CAB ride rips off local taxpayers: Jon Coupal

There is an old saying, "If it sounds too good to be true, it probably is."

Several years ago, voters in Poway agreed to let local officials borrow $100 million to complete modernization of aging schools. It sounded like a sweet deal because they were promised this would be done without a tax increase.

As it turns out, this was the sort of deal one would usually expect to be offered by a loan shark accompanied by "associates" who favor .45-caliber automatics.

Normally, 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, 10 times the amount borrowed.

What would possess officials to make such a deal? Stupidity? Incompetence?

Or perhaps they suffer from the condition common to those in government: They delight in spending "OPM" (other peoples' money).

Because some local officials have shown they cannot be trusted to use self-discipline, Assemblywoman Joan Buchanan, D-San Ramon, with the support of the Howard Jarvis Taxpayers Association, has introduced Assembly Bill 182 that limits the repayment of CABs to 25 years and sets the interest level at no higher than 4:1.

While we would have preferred even more stringent reform, this legislation would curtail the worst abuses of CAB's and allow future property owners to breathe easier when they review their property tax bills.

But this common sense reform to protect taxpayers is apparently too strong for the Senate Education Committee which is seeking to water it down still more.

Clearly, the senators are putting the interests of others -- perhaps financial institutions -- ahead of those of taxpayers.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.

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