We blew it. During the last few weeks, our editorial board stared long and hard at Burbank's proposed school bond, Measure S. We talked to proponents and opponents, and nearly drove ourselves batty looking at spreadsheets and amortization schedules.
Though we did not come out against it, we said the $110-million borrowing plan had risks, and voters should vote it up or down based on their own threshold for danger.
I still believe this, and stand by it. However, we erred in saying that the biggest risk was the uncertainty of interest rates in 2023 — the year the school, and by extension, you — would most likely begin paying back the “converter bonds.” In fact, the interest rate is set when the bonds are sold, something that would likely happen this year if the measure passes.
This would significantly decrease the risk, as we would all know the full cost of repayment fairly soon on. As interest rates are at very low levels — perhaps even historically low — now is as good a time as any to borrow money.
But that is hardly the whole story. Measure S is extremely complicated, and I'm sorry to say neither this newspaper nor Burbank Unified has done a particularly good job explaining it.
So, without putting you to sleep, here's my line-by-line summary of the bond, and its risks and rewards.
First, the school district wants to borrow $110 million to, in part, perform upgrades on buildings, build wireless networks and potentially buy iPads for students. I think the first two are good ideas; but the last is bad, given the semi-disposable nature of electronics in a school setting.
The bonds would be issued in two flavors, so to speak. A bit less than half, $44 million, would be issued as “current interest bonds.” Taxpayers are on the hook for this borrowed money immediately, paying back principle and interest for the life of the loan. This is similar to a fixed-rate mortgage.
The remainder, $66 million, would be issued as “convertible bonds.” With this type of bond, the district receives the money right away, but doesn't have to begin repayment for a decade. It's far from free, however, as interest continues to accrue during that period, and we end up paying more — in interest — than we would if we began paying off our debt immediately.
In both cases, however — and this is where we made the error — the interest rate is set at the time the bonds are sold. But, further complicating things, the district said it intends to issue the bonds in two parts: about half now, and the other half in 2016. And this could all change based on interest rates and the whims of the school board.
Why is the district doing this? Burbank is perilously close to its state-mandated credit limit, and creative financing is the only way BUSD could borrow the amount of money it says it needs. This, in part, is because local taxpayers are still paying off a $112.5-million bond measure passed in 1997.
Another concern is whether the money will be spent wisely. Locals are wise to be a bit jaded, given the poor record-keeping and oversight of the 1997 bond. To that end, if Measure S does pass, I hope residents will keep a watchful eye. We certainly will.
Our editorial overstated the risks involved in this bond, and for that I apologize. However, there are still risks, both on the final amount of interest Burbank residents will pay, and how wisely the money will be spent. Please do your best to educate yourself prior to casting your ballot.
DAN EVANS is the editor. He can be reached at (818) 627-3234 or firstname.lastname@example.org.