California School District Owes $1 Billion On $100 Million Loan
npr.org
npr.org
Whether these new schools improve education is of course an open question.
California is pretty deep in...
I have a feeling I will have to fund my own private pension in the future, and I am from Northern Europe.
/Illinois resident
"Ramsey says it was a good deal, because his district is getting a brand-new $25 million school. 'You'd take that any day,' he says. 'Why would you leave $25 million on the table? You would never leave $25 million on the table.'
"But that doesn't make the arrangement a good deal, says California State Treasurer Bill Lockyer. 'It's the school district equivalent of a payday loan or a balloon payment that you might obligate yourself for,' Lockyer says. 'So you don't pay for, maybe, 20 years — and suddenly you have a spike in interest rates that's extraordinary.'"
No, I would leave that on the table. I wouldn't agree to a sucker loan like that on my own behalf, nor would I agree to it as a public official on the taxpayer's behalf. The problem here is that the public official forgot that he has a fiduciary duty to the public. I wonder if he learned his civics and his understanding of the mathematics of loan interest in a California public high school.
AFTER EDIT: Oops, I almost forgot a rare example of a pithy quotation attributed to Mark Twain that is an actual genuine Mark Twain quotation. This is what he wrote about school boards more than a century ago:
"In the first place God made idiots. This was for practice. Then He made School Boards." -- Mark Twain, Following the Equator (1903) 2:295
AFTER SECOND EDIT: The claim that the school district did well to take out a loan on unfavorable terms to also obtain a loan with a federal subsidy doesn't take into account that all the taxpayers in the district are also on the hook for federal deficit spending, as most of them are federal taxpayers directly and all are part of the national economy.
If the school district does not have bad credit, 5% probably is a bad deal in today's market.
It's maddeningly common for people to neglect that pesky "cost" part of a cost-benefit analysis.
Bottom-line:
A Loan makes sense for the borrower when the return
on loan proceeds exceeds the cost of the loan.
[1] CABs are fixed rate. http://www.msrb.org/msrb1/glossary/view_def.asp?param=capita...
[2] See 16731.5 (a)(3). http://www.leginfo.ca.gov/cgi-bin/displaycode?section=gov...
[3] The public is genuinely harmed by this type of reporting and it drives me nuts. How can anyone draw a rational conclusion to these difficult policy issues without a best effort cost-benefit analysis of the transaction?
Issued in: 2010. Principle: $2,999,949. Due in 26.1 years: $33,820,000
That works out to an interest rate of 10.495%. How does that compare to your mortgage interest rate?
http://spreadsheets.latimes.com/capital-appreciation-bonds/
What California needs is the power to issue its own currency, call it the CMB (the California moon beam), legal tender for all California debt, public and private. Well, public anyway. Initially equal to $1. But only initially ...
Poway's population is 48,518, comprising 16,128 households. 6,493 households have children, so this is costing them $154,012 per household with children for one expense, at a time when they already had several school buildings that were not old and were in good condition. The population of children is not increasing. It's certainly not the only expense to run the schools either.
How will the 16,123 households pay their $62,003 debt per household?
If they all sell their houses and assets it can be paid back.
Quick, call your representative and ask for the California Moon Beam amendment to be passed!
Debt obligations can serve as a proxy for money, so California can already issue those. What they don't have the power to do is to require it to be legal tender, so in a way this inflationary currency would only be accessible to those who have no choice but to accept it (i.e. state contractors and employees).
US treasury secretary can issue platinum coins of any denomination. This is currently a serious proposal to resolve the current fiscal crisis
Criminal prosecutions may be in order. Certainly there have been financial crimes at the county level in California (Orange County being the famous example).
In a place like Hillsborough or Palo Alto, there may be some hope of a retired or free-time competent executive being a local resident and doing a good job for non-economic reasons. Ghetto parts of SoCal, though, have little risk of that happening.
Occasionally you get lucky and get someone like Bloomberg heading up your municipal government, but even with prestigious gigs like that (the mayor of New York is arguably a more important person than most Governors) quality people are still few and far between.
You get good government when there is enough of a media market to pay for people to spend all day, every day, tracking government. The USFG has that.
Richmond, Hercules, Pinole, El Cerrito, San Pablo and El Sobrante don't.
San Diego (especially in the suburbs) has much more of an anti-tax climate than most of California, so I'd guess this is more an attempt by a politician or school board faction to increase services without increasing taxes, George W. Bush-style, with the bill coming due later.
The subprime mortgage crisis was built on respectable hard-working middle-class families that were persuaded to take on debt like this for their own homes.
It doesn’t have exact numbers, but the tl;dr is that people from every income bracket were taking out subprime mortgages, including middle- and upper-class people who could qualify for prime mortgages but wanted to borrow even more.
