Wednesday, December 17, 2008

Email of the Month

Since I am on vacation next week, I thought I would post this email of the month a bit early.

I have been very happy to see the conversation about the possibilities of the high school project take shape. While I took a bit of heat in the beginning for putting out a proposal on my website, the feedback has been largely positive and I firmly believe it was the right thing to do.

The Board receives emails most every day regarding the high school project. Some of those emails have been in support of a low-tax increase approach to the high school project and others are in support of a full brand-new school. There are a few that are in the middle.

Earlier today I responded to a constituent email regarding building a new school versus my "$15 Million Dollar Idea" as follows:

Thanks for the email.

I hope to be able to convey more thoroughly the thought process behind the proposal at one of our future Board meetings.

There are many pros and cons to my plan as there are pros and cons to all the other plans that have been put on the table.

At some point this Board will need to make a decision on what it is willing to spend and at what interest rates it is willing to spend. If bond rates continue to rise as they have for the past six months then the District could be forced into a bond market that might make floating bonds quite costly. We heard from our financial adviser on Monday night that bond rates have risen by 1.5% to 2% since July when we had our last community forum. The cost to float these bonds has risen as well.

Rather than float bonds at these rates, my opinion is that it may be prudent to investigate alternatives that would not hamper the District budget for a generation. That will be a discussion for the Board to have at a public meeting. I may very well be in the minority here and I am fine with that. I simply want to make sure that if we do engage in a large-scale project that everyone is aware of the budgetary constraints that would be placed on this District and its taxpayers for the life of whatever bonds are issued.

While you say the project will cost more if we wait ten years from now, I would suggest that at these interest rates, that might not be true- especially in light of the fact that both the Producer Price Index and Consumer Price Indexes are experiencing declines. The CPI dropped by the largest amount since 1947 in November of this year. Additionally, with a 2% increase (from 4.5% to 6.5%) in bond rates over a 25 year $110,000,000 bond issue, we would see total payments for that debt increase by about $18.5 million. The thing about bond rates is that they are very unpredictable. We do not know where they will be when we are ready for whatever project we do. At what interest rate will the Board deem going forward with a bond issuance impractical and irresponsible? That number exists and it should be defined by this Board before soliciting bids for any bonds.

The proposal I put out there takes a very stark look at what I believe to be the financial reality of where we are right now and puts that reality up against where this country is economically. After combining these two factors, the issuance of a massive amount of debt has me extremely concerned. That approach is but one way to look at this project. I understand that there are other perspectives to take with regards to the high school and I look forward to hearing them.

Best wishes,

James Fraasch

One quick note, I added the bolded part of the response to this website- I thought of it after I sent the response to the constituent.

As our Financial Advisor told us on Monday, we really are in a different economic environment. It is my belief that we have not yet spent enough time on the financial impacts to the District of any given plan. I hope that will change soon.

Thanks for reading.

James