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We’re Not Just Spending $66 Million On the School Bond
Note: This post was updated to reflect a comment provided by a reader indicated I did not calculate interest correctly.
I like to check out citizen comments on the Park Record. There is always something to learn. Today I was looking at the heated conversations on the “No School Bond” group article from Saturday. Commenters kept saying things like “$55 million is a lot of money” to spend.
I just wanted to point out that we as a community are not just spending $66 million on this plan ($56 million bond plus $10 million that’s in the bank). There is also interest on the school bond that should be accounted for. The School Board has estimated the interest rate at 4% (although it could turn out less depending on when the bonds are issued).
Four percent doesn’t sound like much, but it does add up
Borrowing: $56,300,000
Rate: 4%
Term: 20 years
Total borrowing costs are approximately $25.5 million.
So, the total money being put into this project by our community is:
$56 million (bond) + $10 million (in the bank) + $25.5 million (interest) =
$91.5 million.
That is the cost of this plan to the community.
Parkrag
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Comments
2 Comments
Not only that, the current taxes give the district $5M each year. So this November, they will not just have $19M in their capital fund, they will have $24M. Since construction is expected to take up to 4 years, they will have another $20M that they can spend along the way. Add that to your total.
You need to go look up how amortization on a loan/bond works, because this isn’t it. So yes, you are wrong, and I will correct you. A 20 year bond like this one is entirely extinguished by the fees paid by the end of the 20 year period, so the balance due (and interest paid) drops each year. If you are unfamiliar with the concept of amortization here’s a quick primer:
https://en.wikipedia.org/wiki/Amortization
It’s like your mortgage (unless you have an interest only or balloon mortgage) – you don’t pay 4% interest on your principal every year for 30 years and THEN have to pay off the principal at the end (though many mortgages prior to the 1930s worked that way).
Interest costs @ 4%/20 year amortization for a $56 million bond will be around $25 million. Of course in many cases bonds/loans are paid off ahead of schedule – if revenues exceed expectations, the district could decide to retire the bond early. Or they could use the money for other purposes and continue paying the bondholders on schedule.
Regardless, yes, more students and aging infrastructure do cost money, if not quite as much as you’re estimating here. In general, bond issues are often “the largest ever” simply due to inflation and population growth. In inflation-adjusted dollars, we’ll be paying less in taxes than we were a decade ago, though.
What’s your alternative proposal?
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