CA schools that have been strapped for cash are taking out some crazy loans with deffered payments. Just wondered what others thoughts on this were, and where it may lead CA schools in the future when it comes time to pay the tab.

http://www.npr.org/2012/12/07/166745290/school-district-owes-1-billion-on-100-million-loan

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.

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.

Two snippets from the article. but borrowing 3 billion to pay back 16 billion seems like a bad idea.

Eh, they'll default, and they'll replace those school districts with new ones... the lawyers will have a hell of a time repossessing anything of value, since I think the buildings would still belong to the state. Not the school district. (I could be wrong on this.)

Or their city/state governments will just pass laws telling the lenders to go to hell.

Or the school districts will get bailed out.

Those are the three options. Really if anything i'd say the people who lent to them were taking the big risk.

They'll probably go with the first option too, because I don't think you can legally tie the state or county to something the school board decided.  If it wasn't California i'd say the state would probably use it to union bust, but it is, so that probably won't happen.  They MAY force the teachers to be rehired and take a paycut.  Though even then the teacher union probably won't go for it.  So it'll probably  just be all the same, but different name.  Different school board.

Little by little, the implosion of the middle class, and the sliding into third-world status appears to be happening for America. You try to keep up minimums of what had been norms for maintaining middle class lifestyle, and it folds. Money won't be there at this point. Create a system where you can't raise taxes and keep costs down, and go into the debt spiral. At this point it is flush. Look for end of Pax Americana to happen. Neo-Cons can take down the GOP at this point. Social conservatives can also do the same with their push for the drug war, which won't be sustainable, so it gets ended and they they don't have a home. Then we can pull the plug on the welfare state and have people pour out on the streets. Mutual aid societies? HA! You will get mutual defense societies, and those who were now booted out, the 47% (you know, the types who won't take responsibility for themselves) seen as vermin, and gun them down.

You will have massive unrest and you can elect a charismatic leader who will take a cannon to the mob the way Napoleon did. I expect Fox News to position this as favorable, explaining that it were subhumans being shot down anyhow.

I find it weird how you constantly find ways to blame the people that haven't been in power for everything.  I mean, we are talking California here.  Granted they had Arnold but basically his whole govonorership was everybody being mad that he even attempted to carry out his campaign promises.

That does make the most sence. I currently live in California, and it amazes me how bad our state government has been, and we keep re electing the same people over and over. The business climate is horrible, a lot of regulation for everything, and a lot of corruption in local city and county governement.

@richard

California is currently being completly run by democrats, and before that is was always majority democrat so i do not see how the republicans or conservatives are the issue. If anything it is the over regulation and over taxation of residents and businesses that are casuing problems for the state. There is a very well off region that passes regultions that all of CA have to follow that don't neccissarily benefit all Californians.

The problem of the implosion is larger than either party.  Yes, I vent about the impact to the GOP, but the problem is larger.  What do you think happens to a nation that doesn't sufficiently fund education and allocate properly?

Take all this as signs of cracks appearing in the system.

Your initial premise is flawed

Note the second graph is using real cost... so inflation etc is covered.  While the first is adjusted by PPP. 

Our education problem isn't really a funding problem.

Allocation?  Maybe.  I'd place it more on execution myself.

One thing of value here might be to look into what is going on with American society to see what is impacting things. Running deficits in local school districts are a sign of SERIOUS problems. One can say "oh it is the unions fault" or say that kids need to be janitors, so you can fire all the unionized janitors. But something is wrong. Could be breakdown of families and so on also. I know from trying to substitute teach at public school in a local city to me, that there is a lot of problems. Would be useful to see where the money is going.

Well according to the American Assosiation of School Administratiors.

65% go to Instruction and Instruction related mateirals 

18% Operations

10.8% Administration

5.3% Student Support Services.

They only seem to have a breakdown of the first one.... Instruction and Instruction related matierals.

67.1% Teachers Salaries

21.8% Teacher Benefits

4.5% Purchased Services

1.3% Tution to out of state schools/private schools.

4.8% Instructional Supplies

.05% others.

Which, doesn't really put teachers in a flattering light since that means that essentially 57% of the total budget just goes to paying teachers.  (Not even counting administrators, principals and the like... nor "purchased services or tution to other states/private schools.)

Though for all I know that's a reasonable percentage to pay teachers.

I'm with richard on this one. I think there's a Republican or two left in California somewhere, and this is definitely all their fault.