‘CAB’ Ride Rips Off Local Taxpayers
There is an old saying “If it sounds too good to be true it probably is.”
Several years ago voters in Poway agreed to let local officials borrow $100 million to complete modernization of aging schools. It sounded like a sweet deal because they were promised this would be done without a tax increase.
As it turns out this was the sort of deal one would usually expect to be offered by a loan shark accompanied by “associates” who favor forty-five caliber automatics.
Normally when local governments and school districts use bonds to borrow money the repayment with interest amounts to approximately double the face value of the bond. Borrow $100 million and expect to repay $200 million dollars over 20 to 30 years. But when Poway school officials cut a deal with a financial institution to issue what is called a Capital Appreciation Bond (CAB) payments were not scheduled to begin for 20 years with the total to be repaid in 40 years. The cost to local taxpayers? $1000000000! That’s right one billion dollars ten times the amount borrowed.
What would possess officials to make such a deal? Stupidity? Incompetence? Or perhaps they suffer from the condition common to those in government: They delight in spending “OPM” (Other Peoples’ Money).
Because some local officials have shown they cannot be trusted to use self-discipline Assemblywoman Joan Buchanan (D-San Ramon) with the support of HJTA has introduced Assembly Bill 182 that limits the repayment of CABs to 25 years and sets the interest level at no higher than 4:1. While we would have preferred even more stringent reform this legislation would curtail the worst abuses of CAB’s and allow future property owners to breathe easier when they review their property tax bills. But this common sense reform to protect taxpayers is apparently too strong for the Senate Education Committee which is seeking to water it down still more. Clearly the senators are putting the interests of others — perhaps financial institutions — ahead of those of taxpayers.
Ironically while Assemblywoman Buchanan is working to rein in fiscal misconduct by local officials State Senator Darrel Steinberg (D-Sacramento) is attempting to punish those who behave responsibly.
Some charter cities with voter approval have said that contractors need not abide by prevailing wage requirements which currently require them to pay the highest rates demanded by local unions. Prevailing wage requirements inhibit competition and artificially inflate the cost of public projects by as much as 25% according to some studies. Steinberg’s Senate Bill 7 threatens these cities by taking away state funding for their infrastructure projects if the prevailing wage is not restored. This heavy-handed extortion which costs taxpayers more money denies the policies voters established when creating a charter city and strips away local control.
Sadly it appears that many of those in government prefer to behave like the cab driver who runs up the bill by taking the long way to the airport rather than as good stewards over taxpayers’ hard earned dollars.
Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.