Wednesday, August 23, 2000

At the July 27 meeting of the special school board committee, board member-elect Janet Smola asked a question in the nature of “how much more interest would we pay with bonds than with a SPLOST?,” or something of that nature, nebulous enough for me to invite her to put it in writing so I could offer her a thoughtful and well-considered answer.

She never did submit her exact question in writing. Nonetheless, someone else brought this up.

A question of this type supposes that a dollar receivable or payable 25 years from now has the same value as a dollar receivable or payable today, and of course that’s dead wrong. The longer the delay, the lower the value, because of the discounting for the interest that can be earned on today’s money.

Some argue that the later dollar loses value because of inflation: that’s partially right, as economics teaches us interest is designed to be compensation for the temporary loss of use for the lender, loss of value from inflation, and the risk of not being paid back.

Even though the premise of the question is flawed, I prepared an answer which showed how a sales tax (SPLOST) would have cost Fayette residents, over a period of five years, some $85 million, while a bond tax (for the same net amount available for building schools) would have cost $73.9 million over 25 years.
That’s right, the bonds cost less (by $11 million), even though they are repayable with interest for 25 years (in this particular example).

This may be counter-intuitive for many people, and not what Janet Smola expected to hear, but the reasons are simple. Businesses pay a good 25 percent of our property tax, leaving ordinary people only 75 percent to pay. The portion people pay is generally deductible on their income tax returns, and a great many taxpayers can thus cut their income tax by one-third of what they pay as property tax.

That makes the people’s share, or net cost, 50 percent of the bond repayments. That offsets a lot of interest. (In my example, with 25-year bonds carrying 5.25 percent annual interest, it offsets all of it and even a bit more.)

While I have used a one-third discount for income tax, the technically minded may observe that some people pay no federal income tax, others pay at a 15 percent rate (over a base), others pay 28 percent, and the very wealthy can pay up to 39.6 percent. State income tax is 6 percent for the great majority.

The most common bracket for Fayette County homeowners is likely to be 28 percent federal plus 6 percent for Georgia, which is rounded to one-third. (The average Fayette household income is $78,462, according to the 2000 Guide Book published with the Atlanta Sunday paper of July 23.)

At the school facilities committee meeting of July 27, I demonstrated to an audience packed with strong SPLOST backers — one of whom was heard from at length in this paper last week — that each $15 million needed toward building schools would, if repaid through bonds, translate into a net cost of about $20 per household the first year. The amount would go down in subsequent years.

For sure, my presentation was lighthearted, as I affixed a title of “Hairy Plotter and the Epic Battle Against the Hogwash of the Evil SPLOST” to the front page of the 22 exhibits I passed out. Some people have a sense of humor, and some don’t. A good teacher tries to make his classes interesting, and to challenge his students. A touch of humor can help.

Unfortunately, some of our students let us down. They take the test and they flunk it. I won’t get into reasons for that, as there can be many.

One exhibit I was particularly proud of was the last one, as it showed the audience that $75 million in new schools could be built now, without increasing property taxes over their current level. I thought that surely, if these people are interested in getting more schools, more so than they are interested in getting more taxes, they’ll be keenly interested. Unfortunately, it was 10 p.m. by then, and I guess they’d already fallen asleep.

More important than money, in life, is integrity. I did show the school facilities committee how misleading and even fraudulent some of the previous sales pitches for SPLOST had been.

Every time a pro-SPLOST lie is put to rest by what I think is an intelligent demonstration of its falsity or absurdity, another one is propped up. They are like mosquitoes: you no sooner swat one than another one buzzes by. I explain one thing, and they want me to explain another thing (usually without giving me an adequate opportunity to do it). Then another thing. One must rely on the intelligence of the general population on this.

The question is, is it schools we want, or is it more sales tax? I’ve shown how we could easily and painlessly have schools without a sales tax. Those masochists who’d love more sales tax can always shop in counties that have more.

One Citizen reader (whose letter may appear in The Citizen at the same time as this one) was courteous enough to send me an advance copy of a letter in which he expressed concern that the effect of having to pile up long-term debt over many years had not been considered.

I didn’t get that far with the school board committee on July 27, but I had considered it.

Assuming we keep our current $11 million annual bond repayments for 30 years and build ourselves the five schools (or equivalent at $15 million each) that this would give us right now, our 2000 bond tax would average $87 per resident (at 95,000 residents, considering businesses pay 25 percent of the property tax).

Four years from now, with a population growing at 4.5 percent a year, when the average bond tax per resident would have reached $73, we could raise it $14 to bring it back to $87, and that would enable us to borrow another $32 million for additional new schools.

With state and lottery money also available for schools, we most likely could continue having stable taxes, an appropriate debt level, and the new schools needed. The process could be repeated every four years. At build-out, the new borrowing would stop and the debt would then decrease rapidly.

The special school committee never got to the point where I could explain that to them, because they were in love with SPLOST from the word go, and in total shock when I could show them how to have five new schools right now without increasing our taxes beyond their current level.

School officials act as if they never read The Citizen and are unaware of the proposals and comments offered to them through that medium. In fact, they do read it, but they want to ignore it because of their overwhelming infatuation with SPLOST, which is like a disease that seems to have taken control over their brain.
Our last line of defense against stupidity in all its manifestations is an informed citizenry. I haven’t been wishy-washy about this. A third NO vote, if needed, will save us from the stupidity of imposing upon ourselves a tax which is demonstrably not needed.

Stupid is as stupid does, said Forrest Gump. Those who don’t want to be viewed as stupid shouldn’t do stupid things. Eventually, we’ll get a bond vote, and the schools.

Claude Y. Paquin
Fayetteville
cypaquin@msn.com

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