Emery Ignores State Issued Moratorium on CABs

Emery Defies State Moratorium

Below is a letter of moratorium issued from the California Department of Education.  The State is urging local school districts to not issue Capital Appreciation Bonds (CABS) to fund school facilities construction.  Emery Unified School District has just recently issued a CAB for the school rebuild associated with the Center of Community Life.  The District was aware of the looming moratorium and new law cracking down on the multi-generational CAB loans but beat the deadline and issued their CAB just under the wire.

  

Here is the State issued moratorium:

State Schools Chief Tom Torlakson, State Treasurer Bill Lockyer Caution School Districts Against Issuance of Capital Appreciation Bonds

January 17, 2013

SACRAMENTO—State Superintendent of Public Instruction Tom Torlakson 

and State Treasurer Bill Lockyer today issued the following letter to local 

educational agencies regarding capital appreciation bonds:

Capital Appreciation Bonds

Dear County and District Superintendents:

We understand many districts face a critical need to build or modernize 

facilities for their children, and we recognize that falling property tax 

assessments, revenue losses, and statutory debt service limits have 

all combined to reduce districts' debt financing options. As a result, 

some districts have turned to capital appreciation bonds (CABs), which 

have forced taxpayers to pay more than 10 times the principal to retire 

the bonds.

Thus, we urge you and your Board of Education not to issue CABs until 

the Legislature and the Governor have completed their consideration of 

this year's proposals to reform the CAB issuance process by improving 

transparency and protecting taxpayers against exorbitant debt service 

payments. Through this process, we welcome and encourage your input 

to ensure that the needs of districts are still being met.

In too many cases, CAB deals have forced taxpayers to pay more than 10 

times the principal to retire the bonds. Also, the transactions have been 

structured with 40-year terms that delay interest and principal payments 

for decades, resulting in huge balloon payments and burdens on future 

taxpayers that cannot be justified. Too frequently, board members and the 

public have not been fully informed about the costs and risks associated 

with CABs. In some cases, board members have reported they were not 

even aware they approved the sale of CABs.

It is important to note that CABs with terms exceeding 25 years place the 

repayment obligation on future taxpayers who likely will not benefit from 

the capital improvements financed by the CABs. At the same time, the 

CABs payments will reduce those taxpayers' capacity to finance 

construction and modernization projects their own children will need.

We are convinced that remedial legislation is needed to prevent abuses 

and ensure that both school board members and the public obtain timely, 

accurate, complete, and clear information about the costs of CABs, and 

alternatives, before CABs are issued. The Governor has told us he wants 

reforms. Key lawmakers and legislative leaders have made clear they 

agree statutory changes are needed.

For all these reasons, we believe your district and every other district in 

the state should impose a moratorium on issuing CABs. The moratorium 

should remain in effect until the Governor and Legislature decide on 

reforms in the current legislative session. If reforms are enacted, 

subsequent CABs deals can be conducted in compliance with the new 

statutory requirements.

Thank you for your consideration. Should you have any questions or 

concerns, please contact Jeannie Oropeza, Deputy Superintendent, 

California Department of Education, by email at joropeza@cde.ca.gov.

Sincerely,

Tom Torlakson

State Superintendent of Public Instruction

California Department of Education

Bill Lockyer

State Treasurer 

California State Treasurer's Office