In the midst of a recession, the City of Crest Hill is looking to borrow $24 million. The purpose for this is to rebuild the east sewer treatment plant. This is a huge amount of new debt for our water and sewer system to be taking on, especially since it is for re-building an existing treatment plant and not for system expansion. And it is of great concern that the Mayor is not releasing information on how borrowing all of this money will affect our water and sewer rates.
The city has posted notice that they want to issue $24 million in revenue bonds, which means that the bonds would be paid out of the revenues of the water and sewer system and would have no impact on taxes. However, the city has posted notice that they are also seeking to issue alternate bonds that would be general obligation bonds. This means that if the sewer system did not raise enough money to make payments, the city taxpayers would be on the hook for paying the money back. This is a concern because if only the revenues of the sewer system can be used then the users pay in proportion to how much they use, if general obligation bonds are used then taxpayers could be forced to pay it back based on property value and not on what they use. The real reason why this is a problem is that our largest user pays no taxes. Stateville is our largest user, but pays no taxes. This would only be a problem if revenues are not sufficient to cover the bonds, but is still worth remembering. One way to think of it is that a revenue bond is a loan to a business that may have to raise what they charge you so they can pay off the loan. Sure your price goes up, but we each can decide how much you want to buy. A general obligation bond is a mortgage taken out on all of our homes.
We also should all be asking why the city has not set aside money for the eventual replacement of their sewer treatment plant. They should have been setting aside funds for depreciation all of these years. Where are those funds? Why was a proper amount not set aside? How much more are we going to have to borrow in the future when the city fails to set aside funds for future maintenance and replacements?
The biggest question most people will have is how will this loan affect our water and sewer rates? At a previous work session this was discussed and it has been thought that an increase may not be needed since the city recently raised rates beyond the rate of inflation. This is just a tentative answer since the financial analysis for the past fiscal year is not yet available. Previously a large increase was going to be needed based on previous analysis. The city should not be moving forward until this question can be answered with certainty and not just guessed at with hopefulness.
I urge every resident of Crest Hill to show up at City Hall on Monday, September 20th, at 7pm for the public hearing on borrowing this money. We need to find out why the city is mortgaging our homes to pay for work they failed to save for. We need to find out why they want to borrow before they know how much more they will need to ask us for, instead of just hoping our rates are high enough. The City Council has refused to reach out to the voters to approve this loan, so we need to at least make our voices heard.
Showing posts with label bonds. Show all posts
Showing posts with label bonds. Show all posts
Saturday, September 18, 2010
Tuesday, April 3, 2007
School Tricks
In my recent item about the Herald-News' lack of coverage, I referred to schools abusing the power to issue bonds after winning a referendum. This issue finally got some coverage in the Herald-News in the past few days thanks to two guest columns concerning the upcoming Lockport Township High School (LTHS) referendum to build a new high school.
The basis of how schools borrow more than they asked for at referendum is that instead of issuing $100 million of bonds at 5% interest and getting $100 million to spend; they issue $100 million of bonds at 8% interest and get $120 million to spend. The extra $20 million is called a bonus by the company that purchases the bonds. This is not some nice gift or really even a bonus. From the buyers perspective $100 million at 8% is the same at $120 million at 5%. They are just inflating the interest rate and then paying more than the face value of the bonds. To the buyers it is just semantics. But, to the school, the difference is that they have borrowing limits imposed by state law. These bonuses do not count towards their borrowing limits. This seems highly dishonest to me.
Beyond being dishonest though, it is financially irresponsible. The borrowing limit is in place because the State of Illinois does not want local governments to be able to borrow away all the property of their citizens. When a school, city, or county borrows money, it is your property that is the collateral. The bond owner may not be able to come and take your house, but they can force the taxing body to raise taxes to pay the debt; and if you cannot pay those taxes your home can be taken by the government. A school district that issues bonds with bonuses attached is being irresponsible with the finances of its citizens. Any government that would do this is irresponsible, however so far this type of financing scheme has been limited to schools.
LTHS has publicly stated that they will be issuing bonds with bonuses if the referendum passes and they have stated that they are doing so with the purpose of getting around their borrowing limit. They also have stated that the bonds will be back loaded so that most of the cost are postponed and payments get larger in future years. Their reasoning for this is that in the future there will be more taxpayers and property values will have gone up, thereby increasing their tax revenues. This sounds a lot like the logic used by people a couple years ago when they bought homes using interest only loans. They figured that by the time the payments went up in the future, they would be making more money and their homes would be more valuable. Many of those people are now experiencing foreclosure and losing their homes. Now, our schools want to take us all down this same road or financial uncertainty and gambling on the future.
