Reporter Behind Michigan’s 1994 Prohibition of Capital Appreciation Bonds (CABs) Watches and Writes about the CAB Frenzy at California School Districts

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Here is a follow-up to my May 11 post entitled Please Read This, Even If You Think Municipal Bonds Are Really BORING: We’re Setting Up the Next Generation of Californians to Pay Staggering Property Taxes.

A speaker at the California League of Bond Oversight Committees annual conference on May 11 mentioned that the State of Michigan banned Capital Appreciation Bonds (CABs) in the 1990s after a reporter for the Detroit Free Press named Joel Thurtell exposed the extent of the scheme to the public in his April 5, 1993 investigative article “Michigan Schools Load the Future With Debt.”

It turns out Mr. Thurtell has a personal blog called Joel on the Road, in which he has been tracking and opining on the excessive use of CABs in California, including the mind-boggling one at the Poway Unified School District in San Diego County. He has posted four articles about CAB abuses at California school districts in the past five days.

I wrote the following comment on his blog in response to CABs and Consequences:

Mr. Thurtell:

On Friday, May 11, I attended the annual conference of the California League of Bond Oversight Committees in Sacramento. The increasing use of Capital Appreciation Bonds (CABs) to fund construction in California school districts (and fund the funding of school construction) was extensively discussed. Your articles were briefly mentioned by one speaker as influential in banning CABs in Michigan. You may be the catalyst to get CABs banned in California before the next generation of property owners in this state is saddled with a huge burden for construction completed 30-40 years earlier, when the political culture in this state revolved around the principle of “spend now/let someone else pay later.” You need to do a speaking tour in California. I recommend contacting the California Association of County Treasurers and Tax Collectors, the California League of Bond Oversight Committees, and the Howard Jarvis Taxpayers Association.

2 comments

  1. Dear Mr. Dayton:

    I’m gratified by your kind words about my efforts to expose the evil of Capital Appreciation Bonds as an instrument of public school finance. Beyond the personal compliment, I’m very glad that you attended the May 11 meeting of the California League of Bond Oversight Committees, because it is evident that you have understood the danger of this kind of “creative” financing to property owners who have no idea they are sitting on a financial time bomb.

    It would be great if California banned CABs as Michigan did. But more than a ban is needed. In Michigan, the people who promoted those bond sales paved the way with bribes. The harm they caused was huge. Yet nobody was prosecuted. A large part of the problem is just what you described — when you mention municipal bonds, people’s eyes glaze over.

    I’ll be writing more about CABs in hopes I can help people learn about this enormous problem.

    Again, thanks for your kind words.

    Joel Thurtell
    joelontheroad.com

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