patrick.net

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This form of borrowing has created billions of dollars in debt for taxpayers and hundreds of millions of dollars in revenue for financial advisers and underwriters...

In California, where rules governing the loans are among the loosest, more than 400 school districts and other agencies have racked up greater capital appreciation bond debt in the past six years than in any other state.

They have borrowed $9 billion that will cost taxpayers $36 billion to repay over the next 40 years, according to data compiled by California Treasurer Bill Lockyer. He called it “debt for the next generation.”

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The bonds are unusual in public finance because they postpone debt far into the future. Typical school bonds require borrowers to begin making payments within six months and cost two to three times the principal amount to repay. But with deferred payments, districts have ended up paying as much as 23 times the amount borrowed.

The decision to issue these bonds instead of traditional bonds typically is made by district officials after voters have approved bond measures, and the public usually has no knowledge of how much they will cost to repay.

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