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Update on School Bond Funding
Mark A. Goldman                                                                  Revised:  2/22/09

 
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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