That has left schools in a bind. So, local financial advisers have offered some “innovative” solutions. Last year, Poway Unified, one San Diego educational district, issued some $105m worth of “capital appreciation” bonds to finance previously planned investment projects.
These are similar to zero-coupon bonds, meaning the district does not need to start repaying interest or capital until 2033.
As a result, Poway’s local authority has been able to promise to keep local taxes unchanged while completing previously promised investments (building projects, computers and so on).
But, there is a big catch: to compensate for this payment deferral, these bonds are paying double-digit interest rates and cannot be redeemed early. When the bond is repaid in 2051, the total bill will be more than 10 times the initial loan.