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Lockyer urges schools to halt use of capital-appreciation bonds

California Treasurer Bill Lockyer and schools Superintendent Tom Torlakson urged the state’s 1,000 school districts to stop issuing long-term bonds with debt payments amounting to as much as 10 times the principal.

In a letter to school districts, Lockyer and Torlakson, both Democrats, called on officials to refrain from issuing new capital-appreciation bonds until the state legislature writes new rules governing the securities.

Fifty-five California school districts issued such bonds in 2011, data compiled by Bloomberg show. The Poway Unified School District in San Diego County deferred all payments on $105 million in bonds until 2033. By the time they mature in 2051, the district will have paid $1 billion in interest.

“We are convinced that remedial legislation is needed to prevent abuses and ensure that both school board members and the public obtain timely, accurate, complete and clear information about the costs of CABs, and alternatives, before CABs are issued,” Lockyer and Torlakson’s letter said. “The governor has told us he wants reforms. Key lawmakers and legislative leaders have made clear they agree statutory changes are needed.”

Lockyer and Torlakson have no legal authority to bar districts from issuing the bonds.

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