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Schools risk outsized debts with delayed bond payments

Chris Farrell Feb 14, 2013
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Schools risk outsized debts with delayed bond payments

Chris Farrell Feb 14, 2013
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President Obama is visiting Atlanta today to talk about his plans to pump more federal dollars into education. But many school districts around the country aren’t waiting for the cash. Instead, they’re borrowing money, often using long-term bonds that can put them into debt for far more than they initially borrowed.

The loans, known as capital appreciation bonds, are a creative form of financing that can delay repayments for up to 20 years. Many localities — notably in California — rely on these bonds to fund short term improvement projects, such as building renovations, instead of raising taxes.

Though an attractive strategy in the short-term, these loans saddle future generations with enormous debts, which in some instances can reach up to $1 billion for a $105 million loan.

To hear more about the long-term impact of capital appreciation bonds, click on the audio player above.

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