Only In California: School Owes $1 Billion On $100 Million 'PayDay' Loan

Tyler Durden's picture

These three letters - C.A.B. - might just be the Dis-Humor story of the day. NPR reports that more than 200 schools across California are coming to the shocking realization that the upfront cash they needed so badly came at quite a price. These 'Capital Appreciation Bonds' are unlike normal bonds (requiring regular coupon payments and principal repayment); instead they provide the 'lent' money upfront and defer all interest and repayment to some magical faery land time in the future (by which time the interest accrued has grown exponentially as the interest accrues on the rising 'principal plus previously accrued interest'). Brilliant - as the Guinness chaps might say. So California schools are now undertaking PayDay or loan-shark style loans defending the idiocy of super-short-term thinking with such statements as "Why would you leave $25 million on the table?" referring to the upfront cash that one Treasurer was able to get his hands on - with clearly no comprehension of the financial instrument's massive convexity. California State Treasurer Bill Lockyer said "It's the school district equivalent of a payday loan or a balloon payment that you might obligate yourself for, so you don't pay for, maybe, 20 years - and suddenly you have a spike... It's so irresponsible."

There has to be some lesson in here - some philosophical reflection on our society's complete and utter inability to see beyond the next cashflow need... Simply mind-blowing...


Via NPR:

More than 200 school districts across California are taking a second look at the high price of the debt they've taken on using risky financial arrangements. Collectively, the districts have borrowed billions in loans that defer payments for years — leaving many districts owing far more than they borrowed.


In 2010, officials at the West Contra Costa School District, just east of San Francisco, were in a bind. The district needed $2.5 million to help secure a federally subsidized $25 million loan to build a badly needed elementary school.


Charles Ramsey, president of the school board, says he needed that $2.5 million upfront, but the district didn't have it.


"We'd be foolish not to take advantage of getting $25 million" when the district had to spend just $2.5 million to get it, Ramsey says. "The only way we could do it was with a [capital appreciation bond]."


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."


Lockyer is poring through a database collected by the Los Angeles Times of school districts that have recently used capital appreciation bonds. In total, districts have borrowed about $3 billion to finance new school construction, maintenance and educational materials. But the actual payback on those loans will exceed $16 billion.


Some of the bonds can be refinanced, but most cannot, Lockyer says.


Perhaps the best example of the CAB issue is suburban San Diego's Poway Unified School District, which borrowed a little more than $100 million. But "debt service will be almost $1 billion," Lockyer says. "So, over nine times amount of the borrowing. There are worse ones, but that's pretty bad."


A Statewide Problem


The superintendent of the Poway School District, John Collins, wasn't available for comment. But he recently defended his district's use of capital appreciation bonds in an interview with San Diego's KPBS Investigative Newsource.


"Poway has done nothing different than every other district in the state of California," Collins told the program.


And he's right. In some cases, districts are on the hook to pay back anywhere between 10 and even 20 times the amount they borrowed.


But Lockyer says it distresses him to hear school officials defend these bonds.


"It's so irresponsible, that if I were on a school board — which I was, 40 years ago — I would get rid of that superintendent," Lockyer says.


Back in the '90s, the state of Michigan banned capital appreciation bonds altogether. But Lockyer says California needn't go that far. He supports a series of reforms such as capping the payback of debt to four times the amount borrowed. Otherwise, says Lockyer, these bonds will be paid well into the future, by the children of today's students.

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ultraticum's picture

The saddest part is neither the Kalifornicator idiots who took the loans nor the banksters on the other coast who could care less about credit quality will pay.  NEITHER of the counterparties will pay.  One got a free school, one got a fat bankster bonus.  Familiar theme in the world ex-Iceland.

Freddie's picture

I think a lot of other lib places (cities/states) took out these type of pay day loans.

I saw some cost figure for a school in S California recenty.  You could build the Taj Mahal.  It was like $100 million for the high school.  Same thing as Solyndra's HQ in nor cal.

Mr Lennon Hendrix's picture

People don't understand finance so they take the handouts before reading the fine print. 

The complacency of America is beyond words at this point.

RobotTrader's picture

Hilarious to see all the "Hot Money" piling into these muni-bond ETF's.

Especially the levered ones.

