A Reckless Financial Decision That Burdened Our Schools and Taxpayers
In recent years, the Placentia-Yorba Linda Unified School District (PYLUSD) made a controversial financial decision that continues to impact our community today. In 2011 and again in 2014, the district issued Capital Appreciation Bonds (CABs) to fund school construction and modernization projects. While these bonds may have seemed like an easy solution at the time, they have placed a staggering financial burden on taxpayers, particularly our future generations.
What Are Capital Appreciation Bonds (CABs)?
Unlike traditional bonds requiring regular interest payments, Capital Appreciation Bonds (CABs) allow districts to defer all payments—including principal and accrued interest—until maturity. This funding method offers immediate financial relief for schools but leads to significant long-term repayment obligations due to compounding interest.
A crucial point about CABs is that they do not permit early paybacks, limiting financial flexibility for the district. This can create challenges if budgets tighten in the future.
Additionally, the compounding interest acts as a future tax on property values. As the debt grows without payments, the district may need to increase property taxes or implement other measures to meet repayment obligations, ultimately impacting property owners and community affordability.
In the case of PYLUSD, the district borrowed $22.1 million in CABs in 2011, but due to compounded interest, taxpayers will ultimately have to repay $281 million by 2049, a whopping $12.73 for every dollar borrowed. Another CAB followed in 2014, adding even more to this long-term debt. For the future, this means plan for the repayment effectively, or face increased taxes, or educational cutbacks.
A Short-Term Solution, Long-Term Consequences
At the time, district officials argued that CABs allowed them to move forward with essential infrastructure improvements without immediately raising taxes. However, this decision has saddled future generations with a debt burden that could result in increased taxes, cuts to essential services, or the need for further borrowing down the line.
While the district’s facilities may have been improved, the financial toll has only just begun to surface, and we are now faced with the reality of paying back over ten times what was borrowed in some cases.
Question: How much of this information was transparently shared with you when you were presented with the opportunity to vote on these bonds?
Better Financial Alternatives Were Available
There were better options available at the time. Instead of relying on Capital Appreciation Bonds (CABs), which not only carry higher risks due to their deferred interest payments and the inability for early paybacks, but also have been criticized for their predatory nature, school districts could have used Unlimited-Tax General Obligation Bonds (UTGO), Construction Improvement Bonds (CIBs), Building Improvement Bonds (BIBs), or Qualified School Construction Bonds (QSCBs).
Recognizing these challenges, the state of California and Governor Brown found it prudent to enact legislation that reduces the maximum maturity of capital appreciation bonds from 40 years to 25 years, effectively curbing the burden of “$2.70 in interest and principal for every $1 borrowed” (Los Angeles Times, 2013). This move reflects a commitment to safeguarding taxpayers from the long-term financial implications associated with CABs. By exploring these safer financial vehicles, districts can effectively finance their projects while minimizing the financial burden on their communities.
Unfortunately, these alternatives were dismissed in favor of CABs, leaving taxpayers to deal with the long-term consequences. It's important to note that this decision was made by officials and school board members who were responsible for approving these bonds, including Superintendent Dr. Dennis Smith and later Superintendent Dr. Doug Domene, as well as school board members Judi Carmona, Karin Freeman, Carol Downey, Carrie Buck, and Eric Padget, many of whom are endorsing our opponents in this election.
The Need for Fiscal Responsibility and Transparency
As a candidate running for the PYLUSD School Board, I stand firmly against these kinds of reckless financial decisions. My focus is on fiscal responsibility and transparency, ensuring that we protect taxpayers from bearing the weight of bad financial decisions made without adequate consideration of long-term consequences. I believe in using more responsible and balanced financial tools, even if they require tougher choices upfront.
Our children and future generations deserve schools that are well-funded without being saddled with astronomical debt. As your representative, I will advocate for smarter, more sustainable ways to fund our district’s needs, ensuring we make decisions that benefit our community both today and tomorrow.
If you agree that our district needs better financial oversight and decision-making, I ask for your support in this upcoming election. Together, we can build a future where our schools thrive without leaving a mountain of debt for the next generation to climb.
Keep an eye our for our next article: A Better Path Forward: Learning from Past Financial Mistakes to Protect Our Schools and Taxpayers
*source: https://www.pylusd.org/apps/pages/index.jsp?uREC_ID=184765&type=d&pREC_ID=471610
"DISCLAIMER: This information is written by Ryan Miller, candidate for the PYLUSD School Board. It is published by the Miller for School Board Campaign Team and is not funded by any candidate or candidate's committee, with no associated costs."