California Schools Chief Tom Torlakson and state Treasurer Bill Lockyer have asked school district officials to stop issuing capital appreciation bonds.
Many school districts -- short on funds to modernize or build facilities -- have turned to these bonds, which offer cash now with payments that can be pushed off for years, even decades.
Conventional bonds, on the other hand, have payments that start almost immediately, but generally with much lower interest rates.
A letter from the state leaders to school superintendents Thursday asked they not issue CABs until state lawmakers had a chance to consider reform measures that would protect taxpayers.
The bonds unfairly place the "repayment obligation on future taxpayers who likely will not benefit from the capital improvements financed by the payments," said the letter.
The Bee has reported extensively on this these bonds, which can eventually result in the district paying many times the amount borrowed. A story in October revealed that the Folsom Cordova Unified School District would eventually pay $18 for every $1 borrowed to retire a $514,000 capital appreciation bond.
The letter from Torlakson and Lockyer expresses concern about the lengthy terms of the bonds, which delay interest and principal resulting in balloon payments for future taxpayers. It said districts that issue CABs are making it difficult for future boards, burdened with the debt, to finance school facilities and modernization they need.