I guess everyone is borrowing from IB at 1.2% and getting "free money" by dry-humping these to infinity while Meredith Whitney is curled up in the fetal position.

However, some of them cracked big today:,hyd,cxa,nyf,nmd,...,|D



Mr Lennon Hendrix's picture

Mere's call was the best thing to ever happen to the muni market, you and I both know that.  It cratered issuence and then when everyone was searching for yield the double tax free munis were holding a premium.

centerline's picture

System has to get yield from somewhere.  Lots of mouths to feed.  Funny how ZIRP herds funds into places like this.  Looks like a hell of a party until someone throws the ugly lights on.  Still midnight though... so might as well drink up.

Essential Nexus's picture

You couldn't make this stuff up.

exartizo's picture

It's not a bad idea.

Think about it. They're just on the old Accounting Adage: "A dollar today is worth more than a dollar tomorrow."

Oh, and that billion they owe? In twenty years it won't be worth the ink it's printed on anyway.

So why not just get the paper that still has value now and pay it back later with MORE paper that will be either worth a lot less or completely worthless.

Wow. Those guys in California have got it down.

I'd be really surprised if this idea didn't catch on in a Big Way.

Super Broccoli's picture

Oh damn the money i borrowed need to be repaid with interest some day ?

Catullus's picture

He supports a series of reforms such as capping the payback of debt to four times the amount borrowed. Otherwise, says Lockyer, these bonds will be paid well into the future, by the children of today's students.


He supports a series of reforms which include defaulting. 

Hedgetard55's picture

A "desperately needed elementary school". Yea, for who I might ask? Illegals, obviously.

And his construction union buddies will make out too, and perhaps break off a piece for him, under the table.

Hey the guy couldn't just leave 25 million on the table, could he?

DavosSherman's picture

Years ago, before I struck out on my own, I was asked by an airline why they should hire me over some pilot with a degree.

I'm not knocking anyone with a degree, but for those without one this would come to mind.

My answer was straight forward: If Wilbur and Orville were told they couldn't invent a plane without a degree we'd all be fucked and asking, "So yah want paper or plastic?"


Aurora Ex Machina's picture

Yes. but did auto-pilot exist when you were hired? I'm guessing you weren't hired to fly Bi-Planes over France or Hurricanes over the Pacific.

If yes, then you're merely an errand boy or tech support to the systems actually flying the plane. And when the pilots get manual control, they black box it, because they mis-read the signals.



DavosSherman's picture


You're not even a challange pussy-boy.  Men only at this fight club.

So fuck you moron.  There's something called MEL.  Not a person, but a list, a Minimum Equipment List.  When I flew, in most conditions, the autopilot could be put on the MEL when broken.  Makes for a long and tiring day.

You have no fucking clue what flying is about so shut the fuck up.  People like you drive like my mother in law.  Worse, they are so fucking stupid (common sense wise) that they can't fly as a passenger.

Take you PhD and your MBA and cuddle up to them in your mommy's basement when your 99 weeks of unemployment run out.

Aurora Ex Machina's picture


I needed that jolt tonight (long day), and you seemed the man to give it. +1


Oh, and a small tip: when I tell you what I do for a living, you can wonder if it takes a MBA or edumacation. Hint: more like butchery.

DavosSherman's picture

I know what you do: You are the captian of Team FDA (Fucking Dickless Asshole's).  You are right up there with ilene and Price.  Fuck you moron.

Aurora Ex Machina's picture

Rule #3 of Fight Club - someone taps out, the fight is over. Says it right there in the instructional video provided, muppet.


But, Ahh, you want to play & ignore the club rules, then... Fine then, let's play.

You're a burnt out pilot, stuck on Union rates, plying your trade on the internal flight patterns only, because you lack the grade to fly international, and you make up with it with some silly Grim Reaper (HOHOHO, how funny you are, as a pilot with that one!) avatar and some bitterness at how the industry modernised over the last 20 years. And, once in a while (slowing down now), you get to fuck some 40+ flight attendant who got cut from the premium lanes due to age, while your wife at home strokes the pictures of you, at 28, when you were dashing and slim.

