Government is notorious for depending on non-beneficiary tax receipts to pay for benefits today. A California school district has decided to take deferring paying for current benefits to a new level. The school district has issued a 30 year $105 million capital appreciation bond which requires no payments for 20 years and then about $50 million a year for the next ten years for a total of $982 million. So today's taxpayers will receive immediate benefits, but it will be taxpayers 20 years in the future that pay for the cost.
This seems like a financial disaster waiting to happen. According to the article, the assessed value of real estate would need to quadruple in order to order to cover payments. That is quite a high expectation given the recent real estate decline and slow recovery. In addition, the school district will likely need addition renovation funds in 20 years. Finally, if I lived in that school district, I would definitely move out before 20 years. :-)
To me, the better financial decision would have been to cut back on the upgrade plans or let the current taxpayers decide whether to pay the costs. That way the current beneficiaries would make the decision on whether the benefits are worth the cost.
For more on Reflections and Musings, check back every Saturday for a new segment.
This is not financial advice. Please consult a professional advisor.
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