Those bonds, known as CABs, are unlike typical bonds, where a school district is required to make immediate and regular payments. Instead, CABs allow districts to defer payments well into the future — by which time lots of interest has accrued.
In the West Contra Costa Schools' case, that $2.5 million bond will cost the district a whopping $34 million to repay.
'The School District Equivalent Of A Payday Loan'
Ramsey says it was a good deal, because his district is getting a brand-new $25 million school. "You'd take that any day," he says. "Why would you leave $25 million on the table? You would never leave $25 million on the table."
But that doesn't make the arrangement a good deal, says California State Treasurer Bill Lockyer. "It's the school district equivalent of a payday loan or a balloon payment that you might obligate yourself for," Lockyer says. "So you don't pay for, maybe, 20 years — and suddenly you have a spike in interest rates that's extraordinary."