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School District Owes $1 Billion On $100 Million Loan
More than 200 school districts across California are taking a second look at the high price of the debt they've taken on using risky financial arrangements. Collectively, the districts have borrowed billions in loans that defer payments for years leaving many districts owing far more than they borrowed.
In 2010, officials at the West Contra Costa School District, just east of San Francisco, were in a bind. The district needed $2.5 million to help secure a federally subsidized $25 million loan to build a badly needed elementary school.
Charles Ramsey, president of the school board, says he needed that $2.5 million upfront, but the district didn't have it.
Why would you leave $25 million on the table? You would never leave $25 million on the table.
- Charles Ramsey, school board president, West Contra Costa School District
"We'd be foolish not to take advantage of getting $25 million" when the district had to spend just $2.5 million to get it, Ramsey says. "The only way we could do it was with a [capital appreciation bond]."
Those bonds, known as CABs, are unlike typical bonds, where a school district is required to make immediate and regular payments. Instead, CABs allow districts to defer payments well into the future by which time lots of interest has accrued.
In the West Contra Costa Schools' case, that $2.5 million bond will cost the district a whopping $34 million to repay.
http://www.npr.org/2012/12/07/166745290/school-district-owes-1-billion-on-100-million-loan
Journeyman
(15,038 posts)Historic NY
(37,452 posts)the antics up my way 8.5 million for sports field for an elementary school that has no sport, Another with an unusable football field because....they measured it exactly 100yrds and there was no room for the end zones.
proud2BlibKansan
(96,793 posts)and he spent $25,000 for a study that recommended the district build a green school with a coffee bar in the atrium. For $50 million.
Luckily, the guy was eventually fired. Because he was an idiot. Otherwise, I have no doubt we'd now have a school with a coffee bar.
liberal_at_heart
(12,081 posts)They screw up the curriculum and they lose all the money so there is no funding.
Odin2005
(53,521 posts)hedgehog
(36,286 posts)Recursion
(56,582 posts)That's ridiculous
prairierose
(2,145 posts)this kind of deal had been part of their business for quite some time. It played a part in Greece's financial problems and there are US counties in the same boat as this school board. Here is a link to a Matt Taibbi story that explains how the scam works.
http://www.rollingstone.com/politics/news/looting-main-street-20100331
liberal_at_heart
(12,081 posts)It was on this year's ballot. Luckily the majority of voters saw how risky and stupid this was and voted no on it. Schools should not be allowed to gamble with our children's money.
proud2BlibKansan
(96,793 posts)Banks charging outrageous interest rates while benefitting from TIF deals.