Guess what? You're already dead. There's no progression for you, no Commercial space that's going to take you, so what are you going to do? Bitch to the union? Guess what, they're fucked also. Freelance into CIA / Cartel drops over the border in shittily maintained Cessna's or drudge it out in an industry that's dying?

Good luck with that one: and while you're dying, you're desperately seeking some kind of validification in here, wondering what the fuck happened to America while you were dozing and scuttering across the sky. Maybe you get flash-backs to the glory days, maybe you can't even manage the juice for that. But you ain't no Top Gun no more, and you're steadily realising the best has gone, and there's nothing left but a growing waistline and a wife you realise you hate the more time you spend with her.

Be a good old boy: pull up a scotch, and dream about the younger, more dashing years: because, you're fucking boring us to tears in here.


Oh, wait: you "struck out on your own". So, you didn't even make Commercial, you teach fuck-tards how to stear a Cessna in some bogey-back-ass-backwater flight school. Is this you, not being able to fly?



That good enough, "Top Gun"? Trust me, your come-back was lame, and if you want a thrashing, it's going to be all too easy. I was being generous before.

DavosSherman's picture

You really are a clueless fucking moron.  I was part 121, I was a check airman and a company instructor and a line captain and I hung up my hat years ago.

Fuck you moron.

Aurora Ex Machina's picture

Ok, old man, here's a fucking huge tip: Rent "Fight Club" out, it's a film. You'll understand Tyler's name, his Avatar, the name of the site and the entire fucking ethos of this place. Even the motto. Sorry Gramps, but being old isn't really an excuse here: you've plenty of time to rent "Fight Club" on Netflix as you sit rotting at home.

And no, I'm not a "clueless moron", you're missing the part where the internet is not real, it's not full of real people, you're not talking to your neighbour about how your fucking potatoes are doing, and no-one gives a shit. There's an entire fucking pidgeon flying past your head, screaming "CLUE CLUE CLUE", and you're missing it.


~   Go get an edumacation in this thing we call "tha intarweb, bitch".


Oh, and you know the irony? If you'd been a little smarter, when I tapped out due to self-knowing deference to you, you'd have fared a lot better.


Now, you're fucking shark-bait, old man. Actually, I don't have the heart really to play this part seriously, but I have to: when you discover 4Chan, your savings will be eaten by scammers and your email full of donkey-porn. Call it a favour in edumacation and "pieces of paper".


Top tip: You're 40 years out of date. Do. Not. Fuck. With. Us. You can barely fly a plane anymore, let alone understand the depths of the internet.


[Oh, and to the Morons junking - the entire "insulting" spiel in this post, and the previous one is part of the theatre of Fight Club. If you really think I mean any of that, you need a brain transplant: it's theatre, it's not personal, muppets. In Russia, insults are judged on their inventiveness and humour, something you Americans might try out some day, if you get sophisticated enough. Try not to show your low culture levels, please. When you junk, you're merely showing how fucking Red-Neck you are. Ciao!]

DavosSherman's picture

I'm from Russia dickhead, and I've watched Fight Club.  Go fuck yourself asshole.

Aurora Ex Machina's picture

You're Russian? Living in America? Ex-pilot? Nice use of "Americanski" there, liar.


Gloves off, as you have neither spunk, wit, charm or spirit. Junk away, but I see you ?????????. <ZH can't even parse real Russian :/ >

You're no more Russian than Disney is "real American".


Pathetic old husk; did you run away from Afganistan, old man? Or did you get your local pilot license dusting crops, and are claiming such "outlandish" background to spice up your life?


Bullshit, bullshit, bullshit. Now fuck off.


/thread over, muppet. Go troll 4Chan, they'll believe you...

smiler03's picture

Couldn't help but notice this: Time on ZH...


Aurora Ex Machina : 4 weeks 5 days

DavosSherman: 3 years 4 weeks


I think somebody knows a lot more about the way ZH works than the other.

Aurora Ex Machina's picture

All that means is that he's stupid enough to allow access to 3 years of tracking data once automated software is put on his profile. And he doesn't have the knowledge to surf stealth mode. And he used his email for other things in that 3 years. Hint: every time you post to a site like ZH, you're giving away a hit profile. He's been nice enough to reply within a time frame, and so on.



Oh, and he's not Russian.

>Full Disclosure: I don't use automated software on ZH or ZH comments, unless I'm pissed off<

akak's picture

"Automated software"?

