By Joel Thurtell
Who would pay $117.5 million for computers priced at $28 million?
Who would pay interest three times principal years after the computers were junk?
It happened in Romulus, Michigan in 1990.
It’s happening in California now.
From 1988-1993, Michigan schools were piling up huge debt through Capital Appreciation Bonds.
Our Detroit Free Press articles exposed the scam on April 5, 1993. The Michigan Legislature banned CABs.
CABs are legal in California, but there is a movement to persuade legislators to ban them.
Here’s an example of the sheer folly of borrowing with high-interest CABs, reprinted with permission of the Detroit Free Press.
Headline: ROMULUS USES HEAVY DEBT TO BUY CHANGING TECHNOLOGY
Sub-Head:
Byline: JOEL THURTELL FREE PRESS STAFF WRITER
Pub-Date: 4/5/1993
Memo: ; BUYING NOW, BUT PAYING LATER
Correction:
Text: The Romulus schools have installed $23 million worth of Macintosh
computers and other electronic gear in an expensive wager that high-tech
teaching will pay off with better learning.
The computers, expected to be obsolete in 5-10 years, were bought with
money from high-interest capital appreciation bonds. Romulus has issued $28
million in CABs as part of a $35- million bond issue authorized by voters in
a Nov. 6, 1990, election. No payments are due on the CABs until 1998.
The interest on them will total $89.5 million — three times their value
– by the time the CABs are paid off in 2017.
But Superintendent Bill Bedell said Romulus would not have the classroom
computers today if not for CABs, which enabled the district to sell bonds by
renewing a 3.5-mill debt levy, not by raising taxes — “a hell of a selling
point with the people.”
A conventional bond issue would have required a three- or four-mill tax
increase, Bedell said.
He said he knows the computers will be obsolete, but “40 percent of our
ninth-graders are flunking math. It appears to us the only way to keep pace is
to use artificial intelligence, and we figure those computers will be key.”
As part of its CAB repayment plan, the district figures property values
will grow enough for the 3.5-mill levy to remain adequate for debt service.
Farmington school board trustee and retired bond dealer Richard Wallace
criticizes the practice of loading heavy debt on future taxpayers for items
that will be obsolete before they’re paid off.
“I believe that when you’re building a capital project — bricks and
mortar, schools and libraries — it should be paid for approximately over the
useful life of the project,” said Wallace. “You don’t want to finance school
buses over 30 years, because they’re worn out in half a dozen years.”
