One of the few things on which just about everybody can agree during this election season is that our elected officials in Washington, DC have taken on too much debt on our behalf. Voters part company on what to do about it, but most agree it’s a problem that’s not going away. Deciding to borrow money at the government level is so easy; rates are extremely low and the pain of repayment is left to someone else. I just finished reading Roger Lowenstein’s excellent 2009 book, While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis. It provides a sobering portrayal of how many seemingly expedient decisions can in aggregate lead to catastrophe.
I live in Westfield, New Jersey, a town of around 30,000 people, easy commuting distance west of New York City. We are currently facing our own debt choice. It’s not an existential issue, but it illustrates at a grass roots level how the ethos of consumption today creates problems for tomorrow. Westfielders are about to vote on a $16.9 million bond, the proceeds of which will be used to finance two separate projects: 1) roof repairs on a number of school buildings, and 2) installing a lighted turf field (we already have two).
No doubt few Westfielders have any clear concept of what this new indebtedness means to them personally. The numbers governments at all levels spend are often abstract at an individual level. But a clear perspective can be gained by comparing this amount with the $24 million annual property tax revenue collected by Westfield. The proposal is therefore to borrow an amount equal to two thirds of our property taxes. Every property owner will consequently owe an amount equal to this proportion of their annual property tax bill, and in strict financial terms the equity in their home will be reduced by the amount of this obligation. If the money is invested such that Westfield is $17 million more attractive as a place to live, the difference may be made up. But I wonder how many people would willingly vote for this additional personal debt obligation versus those who might approve a somewhat abstract $17 million collective borrowing. It’s just so easy to vote to approve such things if they’re not translated into personal terms. This is how as a country we’ve arrived at a point awash in debt. Roger Lowenstein told his story well, as he always does.
The vote is on September 24th. I shall vote no. We shall see, on a micro basis, whether the fiscal standards we wish our elected officials in Washington DC would follow are the same standards we apply at a local level.
Does that imply that some of the BOE members do? Bonding for millions? That combining some roof replacements with a lit field in a residential area won't have an enormous negative impact on their quality of life? I don't live near there, but the added lit field seems to be bullying itself into a bad location. Years ago, early 90's, a different bond was attempted in Westfield with a different mixed BOE, and the reasonable citizens came out in droves, making it the largest election ever in the history of the town. For a huge financial cost that will only keep growing in the future, and a senseless plan for a lit turf field, a NO vote next Monday, Sept. 24th, seems to be the only reasonable choice one should make.
How about comparing the current enrollment to that of years past? Do you expect them to educate more kids with less money without sacrificing quality? How about the fact that our spending per pupil is well below the state average? PS - I live in Westfield, don't work in banking, but somehow can still afford $100 per year for roofs and fields.
a. Don't replace the roofs for 10 years until we can save up enough money through the regular school funding to do so. b. Continue to spend a lot of money on patch jobs. c. let the roofs collapse d. Pass a bond, replace the roofs, and learn a lesson so that next time, we do have money set aside. At this point, how we got here is irrelevant - the schools have a fairly urgent need, and the district needs money to pay for it. SInce it appears that many on here find school athletics an irrelevant part of the education process, perhaps the district should sell the land adjacent to their schools so that we can add more McMansions to the community and use the money to fund the roofs.
"One of the biggest challenges confronting Investors in today’s low interest rate environment is the generation of current income. Bond yields are being kept artificially low by the Federal Reserve as part of a strategy to help debtors rebuild their balance sheets. Negative real rates of return are a form of significant wealth transfer from savers to borrowers. Interest rates below inflation are likely for the foreseeable future, and yet the need for income exists in virtually all investment portfolios." - I would think someone with your financial background would support our timing for issuing this bond." Please tell us what we are missing here- Should we issue a bond when rates go higher?
Let's not forget the $170 Sewer Bill and the resident parking permits. There is also the $125 student activity fee. Why is it, that 1/3 of the acquisition cost and 100% of the maintenance costs of Chathams artificial turf fields are paid for by private donations and contributions. Westfield's spending has exceeded its revenue every year since 2006. This was highlighted when the S&P Rating Service downgraded the town's debt rating in July. An additional bond by the BOE adds to the fiscal recklessness.
The 20 year bond is mixing a project that will last 20 years with one whose warranty lasts only eight years, with an average life of eight to ten years. The plastic grass will need to be replaced twice before the residents have finished paying off the original purchase cost. Bond interest rates may be low but they will not be increasing any time soon. Vote NO and let the BOE bring up the issue again after an equal airing of the favorable and unfavorable impacts of the measure.
Mitch, you'll appreciate given your finance background that collectively the Board has maneuvered itself into an untenable position. As so many others have noted, roof maintenance shouldn't be funded as a capital expense, and shouldn't be added together with a "nice to have" item. Moreover, if the repairs are so critical how could the Board subject them to the uncertainties of a public vote? I'm afraid it's all evidence of faulty prioritization in the past, poor planning.
Thanks. Mitch
Thanks Liz – I didn’t push aside anyone’s arguments – I was merely pointing out that in the context of our bond, they don’t hold water. Let’s focus on the Town of Westfield’s bond referendum vote next Monday. You seem to want to just blow it all up given what some portray as prior BOE lack of proper prioritization. I am simply saying we need to move forward as productively as possible and to the extent there is a better way to fund for the future then let’s do it. You are also harping on the combined bond vote – not the substance. You may recall that I wanted to separate the two projects and allow two votes. A majority of the Board believed otherwise. I didn’t like it, but at the same time, I am not willing to take the approach that we should harm the process to teach anyone a lesson. There is a bona fide case for the field. The Board has discussed it many times publicly and all 9 Board members agree on that. Capital projects will continue to present themselves to the Board. We need to be fiscally responsible and budget for what we know, as well as to have some contingency for what we don’t know. It is difficult enough – why make it harder. I am with you on wanting project separation in the voting booth – but I seem to be way ahead of you when it comes to seeing the big picture and undertaking the best path forward in the circumstances.
overall, keep in mind the current BoE has to work with both what it inherited and the current finance situation. As I've mentioned before, in the past, due to what portion the state would typically pay on a project (40% in "debt relief") it was advantagous to fund improvements via a bond. And yes, other districts may have been able to find the money elsewhere - many you mention have higher per-pupil costs than Westfield and thus be able to use current taxes to fund future projects, or may have had a one-time surplus of funds they need to spend or else lose it. Keep in mind a single special ed student out of district student can easily cost $100k to even (although rare) $500k per year, and when those students leave a district, money is in the budget to be spent. And don't forget, the 2% has to go to other costs that rise, including (like it or not) salaries.
I could not have put it better myself. John Blake