Will Credit Crisis Affect Wichita School Bond Issue?

In Toledo, Ohio, there’s a school bond issue on the ballot this year. My friend Maggie Thurber wonders Does ‘credit crisis’ bode ill for arena and school bond issues?

No one has any idea of what the market for loanable funds — the credit markets — will look like for the next few years. If the Wichita school bond issue passes, the district may be trying to sell bonds into a very unfavorable market for the taxpayers who have to pay off these bonds.

There is no guarantee as to how much property taxes will have to be raised to pay for the bonds. The estimate the district uses — and it is just that, an estimate — is based on being able to sell bonds with in interest rate of 4.75%. The interest payment on these bonds, because they are for a long term, is very sensitive to the interest rate.

1 Comment

  • Good point Bob. I know they would never get my capital for the long-term at a 4.75% interest rate. An investor considering a bond needs it to pay more than the rate of inflation or else the capital will be eroded. The rate of inflation in this country is not the 2-3% the fedguv would have us believe it is based on the CPI fraud.

    Inflation is defined as an increase in the money supply. With the Fed/Treasury running the printing presses in hyperdrive (630B added this week not counting any “Bailout Bill”) one should expect massive increases in prices in the coming years.

    Maybe there are some that will buy long-term bonds at 4.75% in this environment, but I certainly won’t be among them.

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