Dear Citizens of Vashon:
Regarding the impact of the
proposed bond issue on homeowners, I made some simple
calculations in an earlier commentary and couldn’t figure
out why my numbers did not correspond with the numbers in
the school district’s literature. I was referred to
Ryan Swanson of Seattle-Northwest Securities Corporation,
the firm handling the bond issue, who was kind enough to
answer questions and show me why my calculations did not
jibe with his.
1.
There were two basic reasons that my numbers differed from
the school district. a). I thought the brochure was
saying that the additional cost of servicing the new bonds
was only going to be $.33/1,000 of assessment. b.) I had assumed that the bonds would be paid off in equal
installments over 20 years.
In reality, with old bonds
being paid off in a few years, the brochure was saying that
the new bonds would cost taxpayers $1.91/1,000, or $.33 more than what
the old bonds cost.
Actually servicing the bonds will be according to a schedule
where payments start out relatively low and increase over time.
The assumed first year’s payment is the one offered in the
literature ($1.91/1,000 of assessed value) with future payments increasing 3% a year over
the following 20 years. The formula for each
household’s share is based on the value of their real
estate, which is assumed to grow 3% per year. However,
the assumed tax rate will be amended if necessary to make
sure that tax receipts are always sufficient to service the
bonds regardless of what real estate is worth.
2.
In addition, the plan for funding the project will be
accomplished through two bond offerings. The first is
scheduled for 2009 in the amount of $18,900,000 and the
second issue is scheduled for 2011 for $56,650,000.
3.
In reality, no one knows what the actual cost will be
because no one will know what the market rate of interest
will be until the date the bonds are actually offered for
sale. For illustration purposes, the bond schedules
proposed by the school district assume a 5.09% interest rate
for the 2009 issue and 5.16% for the issue in 2011. If
interest rates, in the opinion of the board, are too high
when bonds are scheduled to be sold, the board is
authorized to withhold the bonds from the marketplace until
rates are more acceptable in their view.
Absent additional
information, I personally believe the implied economic and
practical risks associated with the project as mentioned in my
first letter make voting for
the proposal imprudent at this time.
Mark A. Goldman
mark(at)gpln.com
Update 2/25/08 - I see in the Beachcomber today that the
high school renovation project is not scheduled to break
ground until 2011. I had missed or overlooked that fact
in my earlier review of the project.
If the school board has discretion to postpone the project for
a number of years if interest rates turn out to be
substantially higher than the rate currently projected for
2011, then that would reduce somewhat my concern that we
are being asked to approve the borrowing of many millions of
dollars without really knowing what the cost will be.
Personally, my guess is that rates in 2011will be
substantially higher than they are today. If you believe
that in 2011 the board could withstand the political pressure
urging them to move ahead with the project even if rates turn
out to be say, twice what they are today... well I suppose
that would reduce somewhat the argument against approving the
plan. And, of course, I could be totally wrong in
believing that interest rates could get that high.
How much does it cost to build a school?
http://www.islandpacket.com/news/local/story/735522.html
Impact on the Island
Declining tax revenues that might result from the declining
economy could cause a cutback in public services that families
and businesses might find economically stressful, such as a
cutback in ferry service or other public services. So
even if the bond issue represents a reasonable cost to
taxpayers, the increased costs might be very burdensome at
this particular time in our country's history when many other
kinds of costs could increase at the same time from unrelated
causes.
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