Poway Unified School District, which is in San Diego, California, owes creditors nearly $1 billion on a $100 loan.
Even worse, Poway's financial situation is no different from that of nearly 200 other California school districts, as some districts are on the hook for 10 to 20 times the amount they initially borrowed. In fact, the superintendent of the Poway School District, John Collins, recently told San Diego’s PBS affiliate that “Poway has done nothing different than every other district in the state of California.”
These bonds in question are known as Capital Appreciation Bonds (CABs), and they are unlike typical bonds because they allow "districts to defer payments well into the future — by which time lots of interest has accrued."
California's State Treasurer Bill Lockyer has determined that nearly 200 school districts in the state have borrowed nearly $3 billion in CABs and are on the hook for a combined $16 billion.
According to NPR, Lockyer said such bonds are the “the school district equivalent of a payday loan or a balloon payment” where “you have a spike in interest rates that's extraordinary."
Lockyer is "poring through" a database to determine which districts are at most risk but has come to the conclusion that most of these bonds cannot even be refinanced.
One such district is West West Contra School District, which is just outside of San Francisco. In 2010, the district took a $2.5 million bond in order to get $25 million to build an elementary school, which seemed like a net gain of $22.5 million for the district at the time.
Not so fast.
That $2.5 million bond will ultimately cost the district a whopping $34 million to pay over its term.
Lockyer said the superintendents of these districts should have been fired for this reckless borrowing.