Thursday, March 14, 2013

State Leaders Move To Ban Leander ISD's Dangerous Borrowing Practices

Apparently Leander ISD has become the Texas poster-child for poor financial leadership.  Not only did LISD borrow & build excessively, the district further exacerbated their financial woes with the use of Capital Appreciation Bonds, or CABs.  CAB financing allows borrowers to 'kick the can down the road' with bond maturity dates 20, 30, or even 40 years after issue.  Furthermore CABs increase total payoff significantly, leaving taxpayers to pay back as much as 10 times the amount initially borrowed.  Consequently, Leander taxpayers are now on the hook for $2.7 billion dollars in local debt. 

The alarming CAB trend has prompted legislators of both political parties to act.  Democrat Senator Juan "Chuy" Hinojosa and Republican Representative Dan Flynn have filed bills to prohibit local governments from using CABs to finance debt.  The companion bills are SB 449 and HB 3416.  If approved, the measure will prevent any future districts from 'becoming Leander ISD.'

Sadly, the measure comes too late to protect Leander taxpayers.  Years of poor financial management have created a quagmire for the school district (which features empty schools but plenty of impressive football facilities.)  While the district is ripe for new leadership, only one school board member has been challenged.  Trustee Pam Waggoner has served intermittently since 2002, and has been challenged by Jim MacKay.  Waggoner, who is endorsed by Democrat State Representative Donna Howard, has served as an apologist for LISD debt.  In stark contrast, Jim MacKay has been endorsed by former Republican Party of Texas Chair and Reagan Administration official Tom Pauken.  MacKay has launched his campaign with some serious questions about the finances of the district. and the CAB problem is huge factor in the upcoming election

Leander ISD's financial future is uncertain, but hopefully the State Legislature will act to prevent other districts from the same fate. 

1 comment:

Matt Prewett said...

Hi Holly, I've been researching this subject and it appears that many school districts in Texas are using Capital Appreciation Bonds. It's not just Leander ISD. It's practically every rapidly growing district in Texas.

I'm not sure of the exact details but it has something to do with meeting the requirements of the 50 cent debt test. Likewise, districts in California were being pushed into using CABs because they have a 60 cent debt test.

I see that legislators have filed bills to remove the 50 cent debt test for the last two legislative sessions. I need to find out why this hasn't passed.