On May 2, 1988, the public school in Holt, Michigan issued a “creative” financial instrument known as a Capital Appreciation Bond. It was the first of a wave of CABs that swept over Michigan school finance Until 1987, school debt declined. Between 1987 and 1992, it doubled. The state’s schools were incurring huge debt. On April 5, 1993, I reported in a set of Detroit Free Press stories that Michigan schools were being drowned in debt from borrowing at very high rates of interest using CABs. The following year, as a direct result of my reporting, the Michigan Legislature banned CABs. No question that my stories made the difference, because no other mainstream news organization wrote about it. The Free Press and I won a Michigan Education Association School Bell Award for the CAB stories.
On January 9, 2009, I posted my Free Press stories on my blog, joelontheroad.com.
On March 27, 2012, a comment appeared on joelontheroad: “Thank you for keeping this blog up….you are one of the few journalists that have written about the ugly side of school bond financing.” We began to correspond. I found that she is a CPA and member of her California school district bond oversight committee. She’d caught on that her district had issued CABs and wanted to know what they were. She googled and found my stories. She said that in the past 19 years, I was the only journalist who had extensively written about CABs. She got her CAB education from me. But she educated me about California CABs. We began collaborating. I posted my first article about California CABs on April 27. She told me about a district — Poway — that borrowed $105 million and would have to repay nearly $1 billion. I explained to her how exposing individual districts’ bad scenarios helped convince Michigan legislators to ban CABs. I told her Poway could be a poster child for explaining why CABs are bad. It might prod the California Legislature to ban CABs.
I broke the Poway story on May 1, 2012 in a blog essay, “CABS = compound trouble for California.”
On May 4, Javan Kienzle, once my copy editor at the Detroit Free Press, sent copies of my CAB articles, including my May 1 piece, to editors at the Los Angeles Times, Sacramento Bee and to California Gov. Jerry Brown.
I wrote again about Poway: “Disaster shadows Poway” on May 10 and “CAB scam in Poway” on May 12.
On May 11, 2012, Kevin Dayton of the Dayton Public Policy Institute wrote about my CAB stories: “Please Read This, Even If You Think Municipal Bonds Are Really BORING: We’re setting Up the Next Generation of Californians to Pay Really Staggering Property Taxes.”
Then on May 14, 2012, Dayton followed with another piece baed on my articles: “Reporter Behind Michigan’s 1994 Prohibition of Capital Appreciation Bonds (CABs) Watches and Writes About the CAB frenzy at California School Districts.”
Kevin Dayton, not Will Carless, was the first California reporter to write about CABs, and Dayton gave credit to me.
On July 12, 2012, I found a comment on my blog from Will Carless: “Hi Joel. I would love to talk to you as soon as possible about some of this reporting. Can you email or call me at your earliest convenience. I’m an investigative reporter at voiceofsandiego.org. I would appreciate it if you didnt publish this comment. My cell number is 760.—.—-. Call any time. Thanks. Will”
Will Carless had seen my CAB stories on joelontheroad and wanted help understanding CABs. In several phone conversations, I explained how CABs work. My source in California, the CPA, also helped him.
On August 6, 2012, Will Carless’s story about CABs ran in the Voice of San Diego. He did not mention me or my blog.
On August 7, 2012, Will Carless was interviewed on CNBC. He was given and accepted full credit for finding and breaking the Poway CAB story.
Note that he corrected your reporter for mispronouncing his name, but allowed your staffer’s statement that he broke the Poway story to pass.
Will Carless and the Voice of San Diego did NOT find, nor did they break, the Poway story.
That story was found by me, reported by me, written by me and first appeared on joelontheroad on May 1, 2012, more than three months before Will Carless’ CAB story ran.
Here are links to my Poway stories, the Carless Voice of San Diego story and your CNBC piece:
http://www.voiceofsandiego.org/education/article_3f780860-e0b7-11e1-821b-001a4bcf887a.html
http://video.cnbc.com/gallery/?video=3000107811&__source=yahoo%7Cheadline%7Cother%7Cvideo%7C&par=yahoo
I am a retired Detroit Free Press reporter. The journalism faculty of Wayne State University in 2011 named me Journalist of the Year. I’m the author of SHOESTRING REPORTER, a journalism textbook published by Hardalee Press in 2010. I wrote the book UP THE ROUGE!, published by Wayne State University Press in 2009. UP THE ROUGE! was named a 2010 Michigan Notable Book by the Library of Michigan. My blog, joelontheroad.com, is the “best independent blogger raising hell,” according to Detroit’s Metro Times newspaper.
