Gov. Jerry Brown signed legislation Wednesday cracking down on a risky method of financing that hundreds of school districts and community colleges in the state have relied on to pay for new construction.
The measure, authored by Democratic state Sen. Ben Hueso of San Diego and Assemblywoman Joan Buchanan of Alamo, will rein in the use of long-term capital appreciation bonds that can carry debt payments many times the amount borrowed.
In other action, the governor approved legislation ending the current state tests in favor of exams geared toward new learning standards. The Obama administration has objected to the move on the grounds that too few students would be tested and that a lack of test scores could prevent parents and the public from evaluating teachers and schools.
Meanwhile, fiscal watchdogs, including county treasurers and California Treasurer Bill Lockyer, have warned repeatedly that the bonds — which let school districts postpone the start of payments for decades — are reminiscent of the lending and Wall Street excesses that contributed to the Great Recession.
The bill "ensures that school districts no longer can heap outrageous debt burdens on the backs of future generations of taxpayers," Lockyer said. "The reforms are reasonable and balanced, and they won't harm districts' ability to meet their school construction needs."
The legislation reduces the maximum maturity of capital appreciation bonds, so-called CABs, to 25 years from 40 years and limits a school district's repayment ratio to no more than $4 in interest and principal for every $1 borrowed. It further requires that bond deals give school districts an early repayment option for CABs with maturities longer than 10 years.
Schools also must provide their boards with public reports that detail planned borrowings that involve capital appreciation notes. The analysis would include the cost of the bond issue, a comparison with conventional forms of financing, the reason for using capital appreciation bonds and disclosures by brokerages hired as underwriters.
Supporters of the bill say it should eliminate the heavy indebtedness that can come from issuing capital appreciation bonds with maturities of 25 to 40 years. The long-term notes can result in debt payments as much as 20 times the amount borrowed.
According to a Times analysis, at least 200 school and community college districts in California have borrowed billions of dollars using the long-term bonds since 2007.
The new state testing law will pay for school districts to shift quickly to new computerized tests that would be based on learning goals, called the Common Core standards, adopted by 45 states. The new approach is intended to emphasize deeper critical-thinking skills.
The legislation also has ended state funding for exams used since 1999. Unless school districts pay for their own testing, there will be no scores this year available to students, schools and districts because the new test is going through a trial period. The bill would permit a further postponement of scores, if needed.
U.S. Secretary of Education Arne Duncan supports Common Core efforts, but he also had said that providing test results is necessary to keep parents informed. He said such information is vital in determining whether teachers and schools are successful. The Legislature passed the bill despite Duncan's disapproval.
Brown consistently expressed strong support for the bill, but did not sign it right away, pending discussions with federal officials.
Duncan then took pains to praise Brown's overall record on education.
It was not immediately clear what effect, if any, the partial shutdown of the federal government had on Brown's timing.
In a message on Twitter, Brown talked of "taking decisive action … for California's students."
"With this new law, our schools can move away from outdated … tests and prepare students and teachers for better assessments that reflect the real-world knowledge needed for young people to succeed in college and careers," said Assemblywoman Susan A. Bonilla (D-Concord), who authored the legislation.
The critics include Bill Lucia, the head of EdVoice, a Sacramento-based advocacy group.
"The clock just got turned back 20 years to a time of no state testing in California and lack of accountability in public schools for actual student learning," Lucia said.
Also Wednesday, the governor signed 10 bills that his office said will help protect "the most vulnerable Californians — homeless children and adults and foster youth."
The measures include one that establishes "runaway and homeless youth shelters" as a new kind of group home and requires them to be licensed and overseen by the Department of Social Services. An estimated 200,000 minors in California are homeless, according to the California Homeless Youth Project, which operates under the California Research Bureau.
The governor also signed a bill that says the fact that a child is homeless or an "unaccompanied minor" is not, in and of itself, a sufficient basis for triggering the mandatory child abuse or neglect reporting laws.
Times staff writer Patrick McGreevy in Sacramento contributed to this report.Copyright © 2015, Los Angeles Times