bill Lockyer has been critical of the use of these types of bonds.
“[SB 256] ensures that school districts no longer can heap outrageous debt burdens on the backs of future generations of taxpayers,” Lockyer said. “The reforms are reasonable and balanced, and they won’t harm districts’ ability to meet their school construction needs.”
Fitch Ratings, a nationallyrecognized statistical organization, released a report in October that stated the new law “will make it tougher for those districts to issue general obligation bonds for pressing capital needs and some may resort to lease-backed debt or ‘pay-as-you-go’ capital spending.”
Superintendent David LaRose echoed Paspalis in saying the school district wants to avoid any controversy over capital appreciation bonds.
“We are still exploring options for moving forward and will be conducting an opinion poll as early as next week,” LaRose said.
The Fitch report suggests the new law will “mitigate the negative effects of [capital appreciation bonds] on districts’ debt profiles and reduce the volume of future [capital appreciation bonds] issuances.”
At the same time, the ratings organization called these bonds “credit- positive” and said SB 265 potentially can have a deleterious effect on a school district’s ability to contend with structural improvements.
“However, the bill could lead to additional budgetary pressures for some districts with pressing capital needs,” the report stated.
No date has been set for a possible school bond, but Paspalis, perhaps its most vocal advocate, said she would like to see one on the June ballot.
“The sooner that we can begin to fix our structural needs, the better,” she said.