I’ve written many stories about Capital Appreciation Bonds.
http://www.joelontheroad.com/?cat=1720
Without my Detroit Free Press articles from 1993 and my recent blog posts about California CABs, Will Carless could not have written his story about Poway bonds.
In fact, Will Carless said just that in an August 6, 2012 e-mail: “Couldn’t have done it without you Joel. You spotted this and deserve a lot of the credit for figuring this stuff out! Thank you!”
By now, many media have given credit to Will Carless. Nonetheless, I would like to see a correction by CNBC.
Thank you.
Yours truly,
Joel Thurtell
joelthurtell@gmail.com
Joel:
Thank you for the reference. I first heard about your reporting on Capital Appreciation Bonds (CABs) when I attended the California League of Bond Oversight Committees (CaLBOC) annual conference on May 10, 2012. It’s good to see news media finally picking up on this complicated story in California. Ultimately I would like to see a law similar to the one passed in Michigan. I’m still suggesting that someone sponsor you for a tour of California this fall to tell citizens about the danger of Capital Appreciation Bonds.
More evidence this issue is catching on: Poway Unified School District is in San Diego County, and the San Diego County Taxpayers Association just issued a “backgrounder” comparing Current Interest Bonds to Capital Appreciation Bonds. See it here:
Backgrounder: Alternative Funding Methods for School District General Obligation Bonds – San Diego County Taxpayers Association- August 8, 2012
The San Diego County Taxpayers Association emailed the backgrounder on August 7 with this message:
From: “Chris Cate” (San Diego County Taxpayers Association)
Date: August 7, 2012 4:19:08 PM PDT
Subject: SDCTA Efforts on School Bonds & CABs
SDCTA is frequently asked to endorse proposed school bond measures. We know that our endorsement carries weight; as a result, our process for considering an endorsement is detailed and requires a great deal of information.
Before endorsement of a school bond is considered by SDCTA, the school district is asked to submit an application for consideration of endorsement. The application requires submission of detailed information on everything from financing to program justification to detailed planning and program execution.
The data that is collected is provided to our members in a summary format. Endorsement-seeking school district staff and elected officials appear at our committee meetings, where members have the opportunity to ask questions. Often, additional follow up questions and recommendations are submitted to the school district during this process. We consider this new information as part of the evaluation process before the SDCTA board of directors makes the final decision on any endorsement. A minimum 60% vote in favor is required for endorsement of any ballot measure.
The Association recently became aware of a new financing mechanism which we had not seen before: Capital Appreciation Bonds (CABs) with long term maturity rates up to 40 years. CABs with long term maturity rates result in significant debt burden for the taxpayer and are more expensive than more traditional financing methods. This raised concerns and we set out to carefully research and consider the issue so that we could inform our members, help educate the public and offer thoughtful recommendations protecting the taxpayers’ interests. Following our study of CABs, the following policy was adopted by Association:
SDCTA opposes the use of Capital Appreciation Bonds with maturities greater than 25 years as a financing mechanism for General Obligation bonds because of the increased debt burden on taxpayers. CABs with maturities of 25 years or less should only be pursued if it can be demonstrated that its use will result in less debt service than other financing instruments. Other financing options that should be compared to the potential use of CABs include voter approved tax increases, including voter approved bond reauthorization. Defensible assumptions for growth in assessed value shall be used for development of any proposed financing method.
Several school districts within the region have recently issued CABs with long maturity rates, including the Poway Unified School District. SDCTA learned after our endorsement of the bond measure there are inconsistencies between what the District submitted to SDCTA as their proposed financing plan and what it ultimately chose to do.
As a result, SDCTA’s board has adopted additional requirements to prevent these previously unforeseen circumstances in the future. If a school district wishes to obtain SDCTA’s endorsement, it is now required to adopt a resolution that pledges to follow our adopted policy on CABs.
SDCTA’s evaluation process of bond program proposals prior to an election is only the start of the evaluation and accountability process. Following voter approval, it is critical for school board members, bond oversight committees, the community and SDCTA as the taxpayers’ watchdog to ensure that taxpayer dollars are being used prudently and as promised to voters. Numerous policy decisions with significant fiscal impact often only occur after voter approval of a bond measure. The specific financing method and consideration of a project labor agreement are two examples that need to be monitored.
Enrollment figures, property value growth projections, construction cost estimates and many other factors and assumptions which go into development of a general obligation bond can change during the life of a program due to market and economic forces beyond a school district’s control. However, while there may be legitimate reasons for a school district to make changes relative to the original plan, there is no excuse for lack of transparency or communication with taxpayers and stakeholders. If school districts are not forthcoming with this information, they should be called to account and this lack of transparency should be taken into consideration when voters are asked to approve tax proposals in the future.
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