'Wow, If True Then That Is Financial Suicide': Comments on School Bonds
What you’re saying about the expensive capital appreciation bonds in several San Diego County school districts.
(Want more? If you’re in California, you can look up if your school district took out such a bond with our do-it-yourself guide, and here’s our hat-tip to Michigan journalist Joel Thurtell for reporting on Poway Unified’s bond earlier.)
Here are 10 comments from the discussion on our stories:
Looks like raising taxes would have saved more for Poway taxpayers, than hiding behind a “no-tax” pledge.
You cannot do correct math if some of the operational symbols are missing from your calculator.
If history is any guide, it is highly likely that in 20 years the existing buildings the school district built or fixed with this money will be so old that school district will need all new buildings and so there’ll need to be ANOTHER bond measure to pay for THOSE.
But by that time, all the school district’s available income will be needed to pay off this bond, so the school district will be facing a budget crisis…like we haven’t heard THAT one before!
• Shawn Fox:
Seems like many are quick to criticize the taxpayers association, but how about putting the blame where it really belongs; with the people who voted for it? Blame politicians if you want, but they knew that a tax increase would be rejected. Responsible voters need to be reading these things. Voters in CA continue to vote in favor of big government, but refuse to pay for it. You can’t have it both ways.
Admittedly, this was the wrong thing to do simply because it was so dishonest. Enjoying the loan proceeds for 20 years and then only beginning to pay the price by saddling others with paying it off for the following 20 years.
However, if the country returns to the kind of inflation we had during the Carter years of the 1970’s, as many predict, it will be seen as a savvy financial coup by those far-seeing Poway gurus. By paying off the bonds with cheaper dollars, the borrower ends up the winner, thanks to compounding. Under the “rule of 70”, principal doubles when the annual rate of increase is divided into 70. If you can get 10 percent annually on your money and keep reinvesting every year, your money will double in about 7 years. If you get 5% on your money, it will double in approximately 14 years.
If inflation returns to 10% per year (it was 13% in 1980), money will lose half its value in 7 years. In 14 years, it will be worth one-quarter of what it is worth now. In 21 years, roughly when Poway taxpayers BEGIN to pay off the bond, it will be worth about one-eighth. By year 40, Poway will have an annual “2008 School Board Appreciation Day” in celebration of those financial geniuses of long ago.
In response to Spaulding’s comments about inflation, Charlie Jackson said:
I understand the numbers, but do you notice that Japan has been trying for 20 years to create big inflation and has not been able to? It is not a given that we will have big inflation. Then what? Reminds me of Ben Bernanke in July 2005 answering a question on CNBC about housing, saying that it had never gone down everywhere in the country at the same time.
Keith McNab chimed in with this:
The interest on the Poway bond is approximately 8.3% give or take depending on the exact form of the repayment schedule. Don’t the powers that be in Poway know that long term mortgage rates are 3.5 % to 4.0%
Spaulding responded to both of them with:
To [Jackson] above: I was careful not to actually forecast rampant inflation for the next 40 years, although many authorities are based on federal reserve policy of increasing the money supply. In fact the stagnation of Japan for the past two decades is an increasingly likely scenario for the US. …
To [McNab]: 8.3% interest on this bond? Wow, if true then that is financial suicide. Current municipal bond rates are, I believe, below 3%, making this a pact with the devil. Only massive inflation would bail out Poway taxpayers.
I don’t know why people are so up in arms about these bonds… They make perfect sense.
We teach you how to read/write/arithmatic today you pay us later when you have a job. Instead of your parents paying for your education YOU pay for your education.
The last time I checked, there are volunteer oversight committees for every bond…get off your butt and volunteer instead of issuing ignorant armchair complaints…Your hypocritical actions are what’s guaranteed to screw younger generations, when the so-called “job creators” should be making investments to groom their future customers.
• Omar Passons:
One other thing I thought of about Poway specifically. As the community changes, I wonder if the people who are longer term Poway residents when the repayment hits will blame the changes to the community rather than this mountain of debt. For example, the community might get older, younger, more/less racially diverse, more and so this is something we won’t know for a couple decades, but could be interesting just the same.
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Dagny Salas is the web editor at Voice of San Diego. You can contact her directly at firstname.lastname@example.org or 619.550.5669.
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