1. The level of incompetence designed into the system rises at the federal level faster than the level of average individual incompetence. For example, large municipal debt can be reduced by municipal employees and councilors who could never get a job in Washington. In Washington, there are thousands of brilliant people who can do nothing about debt and poor choices.
2. Many of the most competent believe crazy things and rise to the federal level to inflict them on the government and us. The most brilliant, careful financial manager in the world can become secretary of treasury, and all of their work can be undone with an enormous war, creation of homeland security, etc.
Interesting hypothesis. According to this hypothesis, the US Congress members should be among the most intelligent, skillful and talented people in the country. Does the known evidence match the hypothesis?
That being said, yes, US Congressmen are much more intelligent than state and municipal legislators as a whole. Congresspeople aren't dumb (in the sense of g factor). When you hear a Congressperson say "stupid" things, he's usually being disingenuous, or is falling pray to the common human tendency to ignore facts in favor of ideology.
Todd Akin, for example, has an engineering degree from a reasonably well-known school and served in the Army Corps of Engineers. He's not stupid, he just believes crazy things. I've met lots of engineers that believe crazy things. Indeed, I've met more engineers that believe crazy things than non-engineers. I think it takes above average IQ, as a general rule, to believe something that goes against conventional thinking. But believing crazy things makes for great political appeal.
What makes you think Congress is substantially different? Plenty of safe congressional districts out there, and from what I saw, the primary talent required for higher office was a willingness to dial for dollars for hours on end. If someone says things like the earth is 7,000 years old (significant number of congressmen), why should I assume that guy is smart and being disengenuous rather than taking him at his word?
Yes, there are safe districts, but the competition for the average federal district is just higher than the competition for the average state district. Not e.g. Cook County or LA County versus some random federal district in Montana, but some random federal district in Montana versus some random state district in Montana.
As for people saying the earth is 7,000 years old... there are a lot of smart people who believe that. Even rational people do not apply rationality to all aspects of their life, nor is every person well-versed in one subject well-versed in all subjects. Heck, Bill Frist had some wacko ideas about the ways you could get AIDs, but he had an AB from Princeton and MD from Harvard Medical School. He was a faculty member at Vanderbilt Medical and chief resident in cardiothoraic surgery at Mass. General. He is an objectively smart guy and he thought you could transmit AIDs from tears and sweat.
> Stephanopoulos: You’re a doctor. Do you think tears and sweat can transmit HIV”
> Frist: I don’t know…I can tell you..
> Stephanopoulos: You don’t know?
> Frist: I can tell you things like, like..condoms..
> Stephanopoulos: … You believe that tears and sweat might be able to transmit aids?
This is different than the impression from claims that he was saying it could happen. He said he didn't know about those in particular.
Does the HIV virus ever leach out in tears and sweat? Probably, but not in quantities great enough to be of concern. Is there a minute remote chance one could get it from this under some perfect storm of chance? Probably not, but it's conceivable.
It's like the saliva issue. HIV is present in the saliva at extremely small levels thought to be no risk. Six people caught it from dentist David J. Acer, something that was thought, and claimed, to be impossible.
As a doctor Frist likely was familiar with cases such as that of Dr. Acer. His statement, the actual statement he made which is "I don't know", is not unreasonable.
Indeed, their monthly payments were very low, only 1% of the outstanding balance, with a minimum of $15.
But the interest rate looked a bit steep, so I coded up a little amortization calculator for fun and ran the numbers.
If you made the minimum payments, your $5,000 loan would cost you $50,000 to repay. But thanks to those easy low payments, you'd get 105 years to do it!
If you stay in your seat for fifteen years, then leave the next guy with a ticking timebomb, it's a victimless crime (taxpayers, children, employees), right?
Now it would be a different matter entirely if the loan was made through a private bank. Then even an interest rate of 0.1% would be a waste of taxpayer funds as there is absolutely no reason not to borrow from the state itself. But that is not how it usually works since governments always are able to finance their loans themselves.
Charles Ramsey, president of the school board, says he needed that $2.5 million upfront, but the district didn't have it.
If the school was really so badly needed, why didn't they raise taxes to get the $2.5 million? If they couldn't get the district to pass a tax increase in order to qualify for a subsidized loan 10 time its size, then I'm skeptical on how necessary that new school actually was.
If they couldn't afford $2.5 million up front, what made them think they'd be able to afford $34 million later?
On a related note: http://www.networkworld.com/community/node/16331
I keep seeing "Market will sort it out comments" when the market cannot play in this, Market.
School boards are a fairly unique US thing but they are like a canary in the mine.
I'll contribute to the fund that supports teachers/admins getting an MBA for cheap. They must sign something saying they'll come back to the school district.
No, it doesn't exists as far as I know. Please go start it.