Michigan Reporter Joel Thurtell Provides Background on How Michigan Banned Capital Appreciation Bonds

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UPDATE: Joel Thurtell has now posted (on his web site Joel on the Road) the “big graphic” – a table associated with his 1993 exposé of Michigan school districts selling Capital Appreciation Bonds (CABs). The table lists the Michigan school districts that sold Capital Appreciation Bonds, the amount of bonds sold, the amount of interest to be paid to investors, the length of time from sale to maturity, and the interest as a percentage of the principal (the amount borrowed).

To give readers an understandable comparison, the table also provides the numbers for a conventional mortgage at 7% for various time periods. (Try it at 4% today.)

These amounts and percentages are peanuts compared to what California K-12 and community college districts are selling as Capital Appreciation Bonds. Notice the highest percentages of interest to principal in Michigan school districts were 575% and 406%. In California, the Poway Unified School District’s 2011 bond sales were at 935%.

The next step in the process to ban California educational districts from selling Capital Appreciation Bonds is for someone to re-create this chart for California and circulate it widely.


Joel Thurtell (web site Joel on the Road) is the now-retired Detroit Free Press reporter whose intensively-researched 1993 articles about Michigan school districts borrowing money by selling Capital Appreciation Bonds were the catalyst for a 1994 Michigan ban on Capital Appreciation Bonds. Now he is working to make sure California citizens aren’t victimized by the same scam.

Through his blog, Joel Thurtell was the first reporter to publicly expose how California’s K-12 school districts and community college districts have been selling Capital Appreciation Bonds as a way to borrow money for school construction. His attention to this obscure but extremely costly and disingenuous method of borrowing money has been acknowledged by various news stories throughout California (Community College Districts’ Bonds Inflate Taxpayers’ Repayments– Sacramento Bee – August 22, 2012; High Cost of School Bond Shocks Poway – San Diego Union-Tribune – August 17, 2012; Kudos to Michigan Journalist on the Poway Bond Story– Voice of San Diego – August 8, 2012; Joel Thurtell Shames Poway, CA Financing– Daily Markets – August 10, 2012; School Bonds Could Trigger Fiscal Shock – Financial Times via CNBC – August 9, 2012)

The Voice of San Diego web newspaper finally managed to grab the attention of the state’s political leaders and news media with an article on August 8, 2012: Where Borrowing $105 Million Will Cost $1 Billion: Poway Schools – Voice of San Diego – August 6, 2012. I continue to believe that it was the Voice of San Diego’s simple pie chart of the Poway Unified School District’s bond repayments (designed by Keegan Kyle) that allowed this story to fly – give Mr. Kyle a Pulitzer.

I found out about Mr. Thurtell’s crusade to alert Californians to the Capital Appreciation Bond racket when his 1993 Detroit Free Press articles were referenced by Mt. Diablo Unified School District 2010 Measure C Citizens Bond Oversight Committee member Alicia Minyen at the California League of Bond Oversight Committees annual conference on May 9. I wrote about the presentation about Capital Appreciation Bonds at this conference in a couple of mid-May blog posts, which have received a consistent trickle of attention since then.

Now, with San Diego County Treasurer Dan McAllister promoting an outline of possible legislation to restrict the sale of Capital Appreciation Bonds in California, Joel Thurtell has posted Public Act 278, the 1994 law that banned Michigan school districts from selling Capital Appreciation Bonds. He indicates that the relevant sections are 380.1352a (Borrowing money and issuing bonds); 380.1351b (Appreciation or sale at discount); and 380.1352 (Borrowing or issuing bonds; contract for legal representation).

Joel Thurtell has also posted the text of most of his 1993 Detroit Free Press articles about Capital Appreciation Bond sales by Michigan school districts, although as of August 26, 2012 he was still preparing additional unpublished text from the first article, dated April 5, 1993, and related charts published in the newspaper.

This Michigan law banning the sale of Capital Appreciation Bonds was enacted shortly before major newspapers and most state legislative web sites began posting content electronically on the web. (For example, the Michigan and California legislative web sites post bills starting with the 1995 sessions.) Try to research any state or local public policy activity before 1995, and everything is a lot more difficult! Thank you to Joel Thurtell for taking the time to provide public access to how the people of Michigan handled the Capital Appreciation Bond sales in their school districts in the early 1990s.

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