Nothing Comes From Nothing

On Tuesday, Saint Louis city residents voted overwhelmingly to pass a $155 million bond for Saint Louis Public Schools (SLPS). According to the city’s Board of Election Commissioners, nearly 76 percent of the city residents who showed up at the polls voted for the bond.

One of the primary strategies with which proponents of a school bond promote such measures is to say that the bond will not result in an increase in taxes. This is misleading at best, and disingenuous at worst.

There are two main ways that school districts ask residents for more money. The first is by asking voters to approve a tax levy increase, which, if approved, results in a direct increase in the property tax rate. The second is by requesting that voters approve a bond. A bond is an issuance of debt. It does not directly raise your property tax rate, but the debt must be paid off in the future. And school districts pay off the bond issued today with property taxes tomorrow, plus interest.

According to St. Louis Public Schools’ 2009 Comprehensive Annual Financial Report (CAFR), district residents paid $3.8 per $100 of assessed property valuation. Of the school property tax rate, $0.6211 was used to pay off debt and debt-related costs. That means that more than 16 percent of the property taxes that district residents pay for SLPS are used to pay for the district’s debt. Tax dollars will be used to pay for the just-approved $155 million bond. Those millions will not appear out of thin air.

Reading the coverage leading up to the election, one statement stood out as particularly bad. As St. Louis Post-Dispatch reporter Elisa Crouch put it, “The bond measure would not result in a tax increase, [h]owever, taxpayers would pay the levy longer if the bond is approved. The district would retire its bonds in 2025, rather than 2018.”

Read that quotation again. It’s kind of ridiculous. Rationalizing school debt by saying that it won’t increase the tax rate, only the duration of payments, is akin to justifying taking on more credit card debt because it won’t increase your monthly payment — you’ll just have to spend a few more years making the minimum payment. If I applied this logic to my own finances, I’d have many wonderful impulse purchases (ooh!), but it would take me years of austerity to climb out of debt in the future.

I wonder when SLPS will get around to paying off all of this debt it has accumulated. Going back to the 2009 CAFR, you can see on page 105 that since 1999, SLPS has never managed to reduce the rate of taxes it charges residents for debt purposes. The rate has only increased, from $0.55 to $0.6211. In 2009, SLPS had accumulated a total of more than $245 million in bonds and notes payable, according to the CAFR. Furthermore, SLPS paid down $14.3 million of its debt last year, while paying an additional $8.95 million in interest charges. In fact, according to the CAFR, only $1 of every $2 that SLPS spent in 2009 on debt service went to paying down its debt. The rest was eaten up by interest, payments to an escrow agent, and bond issuance costs.

Debt is expensive. I’m sure SLPS — and Nicolas Cage — would agree.