Can you explain that?

Aurora Ex Machina's picture

There's a fluffy, commercially available, white-hat version.

There's a lot more out there, and they play a lot harder. I did kinda link to DefCon 18 talks on Social / Mining programs in the thread with the Israeli women with guns + tight buns. That might have suggested that the web isn't a nice place, and the lurkers are far worse than the speakers like myself.


ZH is mined to the balls. DERP.


[edit. and sigh. A junk, without a comment ;( Sad Pandas]

akak's picture

Didn't understand your entire post, but thanks for the information nevertheless.

Aurora Ex Machina's picture

Bottom line is that:


Any open site can be mined for all connections easily, and not only that, most likely email addresses (which you cross-reference to other sites, etc) and so on and so forth, and God HELP YOU if you have trackers on, or ads on, or click any of the buttons. ZH runs with:


Google +1

Google Adsense

Google Analytics




Twitter Button


Three of those instantly give me access to your other networked connections.


And so on: ZH is actually very good at trackers, and isn't being a cunt. Aka, the site is fairly white and straightforward, and isn't being sneaky. But it's still enough to track people. If you use your ZH email address for anything else, you've instantly given a nice web of data to anyone running software on you.


So, no. 3 years membership using that email elsewhere isn't a sign of "maturity", it's a sign of being clueless. Your ZH email should be a one time only email, never accessed once you've gotten your account verification. Anything else... well.



nmewn's picture

But what if I'm trying to lure them into tracking something I'm not?

Aurora Ex Machina's picture

Then, as we both know, you're ahead of the game.

Aurora Ex Machina's picture

Gotta love the ninja junkers. If only they knew how crude the available software was compared to the "big boys" stuff.

Guess they think me swearing is "real" as well, and not part of an act.


Oh well. Junk away!

smiler03's picture

DavosSherman has had an article on ZH, in February 2011

Oh, and he's been quoted on Chris Martenson's Peak Prosperity:


And you? I have a feeling if I search i'll just find links to websites about "Potty Mouths". Would I waste any more time on you? Fuck no.

Aurora Ex Machina's picture

Wake up.

If I really wanted to find out who Davos Sherman Okst was, I could, and I would. I could also find out his medical records, his education records, his birth certificate and so on.

Getting posted on ZH or "Peak Prosperity" blog ain't impressive there, chump. May I remind you that "Brandon Smith", of Alt-Market blog, and on here... holds a BA in Economics from "Texas Christian University"?

Do you really think that most of the submitters here are even B-team players? Really? ZH is interesting for two reasons only: Tyler, and some of the people who read it. Most of the submitters are fluff merchants, and Tyler knows it.


Grow up.

nmewn's picture

Well, I love a good challenge...who am I?

Aurora Ex Machina's picture

Anarchists never rat out other anarchists, no?

Part of the Code.

DavosSherman's picture

I was born here, my grandfather left Russia before Joe got him, he then served this country in WWI, my Dad in WWII.  So fuck you, I'm from Russia moron.

Aurora Ex Machina's picture


So, I was right. You're actually American (as I look over your location data), who claims Russian heritage, as per your birth records in the State database. Your surname is a give-away, sure, but:

You're not fucking Russian, you twat. Ever been there? (passport data says no)


Er., wait. "I was born here"... "My Grandfather left there before Stalin..." ... "My Father fought in WWII (on the American's side)"...


Your story. It's full of holes. Ah, "I was born here". Yes, so you're American. You're no more Russian than Donald Trump,


Sadly, not too bright. (Oh, and please: sure, junk away, but try not to be so obvious about it)

DavosSherman's picture

Tyler(S), not Tyler.

B-Team players?  The A-Team players warned you about housing like us B-Team players did, right douchebag?

When I penned the 5G's in 2008-2011 (Gold-n-silver, Guns, Grub and the Government would fuck it up fixing it) (first G religous so left out for the non religious folks), just what was the fucking price of gold? $600, $800, $1,200.

Silver?  $11.00, $19.00 $37.00

How about guns? Gun stocks are topping the charts.

Grub? How about food prices today?  

Government fucking it up?  QEnfinity.

