A Disaster Waiting To Happen -- Public Borrowing Without Limits; Menard's Wisconsin Workers Fly to Minot

Updates

December 9, 2012: School District Owes $1 Billion On $100 Million Loan

More than 200 school districts across California are taking a second look at the high price of the debt they've taken on using risky financial arrangements. Collectively, the districts have borrowed billions in loans that defer payments for years — leaving many districts owing far more than they borrowed.

In 2010, officials at the West Contra Costa School District, just east of San Francisco, were in a bind. The district needed $2.5 million to help secure a federally subsidized $25 million loan to build a badly needed elementary school.

Those bonds, known as CABs, are unlike typical bonds, where a school district is required to make immediate and regular payments. Instead, CABs allow districts to defer payments well into the future — by which time lots of interest has accrued.
In the West Contra Costa Schools' case, that $2.5 million bond will cost the district a whopping $34 million to repay.

November 29, 2012: it turns out that Wisconsin schools don't have the only recipe for disasters when it comes to borrowing. From today's LA Times:

Two hundred school districts across California have borrowed billions of dollars using a costly and risky form of financing that has saddled them with staggering debt, according to a Times analysis.

Schools and community colleges have turned increasingly to so-called capital appreciation bonds in the economic downturn, which depressed property values and made it harder for districts to raise money for new classrooms, auditoriums and sports facilities.

Unlike conventional shorter-term bonds that require payments to begin immediately, this type of borrowing lets districts postpone the start of payments for decades. Some districts are gambling the economic picture will improve in the decades ahead, with local tax collections increasingly enough to repay the notes.

CABs, as the bonds are known, allow schools to borrow large sums without violating state or locally imposed caps on property taxes, at least in the short term. But the lengthy delays in repayment increase interest expenses, in some cases to as much as 10 or 20 times the amount borrowed.

Put another log on the fire.

Original Post

Oh, I'm sure there are limits, but they can be raised. When it is other people's money, there really doesn't need to be a limit, does there?

A reader was nice enough to send me this little gem, link to wtaz.com:

Wisconsin schools are taking advantage of a three-year-old state law to catch up on maintenance and become more energy-efficient. According to Gannett newspapers, school districts throughout the state have borrowed $134-and-a-half million on energy projects since 2009, without having to get voters’ approval. The law lets school districts exceed their state revenue limits without referendums, in order to borrow for energy projects.

Last year the law was expanded to let schools spread their payments over a number of years instead of just one. And that spurred a big increase in borrowing – from about $9-million in fiscal 2011 to $93-million this year, with around 30 projects throughout the state each year.

The Racine School District has borrowed the most since the revenue cap exemption was adopted – around $42-million, covering almost half its deferred maintenance. Oshkosh officials said they handled about one-fifth of their maintenance needs with a $21-million project.

RSD may have borrowed the most, so far, but the others will catch up now that they see how easy it is.

Memo to self: file under "Recipes."

"For Disaster."

We'll tag this to follow up in 2030 to see how this worked out.

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This story was carried alongside another Wisconsin story which was a bit more upbeat, link to

In Eau Claire, Menards’ is looking for 50 good employees to help cover a severe shortage of workers at its store in Minot North Dakota. And those people are needed so badly, the Eau Claire Leader-Telegram says Menards plans to fly them to Minot on a private jet to and from their jobs on a weekly basis – and give them lodging and food while they’re there. 

Data points

• booming oil patch --> thousands of retail jobs
• retail workers --> to the oil patch; stores "scrambling" to find workers
• offer: private jet from Eau Claire to Minot; 4 - 5 days/week in Minot; room and board paid; $13/hour pay + overtime, weekend pay.

I particularly like the "private jet" part.

Speaking of which: any update on the Menard's in Williston?