A law signed Wednesday by Gov. Jerry Brown will prevent school districts from issuing ultra-long-term bonds that saddle taxpayers with huge repayment debt.
AB 182 restricts schools and community college districts in issuing capital appreciation bonds, which can delay repayment for decades and can require huge balloon payments 30 or 40 years later.
The new law, authored by Assemblywoman Joan Buchanan, D-Alamo, limits total debt service to four times the principal, limits the duration to 25 years and requires that deals permit early repayment on bonds that mature after 10 years.
The law also requires schools to disclose terms and costs of capital appreciation bonds, known as CABs; how costs compare to the cost of regular bonds and the repayment ratio.
The Santa Clara County Civil Grand Jury has criticized districts for burdening taxpayers with those bonds. The Luther Burbank School District in San Jose, for example, raised $7.5 million through four capital appreciation bonds that will cost more than $40 million to pay off.
Attorney General Bill Lockyer said the new law "ensures school districts no longer can heap outrageous debt burdens on the backs of future generations of taxpayers."
-- Sharon Noguchi, staff