Sunday, February 27, 2011

Portland $548 million school bond: No, but . . . .Part II

Last week, we talked about what the Portland Public Schools need ($370 million) and what was requested ($548 million) from Portland property taxpayers.
Here's a brief synopsis.
Portland Public Schools have an urgent need to upgrade 8 campuses for a total of about $370 million.  But after paying $21,600 to research firm Davis, Hibbits and Midghall, they concluded that property owners would be more likely to vote "yes" if all 85 campuses were upgraded, and upped the ante to  $548 million.
By adding $178 million to the construction bond issue, PPS and its research firm ignored Portland's:
  • High (9.9%) unemployment rate
  • Comparably low (just over $70,000) household income
  • Comparably high cost of home ownership (compared to renting)
  • Home prices that have fallen 12%+ last year.
I could bore you to tears with my version of where we are in the economic cycle, using 21 indicators reflecting one of many determinants of financial heath.  But I wouldn't be telling you anything you don't already know.
We had a BIG financial scare a couple of years ago, and we're creeping with fits and starts from potential disaster.  But we're nowhere near healthy.
That is an accurate description of the economic situation the people from whom PPS is asking for and extra $178 million for non-essential school construction.
So what are the "extras" we'll get for that additional $178 million?
  • Doors that open with key cards
  • Covered playgrounds
  • Outdoor learning environments
  • Upgraded science labs
Not one teacher will be added.
PPS' research firm concluded that Portlanders are concerned about education and unemployment, and therefore would happily pay an extra $178 million for non essential construction upgrades to accommodate some temporary construction jobs.
We could very well end up with covered playgrounds in schools with no physical education programs.

But it's only going to cost the average property taxpayer about $300
I used to have a financial planning business, where I did all my own macro and micro economic research.
I ignored financial pundits and analyzed the financial statements of potential investments for my clients myself.  I taught financial planning students how to analyze financial statements at UCLA as well.
Here is a perfect example of why I insisted upon doing my own research.
1.  It's $300 for six years, plus. . .
From PPS: "The estimated bond rate for six years is approximately $2 per $1,000 of assessed property value. It then drops to an estimated 15 cents per $1,000 for no more than 20 additional years. The median assessed home value in the school district is $147,480."
In plan English?
It's $300 times 6, plus $22.12 times 20 years, or almost $2,250.
2.  The $548 million bond is really a $625.5 million bond
Oops!  PPS forgot to include the $75.5 million cost of interest payments and the $2 million bond insurance expenses.  So, it's really costing the "average" property taxpayer about $2,500.
And that $75.5 million interest cost is very likely understated.  Most of the financing, in their own words,  would be in short-term bonds that mature in one, two or three years
As anyone who has not spent the last three years in a cave knows, the Federal Reserve Bank has spent trillions of dollars to keep interest rates low to stimulate the economy.  Everyone knows it won't do that forever.  So, everyone knows rates are going up.
Everyone except PPS.
Instead of locking in a low long term 20 year rate now, PPS is going to finance short term loans that are ASSURED to be renewed at higher rates over the term of the bond.
So, you can be almost certain that the $2,500 will almost certainly be higher.
3.  What's an average property taxpayer?
Probably not you.  First of all, from a mathematics perspective, PPS is using the word "average" incorrectly.
We should expect more from those who supervise our math teachers.
What they should say is "median."  The median assessed value for a PPS home is now $148,480.
That means that 1/2 of assessed values are more than $148,480.
Look here to input your street address, and find your assessed value.  If it is more than $148,480, you'll be paying more than $2,500 for this bond.

More next week.

Until then, give this some thought and discuss it with your friends and colleagues, and certainly anyone representing PPS and this bond issue.  Every assertion in this series of articles is based on hard facts, and I welcome discussion about any of them.

Next week, we'll review a local professor's analysis of how many residents are likely to be forced to move out of Portland because of the increase in homeowner expense if this bond issue passes.

And, how PPS "Superintendent Carole Smith says her goal is to persuade voters to approve new construction until all the the district's schools have received the overhauls the district says they need."

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