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Locally Supported Bill to Limit Cost of Repaying Bonds

A bill, co-authored by Assemblymen Marty Block, D-Lemon Grove, limit the debt ratio of such bonds to no more than 4 to 1. This could keep local agencies from paying out million more than the initial value of a bond.

Proposed legislation to reign in capital appreciation bonds in California, like the one that caused an uproar in the Poway Unified School District, was unveiled today by Assemblyman Ben Hueso, D-San Diego, and San Diego County Treasurer-Tax Collector Dan McAllister.

AB 182 would, if passed and signed into law, limit the debt ratio of such bonds to no more than 4 to 1, allow districts to pay off the bonds early so they can refinance and restrict terms to a maximum of 25 years. Backers of the bill say taxpayers will shell out for construction that won't benefit them if the repayments stretch past that amount of time.

The bill also calls for a cost analysis of any issuances that involve CABs and a rationale for using such financing to be presented to the governing board of the school or community college district in a noticed public meeting.

"We feel very confident we have the right approach to restrict abusive financing practices," Hueso said. "These are significant reforms that will provide taxpayer protections and increase public confidence."

Taxpayers in Poway, Rancho Bernardo and Rancho Penasquitos were outraged when they found out last year that they would pay $981 million over 40 years for a Poway Unified School District bond issue that raised $105 million.

State Superintendent of Public Instruction Tom Torlakson and Treasurer Bill Lockyer recently sent leaders of local districts throughout California a letter asking them to avoid CABs until a law was passed to bring them under control. Some of the debt ratios were 10 to 1, they said.

"(The proposal) incorporates the key points we raised when we called for reform legislation last year and represents a giant step forward in the efforts to reign in outrageous bond financing schemes that put unwarranted tax burdens on taxpayers in K-12 school and community college districts," McAllister said.

The bill, co-authored by Assemblymen Marty Block, D-Lemon Grove, Mark Wyland, R-Escondido, and Assemblywoman Joan Buchanan, D-San Ramon, was introduced earlier this week and has been assigned to the Assembly Education Committee.

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