Following is from a post I made a year ago:
Measure T, on the other hand is going to get some attention now. Because the Measure T bonds are near their 10 year anniversary of issue date, Piper Jaffray is recommending a refinance and the board is interested. PJ told the board they may be able to save the tax payers $400,000 over the final 13 years of the bonds’ term. PJ also told the district the transaction costs would be about $150,000. This means if the district pays PJ and others $150k, each tax payer may save between 40 cents and 80 cents per $100k property value. I could save almost $2 annually for the next 13 years, $26 total…woohoo!
The school board will probably tell you they aren’t paying the $150k in fees since the fees will be financed in the new debt agreement. You ever heard this before when someone is trying to sell you on a refi? I have. The bottom line is the borrower eventually pays it with interest. Who does this really benefit? Piper Jaffray.
At the Beaumont Unified School Board meeting following the above post, the bond interest rates had increased and the board decided to put the issue on hold. At the March 11, 2014 board meeting this issue resurfaced. This year the numbers have changed and Piper Jaffray is advising the school board to re-consider refinancing the bonds. But, in my opinion, the numbers don't add up.
With the current bond market PJ now says they will save the tax payers $500,000 $60,000 per year (across all the properties in the district). This is %25 increase over last year's proposal. but the estimated individual tax payer's savings according to PJ has increased to $1.70 per $100k of property value.
I have a degree in economics, a Masters in Business Administration, five years (3 years in management) experience in residential real estate lending and three years as a licensed securities sales representative yet this is still a little confusing for me. If I mess this up I hope someone will correct me, I'm sure someone will. Please accept my apologies for how wonky I get over finance, it's a curse.
I recently refinanced my home and can confirm that property values have increased over last year. Quoting a savings based on tax savings per $100k in this scenario I believe is confusing the issue and I alert the board members to really look at the numbers, please.
Here is a hypothetical example based on an increased home value for a home similar to mine but the increase does not reflect actual home price increase in Beaumont, I am rounding to make it easier to follow.
Let's assume my home was worth $200k last year and now it is worth $250.
According to PJ's proposal last year, I would have saved .80 (eighty cents - this is PJ's high estimate) on each $100k. This means I would save $1.60 annually.
If my home's value had remained the same as last year, and now I should save, according to PJ, $1.70 per $100k, $3.40.
This is an increase savings of more than double, actually %112. This is with an an estimated savings for the entire district of only %25 over last year.
Now let's assume PJ was accurately assessing the increased property values and using my estimate of $250,000 for my home's value. The new savings calculated would be $4.25 annually, %165 increase in savings to the taxpayer.
Last year PJ's estimate of transaction costs were $150,000. Now, a year later, with less bonds to refinance (per PJ) the new transaction costs are higher, I believed I heard $170,00 but I can't find it in the district's documentation in their agenda packet. I wonder why the cost for less bonds at a lower interest rate has higher cost? The cynic in me is thinking PJ has an extra year of "consulting" for the district with no revenue. I wonder how much the fees will be if we wait another year.
You might say, and I hope you do, "Lloyd, we are only talking in cents, not hundreds of dollars, what's the big deal." If you did say this, thank you, you are helping me make my point, why are we taking on additional debt to save pennies? The board is considering this because their financial advisor, who, with their bankers and lawyers will make $170,000, is recommending the board take this action. It sure would be nice if our elected officials would hire financial consultants that don't have a financial interest in the actions they recommend.
It would also be nice if we had a local press that would question the numbers and demand the board members question the numbers instead of reporting the financial consultant's data at face value. The Record Gazette reported the story directly from the board meeting and the board members only asked one question.
I know this first presentation was for information only but this week the board will approve or deny this proposal, Hopefully, more questions will be asked...