School districts wary of grand jury's bond advice


The Santa Clara County Civil Grand Jury is calling for local school districts to adopt self-policing policies that would limit the use of capital appreciation bonds, which the grand jury found can potentially be abused by districts.

While the local high school district formally agreed with the report's findings, district officials said they would not comply with the jury's recommendations to adopt a new policy, as legislation is now pending to limit the potential abuse of capital appreciation bonds.

The local elementary and middle school district formally disagreed with both the grand jury's findings and recommendation to adopt a policy.

With capital appreciation bonds, or CABs, both the principal and interest payments of the bond are deferred -- allowing districts to tell taxpayers that they won't have to worry about repaying the debt for many years. According to the grand jury report, released in May, CABs are often "rationalized with speculative assumptions about rising real estate values."

In reality, the report said, real estate prices do not always rise in accordance with projections, and in some cases, school districts end up kicking the can down the road on repayment for decades, allowing interest to compound to more than four times the amount borrowed.

Although pending legislation, Assembly Bill 182, would place limits on the way districts can use CABs, the grand jury report recommended that districts also adopt policies pledging that they will not issue abusive CABs.

Craig Goldman, superintendent of the Mountain View Whisman School District, acknowledged that CABs have been abused by some districts in the past, but he disagreed with the report's official finding that CABs are "inevitably" damaging.

"We believe that under the right circumstances ... CABS can be used responsibly," Goldman said, adding that his district and the MVLA district have a good track record in using CABs responsibly. The district has not initiated a CAB since he joined it in 1998 and has no plans to use one in the near future, he said.

That said, he concluded, he wouldn't want the district to tie its hands by adopting a policy on limiting its use of CABs, especially when the Legislature appears poised to pass new rules soon. "We would not want to make a decision in advance that under no circumstance would CABs be a possibility," Goldman said.

Joe White, superintendent of business services for the Mountain View-Los Altos Union High School District, said the district agrees with the report's findings that CABs are sometimes abused and ought to be more tightly regulated. However, in a written response, White and MVLA Superintendent Barry Groves said they would not pursue a new policy "because it is not necessary."

The district plans to follow any state regulation that is passed, White explained. And given that AB 182, if passed, would impose the limits on CABs that the grand jury is advocating, he said, there is no need to pass an official district policy.

The report, which the grand jury adopted on May 9, concluded that it is unfair to expect taxpayers to foot the bill for decisions made years prior and asked that county school districts formally respond to the report's single finding -- that CABs "will inevitably compound the burdens school districts face in operating effective schools."

In addition, the jury recommended that "each school district in Santa Clara County adopt a board policy and any necessary administrative regulations indicating its intent to comply with the moratorium called for by the state Treasurer and the state Superintendent of Public Instruction."


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Posted by Good lord this shows the wrong picture
a resident of Monta Loma
on Aug 30, 2013 at 2:26 pm

Here is what is really going on, this is one of the Fire hose that is spewing money out. Here is the real story.

"when local governments and school districts use bonds to borrow money, the repayment with interest amounts to approximately double the face value of the bond. Borrow $100 million and expect to repay $200 million dollars over 20 to 30 years. But when Poway school officials cut a deal with a financial institution to issue what is called a Capital Appreciation Bond (CAB), payments were not scheduled to begin for 20 years with the total to be repaid in 40 years. The cost to local taxpayers? $1,000,000,000! That’s right, one billion dollars, ten times the amount borrowed."

For more look at the following website. WE as taxpayers should be totally discussed with this type of abuse. And this is just the tip of the iceberg.

Web Link

Like this comment
Posted by Maher
a resident of Martens-Carmelita
on Aug 30, 2013 at 2:40 pm

Maher is a registered user.

Aren't we all tired of 'creative accounting" practices that distort the exprenses in venues and "spin" the ultimate cost of whatever so as to fool the voters. I'm tired of it and I'm furious that school districts have been useing these techniques to cover up problems.

The house of cards rationales: i.e. school districts oppose the grand jury's recommendation to deal with the problem now BUT will wait for passage of AB182 (which may not pass btw)which makes the jury's recommendations law. Now why do school districts want to wait and see if they know the changes are needed? They are hoping their delay tactics will mean they never have to change their corrupt processes. That's why.

Like this comment
Posted by Steven Nelson
a resident of Cuesta Park
on Aug 30, 2013 at 2:51 pm

The MVWSD vote on this agenda item was 3:2 with Trustees Chiang and Nelson disagreeing with the district letter. SN is one of the five MVWSD Trustees

Like this comment
Posted by Otto Maddox
a resident of Monta Loma
on Sep 3, 2013 at 5:58 pm

Oh please.. it's our own fault. No one is paying attention anymore.

The robbers are now running the bank. What should we expect?

Sorry, but further commenting on this topic has been closed.

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