MICHIGAN SCHOOLS LOAD THE FUTURE WITH DEBT
By Joel Thurtell
April 5, 1993 was doomsday for Capital Appreciation Bonds in Michigan.
On that day, the Detroit Free Press exposed the horrendously bad deal almost 100 Michigan school districts had dished out for their taxpayers.
Interest two, three, even five times principal, to be paid out long after the officials who negotiated the deals were gone.
Debt payments still being made long after computers, software, buses had been sent to landfills or crushed.
In addition to the stories, we had what we called the “Big Graphic” — a newsprint page listing all school districts in the state where CABs had been issued, the amount, what they paid for and how much interest was to be paid.
Here, with permission from the Free Press, is the BIG GRAPHIC.
This was before the Internet made it possible to post large data files for the world to see.
The Big Graphic let people in both peninsulas of Michigan check to see if their local school boards had betrayed them.
Along with the Big Graphic we showed normal rates of interest on a 7 percent house mortgage. Lou Schimmel, then executive director of the Municipal Advisory Council and a staunch foe of CABs, insisted that people needed that little graphic element to comprehend how badly they were being screwed.
No surprise, homeowners were getting a much better deal borrowing on their homes than they got as they paid taxes to cover school debt in multiples of principal.
The Big Graphic and those six Free Press stories killed CABs in Michigan. I heard from school officials that our journalism made it politically impossible to issue CABs after April, 1993.
But the story was not easy. First, you had to understand CABs. Then you had to fathom the professional network of bond underwriters, bond attorneys and financial advisers who profited from no-bid bond deals and who steered school officials into buying their flim-flam.
When then Free Press Projects Editor Ron Dzonkowski told me he wanted to show every CAB in the state, I told him it meant I’d be living at the Michigan Treasury office in Lansing. That was only a small exaggeration. For months, I commuted from my home in Metro Detroit to the Treasury in Lansing. Treasury officials set up a table and brought out all the CAB files. They let me use their photocopy machines as long as I brought my own paper. In my basement today I still have those files with photocopies of paperwork every CAB deal done in Michigan until about April, 1993.
The Bond Buyer followed the story. Business Week made it a cover story.
What about Michigan media?
Nobody chased the story.
Why?
The Big Graphic was a lot of work. You would either have to credit the Free Press, which was a hard pill for competitors to swallow. Or you would have to replicate the work I did. That didn’t happen.
But our stories were enough to push Michigan lawmakers to ban CABs. They passed their CAB-killing law in 1994.
The Big Graphic made it possible to write a CAB story with real power and authority.
Californians are just awakening to the plague of CABs their school districts have brought down on them.
Some CAB deals in California make the Michigan abuses look like chump change. Poway Unified schools in San Diego, for example, borrowed $105 million and will repay almost a billion dollars.
A billion dollars!
What California needs is a ban on CABs.