I commend LTHS for being honest about issuing debt that is back loaded and manipulating their way around their borrowing limit. But, telling someone that you are planning to rob them before grabbing their wallet does not make you any less of a thief.
The basis of how schools borrow more than they asked for at referendum is that instead of issuing $100 million of bonds at 5% interest and getting $100 million to spend; they issue $100 million of bonds at 8% interest and get $120 million to spend. The extra $20 million is called a bonus by the company that purchases the bonds. This is not some nice gift or really even a bonus. From the buyers perspective $100 million at 8% is the same at $120 million at 5%. They are just inflating the interest rate and then paying more than the face value of the bonds. To the buyers it is just semantics. But, to the school, the difference is that they have borrowing limits imposed by state law. These bonuses do not count towards their borrowing limits. This seems highly dishonest to me.
Beyond being dishonest though, it is financially irresponsible. The borrowing limit is in place because the State of Illinois does not want local governments to be able to borrow away all the property of their citizens. When a school, city, or county borrows money, it is your property that is the collateral. The bond owner may not be able to come and take your house, but they can force the taxing body to raise taxes to pay the debt; and if you cannot pay those taxes your home can be taken by the government. A school district that issues bonds with bonuses attached is being irresponsible with the finances of its citizens. Any government that would do this is irresponsible, however so far this type of financing scheme has been limited to schools.
LTHS has publicly stated that they will be issuing bonds with bonuses if the referendum passes and they have stated that they are doing so with the purpose of getting around their borrowing limit. They also have stated that the bonds will be back loaded so that most of the cost are postponed and payments get larger in future years. Their reasoning for this is that in the future there will be more taxpayers and property values will have gone up, thereby increasing their tax revenues. This sounds a lot like the logic used by people a couple years ago when they bought homes using interest only loans. They figured that by the time the payments went up in the future, they would be making more money and their homes would be more valuable. Many of those people are now experiencing foreclosure and losing their homes. Now, our schools want to take us all down this same road or financial uncertainty and gambling on the future.
I commend LTHS for being honest about issuing debt that is back loaded and manipulating their way around their borrowing limit. But, telling someone that you are planning to rob them before grabbing their wallet does not make you any less of a thief.
Wednesday, March 28, 2007
Joliet Herald-News hides the news
Besides offering limited coverage of what is going on in our local governments, the Herald-News refuses to provide honest, unbiased coverage. In addition, they reward reporters for hiding the news, by promoting them.
In January of 2006, I read a series of articles in a different Illinois newspaper about how schools were issuing more in bonds than had been authorized by the voters. I then contacted the Plainfield School District with regards to their $252 million referendum at that time, the structure of the bonds they were issuing, and if they were considering utilizing the loophole to issue more than what they were asking for in the referendum. I then e-mailed Andrea Hein at the Herald-News with copies of the original articles and the information that I was able to get from the Plainfield School District.
Andrea, thanked me, said she was already working on a similar story, and would get back to me shortly. She never wrote the "similar" story she was working on and never got back to me. I guess she and Herald-News did not think the potential of millions of taxpayer dollars being spent beyond what the public had voted on was not a big deal. It is more important to keep the politicians happy. The Herald-News rewarded her lack of concern for her job by promoting her from covering Lockport & Crest Hill to covering Joliet.
In January of 2006, I read a series of articles in a different Illinois newspaper about how schools were issuing more in bonds than had been authorized by the voters. I then contacted the Plainfield School District with regards to their $252 million referendum at that time, the structure of the bonds they were issuing, and if they were considering utilizing the loophole to issue more than what they were asking for in the referendum. I then e-mailed Andrea Hein at the Herald-News with copies of the original articles and the information that I was able to get from the Plainfield School District.
Andrea, thanked me, said she was already working on a similar story, and would get back to me shortly. She never wrote the "similar" story she was working on and never got back to me. I guess she and Herald-News did not think the potential of millions of taxpayer dollars being spent beyond what the public had voted on was not a big deal. It is more important to keep the politicians happy. The Herald-News rewarded her lack of concern for her job by promoting her from covering Lockport & Crest Hill to covering Joliet.
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