(Santa Clara) Civil grand jury slams Burbank school bonds

The Mercury News -

California school districts have been taken to task for a form of borrowing that will greatly burden future taxpayers with massive, rear-loaded long-term bonds that will require debt payment beyond the lifetime of the renovations.

But news stories in December surveying districts didn't mention perhaps the worst offender, which now has been highlighted in a Santa Clara County Civil grand jury report on long-term "capital appreciation bond" issues from 2007 to 2012.

The one-school Luther Burbank district in San Jose raised $7.5 million through four capital appreciation bonds, at an initial cost of more than $700,000, the grand jury pointed out in a report released last month. But those bonds will cost more than $40 million to pay off. That, the jury points out, comes to more than $70,000 for each of Burbank's 570 students just to repay borrowed money, not to educate any of those children.

Superintendent Jan Kaay, who was not in charge when three of the bonds were issued, said she was constrained by terms set earlier when the district last year issued a new round for $1.39 million. The district will repay its most recent CAB bonds over 39 years at a cost of $13.6 million -- or a nearly 10-to-1 ratio of debt payments to principal.

Kaay said she was "grateful that a mechanism for funding much-needed school buildings in California existed."

Well, yes. But as jury foreman Stephen P. McPherson said, "There's a huge financial burden that's pushed off into the future."

The district's borrowing binge, however, at least appears to be over. Kaay said she's already responded to the jury and will abide by the grand jury's and state Treasurer Bill Lockyer's advice for a moratorium on capital appreciation bonds.

"I have no intention of doing that again," Kaay said.