Yuba College trustee 'royally burned' about bond
Once-obscure capital appreciation bonds were pushed into the headlines when a school district in the San Diego area issued a bond that requires paying back $1 billion for a $105 million loan.
A Los Angeles Times analysis found that 200 school districts in California have borrowed more than $2.8 billion since 2007 using the bonds with maturities longer than 25 years.
The districts will have to pay back about $16.3 billion in principal and interest.
— Ryan McCarthy
The $4.6 million bond that requires a $58 million payback in public funds leaves a Yuba Community College District trustee feeling "royally burned," he said Thursday.
Gary Sandy said he was shocked when he learned about the payments for the capital appreciation bond trustees approved in April 2011.
Trustee Jim Kennedy, who also spoke at the board of trustees winter planning session at the Comfort Suites in Linda, said the board knew the 40-year bond would cost more.
"We didn't know how much," added Kennedy, the bond's lone opponent.
Trustees agreed they need to hear from a financial consultant without a stake in the bond outcome when considering such measures.
"We have to have somebody on our side sitting at the table," said board president Brent Hastey.
Chancellor Douglas Houston will provide recommendations about capital appreciation bonds to trustees at a future meeting.
State Treasurer Bill Lockyer in November sharply criticized the bonds that can involve paying 10 to 20 times the amount borrowed. The district's 2011 bond is one of six in Yuba-Sutter on the state treasurer's list of capital appreciation bonds in California.
"They are terrible deals," Lockyer had said. "The school boards and staffs that approved of these bonds should be voted out of office and fired."
Dan Mierzwa, Yuba County's treasurer and tax collector, who also spoke at Thursday's session, said legislative proposals would require that agendas for public agencies note capital appreciation bonds, analyze their overall costs and compare them to traditional bonds.
"Wall Street doesn't like that one at all," Mierzwa said.
The treasurer said he is somewhat critical of Lockyer's financial expertise.
"He's a phenomenal politician," Mierzwa added of Lockyer, the former state attorney general.
Lockyer and Gov. Jerry Brown would like to ban capital appreciation bonds, said Mierzwa, who doesn't support that effort.
Lockyer spokesman Tom Dresslar said Lockyer wants to reform capital bonds rather than ban them. Lockyer wants more transparency and protections for taxpayers, Dresslar said.
School districts and community college officials should "know what they're doing before they approve capital appreciation bonds," Dresslar said.
"Treasurer Lockyer has enough financial expertise to know a terrible bond deal when he sees one," Dresslar added. "And a deal that forces taxpayers to shell out 12.7 times the principal to retire bonds is a terrible deal."
Yuba City resident Phil Treanor told trustees that capital appreciation bonds can't be paid off in advance. Bond buyers, he added, probably don't want their name in the paper as the interests who "screwed the little of town of Marysville or Yuba City," Treanor said.
CONTACT Ryan McCarthy at rmccarthy@appealdemocrat.com or 749-4780. Find him on Facebook at /ADrmccarthy or on Twitter at @ADrmccarthy.
