Advertisement
The Federal Government’s general operating fund has run up a $5.6 trillion debt (U.S. Treasury bonds, bills, and notes). The annual interest cost is now $370 billion. This means that around 25% of one’s federal personal income tax goes to interest. At the same time, interest income to the lenders (bond holders) is tax-free at the state and local levels. (The above figures were obtained from the Budget of the United State Government). As a result of state-wide debt-financing issues passed by voters, Ohio may now sell up to $1 billion in bonds to finance buildings, green projects, etc. While the current level of indebtedness is about 80% of $1 billion, it is expected to reach $1 billion within a few years. Assuming 5% bonds, the annual interest cost, will then be about $52 million. This interest income to the lenders will be tax-free at the federal, state, and local levels. (The above figures were obtained with the help of Ohio Office of Budget and Management, Kirk Koffman, 466-0691).
The City of Columbus, with voter approval, has incurred a debt of $1.875 billion, as of December 31, 2000. The projected annual interest burden for 2001 is about $91 million. Interest income to the lenders is tax-free at the federal and state levels. (The above figures were obtained from an Auditor report, City of Columbus, Ohio, General Purpose Financial Statements..., December 31, 2000, Julie Burkart, 645-7615.)
The Columbus City School District, with voter approval in 1988, has issued $92 million in bonds as part of a building repair program. When the bonds are all paid off in 2012, the interest cost will total $80 million. This interest income to the lenders has been tax-free at the federal, state, and local levels. (The above figures were obtained via public records obtained from Jerry Buccilla, Treasurer of the Columbus City Schools. He may be reached at 365-6400.)
Here is one example of how the debt-finance scheme works.
Columbus City Schools
For years, Columbus School Board members have avoided a continuing effort to upgrade their physical plant. They have waited until there is a large backlog of needed improvements. Now, recent news reports have been saying that the School Board is planning a major spending program of around one billion dollars to replace some of its older school buildings and make modernization repairs to other buildings. If history is any guide, the School Board members will soon be asking citizens to vote on a capital improvement tax levy to pay for 20-year bonds.
Board members will be claiming that debt financing (20 or 30 year bonds) is the only way to get the buildings up to snuff soon in order to avoid “harming the children.” Because most voters don’t want to “harm the children,” the tax levy to support debt financing will likely pass. The investors, those who backed the school board members in their election campaigns, then buy the low-risk bonds and walk away with millions of dollars in tax-free interest earning. Later, the taxpayers will find that debt financing about doubled the cost of the needed capital improvements.
If the Columbus School Board members do decide to use debt financing (selling bonds), and if the actual cost of replacing and repairing the school buildings is about $500 million, the overall cost of the building/repair program may well run $435 million. That is, the capital improvements would cost $500 million while another $435 million would be wasted on interest payments. The $435 million interest cost was estimated by using the same debt-to-interest ratio (92/80) that was experienced by the 1988 capital improvement project.
One purpose of this article is to urge readers to contact Columbus School Board members and ask them pay for future building improvement programs with a pay-as-you-go funding method, not the debt-financing method.
Bill Buckel has been a candidate for Columbus School Board several times over.