Tags: Packer | Poway | school | bond

I’ll Pay You $10 of the Taxpayer’s Money for $1 Today: The Tragic Case of the PUSD

By    |   Tuesday, 14 August 2012 07:51 AM

“I’ll gladly pay you Tuesday for a hamburger today.”

That’s the iconic catchphrase of Wimpy, a character in the Popeye universe. The phrase has become synonymous with poor financial decisions.

Incidentally, the Poway Unified School District, where I served a mandatory 12-year educational sentence, recently raised $105 million by issuing bonds.

Ordinarily, that’s not a big deal. School districts issue debt all the time, along with other municipal organizations. But the terms are a sweetheart deal … for the bond buyers.

You see, these bonds are structured to be paid back in the late 2040s and early 2050s. What’s worse, they’re capital-appreciation debt. That’s like a zero-coupon bond. The $105 million the district has received today will ultimately cost them more than $1 billion when the bill comes due.

This deal combines the worst elements of America’s looming municipal crisis with the worst elements of the looming student-debt crisis. There is such a thing as overspending on education, just like there is such a thing as overspending on stocks, bonds or houses.

A lot of the money being raised is to be spent on flashy new construction and the like. My high school alone went through a small remodel during my time there, and since, has gone through a major one to increase student capacity. But here’s where common sense comes into play: The land in the district is mostly built out. Demographically, the baby boomlets are largely through the school system. There isn’t much more room for growth.

If anything, there may be an overall decline of students in the district going forward.

But it’s not like a school district is a business. Like any other government agency, as long as the tax dollars keep coming in, they don’t have to deal with economic reality. The recent bond deal, bad as it is, allows them to delay the day of reckoning even further. Ultimately, bureaucrats have no incentive to use the public’s money wisely.

If basic finance had been on the course curriculum at some point, there would be plenty of teachers willing to call out this terrible deal for what it truly is. If a bank, credit card company or payday lender were offering $1 today for a $10 repayment in the future, anyone who needed a loan would flock to a lender with better terms.

Admittedly, the deal wouldn’t be so bad if we faced years of double-digit inflation. Then, when it came time to pay back, that future $1 billion might only have the purchasing power of $100 million or so. But right now, inflation remains low.

The power to tax is the power to destroy. The officials of the PUSD have chosen to slowly destroy property values throughout their district. Ultimately, it’s the property owners of the district who will be footing the bill for this disaster — just not anytime soon.

The sad thing is, they won’t know it until it’s too late.

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Tuesday, 14 August 2012 07:51 AM
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