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 currently 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 legislation is currently pending which 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, before the law — Assembly Bill 182 —has a chance to pass.
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 language of the report's official finding that CABs are "inevitably" damaging.
"We believe that under the right circumstances that CABS can be used responsibly," Goldman said, adding that his district and the MVLA district have a good track record when it comes to using CABs responsibly. The district has not initiated a CAB since he joined the district in 1998 and has no immediate plans to use CABs 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 said they would not be pursuing 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 — which is currently before the Legislature — 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 passed and 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."