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School Bond Referendum
Old 03-05-2015, 01:58 PM   #1
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School Bond Referendum

Hi everyone.

In our local community they are holding a 58 million dollar school bond referendum for building a new school and improvements to others. In our view it is well needed.
There is an ongoing battle on facebook with the opposition. A citizens group opposing the vote claim the total cost of the bond is close to 100 million dollars over the life of the twenty five year bond. Therein lies my question.
I have asked the group if the total bond cost is in todays dollar value or future value. I just get the reply "over the life of the bond". If it is expressed in future dollars (which is my assumption) then the actual cost of the bond would be considerably less. Am I seeing this right?

Thanks
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Old 03-05-2015, 02:49 PM   #2
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I would assume it is just like a mortgage... If you take out a 25 year mortgage (bond) and pay a 5.9655% interest rate, your monthly payment will be $402,368. For a total payment of $100,000,353.
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Old 03-05-2015, 02:53 PM   #3
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It is future dollars.... just like any mortgage it is monthly payments X number of months...


One of the big problems with any school bond election is that they can throw in stuff you do not want with stuff that is needed... IOW, IMO there should be NO maintenance in a bond issue.... that is normal annual costs that should be baked into the budget and not delayed so it can be added to bonds...

You also get the expensive new stadium that is 'needed' for some reason...
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Old 03-05-2015, 03:42 PM   #4
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Thanks guys for the replies.

So if it is similar to a fixed home loan, is there a way to calculate the true cost in todays dollars? Put in like a 2% inflation rate over the life of the bond?

"You also get the expensive new stadium that is 'needed' for some reason..."

Ya, I get ya TP. There are some things in the bond that probably not needed but the enrollment is out growing the existing school. It has been added on twice in its 50 year existence. I graduated from there in "72". I say yes for schools-no for stadiums
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Old 03-05-2015, 04:03 PM   #5
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I believe it would be 58 million in today's dollars. Assuming the 6% rate.

You can pay that today, or pay 100 million to spread it out over 25 years.

not exactly sure what you mean by "Today's dollars", but you can look at it this way... if it would cost you $58 million to build it today, if there is 2% inflation, it will cost you about $95 million to build the same thing in 25 years. 58,000,000 * (1.02^25)
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Old 03-05-2015, 04:21 PM   #6
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The $100 million is the aggregate payments over the 25 year term of the bond as others have said, just like taking your mortgage payment and multiplying it times the number of payments you need to make. That number is irrelevant in my opinion, just like it isn't relevant to your purchase of a house but is is a good scare tactic the opposition can use that seems factual.

What is more relevant is whether or not the community wants to invest $58 million in new facilities and commit itself to the associated bond payments.
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Old 03-05-2015, 04:34 PM   #7
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The $100 million is the aggregate payments over the 25 year term of the bond as others have said, just like taking your mortgage payment and multiplying it times the number of payments you need to make. That number is irrelevant in my opinion, just like it isn't relevant to your purchase of a house but is is a good scare tactic the opposition can use that seems factual.

What is more relevant is whether or not the community wants to invest $58 million in new facilities and commit itself to the associated bond payments.

That is my understanding also, and I also agree with you. The "Bonding Companies" make a killing on these transactions, but it is a necessary evil.
Although this is a separate issue, my favorite one is the "no tax increase" issues. What is never understood by the voters is the local taxes would actually go down if not approved because of less money is needed to fund debt services.
We had a nearby school pass a "no tax increase" levy, then decided to accelerate payments to free up more bonding capacity, which in turn led to forced higher property taxes. With the freed up bonding capacity, they then initiated another "no tax increase" the following year. The voters didn't appreciate the slight of hand tactic and voted the next one down.


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Old 03-05-2015, 06:29 PM   #8
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Quote:
Originally Posted by ChiliPepr View Post
I would assume it is just like a mortgage... If you take out a 25 year mortgage (bond) and pay a 5.9655% interest rate, your monthly payment will be $402,368. For a total payment of $100,000,353.
I assume ChiliPepr backed into an interest rate with this calculation.

It's not my area of expertise, but I'd be suspicious that the opponents don't care whether their claim is mathematically accurate. "Nearly" is a clue.

This site says current 20-year municipal bond rates are in the 3% range.
Bondsonline: Composite Bond Rates
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Old 03-05-2015, 08:12 PM   #9
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Yes, the numbers need to stay relevant. I agree to forget the 'total cost', but people should understand what it will cost per year for the next 25 years, and what it adds to the annual tax bill for people, say per $10,000 assessed value. And what other costs will there be, if the bond are just for buildings, there are many other costs to run a school?

The other relevant thing is not just the cost, but what are the alternatives? What if you don't build a new school?

It might be tilting at windmills, but you might question the enrollment estimates. Our district built a new, big, expensive (do kids learn better in an 'architecturally interesting' building than a basic rectangular one?) school, and the enrollment numbers never came to be, and then they closed some schools a few years later. I'm suspicious it was part of the plan.

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Old 03-05-2015, 10:01 PM   #10
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I live in a district that has been growing for more than 25 years... there used to be 1 high school, 2 middle and I believe 5 elementary...

We now have 4 high schools (with two new already on the schedule with bond money approved), 8 middle and 30+ elementary...

The high schools each have over 4,000 students... when I was in schools there were only 1500 to 2000 per high school....


There is zero way to grow a district without using bond money... no district will raise taxes to put enough money aside to pay cash for a school... it would not be fair to the taxpayers...

Some of our schools are already at capacity... some are projected to be at 170% capacity in 8 years... there is no way to educate these kids with the existing infrastructure....

The taxes would not go down (at least not much)... growth means that there are more houses and businesses that will be paying taxes to cover the bonds... now, if you live in a district like I do, there are not that many business compared to other districts... so taxes are higher for the people who live here... but, the amount of taxes that support bond pmt and interest is less than 25%....
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