Fuck you, fuck your educated A-Teamers.  Let me see their record.  I've doubled my money not once, not twice but three fucking times.


Aurora Ex Machina's picture

Some of us knew this way before that time-frame, and advised on how to avoid "System Shock". It was actually built in once China saw the Asia crash of 1997; from then on, there was a Polit-level aim to avoid that happening to China by any means necessary. That included mass-production of goodies to the USA, buying debt and so on, that funded Clinton / Greenspan's "great growth".

Making profit out of this system crash is... well, ok, it's understandable, and it shows good initiative, and I told everyone I knew to buy [non-paper] gold @ £368 / ounce but really: it's not fucking hard to predict that. No harder than a GS lackey predicting that Corn Futures will be "big" when there's drought.


You're not getting the big picture here Dave. China, and high-level USA grey men know that now, if anyone crashes, everyone crashes. It's built into the three major economic blocks.

And guess what? This is worse than nukes. Because... all the major players are co-operating (within boundaries) to make it work, and it's still crashing. Yes, America is fucking Europe, and we all know why [trying to prevent the Russia-EU alliance happening], but generally, no-one is being overtly aggressive about it. Everyone's economy is fucked, and no-one knows the answers any more. The old model was based on the actors breaking the covenant (M.A.D.): now... all have submitted to it, and it's breaking anyway.


Welcome to the New World. It's Post-Linear.

Oh, and boo. "Messiah" says: "Let the Monkeys sort it out".

smiler03's picture

You were lecturing Davos about how to behave on ZH. My point was that he doesn't need a lecture, he knows it very well. 

"Ok, old man, here's a fucking huge tip: Rent "Fight Club" out, it's a film. You'll understand Tyler's name, his Avatar, the name of the site and the entire fucking ethos of this place."

"Sorry Gramps, but being old isn't really an excuse here: you've plenty of time to rent "Fight Club" on Netflix as you sit rotting at home."

I actually think a great deal of the submitters and comments are bullshit. Tylers on occasion too. My own "biography" on my ZH profile says so...

"I need to learn to only read the articles and ignore the detritus below them." 

You  do post some interesting links and share some info. +1 for each of those. Personally I don't care about the authenticity of or any further info on any commenter, I have no interest in it, but each to their own of course.

edit: I didn't even know I had a ZH email address and I use ghostery just to speed things up, not just on here.

Aurora Ex Machina's picture

Smiler, you need to read my comments a little more carefully.

I fully admitted that I was going to post a full on "Fight Club" attack, with absolutely no respect to truth, information or whatever in my post after "Thank You, needed the jolt".

Anything after that "Thank You" post was deliberately troll / flame bait, just to irk him, due to his inability to calm the fuck down.



Trolling: even when announced, you're not seeing it. <Interested in a bridge I have for sale?>

Stuck on Zero's picture


I hope you're not a commercial pilot because if you are I'm never flying again.  Pilots should be cool headed and reasoned.


DavosSherman's picture

Fuck you dickhead.  I am cool and reasoned, I have no use for morons, wrong, fools, idiots.  You don't want a pussy up there, you don't want someone who can't make up their mind either.  And don't worry, I hung up my hat about 10 years ago, flying sucks, the tsa suck.

Aurora Ex Machina's picture

Your medical records show elevated blood pressure due to diet & weight.


Please calm down, we don't want ZH responsible for a death.

DavosSherman's picture

"we don't want ZH responsible for a death."

Fuck that noise.  Bernanke is responsible for any elevated blood pressure.  I fucking hate morons who fuck things up.  Second to that I hate morons who don't think for themselves or can't figure out right from wrong.

Aurora Ex Machina's picture

Remember: the first rule of weight loss is "don't hate yourself".

Only then can we get you onto a diet that you can live with. And stop eating those twinkies, your doctor's notes explicitly say you shouldn't be eating that trans-fat creamy goodness.

dvfco's picture

That was funny shit.  I'm now picturing some 300 pound whopper never missing a sporting event - on TV -while getting his 94th week of unemployment while using COBRA to get blood pressure and diabetes meds wheezing on his way up the stairs.  Or, he might have been the dude who went batshit on the Jet Blue flight and the judge just let him off for being nutso!

That was quality.

Fight --  -- Biatchezzzz.