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 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.
The 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.
“There’s too much risk involved with issuing long-term capital-appreciation bonds,” said Chris Cate, vice president of the association. “They’re not callable bonds so you can’t pay them off early. It’s too risky for taxpayers.”