| BOE is making mistake
with 10-year bond payback scheme
An open letter to the School Board
of Fayette County on school financing:
You are receiving this letter from me because you are a member of the
Fayette school board, and I am sending it to you (and also to your fellow
members on that board) because I am one of your constituents (and the
First Amendment gives me the right to do it). I'll be polite and to the
point.
I am as interested as anyone else, and perhaps more than many, in providing
adequate school facilities to the children of our county. The way to do
it, of course, is not to ask the people for a huge tax increase when a
small increase, or even no increase, would do the job. As I have explained
to the public before (in The Citizen), it's the schools we want, not the
taxes.
Flabbergasted is what I was when I read in the Atlanta Journal Constitution
of Saturday, Sept. 2 (page G2) that the referendum you had approved would
be for 10-year bonds, rather than 20-year bonds, "because board members
said it would save taxpayers approximately $20 million."
The statement attributed to you will make you a laughing stock among people
with even an elementary knowledge of finance and compound interest. Think
about it, wouldn't 5-year bonds have saved even more interest, or even
2-year bonds? Paying cash on the barrel will save you the most interest,
of that there's no doubt.
One important reason people don't pay cash for hefty expenditures like
houses and even cars, is that they need the house (or car) but don't have
all that money. The shorter you make the bond durations, the more upfront
taxes you're asking the public to pay. We have in this county people of
modest means like the teachers, secretaries and other school support personnel
you employ, police officers and firefighters, retail clerks, nurses, retirees
and others, who perhaps struggle financially and deserve some empathy
from public officials (who tend to be older and better off than the general
public).
People who are well educated in financial matters realize that there is
no real savings in paying loans early unless you are looking at a high
interest loan in a low interest environment. If the school board can borrow
money at 5 percent, and people can invest their money at 6 percent, people
are way better off when they can earn their 6 percent, take 5 percent
out of that to pay the loan interest, and keep the extra 1 percent. Since
the school board can borrow at a very low interest rate (income-tax-free
to the lender), borrowing becomes financially smart, not something to
be feared or avoided.
Long-term borrowing provides for lower payments (even if they last longer)
and lower taxes. You do need the support of the people to get the schools
you want. It is obvious that the less financially painful you make it
for the public to pay for these schools, the more support you ought to
get.
Have you looked at the difference in property taxes your decision makes?
For each $100 in extra tax a homeowner might have to come up with for
a 30-year bond, he'd have to come up with $123 for a 20-year bond, and
with $199 for a 10-year bond. (I have used 5 percent annual interest for
this calculation.) For the same number of schools, where the public could
be asked to pay $100, you are asking double.
One interesting aspect of all this is that the rich have an easy way to
convert a 30-year bond to a 10-year bond if they want to. During the first
10 years, they can simply put the payment difference into a side account,
which will accrue interest, and they'll then have enough that in years
11 to 30 they can withdraw all future tax payments from that account.
(I have tested that and will give you a demonstration if you like. If
the money can be invested at a greater interest rate than the bond interest
rate, there'll be a nice surplus left over for the taxpayer after 30 years.)
By doubling the tax unnecessarily, you are not doing citizens of modest
means any favor: they are already struggling, and you're making things
worse. And you're not making things better for the well-off either, because
they have better ways of "saving interest" (namely investing
the surplus funds themselves at a much better rate than the school system
has to pay).
You have advisers within the school system who appear to have some kind
of obsession with interest which seems to have been passed on to you.
If you have received advice to avoid interest, I want you to know that
is, in the current circumstances, bad financial advice. You can check
that out with people outside the school system who are experienced in
the field of finance. It is a disservice to the public to raise taxes
more than you have to, and it is a huge disservice to the children of
Fayette County if the excessive taxes you keep proposing (either as a
SPLOST or, as here, with a much too short bond duration) result in their
not getting the schools they deserve.
If you want to talk to me personally, either individually or as a group,
I'm easily accessible. Just call me. Given an adequate opportunity, I'll
prove every one of my points. Haste makes waste, I know, and you've been
frightfully slow on getting on with this bond proposal. If there's still
time to reconsider and revise what you've just done, please get in touch
with me right away, and let's try to do this thing right by concentrating
on getting the kids some schools and presenting a palatable solution to
the public that focuses on keeping
the taxes affordable for all our citizens.
Claude Y. Paquin cypaquin@msn.com
Fayetteville
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