Last week a bill was introduced that would affect school districts' ability to issue capital appreciation bonds ("CABs").
AB 182 would require the ratio of total debt service to principal for each bond series to not exceed four to one (4:1). The bill would also require each CAB maturing more than ten years after its date of issuance to be subject to mandatory tender for purchase or redemption before its fixed maturity date beginning no later than the tenth anniversary of the date the CAB was issued.
The bill would also require changes to how the information is presented to the board of education, including specifying that CABs are proposed and requiring that the board be presented with an analysis containing the overall cost of the CABs, a comparison to the overall cost of current interest bonds, the reason the CAPS are being recommended, and a copy of certain disclosures made by the underwriter.
You can read the letter from State Superintendent of Public Instruction, Tom Torlakson, and State Treasurer, Bill Lockyer, cautioning against the issuance of CABs until legislative reforms are enacted here.
The full text of the proposed legislation, AB 182, is available here.