Buddy, Have I Got A Deal For You

In a true example of fiscal irresponsibility and the immorality of originating debt that has to be paid back by people not even born yet, we have this:

A California school district is shouldering $1 billion in interest on a $105 million bond in a deal intended to defer most of the payments for 35 to 40 years.

The Poway Unified School District, in San Diego County, structured its 2011 sale of capital-appreciation bonds to avoid debt service until 2033, with the largest sums — more than $300 million each — due in 2046 and in 2051, according to data compiled by Bloomberg.

Other issuers in California may pursue similar deals to raise money for construction at a time when revenue from property taxes is stagnant, said Marilyn Cohen, founder of Envision Capital Management Inc. in Los Angeles, who has $195 million of munis under management.

“I’m sure California is the worst offender,” Cohen said in a telephone interview. “Property taxes have gone to hell in a handbasket in California.”

Last year, Los Angeles County Treasurer Mark Saladino advised school business officials there against long-term capital-appreciation bonds, saying they would result in a “significantly higher debt burden.”

Poway, a district of 33,000 students about 20 miles (35 kilometers) northeast of San Diego, issued the debt to modernize schools in July 2011. It was part of as much as $179 million in borrowing approved in a 2008 referendum that passed with 64 percent of the vote. The San Diego County Taxpayers Association now regrets that it endorsed the proposal.

To owe $1 billion to get $105 million is more than immoral, it is criminal.

You just have to question the sanity of people who are willing to execute this “I’ll pay you on Tuesday for a hamburger today” strategy. The team at CNBC seems to think that the only reason that they are doing it is that they made a pledge not to raise taxes – but it appears to me to be simple fiscal irresponsibility – more of the “don’t want to pay more taxes – well, we’ll show you” attitude of governing entities.

According to the 2010 Census, Poway is a city of 47,811 people.

4 thoughts on “Buddy, Have I Got A Deal For You

  1. My guess is they have no intention of paying off this debt, especially the interest. They have delayed it as long as possible hoping some bluebird (maybe in the form of a strong economy) will fly down and rescue them before the large payments come due. Happens every day in personal lives. People run out of money for various reasons (loss of job, catastrophic illness) and either refinance their homes or accumulate large credit card charges hoping things will get better. The end result is usually going bankrupt.

  2. Glad I don’t live there anymore. Born and raised in San Diego. Man, that’s Usury. I remember in the Carter years, good credit would get you a loan at nine percent…bad credit, around thirty-five percent.

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