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    Could a do-gooder bond save Washington's schools?

    Guest Opinion: Why chase after taxes when there's an easy, opt-in option for raising education money right in front of us?
    West Seattle High School

    West Seattle High School Joe Wolf

    Education needs more money. The state Supreme Court has ruled on Washington’s failure to meet the constitutional mandate to adequately fund K-12 education. The state’s higher-education budget was cut in half over the past four years, causing an 80 percent rise in in-state undergraduate tuition and fees at the University of Washington.

    Both gubernatorial candidates propose an additional billion dollars for education — without new taxes. They would find the money, variously, through budgetary savings, closing tax-loopholes, and economic growth, which few see as sufficient and sustainable.

    Not increasing taxes is understandable. Too many people are struggling. Taxing high-income individuals more seems unlikely for other reasons. How then can we find new money without new taxes?

    Much of high income persons’ money would be invested anyway. I therefore call on them to invest some of it in new “Invest-In-Ourselves Bonds” for education. They would earn interest and later recover their money when the bonds mature — unlike “losing” that money permanently when paying taxes or making a donation.

    The proposed bond plan introduces a voluntary method for generating additional money for public schools and colleges when taxing is unviable while there are investible funds around. These bonds would belong in the category of the “Social Choice Bond Fund” recently launched by TIAA-CREF, one of the largest managers of socially responsible assets in the United States. This type of fund consists of bonds that provide money for organizations or projects with positive societal benefits, while earning competitive returns.

    The proposed bonds differ from the levy funds many school districts already seek in five significant respects. First, a school levy obligates all taxpayers in the district to pay a new tax, which may prove difficult for some. In contrast, the bonds would be purchased by those with money to invest.

    Second, the levy funds are used principally for building long-lasting physical capital. The proposed bonds would be for education spending of any type, including education reforms. The rationale is that collectively they would build human capital, which benefits society long-term.

    Third, the proposed bonds would be issued for different maturity dates and denoted for specific expenditure categories for bondholders to choose — building, faculty support, scholarship, information technology, etc. While bondholders have such choices, taxpayers of school levies could not express their preferences although they, too, may prefer one type of expenditure (teacher pay or scholarship) to another (building or a football field). One person’s favorite use may be another person’s idea of waste; taxpayer preferences matter since they influence voting on a school levy.

    Fourth, whereas school districts request levy funds, the state would issue the proposed bonds. Why? For decades economic resources in school districts determine school funding. Thus, economic disparities among districts have brought unequal educational outcomes across the state. If this funding mechanism persists, some of our young, predominantly in poor districts, would unfortunately continue to learn under suboptimal educational conditions.

    When the state issues these bonds, it could begin to equalize spending among school districts to provide more adequate education to all of our young, which I submit is our moral obligation.

    Fifth, unlike a school levy that raises taxes for additional spending, typically in a short few years, the proposed bonds would spread the costs of additional spending over more years. Assume the state issues $1 billion of 20-year bonds at 2.5 percent interest. Paying this off over 20 years would require, on average, approximately $64 million annually because, once repayment starts in the first year, the principal balance of the bonds declines each year to require progressively smaller interest payments.

    Spreading taxes over time would not only reduce each year’s total tax load, it would also lighten taxpayers’ burdens, individually, relative to their higher incomes in a better-performing economy, assuming improved education resulting from both more revenues and more reforms made possible by the bonds.

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    Posted Fri, Oct 5, 3:06 p.m. Inappropriate

    We just passed a special "families and education" levy for Seattle's schools. Now they want more?


    Posted Sun, Oct 7, 7:38 a.m. Inappropriate

    Wow! This is great! You solved the whole problem of where the money will come from except for the small question of where the money will come from.


    Posted Mon, Oct 8, 1:13 p.m. Inappropriate

    While Seattle voters did indeed just pass the latest Families and Education levy, that doesn't do anything for schools in the rest of the state -- although this kind of planning is far enough out of my expertise that I don't pretend to know the ins and outs, state-sponsored bonds might help the legislature fulfill the constitutional mandate to fund K-12 education across Washington.


    Posted Wed, Oct 10, 11:38 p.m. Inappropriate

    Good start...you must have been attuned to the way Ohio State University turned to the same kind of vehicle to gather capital. Back in 2011, Ohio State University sold $500 million worth of 100-year bonds becoming the first public university to issue a so-called "century" bond. The transaction, increased from a planned $300 million sale, was reminiscent of a $750 million century bond offering brought by Massachusetts Institute of Technology in May 2011 and a $300 million century deal from the University of Southern California in August 2011. The general-receipts bonds, which were taxable and rated "Aa1" by Moody's Investors Service and "AA" by Standard & Poor's Ratings Services and Fitch Ratings, bear interest at a nominal rate of 4.8%—priced at a slight discount to par to yield 4.849%, according to a person familiar with the sale. That was, at the time, equivalent to 1.70 percentage points over 30-year Treasury rates. The debt can be bought back by the university at any time for a premium of 0.35 percentage point over 30-year Treasurys. Some 80 investors bought into the deal, he said, including pension funds and insurance companies.

    The amount borrowed was $200 million more than originally advertised because of the overwhelming demand, the university CFO said. “In 10 minutes, we had over a billion (dollars) in orders. Orders topped out at about $1.65 billion, “which is amazing.” said the CFO. General receipts bonds (GRBs) are secured by all unencumbered revenues of the main campus.

    In a no new taxes climate this ain't a bad idea. What are our state's unencumbered revenues? That's the next question.

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