News from Patrick Flynn

Bond holiday?

A recent discussion by the Anchorage School Board as to whether they should seek to place school bond proposals on the ballot in April’s election, coupled with economic uncertainty and dysfunctional financial markets, got me thinking about whether the Assembly should put any bonds on the ballot this spring.  Instead, perhaps, we should take a “bond holiday” with no bonds proposed this year.

When discussing local bonds it’s important to recall how we pay for them.  In the case of school bonds, the state legislature has traditionally provided funding to pay between 60 and 70 percent of the debt service with property taxes covering the rest.  Because of a constitutional provision that one year’s legislature can’t bind the next there is a risk, albeit very small, that we could pass a school bond and have pay the entire bill with property taxes.  Also, school bonds require approval by both the school board and the Assembly prior to going on the ballot.

For road and parks bonds we fund the debt service with property taxes, but only if the property resides in the service area.  For example, Anchorage bowl property owners don’t pay for Eagle River parks bonds and vice versa.  And there are plenty of Limited Road Service Areas that aren’t on the hook for road bonds but instead tax themselves to pay for road maintenance in their neighborhoods.  Finally, in all cases voter-approved bond payments are outside the tax cap, which otherwise limits how much revenue the municipality can raise in property taxes.

I’ve discussed this idea with a few colleagues and some others and there are good reasons both for and against a bond holiday.  I offered some of the reasons for a holiday in my opening paragraph while some reasons for bonds include maintaining economic activity in Anchorage, meeting very real community needs, reassuring state & federal budget writers that we’re willing to invest in our community, and letting voters decide what they want to pay for.  (After all, just because the Assembly puts a bond on the ballot doesn’t mean it will pass!)  But given the amount of money in last year’s state capital budget, the potential projects in a federal stimulus package and other economic activity it might make sense to keep our bond money out of the market lest it have to compete with those other projects and result in higher costs.

I’m still checking to find out how much debt ASD and MOA expect to retire this year, so I’m not sure how much property taxes could drop if the bond holiday went forward.  Still, it’s an interesting discussion and I intend to talk it over with more folks in the coming weeks.  I’d love to hear your thoughts, and please participate in my poll on this issue!





This contribution was made on Thursday, 08. January 2009 at 00:30 and was published under the category Fiscal matters. You can follow comments on this entry through the RSS-Feed.

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  1. It seems that every time I go to the ballot box I find a lot of bonds on the ballot. A couple years ago I adopted the belief that I am not going to vote for another bond. The only bonds I consider voting for are the road bonds. It seems these roads are rough on my tires. I’ve lost two.
    I’ll never forget the family discussion after I voted “no” for the Sand Lake school bond. The first time it was voted down by the voters. The second time it was approved. My brother is the principal of the school.
    Yes, I am the one who votes no for the Fire Department bonds! My brother is a firefighter! That was another interesting family discussion.

    I am not a big advocate of park bonds!

    I would vote for a road bond or a school bond before I would ever vote for a park bond. My boss thinks I am crazy!

    I feel a bit “bah humbug” as I write this.

    I don’t like going to the ballot box and finding all of the bond requests!

    Honestly, I am ready for a “bond holiday”. At the very least, approve those bonds that are most important. I know, that might be easier said than done.

    Good luck with your decision!

    Comment: Jillanne – 08. January 2009 @ 8:22 pm

  2. If your basement is flooding, would you stand by as all of your possessions are damaged while you wait until the economy got better to fix it? It seems like most of the projects that go out for bond approval are not frivalous projects. If we don’t pay to fix and maintain our infrastructure now, we will probably end up paying more in the future (both in economic costs and also in social costs of using sub-par infrastructure). With that said, I think all parties submitting bonds should be respectful of taxpayers concerns and remove non-urgent projects.

    I heard that during the state spending freeze in California, a lot of colleges and agencies that were expecting money from the government had to take out high interest loans to cover costs until the legislature agreed on the budget. That is not a sustainable process. I’d hate to see Anchorage government get to that level.

    Comment: Clare – 09. January 2009 @ 1:43 pm

  3. I agree with Clare (comment #2 above). Further, if the community wants to take a “bond holiday” on any given issue, won’t they will have the opportunity to do so in the voting booth?

    Comment: Gary – 09. January 2009 @ 3:48 pm

  4. I am in favor of having a bond issue. However, I would prefer that improvements to roads and streets be financed with a gasoline tax in lieu of tax on real estate. Improvements on roads and streets are more relevant to vehicle use and therefore gasoline taxes than a tax on a home.

    If there are other bond issues besides roads, why not finance it with a sales tax? That would be my preference. Elderly people can be taxed out of their home, and end up living in a nursing home with the help of medicade. If real estate taxes are waived on the full value of homes for all people above age 70 (not just the $150,000 exemption at age 65) we may end up with fewer elderly needing to sell their home, and they may be able to live in their own home longer, without help from medicade. Just another thought to consider.

