Would you take out a loan if you had to pay $10.80 in interest for every dollar your borrowed?
Only if you were desperate.
But if you own property in Santa Rosa's Bellevue School District, those are the terms of a bond issue completed in 2011, according to a database compiled by the Los Angeles Times.
By the time the $378,000 loan is paid off, taxpayers in the district will fork over a little more than $4 million in interest.
In the Fort Bragg Unified School District, a 2011 bond issue includes $8.60 in interest payments for every dollar of principal.
Remarkably, you don't have to look very hard to find terms that are even worse. Elsewhere in the state, the database shows debt ratios are running as high as 23.4:1 — $23.40 in interest for every dollar of principal.
Those terms would make a loan shark blush.
Apparently some school officials didn't blink.
These high-cost loans are financed with capital appreciation bonds, a funding mechanism that allows borrowers to put off payments for years, sometimes decades. At least 200 school districts have used them to borrow money for construction and maintenance, building upgrades and technology.
Last week, state Treasurer Bill Lockyer and state schools Superintendent Tom Torlakson requested a moratorium on capital appreciation bond financing.
“Too frequently, (school) board members and the public have not been fully informed about the costs and risks associated with CABs,” they said in a letter to school superintendents around the state. “In some cases, board members have reported they were not even aware they approved the sale of CABs.”
For some districts, deferring interest payments offers a political advantage: They can promise voters that authorizing a general-obligation bond won't result in an immediate property tax increase. Another reason districts use CABs is that deferring payments allows them to comply with statutory caps on property tax assessments for bond debt.