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Parsing the pros and cons of Measure S

School bond carries some risk with interest rates, but officials say it's worth it.

February 15, 2013|By Kelly Corrigan, kelly.corrigan@latimes.com

Expert opinion may be split on the risks associated with the proposed $110-million school bond on the March 5 ballot, but Burbank Unified officials say lessons learned from the last bond in 1997 will ensure taxpayers get more bang for their buck.

Causing some consternation is the fact that school officials are essentially asking voters to approve millions in bonds that will be subject to future interest rates that can't be predicted, leading to fears that the district will get locked into a situation where it's spending far more in interest than what it got in capital.

If 55% of voters approve the Measure S bond on March 5, property owners would be taxed $55 per $100,000 of assessed value through 2038, according to district officials.

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The tax would be $5 more than what property owners pay on the bond voters approved in 1997, which is scheduled to be paid off in 2027.

Although the interest rate will remain unknown until the bonds are sold, district officials estimate that for every dollar they borrow, they will be on the hook for paying back about $2.50.

But Akbar Torbat, an economics professor at Cal State Los Angeles, said the bond is “advantageous to the investment banker and not the taxpayer” because the bond would not carry a flat interest rate.

“The projection is like a guess rather than an accurate figure,” he said.

Glendale Unified officials say they're paying roughly $3.80 for every dollar borrowed under a $270-million bond approved by voters in 2011.

Under the proposed plan, Burbank may issue $44 million in current interest bonds and $66 million in converter bonds.

The appeal of converter bonds is that the district doesn't have to pay interest for seven or 10 years, at which time officials say they'll have the revenue to pay the bill. That's when the bonds “convert” and the district must pay interest twice a year — the same as current interest bonds.

The district could also refinance converter bonds five years after they convert in an effort to secure a lower interest rate.

Despite fears of what those interest rates may end up being, Fadel Lawandy — director of the C. Larry Hoag Center for Real Estate and Finance at Chapman University — said the overall benefit outweighs the cost to Burbank residents.

“It seems reasonable,” he said. “The benefit seems to be the winner on this one.”

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