    Comment: C. John Eng – 09. January 2009 @ 3:50 pm

  5. A bond holiday lasting three years would be great! ASD is spending a record $14,750 per student yet can’t maintain their buildings on that amount? Look at private schools in Anchorage and you can see them turning out far higher graduation rates and academic scores at less than half the costs. Funny that you never see them with their hands out to the public for money “for the children”.
    Yet, at nearly every election ASD is asking for even more money to fix broken/leaking/drafty schools but very few people bother to look at these ‘broken down’ schools; they aren’t. Instead these buildings are purposely neglected and the maintenance money is spent on marketing the idea to the public that they need new buildings.
    Check on the ASD website and you will find that they are asking for a 15% increase in their budget despite decreasing student enrollment and employment (wish I could get a 15% raise, heck a 3% would be wonderful).
    The Municipality (i.e. Mark Begich) has gone on a spending spree and has run the property taxes to the limits of the tax cap. For the citizens of Anchorage, the ‘average’ homeowner is paying close to $400 per month with $250 per month siphoned off to ASD. I don’t know about others, but I sure could use that money in my pocket to pay the increased fuel, electricity and food costs that have occurred over the past two years.
    Yup – I put both of my hands up for the bond holiday, or is it I put both hands up because this is another bond ‘stick-up’?

    Comment: John W – 09. January 2009 @ 4:10 pm

  6. ASD has close to 100 schools. Built to last 50 yrs. That means, renewing about 2 per yr. Debt service [for repayment of bonds – the maint & renewal budget] runs 10-13% of the total ASD budget. This is a humble figure and has been tightly managed over the yrs. There is a 10 yr. capital improvement plan and a citizen advisory committee to prioritize needs. This is a model program, managing a publically owned asset with a historical cost of $1.5 B.

    Since 1993 the State legislature has paid 100% of the bond reimbursement it has promised us. They have paid for 60 -70% of our facility renewals. ASD bonds on the April ballot will be eligible once again. This is a screaming deal when you compare it to other muni’s around the country. Anchorage taxpayers have argueably the lowest cumulative tax burden of any city in the country. And per capita municipal debt is about the lowest of any city too!

    This yr. ASD will retire about $48M in bond debt and the legislature would pay it’s 60%[if we vote for a bond]. So tax increases from school bonds aren’t that significant.

    School facility bonds are a long term investment in the development of human resources. The american K-12 educational model was one of the big drivers in our worldwide economic successes of the last century. Unfortunately, our investment dropped off steeply since 1970. If it is a place in the global economy we want for Anchorage, k-12 education is key.

    ASD student demographics are diverse. These kids are our future.The learning styles of these many cultures need flexible space to accommodate appropriate programs. School renewal projects reevaluate educational goals and have given us some world class award winning schools in recent yrs.

    If there is any doubt that student achievement and facility renewal & design go hand in hand, one only has to look to the mono-cultures of Scandanavia and Asia – those countries in the top ten spots in world- wide educational achievement. [ The USA is #12.]They have adapted their edu facilites to mirror the dominant learning styles. With over 60 languages spoken in Anchorage schools, our task is a little more complex.

    We need educational spaces where children want to spend their days and teachers want to work! The ASD Capital Improvement Plan is a long term tool that is in equilibrium. It has been responsive to voters, sensitive to geographic equity issues and takes its responsibility of public trust very seriously. Renewing the common areas of Service High School, the bulk of the proposed 09 school bond falls within these parameters.

    Comment: Lou – 10. January 2009 @ 3:20 am

  7. Patrick,
    Cutting back bond spending in tough times will help push the local ecomony into the tank that the rest of the country is feeling already. Often times we are insulated from bad times in other parts of the country. That is no the case this time around. Road and school construction help produce jobs. Jobs that pay taxes. The amount of bond debt retired this fiscal year should be sent back out for new projects to keep the economy steady. It is the first year in well over a decade that Anchorage is forcasted for no growth or a possible decline. Don’t make the mistake of pulling out more growth by reducing spending. Hopefully 2009 will be better than expected and 2010 will bring some hope of a gas line project.

    Comment: jeff – 10. January 2009 @ 8:03 am

  8. Patrick
    I strongly agree with Jeff’s comments. I am concerned that the lack of bond sales puts our economy in a similar situation as the lower 48. I beleive we have been smarter at managing our resources and as a result in a better position to the weather tough economic times. Of course because we are much more reliant on oil revenue is another reason we have been left somewhat unscathed. No I have not forgotten the mid eighties crisis, but I believe our state is a little more diversified than if was then. My hope is that we continue in that vain.
    I look forward to the public debate and bonds on the ballot.

    Comment: Barbara – 12. January 2009 @ 9:19 am

  9. Since when was the government made the solution for employment and the saviour for the economy? Taking more and more money from the taxpayers leaves less and less money for those very same taxpayers to spend in that very same economy. The sure way to further plunge the Anchorage economy into a deeper recession is to keep taking more and more of what little is left. As far as I know, there are no restrictions to those in favor of bonds to give every cent they have to the city to (inefficiently) spend on projects. But don’t keep taking every cent I earn.

    Comment: Jerry A – 12. January 2009 @ 2:11 pm

  10. Economically speaking, the bond holiday is a bad idea for two reasons.

    1. Given that the construction industry relies on bonds and other spending, cutting off bonds would cause layoffs in the construction industry. That would have a negative ripple effect to other sectors of the economy.

    2. Because the private sector is now more concerned about financial risk, there is increased reluctance to begin private construction projects. That means the construction industry is already pinched. Therefore, at this particular time, construction costs are going down, as contractors are bidding more aggressively because there are fewer projects to go after. This would be the ideal time for government to build, knowing they would get the lowest possible bids.

    Comment: Scott G – 12. January 2009 @ 5:06 pm

  11. I tend to agree with a lot of the comments.

    Comment: Jillanne – 12. January 2009 @ 8:58 pm

  12. Now is not the time to deactivate the process, we need to be proactive. There have been many points made in this comments section, particularly the negative impacts that I believe we will see by taking this so called “bond holiday”. Anchorage goes as goes the construction market. I agree with Clare. We need to maintain the infrastructue, neglecting these areas for over a year will only cost us in the future.

    Comment: dan k – 14. January 2009 @ 1:13 pm

  13. Anchorage is not insulated from the lower 48. We may not be impacted immediately but the fall in the stock market, the economic slump in the U.S. and the world WILL impact Alaska. Our property values this last year have not followed the trend of the previous 10. People are losing jobs. House sales have slumped. Contractors are not building as many houses because there are more houses on the market and they cannot sell what they build. Mortgage foreclosures are up. If anyone is willing to do a little research it is obvious that things are changing here also.

    We need some tax relief and if it comes in a bond holiday that would be great! Property taxes have soared 55% in just 5 years. That is outrageous. It is a fact that a society cannot tax itself into prosperity. We need people in public office that can make the tough choices and invest our money in infrastructure wisely. We do not need expensive ornamental structures, pretty shrubs for moose to eat, and other frivolous items that do not improve safety and are not instrumental in the functionality of the road. We have an economic storm on the horizon and we can prepare for it or we can continue taxing our citizens at higher and higher rates until we hit the tipping point to financial ruin.

    There are people on fixed incomes that expected their fixed rate loan mortgage payments to be constant with little to no change . Many did not expect taxes to escalate at such a high rate further driving their payments higher to cover their escrow. This will increase foreclosure rates.

    Yes, there is some flooding along some of the creeks. No matter how much money you throw at infrastructure it is difficult to change the weather or protect people that chose to buy or build in flood plains along creeks. Some of those areas should have been designated as green belt and should not have been used for houses.

    Maybe a lot of people have extra money in their budgets to pay more taxes. Most of us do not. Anyone that does have a lot of extra money and would like to pay more can always donate money to the city.

    Comment: Kevin – 17. January 2009 @ 8:57 am

  14. Bonds are one of the few responsibilities assumed by citizens in our state. Our PFD mostly covers our property taxes, few pay sales taxes, we have no income taxes and the lowest gas taxes in the country. Invest in our schools, parks & public facilities. Maintain roads & trails with increased gas & license fees, but DON’T build any new roads

    Comment: hf – 21. January 2009 @ 11:21 am

  15. In the same way former Senator Obama described Senator McCain’s proposed “spending freeze:” A bond holiday is a hatchet when we need to use a scalpel.

    Like all public services, funding for things like education and parks and rec programs have the biggest return on investment of municipal, state, or federal funds. By way of example, funding for after school programs and parks reduces juvenile delinquency and crime and in turn provides significant savings for police and fire.

    2009 is a new opportunity to explore pragmatic policies, and “fiscal conservatism” as an ideology is damaging to public programs, and costs us all more in taxes when existing programs are rendered ineffective due to lack of resources.

    Our advocacy efforts should be this: Fund programs and services that work, phase out those that are no longer effective. Use evidence and outcomes to guide what we fund, not ideology about the role of government.

    Thanks again for listening, Patrick.

    Comment: Michael Howard – 22. January 2009 @ 12:05 pm

  16. I am in favor of a 1 year moratorium for all bonds. With the current muni deficit and the problems in the lower 48 I think we need a “time out” on taking on new debt. Let a year of bond payoffs drop off the books. At that time we can examine what we want to prioritize.

    Comment: Paul Jendryk – 25. January 2009 @ 3:16 pm

  17. After state reimbursement, [house bill 373 – passed last session] this yrs school bonds; $69.8M mostly for Service HS and $27M for system wide major maint. will end up costing taxpayers $10.63 per $100,000 of assessed value. What’s that for the average $350,000 house??? Well, compared w/ the other increases I’ve experienced, it’s not that much. And at least it’s an investment that will pay off in the long run.

    Comment: lou – 29. January 2009 @ 10:25 am

  18. […] Comeau’s suggestion to not offer any bonds this spring.  That suggests my idea of a bond holiday took root somewhere, if not at the municipal level.  With no school bonds slated for the ballot […]

    Pingback: Patrick Flynn's Blog » More on bonds | An Assembly member's take on Anchorage issues – 21. January 2010 @ 3:22 am

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